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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB/A
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
FIX-CORP INTERNATIONAL, INC.
(Name of Small Business Issuer in its charter)
DELAWARE 34-1783774
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
27040 CEDAR ROAD / SUITE 218
BEACHWOOD, OHIO 44122
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (216) 292-3182
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
NONE NONE
Securities to be registered under Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $ 0.001 PER SHARE
(Title of class)
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Fix-Corp International, Inc. (the "Company") is organized under the
laws of the state of Delaware. A predecessor of the Company was initially
incorporated in 1995 under the laws of the state of Utah and under the name
Lifechoice, Inc. In 1995, in connection with the acquisition by the Company
of a company organized by Mark Fixler, the Company's Chief Executive Officer
and President and Chairman of its Board of Directors, the Company changed its
name from Lifechoice, Inc. to Fix-Corp International, Inc., and was
redomociled from being a corporation organized under Utah law to one
organized in Delaware. (See notes 1 and 11 to the Financial Statements.)
The Company's principal business is the manufacturing of recycled
plastic (in particular, high-density polyethylene or "HDPE") resin, through
its wholly-owned subsidiary, Fixcor Industries, Inc. ("Fixcor"), a Delaware
corporation. The Company expects before the end of fiscal year 1997 to
commence the manufacturing of plastic pallets from recycled resin through its
wholly-owned subsidiary, Palletech, Inc. ("Palletech"), a Delaware
corporation.
The Company also markets jewelry products for corporate awards and
gifts and extends financing to small businesses collateralized by purchase
orders. These two businesses constituted substantially all of the businesses
of the Company prior to the end of fiscal year 1996. During the first nine
months of fiscal year 1997, however, revenues from these businesses
constituted less than 10% of the Company's total revenues, with more than 90%
of its revenues generated by the manufacturing of recycled plastic resin.
(See Part I, Item 2, Management's Discussion and Analysis or Plan of
Operations.)
In December, 1996, the Company acquired a recycling plant in Heath,
Ohio, also known as the Heath Resource Recovery Plant (the "Facility"), from
Quantum Chemical Corporation ("Quantum"). In connection with this
acquisition, in December, 1996, the Company formed Fixcor to own and operate
the Facility. On January 8, 1997, the first processing line at the Facility
became operational. During July, 1997, the Company formed Palletech to
manufacture plastic pallets from recycled plastic resin. The Company expects
that it will dedicate significantly less resources to the corporate awards
jewelry marketing and purchase order financing businesses, that the plastic
recycling business will continue to grow, and that the operations of Fixcor
and Palletech will generate a greater percentage and, eventually,
substantially all of the revenue of the Company in fiscal year 1998, such
that the Company is considered primarily to be in the plastic recycling and
recycled products business.
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SPECIAL NOTE--FORWARD-LOOKING STATEMENTS
Certain statements contained in this Registration Statement,
including, without limitation, statements containing the words "believes,"
"anticipates," "expects" and words of similar import, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company, or industry results, to
be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors
include, among others, the following: international, national and local
general economic and market conditions; demographic changes; the size and
growth of the plastic packaging markets for both consumer and industrial
uses; the ability of the Company to sustain, manage or forecast its growth;
the ability of the Company to successfully make and integrate acquisitions;
raw material costs and availability; new product development and
introduction; existing government regulations and changes in, or the failure
to comply with, government regulations; adverse publicity; competition; the
loss of significant customers or suppliers; fluctuations and difficulty in
forecasting operating results; changes in business strategy or development
plans; business disruptions; the ability to attract and retain qualified
personnel; the ability to protect technology; and other factors referenced in
this Registration Statement. Certain of these factors are discussed in more
detail elsewhere in this Registration Statement. Given these uncertainties,
readers of this Registration Statement and investors are cautioned not to
place undue reliance on such forward-looking statements. The Company
disclaims any obligation to update any such factors or to publicly announce
the result of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments.
THE COMPANY
The Company has two wholly-owned subsidiaries, Fixcor and Palletech.
Fixcor owns and operates the Facility, located in the Mid-Ohio Industrial
Park at 1835 James Parkway in Heath, Ohio 43056. Palletech's operations will
also take place at the Facility. The closest major metropolitan area is
Columbus, Ohio, about 30 miles away. Within the plastics industry, the
Company intends to establish itself as a high volume supplier of recycled
HDPE resin. Simultaneously the Company intends to pursue a program of
vertical integration whereby it has the capacity to utilize its own resin
product and fabricate a value-added plastic end product.
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ACQUISITION OF THE FACILITY
In December, 1996, the Company consummated the acquisition of the
Facility pursuant to the Purchase and Sale Agreement (the "Quantum
Agreement"), a copy of which is attached to this Registration Statement. The
Facility was acquired from Quantum, a Virginia corporation with its principal
place of business located in Cincinnati, Ohio. The Facility includes a
stand-alone post-consumer plastic recycling operation involving two parallel
recycling lines inside a 50,000 square foot building on its own plot of
ground with access to an adjoining railroad spur and truck scale, plus
various other support equipment.
In connection with the acquisition of the Facility, the Company
obtained bridge financing from Gordon Brothers Capital Corp., a commercial
lender with its principal place of business located in Boston, Massachusetts.
This bridge financing was in the amount of $2,500,000 and was secured by a
first mortgage on the Facility and a security interest in all inventory,
accounts receivables and contracts with customers. Mr. Fixler also
guaranteed the Company's obligations under the bridge financing agreement.
Upon consummation of the purchase of the Facility and prior to the
securing of permanent financing, the Company entered into a formal
Acquisition Agreement (the "Acquisition Agreement") under which the Company
conveyed the Facility to Fixcor in connection with its original subscription
to all of the shares of common stock of Fixcor. Mr. Fixler was also a party
to this Acquisition Agreement. Before the Company acquired the Facility
under the Quantum Agreement, he had an option to purchase the Facility. He
waived his option to purchase and allowed the Company to make the
acquisition. In addition, he personally guaranteed the bridge financing for
the purchase of the Facility, and the Company issued to him 6,521,740 shares
of common stock of the Company (the "Common Stock"), all of which were
restricted shares.
In May, 1997, Fixcor secured financing for the Facility from
NationsCredit Commercial Corporation. This consisted of revolving loans up
to $7,000,000 for inventory and account receivable financing, permanent
financing, and equipment acquisition. This financing included a mortgage
security agreement which encumbered substantially all of the assets of the
Facility. Mr. Fixler is the guarantor of this facility in an amount up to
$750,000 plus expenses.
OPERATIONS AT THE FACILITY
The Facility produces post-consumer high density polyethylene (HDPE)
plastic resin pellets. The Facility has three recycling lines which are
capable of producing approximately 66,000,000 to 72,000,000 pounds of
post-consumer plastic resin per year. The Company expects that the average
selling price of this resin can be maintained at the current level of
approximately $0.35 per pound, resulting in annual gross sales of
approximately $23,000,000 to $25,200,000 per year with all three processing
lines operating.
The manufacturing process is substantially automated and runs around
the clock, permitting Fixcor to utilize three shifts. Fixcor's current
production (i.e., output that it
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expects to produce through approximately the end of fiscal year 1997) is sold
out. With the third line operating as of October, 1997, Fixcor expects its
capacity to come closer to meeting the demand for the HDPE resin. The
Company believes that it can sell all of the resin that the Facility can and
will produce in the near future. Company management believes that the
recycling of HDPE is not generally a seasonal business, either with respect
to the supply of raw materials or with respect to customers' demand. The
demand is one that the Company believes is not currently being met. While
Fixcor's business is not concentrated on any one region of the United States,
the Company believes that it may be advantageous in the future to expand by
opening plants in the Western and Southeastern United States to be closer to
suppliers and customers. The Company expects to open a second HDPE recycling
facility during fiscal year 1998, and has ordered equipment for that
facility. Fixcor currently has no sales to foreign customers. Its customers
are generally companies with annual sales revenue of between $50,000,000 and
$250,000,000. In addition, management believes that Fixcor enjoys a
competitive advantage over its competitors due to an advantageous rate for
electric power from Ohio Power. Fixcor owns its own substation that
regulates and supplies its power. The national rate charged to commercial
customers is $0.09 per kilowatt hour. Fixcor pays $0.032 per kilowatt hour
for use at the Facility. This differential translates into a cost of $0.011
per pound of plastic produced. In addition, the Facility has its own waste
water treatment plant. This permits the Facility to recycle 50% to 75% of
the water that it consumes per day and aids in lowering the cost of producing
resin pellets.
The Facility is designed to produce recycled HDPE. HDPE is a
constituent ingredient of many consumer packaging plastic products. The
prices of raw materials are a function of, among other things, the
manufacturing capacity for such raw materials of such consumer products. In
the event of cost increases for raw materials, failure to achieve
corresponding sales price increases in a timely manner, sales price erosion
without a corresponding reduction in raw material costs or failure to
renegotiate favorable raw material supply contracts could have a material
adverse effect on the Company.
Lot numbers are assigned to each incoming shipment for quality
control purposes. As the material for a given lot progresses through the
recycling process, sample material from each lot is tracked and checked a
minimum of five times. The bales are first split apart and thoroughly washed
to remove any contaminants, then sorted and prepared to enter the shredding
process. The shredder turns all of the material into small flakes, which
are then washed again in hot water. Once the flakes are dried, they are
fed into the extruder, which converts the plastic flakes into a liquid and
then squeezes the liquid plastic out through narrow openings under pressure.
The extrusion process involves technology in the public domain and does not
involve any technology that is licensed. This is the process which brings
recycled plastic to its finished form, namely a small plastic pellet called a
"resin." To assure quality, samples of these resin pellets are tested for
every 1,000 pounds of raw material produced and a sample is retained of each
lot.
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PALLETECH, INC.
Palletech is a recently formed subsidiary which will specialize in
the production of plastic pallets. Palletech is ordering a specialized,
state-of-the-art injection molding machine which will transform resin pellets
into plastic pallets. This will enable the Company to be less dependent on
commodity pricing and instead achieve pricing which reflects the value added
properties of a finished good. The pallets will be produced from recycled
plastic resin produced by Fixcor at the Facility. The Company believes that
the engineering work is complete and that the product is ready to go into
production. The Company believes that plastic possesses numerous advantages
over wood, the material currently used for pallets: plastic is extremely
durable, has historically been less expensive, possesses greater strength,
will serve for a much longer term of service and, when its life is finally
over, can itself be recycled.
In July, 1997, the Company, Fixcor and Palletech, as borrowers,
secured financing from Gordon Brothers Capital Corp., in the form of a
$3,500,000 line of credit, intended to finance the acquisition of equipment
for use in the operations of Palletech. Like the facility from NationsCredit
Commercial Corporation, this facility is secured by substantially all of the
assets of the Company and its subsidiaries. The two lenders have entered
into an Intercreditor Agreement with respect to their respective security
interests. Mr. Fixler is the guarantor of this line of credit in an amount
up to $1,000,000.
LEVERAGE
As discussed above, the Company is significantly leveraged. It has
entered into security agreements with two lenders which substantially
encumber all of the Company's assets. The Company's future operating
performance and ability to service or refinance its indebtedness will be
subject to future economic conditions and to financial, business and other
factors, many of which are beyond its control, and consequently the Company
may be unable to service all of its debt in the future. There can be no
assurance that the Company's future operating performance will be sufficient
to service such indebtedness or that the Company will be able to refinance
its indebtedness in whole or in part.
The degree to which the Company is leveraged can have significant
effects on the Company, including the following: (i) the Company's ability to
obtain additional financing in the future for working capital, capital
expenditures, acquisitions, general corporate purposes or other purposes may
be limited; (ii) a substantial portion of the Company's cash flow from
operations will be dedicated to the payment of the principal of and interest
on its existing indebtedness, thereby reducing funds available for
operations; (iii) the agreements governing the Company's indebtedness and
convertible debentures contain certain restrictive covenants. The Company's
ability to make scheduled payments of the principal of, or interest on, or to
refinance, its indebtedness will depend on its future operating performance
and cash flow, which are subject to prevailing economic conditions, primarily
interest rate levels and financial, competitive, business and other factors,
many of which are beyond its control.
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CUSTOMERS
Fixcor ships the resin it produces to its customers by rail and
truck. The resin is used by Fixcor's customers for manufacturing plastic
pipe and for containers for household cleaners such as laundry detergent and
bleach (but not for containers of items for human consumption). Generally,
in manufacturing the plastic containers from the resin, customers mix the
resin with other materials, but do not do so in the manufacturing of plastic
pipe.
Fixcor's accounts payable, as well as its accounts receivable, are
generally due within 35 days of invoice. The Company believes that this is
consistent with industry practice. Fixcor's operations and budget account
for the delay between paying for the raw materials and being paid for the
resin produced. Again, the Company believes that this is consistent with
industry practice.
No customer of Fixcor purchases 30% or more of Fixcor's production.
The one customer that approaches purchasing 30% of the production is H.
Muehlstein & Co., to whom Fixcor sells resin for further distribution. No
other customer purchases more than 10% of Fixcor's production. The Company
believes that Palletech's operations will be commenced before the end of
fiscal year 1997 and will be fully operational during the first quarter of
fiscal year 1998. At that time, the Company expects Palletech to use
approximately 25% of Fixcor's output.
Management expects that the customers of Palletech will be
closed-loop warehouses and distribution centers, such as large retailers who
are directly involved in much of the manufacturing, warehousing and retail
distribution of their products. Palletech has not yet entered into agreements
for the sale of its products. The Company expects to ship Palletech's
products through traditional rail and truck channels.
RAW MATERIALS
Polyethylene constitutes the principal raw material used in the
recycling of plastic processed by the Company's subsidiaries. This raw
material must be sorted and baled before it can be utilized. Generally,
there has been no problem obtaining sorted and baled HDPE raw materials,
which are available from a wide variety of suppliers, including but not
limited to major waste haulers and landfills. Costs for these raw materials
used by Fixcor tend to fluctuate with various economic factors which
generally affect the Company and its competitors. The availability of raw
materials was adequate in 1996 and 1997 and management expects it to remain
adequate throughout the remainder of 1997 and 1998. The Company believes
that there is adequate inventory of raw materials to meet Fixcor's production
requirements, and that its practices are consistent with industry norms.
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PATENTS, TRADEMARKS AND LICENSES
Palletech has entered into a Licensing and Marketing Agreement with
Nitro Plastics Technologies of Israel, a copy of which is attached to this
Registration Statement. Under that agreement, Palletech is the sub-licensee
of certain proprietary injection molding technology for the manufacturing of
plastic pallets and other products from recycled plastic. The Company
believes that otherwise it and its subsidiaries have all rights necessary to
carry on their operations. In particular, in connection with the acquisition
of the Facility from Quantum, the Company purchased equipment and other
tangible assets that it believes are necessary for Fixcor's operations. The
Company is not the holder of any letters patent, trademark or copyright
registrations, and has not applied for any of the foregoing.
CALIFORNIA GRANT AND ALLIED SIGNAL AGREEMENT
In June, 1997, the Company was awarded a $256,868 research grant
from the Integrated Waste Management Board of the State of California to
develop a solution to the problems associated with non-recyclable HDPE motor
oil containers, which have historically been sent to landfills. The solution
will involve the separation of the remaining oil from the "empty" container,
and then the recycling of the HDPE container and the separate recycling of
the remaining oil. To do this, in September, 1997, Fixcor entered into a
license agreement with The Federal Manufacturing & Technologies business unit
of AlliedSignal Inc. ("AlliedSignal") under which AlliedSignal licenses to
Fixcor certain technology and Fixcor pays a license fee and ongoing royalties
based principally on sales of products sold arising out of use of the
licensed technology. A copy of the license agreement between Fixcor and
AlliedSignal is attached to this Registration Statement.
The Company has not spent significant amounts on research and
development in the past and, except for the grant from the State of
California, does not expect its research and development budget in the future
to be material.
EMPLOYMENT AGREEMENTS
Mr. Fixler has entered into a written employment agreement with the
Company with a term of three years commencing January 1, 1997 and Gary
M. DeLaurentiis has entered into an employment agreement with the Company
with a term of five years commencing January 1, 1997. See Part I,
Item 6, "Executive Compensation." No other employees have written employment
or collective bargaining agreements with the Company or any of its
subsidiaries. A copy of each employment agreement is attached to this
Registration Statement.
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COMPETITION
Fixcor sells a commodity (recycled HDPE plastic) in a commodity
market. As is true with all commodity markets, this market is highly
competitive, although Fixcor has experienced no difficulty in running at full
capacity and selling its full production. Nevertheless, many of its
competitors are considerably larger than the Company and have substantially
greater financial and other resources than the Company, while others are
significantly smaller with lower fixed costs and greater operating
flexibility. The Company has approximately 15 competitors. With the
addition of Palletech's operations and production of an end product, the
Company expects to be less dependent on the market for the plastic resin that
Fixcor produces.
ENVIRONMENTAL MATTERS AND GOVERNMENT REGULATION
The business operations of the Company and the ownership and
operations of real property by the Company are subject to extensive and
changing federal, state, local and foreign environmental laws and regulations
pertaining to the discharge of materials into the environment, the handling
and disposition of wastes (including solid and hazardous wastes) or otherwise
relating to the protection of the environment. As is the case with
manufacturers in general, if a release of hazardous substances occurs on or
from the Company's properties or any associated offsite disposal location, or
if contamination from prior activities is discovered at any of the Company's
properties, the Company may be held liable. From time to time, the Company
is involved in inquiries relating to compliance with environmental laws,
permits and other environmental matters. In the future, the Company may be
identified as a potentially responsible party and be subject to liability
under applicable law. No assurances can be given that additional
environmental issues will not require future expenditures.
The plastics industry, in general, and the Company also are subject
to existing and potential federal, state, local and foreign legislation
designed to reduce solid wastes by requiring, among other things, plastics to
be degradable in landfills, minimum levels of recycled content, various
recycling requirements, disposal fees and limits on the use of plastic
products. In addition, various consumer and special interest groups have
lobbied from time to time for the implementation of these and other such
similar measures. Although the Company believes that the legislation
promulgated to date and such initiatives to date have not had a material
adverse effect on the Company, there can be no assurance that any such future
legislative or regulatory efforts or future initiatives would not have a
material adverse effect on the Company.
Fixcor's current expenses for compliance with environmental laws and
regulations is approximately $300,000 per year, primarily the cost of water
treatment. Two environmental "Phase I" examinations were done in connection
with the purchase of the Facility and the reports from those examinations did
not reveal any contamination.
Fixcor has made no material capital expenditures, and expects to
make none, for environmental control facilities in connection with the
recently installed third operating line, and Palletech expects to make none
in connection with its operations, at the Facility.
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The United States Food and Drug Administration (the "FDA") regulates
the content of direct-contact food containers and packages, including
containers and packages made from recycled plastics and paper products. The
FDA currently limits the amount of recycled materials that can be used in
such containers and packages.
EMPLOYEES
As of November 10, 1997, the Company and its subsidiaries had a
total of 75 employees, all of whom were full-time employees. Of these,
Fixcor had 65 production personnel and a support staff of five at the
Facility. The Company had another five employees at its headquarters office
in Beachwood. The Company has no collective bargaining agreement with its
employees and no union represents them. There have been no interruptions or
curtailments of operations due to labor disputes and the Company believes
that relations with its and its subsidiaries' employees are good.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
DEVELOPMENT STAGE ACTIVITIES
In December, 1996, the Company formed Fixcor, a wholly-owned
subsidiary. This entity acquired the Facility, a stand-alone post-consumer
plastic recycling operation. The acquisition significantly changed the focus
of the Company from corporate awards jewelry marketing and financing to the
manufacturing of plastic resin.
With this acquisition, the Company's business plan may be divided
into four phases based upon the services performed, the products produced,
and the products and services to be performed and produced.
PHASE 1
This phase of the business plan relates to the source of the
Company's revenues prior to acquisition of the Facility now owned and
operated by Fixcor. The sources of these revenues were corporate awards
jewelry marketing and the extension of financing to small businesses
collateralized by purchase orders.
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PHASE 2
With the acquisition of the Facility in Heath, Ohio, the Company,
through its wholly-owned subsidiary, became the owner and operator of a
stand-alone post-consumer plastic recycling operation. This operation
contains three operating lines. The first became operational January 8,
1997, the second March 4, 1997, and the third October 22, 1997. Since the
acquisition of this Facility, the corporate awards jewelry marketing and the
financing of purchase orders has become an immaterial portion of the revenues
and operations of the Company. Funding of the Facility acquisition was made
by obtaining bridge financing in the amount of $2.5 million from Gordon
Brothers Capital Corp., and the issuance of 6,521,740 restricted common
shares of the Company. The bridge financing was secured by a mortgage on the
Facility, and a security interest in all inventory, accounts receivables and
contracts with customers, and a personal guarantee of Mr. Fixler. On May 14,
1997, the Company replaced this bridge financing with permanent financing
from NationsCredit Commercial Corporation for up to $7,000,000. This
financing consisted of a security agreement on all of Fixcor's assets, and a
credit line based upon a percentage of inventory and accounts receivable.
See Part I, Item 1, "DESCRIPTION OF BUSINESS; THE COMPANY; ACQUISITION OF THE
FACILITY."
PHASE 3
On July 7, 1997, the Company formed another wholly-owned subsidiary,
Palletech. The purpose of this subsidiary is to specialize in the production
of plastic pallets. Palletech, Inc., has ordered a specialized,
state-of-the-art, injection molding machine which will transform resin
pellets, produced by Fixcor, into plastic pallets. Management expects to
install this equipment during December, 1997 and to have it operating at full
capacity by February, 1998. The Company conservatively estimates that
Palletech revenues for 1998 will be $13.0 million.
Bridge financing for this equipment has been secured from Gordon
Brothers Capital Corp. Management is currently reviewing proposals from
financial institutions for the source of financing that will permanently
provide funds for the acquisition of the equipment and working capital. See
Part I, Item 1, "DESCRIPTION OF BUSINESS; THE COMPANY; CALIFORNIA GRANT AND
ALLIEDSIGNAL AGREEMENT."
PHASE 4
During September, 1997, the Company's wholly-owned subsidiary, Fixcor
entered into an agreement with AlliedSignal. Under the licensing agreement,
Fixcor is entitled to utilize technology owned by Allied in the recovery of
oil and plastic from shredded motor oil containers. This process produces two
useable products from a previous waste stream. The Company expects to
commence these operations during fiscal year 1998. The agreement requires
Fixcor to pay royalties to Allied based upon the volume of recycling
performed by Fixcor under these licenses.
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RESULTS OF OPERATIONS--FOR THE YEAR ENDED DECEMBER 31, 1996, AS COMPARED TO
SEPTEMBER 30, 1997
Substantially all revenues for fiscal year 1996 were from corporate
awards jewelry marketing and financing of purchase orders. The Company had no
revenues for this period from the Fixcor or the Palletech operations.
Revenues for the twelve months in fiscal year 1996 from the purchase order
financing were $510,779 versus $191,795 for the nine months ended September
30, 1997, an annualized decrease of approximately 50 percent. The 1997
revenue represents the funds the Company had available for these purposes
before startup of the Fixcor operations. As the year has continued, these
investments have declined due to the Company's emphasis on the operations at
the Fixcor Facility. For the year ended December 31, 1996 revenues from
merchandise sales were $232,824. For the nine months ended September 30,
1997 revenues from these sales were $187,964. On an annualized basis, this
represents a 7.6% percent increase in revenues. This increase is a result of
an increase in staffing and sales efforts in this area.
The revenues of Fixcor through the nine months ended September 30, 1997,
are $5,441,225. As previously noted, these revenues are not reflected in the
1996 net income since operations did not begin until 1997. Cost of goods sold
for these sales was $4,089,419 reflecting a gross profit of 24.8%.
General and administrative expenses for the year ended December 31, 1996,
were $454,632, compared with $1,523,379 for the nine months ended September 30,
1997. The increase reflects the operations of Fixcor for the period in
operation during fiscal year 1997 against the pre-Fixcor-operation year of 1996.
LIQUIDITY AND CAPITAL RESOURCES AS OF SEPTEMBER 30, 1997
The Company's cash balance increased by $2,174,002 to $2,398,541 from
December 31, 1996 to September 30, 1997 and working capital increased by
$4,473,009 to $11,706,800 from December 31, 1996 to September 30, 1997. The
increases are the result of three occurrences. First, funds were generated by
internal operations and formula borrowings on inventories (up to 55%) and
receivables (up to 85%)
The second source of funds was from the issuance of capital stock. During
the nine months ended September 30, 1997, 3,490,986 shares were issued resulting
in additional funds of $4,751,475. These monies were used to acquire additional
equipment and fund working capital needs in Fixcor's operations.
Management believes that the present cash balances and funding available
through the permanent financing and line of credit will be sufficient to meet
the needs of the Fixcor operations. However, additional funding may be
necessary with regard to the Palletech operations when they start up during
1998. Management is working with financial institutions to ensure that
sufficient monies are available to meet these needs, and it is believed that
those monies will be available. See the discussion of the "CONVERTIBLE
DEBENTURES" below.
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CONVERTIBLE DEBENTURES
On October 24, 1997, pursuant to a Convertible Debenture Purchase Agreement
the Company issued and sold in a private placement to two institutional
investors an aggregate $5,000,000 principal amount of convertible debentures
bearing interest at the rate of 6% per annum, payable quarterly in arrears, and
due October 24, 2000. The Company expects to use the net proceeds of the
transactions primarily for such things as the acquisition of equipment for the
start-up and expansion of Palletech and Fixcor operations. The principal amount
of the debentures, together with any accrued and unpaid interest thereon, are
convertible at any time into shares of Common Stock at a conversion price equal
to the lesser of (i) $3.91 (110% of the average closing bid price for the 5
trading days preceding closing), or (ii) 85% of the average of the 5 lowest
closing bid prices during the 10 trading days preceding conversion. Except in
limited circumstances, the conversion rights are subject to an aggregate limit
of 4.9% of the Company's outstanding Common Stock.
The purchasers also received warrants to purchase an aggregate 331,400
shares of Common Stock at an exercise price equal to $3.91 per share. The
warrants are exercisable at any time through October 24, 2000. The Company
has reserved authorized shares of Common Stock sufficient to cover conversion
of debentures (and payment of interest thereon in shares of Common Stock) and
the exercise of the warrants, and is required to effect and maintain for
three years a registration statement under the Securities Act of 1933, as
amended (the "Securities Act") covering resales by the holders of such shares
following conversion of debentures (and payment of interest thereon in shares
of Common Stock) and exercise of warrants.
The debenture transaction documents include additional representations,
warranties, covenants and default provisions not atypical for such
financings. The principal debenture transaction documents are attached to
this Registration Statement.
ITEM 3. DESCRIPTION OF PROPERTY
The Facility is located in an industrial park which is about three miles
from Interstate 70 and two miles from U.S. Highway 40, within the city limits of
Heath (Licking County), Ohio. The closest metropolitan area is Columbus, Ohio,
about 30 miles away. There is vacant land to the north which has been zoned for
additional industrial buildings. The site is approximately 10 acres.
The Facility was constructed in 1991 and includes 48,000 square feet of
space for manufacturing and an additional 1,643 square feet for a finished
office area. In connection with the third operating line, Fixcor put into
service 7,000 of these 48,000 square feet. There is also a concrete slab in
the rear with a portion of it covered by a canopy. The site is served by a
railroad spur to the south.
Fixcor holds the title to the real estate and real estate improvements
constituting the Facility. To secure its permanent financing, Fixcor granted
the lender a continuing security interest in all of Fixcor's property,
including the Facility.
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The book value of the Facility represented more than 10% of the total
assets of the Company as of the end of fiscal year 1996. Currently, the only
planned material renovation, improvement or further development of the
Facility is the installation of equipment related to Palletech operations.
The estimated cost of this improvement is approximately $4,000,000, and the
Company is examining several options to finance this cost, including but not
limited to a lease arrangement or using certain of the proceeds of the
convertible debentures. The Company believes that the value of the real
estate and improvements at the Facility are subject to general economic
conditions. In the opinion of management, the Facility is adequately covered
by insurance. The Company has no current plans to lease out any portion of
the Facility. With respect to each component of the Facility upon which
depreciation is taken, the following table sets forth the projected federal
tax basis, life claimed and method for purposes of depreciation.
BASIS LIFE CLAIMED METHOD
Building $2,000,000 39 years Straight-line
Equipment $12,500,000 7 years MACRS
The projected realty tax rate on the Facility is $51.90 per $1,000 of
valuation. The land is valued at $87,500. The gross annual real estate tax
is approximately $4,500 per year which is reduced by rebates to a net amount
of approximately $3,300.
The Company leases 1,200 sq. ft. of office space at 27040 Cedar Road,
Suite 218, Beachwood, Ohio 44122 at a lease rate of $900 per month. The
lease has a term of one year commencing January 1, 1997. Beachwood is a
suburb of Cleveland, Ohio.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Company's
principal stockholders, defined as parties that own five percent or more of the
common stock, as of November 10, 1997.
COMMON STOCK
Amount and
Name and Address Amount and Nature
of Beneficial Owner of Beneficial Owner Percent of Class
Mark Fixler 10,244,067* 30.0%
27040 Cedar Road
Suite 218
Beachwood, Ohio 44122
- -----------------------------
* Includes 4,000,000 shares which are subject to options granted by the
Company to Mr. Fixler, which are exercisable during the term of his current
employment agreement with the Company.
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The following table sets forth information with respect to the beneficial
ownership of the Common Stock by the Directors of the Company and the Directors
and officers of the Company as a group.
COMMON STOCK
Amount and
Name and Address Amount and Nature
of Beneficial Owner of Beneficial Owner Percent of Class
Mark Fixler 10,244,067* 30.0%
27040 Cedar Road
Suite 218
Beachwood, Ohio 44122
All Directors and
Officers as a Group 10,368,067* 30.4%
* Includes 4,000,000 shares which are subject to options granted by the
Company to Mr. Fixler, which are exercisable during the term of his current
employment agreement with the Company.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
MARK FIXLER, 41, is the Company's Chief Executive Officer and President
and the Chairman of its Board of Directors. Prior to founding Fix-Corp
International, Inc., Mr. Fixler served as President of several retail
businesses chiefly engaged in the jewelry business. He was President of
Richard's Jewelers, Inc. from November, 1989 until October, 1994. From
October, 1994 to October, 1995 Mr. Fixler was President of Fix-Corp
International, Inc., an Ohio corporation and a predecessor of the Company.
He is currently Council President of his home community, Mayfield Village.
See Part I, Item 6, "EXECUTIVE COMPENSATION."
GARY M. DELAURENTIIS, 53, is the President of Fixcor and a Vice
President of the Company. Mr. DeLaurentiis joined the Company after it
acquired the Facility. Mr. DeLaurentiis has 21 years of management
experience and 10 years of experience in the plastic resin industry. Prior
to joining the Company, he operated his own consulting firm, GMD &
Associates, from June, 1995 to December, 1996. Prior to being a consultant,
from 1991 to June, 1995, Mr. DeLaurentiis developed another start-up company
in the plastic resin field, ANEW Corporation, which was subsequently sold.
Mr. DeLaurentiis also negotiated with the Chinese government to develop a
plastic recycling plant as part of a pilot project in a Free Trade Zone of
Southern China. This occurred when he was employed by RPX Resins, Inc.,
another firm which he founded and managed from 1987 to 1992.
BOARD OF DIRECTORS
The Board of Directors is composed of three individuals, Mr. Fixler, Mr.
DeLaurentiis and Lawrence Schmelzer. A brief biography of Mr. Schmelzer
follows. Each of the directors is serving a one-year term expiring at the
annual meeting of the Company's stockholders in 1998.
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LAWRENCE C. SCHMELZER, 61, is the Chairman of 1st Cleveland Securities,
Inc., a full service brokerage firm in Cleveland, Ohio, and has held that
position since 1991. He is a graduate of the Wharton School of Finance and
he has also studied at the New York Institute of Finance, the London School
of Economics and New York University. Mr. Schmelzer has been active in the
securities industry since 1959, with experience in venture capital funding,
portfolio management, mergers and acquisitions. Through family partnership,
he is also active in commercial real estate investment and management.
None of the directors currently receives compensation from the Company
for his service in such capacity.
DEPENDENCE ON MANAGEMENT
The Company's success is principally dependent on its current management
personnel for the operation of its business. In particular, Mr. Fixler, its
President and Chief Executive Officer and Chairman of its Board of Directors,
has played a significant role in the development and management of the
Company. There is no assurance that additional managerial assistance will not
be required. The Company has entered into an employment agreement with each
of Mr. Fixler and Mr. DeLaurentiis. If the Company should lose the services
of either Mr. Fixler or Mr. DeLaurentiis, the Company may be significantly
affected.
ITEM 6. EXECUTIVE COMPENSATION
Mr. Fixler is party to a three year employment contract with the Company
dated January 1, 1997. Under this agreement, the Company pays him a salary
of $200,000 during the first year, $250,000 during the second year and
$300,000 during the final year. In addition, Mr. Fixler receives a car
allowance and reasonable car phone expenses, plus other benefits customarily
given to executive officers. Under this agreement, Mr. Fixler is also
granted an option to purchase 4,000,000 shares of common stock of the Company
at a fixed price of $.50 per share and this option may be exercised at any
time during the employment period. Finally, in the event of a consolidation
or purchase of assets to another company or termination of employment for any
other reason, Mr. Fixler is entitled to a $2,000,000 severance benefit.
Prior to 1997, Mr. Fixler was not subject to a written employment agreement
with the Company. He was paid a salary of $119,000 in 1996 and $64,000 in
1995.
Mr. DeLaurentiis is party to a five year employment contract with the
Company dated January 1, 1997. Under this agreement, the Company pays him a
salary of $125,000 per year. He is also eligible for annual bonuses subject
to the approval of the Board of Directors of the Company. In addition, Mr.
DeLaurentiis receives a car allowance and other benefits customarily given to
executive officers. He is President of Fixcor and Vice President of the
Company. He was not employed by the Company or Fixcor during fiscal year
1996.
The Company currently has no stock appreciation rights, long-term
incentive, stock option plans or similar benefit plans for its executives or
other employees.
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ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1996, the Company loaned to Fix-Sports, Inc., a company partially
owned by Mr. Fixler $26,000. This note bears interest at 10% per year and is
collateralized by 52,000 shares of the Company's Common Stock. Otherwise, no
director, officer, promoter or control person is, or has been, in debt to the
Company. Mr. Fixler has guaranteed certain bridge and permanent financing of
the Company.
Upon consummation of the purchase of the Facility and prior to the
securing of permanent financing, the Company entered into a formal
Acquisition Agreement (the "Acquisition Agreement") under which the Company
conveyed the Facility to Fixcor in connection with its original subscription
to all of the shares of common stock of Fixcor. Mr. Fixler was also a party
to this Acquisition Agreement. Before the Company acquired the Facility
under the Quantum Agreement, he had an option to purchase the Facility. He
elected to forego that opportunity and to allow the Company to make the
acquisition. In addition, he personally guaranteed the bridge financing for
the purchase of the Facility, and the Company issued to him 6,521,740 shares
of Common Stock (valued at $6,000,000 or $.92 per share), all of which were
restricted shares. Mr. Fixler also has guaranteed up to $1,000,000 of the
July, 1997 financing from Gordon Brothers Capital Corp.
ITEM 8. DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 100,000,000
shares of Common Stock with a par value of $0.001 per share, and 2,000,000
shares of Preferred Stock with a par value of $0.001 per share.
COMMON STOCK
30,053,289 shares of Common Stock were issued and outstanding as of
November 10, 1997.
Holders of the Common Stock do not have preemptive rights to purchase
additional shares of Common Stock or other subscription rights. The Common
Stock carries no conversion rights and is not subject to redemption or to any
sinking fund provisions. All shares of Common Stock are entitled to share
equally in dividends from sources legally available therefor when, as and if
declared by the Board of Directors and, upon liquidation or dissolution of
the Company, whether voluntary or involuntary, to share equally in the assets
of the Company available for distribution to stockholders. The Board of
Directors is authorized to issue additional shares of Common Stock on such
terms and conditions and for such consideration as the Board may deem
appropriate without further stockholder action. Reference is made to the
Company's Amended and Restated Certificate of Incorporation and Bylaws which
are attached as exhibits to this Registration Statement, as well as to the
applicable statutes of the State of Delaware for a more complete description
concerning the rights and liabilities of stockholders.
Each holder of Common Stock is entitled to one vote per share, either in
person or by proxy, on all matters that may be voted on by the owners thereof
at meetings of the stockholders. Since the shares of Common Stock do not
have cumulative voting rights, the holders of more than 50% of the shares
voting for the election of directors can elect all the directors
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and, in such event, the holders of the remaining shares will not be able to
elect any person to the Board of Directors. At its last annual meeting, the
stockholders approved a provision whereby a quorum shall be deemed present
for the conduct of business at either an annual meeting of the stockholders
or at a special meeting of the stockholders with only one-third of the
outstanding shares represented, either in person or through proxy.
PREFERRED STOCK
No shares of preferred stock of the Company (the "Preferred Stock") were
issued and outstanding as of October 1, 1997. Shares of Preferred
Stock were issued during the second and third quarters of fiscal year 1997,
but all have been converted to Common Stock by the holders thereof.
Subject to the Company's Amended and Restated Certificate of
Incorporation and the Delaware General Corporation Law, the terms of one or
more classes or series of Preferred Stock, including dividend rights,
conversion prices, voting rights, redemption prices and similar matters will
be determined by the Board of Directors.
TRANSFER AGENT
The registrar and transfer agent for the Common Stock is CDR Transfer
Inc., located at 412 Main Street, Old Saybrook, Connecticut 06475.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
The Company's Common Stock is traded over-the-counter ("OTC") on the
Electronic Bulletin Board (the "Bulletin Board") maintained by the National
Association of Securities Dealers ("NASD") under the Symbol "FIXC."
As of November 10, 1997, 30,058,289 shares of Common Stock were issued
and outstanding, and there were approximately 300 record holders of Common
Stock. As of that date, no shares of Preferred Stock were issued and
outstanding. (See Part I, Item 8, "Description of Securities.") Mr. Fixler
holds certain options to purchase shares of Common Stock under his employment
agreement with the Company. (See Part I, Item 6, "EXECUTIVE COMPENSATION.")
The following table sets forth the range of high and low sales prices
for the Common Stock on the OTC Bulletin Board for each quarter for the
fiscal year 1996 and the first three quarters of 1997.
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Quarter Ending High Low
9/30/97 4-1/4 1-3/8
6/30/97 3/4 1/2
3/31/97 7/8 1/2
12/31/96 15/16 7/16
9/30/96 13/16 5/8
6/30/96 1-9/16 11/16
3/31/96 1-1/2 13/16
The source of this information is America Online quotation services.
These prices reflect inter-dealer prices, without retail markup, mark-down or
commission and may not represent actual transactions.
RESTRICTED SECURITIES
A significant portion of the Company's Common Stock is held by insiders
and persons who acquired shares in private offerings. These are "restricted
securities," as that term is defined in Rule 144 promulgated under the
Securities Act. In general, Rule 144 provides that, during any three-month
period, each person holding restricted securities can sell an amount of such
securities equal to the greater of (a) 1% of the number of outstanding
shares, or (b) the average weekly reported trading volume of those securities
during the preceding four calendar week period, provided that certain
conditions are met. One of these conditions is that the stock must be
purchased for investment purposes and held for a minimum period of one year,
and in some instances even longer. Sales of these restricted securities
under Rule 144 or otherwise by current stockholders of the Company could have
a depressive effect on any trading market for Common Stock. No predictions
can be made of the effect, if any, that market sales of shares or the
availability of shares for sale will have on the market price prevailing from
time to time. Nevertheless, sales of significant amounts of the Common Stock
of the Company in the public market may adversely affect market prices, and
may impair the Company's ability to raise capital at that time through
additional sale of its equity securities.
NO DIVIDENDS
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The Company has not declared or paid any dividends on its Common Stock
and there is no assurance that the Company will pay dividends in the future.
The Company currently intends to retain future earnings to fund the
development and growth of its businesses, to repay indebtedness and for
general corporate purposes, and, therefore, does not anticipate paying any
cash dividends in the foreseeable future. Any future determination to
declare and pay dividends will be made by the Board of Directors of the
Company in light of the Company's earnings, financial position, capital
requirements, credit agreements and such other factors as the Board of
Directors deems relevant. Any decision to pay dividends is subject to
Delaware law, under which the Company is permitted to pay cash dividends to
the Company only (i) out of the Company's capital surplus (the excess of net
assets over stated capital) or (ii) out of the net income of the Company for
the fiscal year in which the dividend is declared and/or the preceding fiscal
year.
SECONDARY TRADING RESTRICTIONS
The Common Stock is governed by a Securities and Exchange Commission
rule for "penny stocks" (defined as stocks that cost $5.00 or less per share)
that imposes additional sales practice burdens and requirements upon
broker-dealers which sell such securities to persons other than established
customers and accredited investors (generally institutions with assets in
excess of $5,000,000 or individuals with a net worth in excess of $1,000,000
or annual income exceeding $200,000 or $300,000 jointly with their spouse).
For transactions covered by this penny stock rule, broker-dealers must make a
special suitability determination for the unaccredited purchaser and receive
the purchaser's written agreement to the transaction prior to the sale.
Consequently, the penny stock rule may affect the ability of broker-dealers
to sell the Company's securities and also may affect the ability of persons
now owning or subsequently acquiring the Company's securities to resell such
securities in any trading market that may develop. Although the Company's
goal is to have its securities included in the National Association of
Securities Dealers Automated Quotation System ("NASDAQ"), which would exempt
such securities from the above rule, there is no assurance that the Company
will meet the NASDAQ listing requirements.
PRICE VOLATILITY OF THE COMPANY'S SHARES
The Common Stock is traded on the NASD OTC Electronic Bulletin Board.
Because of the limited market for Bulletin Board stocks, even mild
expressions of interest may have a profound impact upon the stock's price on
any given day. Accordingly, Bulletin Board stock customarily experience above
average price fluctuations and volatility. Accordingly, the Company's common
stock should be expected to experience substantial price changes in short
periods of time, owing to the vagaries of the Bulletin Board exchange for
stocks. Even if the Company is performing according to its plan and there is
no legitimate financial component for this volatility, it must still be
expected that substantial percentage price swings will occur in these
securities for the foreseeable future, and percentage changes in stock
indices (such as the Dow Jones Industrial Average) could be magnified,
particularly in downward movements of the markets.
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ITEM 2. LEGAL PROCEEDINGS
The Company is from time to time made a party to legal proceedings
arising in the ordinary course of business. The Company does not believe
that the results of such legal proceedings, even if unfavorable to the
Company, will have a materially adverse impact on its financial condition or
the results of its operations.
The Company is a third party defendant in a lawsuit pending in the
Common Pleas Court of Cuyahoga County, Ohio, GLOBAL INVESTMENTS & ADVISORY
GROUP, INC. V. 3DM, LIMITED LIABILITY CO., ET AL. V. FIX-CORP INTERNATIONAL,
ET AL. This case arises out of the relationship between the Company and 3DM,
Limited Liability Co. ("3DM"), which the Company believes has been terminated
and settled, and the relationship between 3DM and Quantum. The latter
relationship was the subject of prior litigation in which the Company was
also joined as a third party defendant. The Company subsequently was
dismissed from this earlier litigation. 3DM did not bring any claim against
the Company in the prior litigation, and a default judgment was entered
against 3DM on the matter of its breach of its agreement with Quantum. The
Company does not believe that the pending litigation involving 3DM will have
a material adverse affect on the Company or its operations.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
The Company did not engage an independent accountant until during fiscal
year 1997, when it engaged Harmon & Company, CPA, Inc., Columbus, Ohio,
generally, and in particular for purposes of preparing the Financial
Statements included with this Registration Statement. The Company has had no
material disagreements with its accountants.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
In October, 1995, pursuant to the reorganization involving the Company
and following a reverse stock split and other transactions, the outstanding
shares of Common Stock of the Company were held as follows: 3,600,000
restricted shares held by Mr. Fixler, 204,020 restricted shares held by an
affiliate and consultant of the Company's predecessor, and 195,980 shares
held by the public shareholders of the Company's predecessor.
In April, 1997, pursuant to the Acquisition Agreement, the Company
issued to Mr. Fixler 6,521,740 shares of Common Stock (at a value of $.92 per
share) in a transaction exempt from registration under Section 4(2) of the
Securities Act. During the period November, 1995 through August, 1997, the
Company issued, in other private placement transactions exempt from
registration under Section 4(2) of the Securities Act, additional shares of
Common Stock at prices ranging from $.35 per share to $1.00 per share.
During the period November, 1995 through March, 1996, pursuant to Rule
504 of Regulation D, the Company offered and sold 2,000,000 shares of Common
Stock at $.50 per
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share. During the period November, 1996 through March, 1997, the Company,
pursuant to Rule 504 of Regulation D, offered and sold approximately
4,000,000 additional shares of Common Stock for an aggregate consideration of
$1,000,000.
In December, 1996 in connection with certain bridge financing, the
Company granted to Generation Capital Associates, a New York limited
partnership, warrants for the purchase of an aggregate of 100,000 shares of
Common Stock at an exercise price of $.65 per share.
In December, 1996 and July, 1997 in connection with debt financings from
Gordon Brothers Capital Corporation and pursuant to Section 4(2) of the
Securities Act, the Company granted to the lender warrants for the purchase
of an aggregate of 1,000,000 shares of Common Stock at an exercise price of
$1.25 per share, which the lender exercised in November, 1997. Certain
"piggyback" and other registration rights with respect to the warrant shares
were also granted to Gordon Brothers Capital Corporation.
From June, 1997 to October 1, 1997, pursuant to an offering under Rule
506 of Regulation D, the Company sold 1,925,000 shares of Preferred Stock at
$1.00 per share. Each share of Preferred Stock was convertible into one
share of Common Stock, and as of October 1, 1997 all of the Preferred Stock
had been converted into 1,925,000 shares of Common Stock. In addition,
holders of Preferred Stock were granted rights to acquire additional shares
of Common Stock at $1.00 per share, and 1,100,000 shares of Common Stock were
issued pursuant to exercise of such rights.
In October, 1997, pursuant to Rule 506 of Regulation D, the Company
issued to two institutional investors $5,000,000 aggregate principal amount
of 6% convertible debentures. The principal amount of the debentures,
together with any accrued and unpaid interest thereon, are convertible at any
time into shares of Common Stock at a conversion price equal to the lesser of
(i) $3.91 (110% of the average closing bid price for the 5 trading days
preceding closing), or (ii) 85% of the average of the 5 lowest closing bid
prices during the 10 trading days preceding conversion. The purchasers also
received warrants to purchase an aggregate 331,400 shares of Common Stock at
an exercise price equal to $3.91 per share. The warrants are exercisable at
any time through October 24, 2000.
The Company is subject to an administrative "cease and desist" order
(the "Order") issued in August, 1997 by the Ohio Division of Securities, and
relating to certain matters deemed to constitute violations of Ohio
securities laws, including unregistered sales of securities and false
representations in connection with a registration application. The Company
believes that such violations resulted principally from miscommunication
between the Company and its legal counsel at the time as to certain
information communicated to the Ohio Division of Securities in connection
with an application for registration by description filed in December, 1995
with respect to sales of the Company's common stock in Ohio. The Company
believes that it is in compliance with the Order.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
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On May 16, 1997, at the Company's Annual Meeting, the stockholders
adopted Amended and Restated Certificate of Incorporation. Article X of
those Articles provides, in accordance with Section 145 of the General
Corporation Law of Delaware, that a director shall not be personally liable
to the Company or its stockholders for breach of duty or care or other duty
as a director, except for liability for acts not in good faith or which
involve intentional misconduct, or any transaction in which the director
derived an improper personal benefit or for any type of liability not
contemplated by Section 145 of the General Corporation Law of Delaware. As a
result of the Company's Certificate of Incorporation and Delaware law,
stockholders may have more limited rights to recover against directors for
breach of fiduciary duty than as compared to the standard of care imposed
upon a director in the state where the investor resides. In addition, to the
fullest extent permitted by Delaware law, the Company shall indemnify its
corporate officers. Section 145 of the General Corporation Law of Delaware
reads as follows:
Section 145 Indemnification of officers, directors, employees and
agents; insurance.
(a) A corporation shall have power to indemnify any person who was
or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that the person is
or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or
proceeding if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe the person's conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person
did not act in good faith and in a manner which the person reasonably
believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that the person's conduct was unlawful.
(b) A corporation shall have power to indemnify any person who was
or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact
that the person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by the
person in connection with the defense or settlement of such action or
suit if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect
of any claim, issue or matter as to which such person shall have been
adjudged to be liable to
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the corporation unless and only to the extent that the Court of Chancery
or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view
of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
(c) To the extent that a present or future director or officer of
a corporation has been successful on the merits or otherwise in defense
of any action, suit or proceeding referred to in subsections (a) and (b)
of this section, or in defense of any claim, issue or matter therein,
such person shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by such person in connection
therewith.
(d) Any indemnification under subsections (a) and (b) of this
section (unless ordered by a court) shall be made by the corporation
only as authorized in the specific case upon a determination that
indemnification of the present or future director or officer is proper
in the circumstances because the person has met the applicable standard
of conduct set forth in subsections (a) and (b) of this section. Such
determination shall be made with respect to a person who is a director
or officer at the time of such determination (1) by a majority vote of
the directors who are not parties to such action, suit or proceeding,
even though less than a quorum, or (2) by committee of such directors
designated by majority vote of such directors, even though less than a
quorum, or (3) if there are no such directors, or if such directors so
direct, by independent legal counsel in a written opinion, or (4) by the
stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or
investigative action, suit or proceeding may be paid by the corporation
in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that
such person is not entitled to be indemnified by the corporation as
authorized in this section. Such expenses (including attorneys' fees)
incurred by former directors and officers or other employees and agents
may be so paid upon such terms and conditions, if any, as the
corporation deems appropriate.
(f) The indemnification and advancement of expenses provided by,
or granted pursuant to, the other subsections of this section shall not
be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in such person's official capacity and as
to action in another capacity while holding such office.
(g) A corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise against any
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liability asserted against such person and incurred by such person in
any such capacity, or arising out of such person's status as such,
whether or not the corporation would have the power to indemnify such
person against such liability under this section.
(h) For purposes of this section, references to "the corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers,
and employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position
under this section with respect to the resulting or surviving
corporation as such person would have with respect to such constituent
corporation if its separate existence had continued.
(i) For purposes of this section, references to "other
enterprises" shall include employee benefit plans; references to "fines"
shall include any excise taxes assessed on a person with respect to any
employee benefit plan; and references to "serving at the request of the
corporation" shall include any service as a director, officer, employee
or agent of the corporation which imposes duties on, or involves
services by, such director, officer, employee or agent with respect to
an employee benefit plan, its participants or beneficiaries; and a
person who acted in good faith and in a manner such person reasonably
believed to be in the interest of the participants and beneficiaries of
an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses provided by,
or granted pursuant to, this section shall, unless otherwise provided
when authorized or ratified, continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit
of the heirs, executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive
jurisdiction to hear and determine all actions for advancement of
expenses or indemnification brought under this section or under any
bylaw, agreement, vote of stockholders or disinterested directors, or
otherwise. The Court of Chancery may summarily determine a corporation's
obligation to advance expenses (including attorneys' fees).
24
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
FIX-CORP INTERNATIONAL, INC.
By /s/ Mark Fixler
-------------------------------------------
Mark Fixler, Chief Executive Officer and President
Date: November 13, 1997
---
25
<PAGE>
PART F/S
The Company's Financial Statements and Independent Auditor's Report for
the fiscal years ending December 31, 1996 and December 31, 1995, and
unaudited consolidated balance sheet and consolidated income statement and
statement of retained earnings for the nine month period ending September 30,
1997, are included.
____________________________
FIX-CORP INTERNATIONAL, INC.
(FORMERLY LIFECHOICE, INC.)
FINANCIAL STATEMENTS
&
INDEPENDENT AUDITOR'S REPORT
DECEMBER 31, 1996 & 1995
____________________________
_____________________________
HARMON & COMPANY, CPA, INC.
COLUMBUS, OHIO
_____________________________
<PAGE>
____________________________
FIX-CORP INTERNATIONAL, INC.
(FORMERLY LIFECHOICE, INC.)
____________________________
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . 2
Balance Sheet. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . 4
Statement of Changes in Stockholders' Equity . . . . . . . . . . . . . 5
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to the Financial Statements. . . . . . . . . . . . . . . . . . . 7
</TABLE>
-1-
<PAGE>
INDEPENDENT AUDITOR'S REPORT
TO THE BOARD OF DIRECTORS OF
FIX-CORP INTERNATIONAL, INC.
We have audited the accompanying Balance Sheets of Fix-Corp International,
Inc. as of December 31, 1996 and 1995 and the related statements of operations,
cash flow, and stockholders' equity for the years then ended. These financial
statements are the responsibility of the management of Fix-Corp International,
Inc. Our responsibility is to express an opinion on these financial statements
based on our audit.
We have conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1996 and 1995 financial statements referred to above
present fairly, in all material respects, the financial position of Fix-Corp
International, Inc. as of December 31, 1996 and 1995 and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
_____________________________
HARMON & COMPANY, CPA, INC.
APRIL 16, 1997
<PAGE>
FIX-CORP INTERNATIONAL, INC.
(FORMERLY LIFECHOICE, INC.)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
12/31/96 12/31/95
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 224,539 $ 33,860
Investment in Marketable Securities 130,692 -0-
Trade Accounts Receivable, net 88,763 59,436
Purchase Order Financing Contracts 221,672 72,800
Inventory 96,002 -0-
------------ ------------
Total Current Assets 761,668 166,096
------------ ------------
PROPERTY, PLANT & EQUIPMENT
(at cost less accumulated depreciation and amortization)
Land & Land Held for Development 750,000 -0-
Buildings 2,000,000 -0-
Plant Equipment 6,642,000 -0-
Office Furniture & Fixtures 122,500 22,500
------------ ------------
9,514,500 22,500
Less Accumulated Depreciation and Amortization (6,428) (3,214)
------------ ------------
Total Property, Plant & Equipment 9,508,072 19,286
------------ ------------
DEFERRED INCOME TAXES 412,150 359,300
------------ ------------
OTHER ASSETS & DEFERRED CHARGES 212,226 75,826
------------ ------------
Total Assets $10,894,116 $ 620,508
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Secured Equipment Loan Payable $ 2,500,000 $ -0-
Bridge Financing Notes Payable 450,000 -0-
Notes Payable 598,000 500,000
Accounts Payable 68,008 113,183
Accrued Interest Payable 44,317 40,600
------------ ------------
Total Current Liabilities 3,660,325 653,783
------------ ------------
LONG-TERM DEBT
Notes Payable to Officers -0- 160,000
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value, 2,000,000 shares
authorized, -0- shares issued or outstanding - -
Common Stock, $.0001 par value, 100,000,000 shares
authorized, 7,106,056 and 20,974,024 issued and
outstanding in 1995 and 1996 2,097 711
Additional Paid in Capital 8,246,406 641,230
Unrealized Holding Loss on Investments (68,673) -0-
Retained Earnings (Deficit) (946,039) (835,216)
------------ ------------
Total Stockholders' Equity 7,233,791 (193,275)
------------ ------------
Total Liabilities and Stockholders' Equity $10,894,116 $ 620,508
------------ ------------
</TABLE>
The accompanying notes are an integral part
of these financial statements.
-3-
<PAGE>
FIX-CORP INTERNATIONAL, INC.
(FORMERLY LIFECHOICE, INC.)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
12/31/96 12/31/95
------------ ------------
<S> <C> <C>
REVENUE
Fees on Purchase Order Contract Financing $ 408,337 $ 530,629
Commission & Shared Finance Fees 102,442 133,123
Merchandise Sales 232,824 91,812
------------ ------------
Total Revenue 743,603 755,564
------------ ------------
COST OF SALES AND CONTRACT FINANCING OPERATIONS
Interest Expense, Contract Financing 250,822 398,087
Bad Debts -0- 962,471
Consulting Fees & Shared Commissions 42,939 135,180
Cost of Merchandise Sales, Including Freight 126,153 47,340
------------ ------------
Cost of Sales and Contract Financing Operations 419,914 1,543,078
------------ ------------
Gross Profit 323,689 (787,514)
------------ ------------
OPERATING EXPENSES
Salaries, Wages and Related Costs 277,317 114,447
Depreciation & Amortization 19,514 19,514
Legal & Professional, Including Consulting Fees 98,513 91,454
Other General & Administrative 96,038 71,564
Deferred Preoperating Plant Startup Costs (36,750) -0-
------------ ------------
Total Expenses 454,632 296,979
------------ ------------
Operating Income (Loss) (130,943) (1,084,493)
------------ ------------
OTHER INCOME (EXPENSE)
Interest Expense and Financing Costs, Other 32,730 30,149
------------ ------------
Net (Loss) Before Income Taxes (163,673) (1,114,642)
LESS PROVISION FOR DEFERRED INCOME TAXES
Federal (43,000) (292,500)
------------ ------------
State (9,850) (66,800)
------------ ------------
Total Deferred Income Taxes (52,850) (359,300)
------------ ------------
Net Loss $ (110,823) $ (755,342)
------------ ------------
Net Loss Per Common Share (0.008) (0.124)
------------ ------------
Weighted Average Common Shares Outstanding 14,040,040 6,084,546
------------ ------------
</TABLE>
The accompanying notes are an integral part
of these financial statements.
-4-
<PAGE>
FIX-CORP INTERNATIONAL, INC.
(FORMERLY LIFECHOICE, INC.)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED TOTAL
------------ PAID-IN EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
----------- -------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1995, as originally reported 400,000 $ 40 $1,960 $(100) $ 1,900
Conversion of Notes Payable 250,000 25 124,975 125,000
Effect of Merger With Fix-Corp International, Inc.
(a Delaware corporation) 4,413,036 441 -0- (79,774) (79,333)
----------- -------- ---------- ---------- -------------
Balances at January 1, 1995, as restated 5,063,036 506 126,935 (79,874) 47,567
----------- -------- ---------- ---------- -------------
Private Placement of Common Stock, net of
issuance cost 1,249,000 125 461,875 462,000
Issuance of Common Stock for payment of
Professional Fees 599,020 60 149,940 150,000
Loss on Stock Subscriptions 195,000 20 (97,520) (97,500)
Net loss for the period (755,342) (755,342)
----------- -------- ---------- ---------- -------------
Balances at December 31, 1995 7,106,056 711 641,230 (835,216) (193,275)
----------- -------- ---------- ---------- -------------
Acquisition of Ohio Resources Recovery Plant 8,000,000 800 5,999,200 6,000,000
Private Placement of Common Stock, net of
issuance cost 4,267,968 426 1,605,976 1,606,402
Issuance of shares to secure bridge financing,
held in escrow subject to loan agreements 1,600,000 160 -0- 160
Net loss for the period (110,823) (110,823)
----------- -------- ---------- ---------- -------------
Balances at December 31, 1996 20,974,024 $2,097 $8,246,406 $(946,039) $7,302,464
----------- -------- ---------- ----------
Unrealized Holding Loss on Investments (68,673)
-------------
Total Stockholders' Equity $7,233,791
-------------
-------------
</TABLE>
The accompanying notes are an integral part
of these financial statements.
-5-
<PAGE>
FIX-CORP INTERNATIONAL, INC.
(FORMERLY LIFECHOICE, INC.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
12/31/96 12/31/95
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss) $ (110,823) $ (755,342)
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Depreciation & Amortization Expense 19,514 19,514
Investment in Marketable Securities (199,365) -0-
(Increase) Decrease in Trade Accounts Receivable (29,327) 3,064
(Increase) Decrease in Purchase Order Financing Contracts (148,872) 456,636
(Increase) in Inventory (96,002) -0-
(Increase) in Deferred Tax Asset (52,850) (359,300)
Increase (Decrease) in Accounts Payable (45,176) 31,659
Increase in Accrued Interest Payable 3,717 40,600
------------ ------------
Net Cash Provided (Used) by Operating Activities (659,184) (563,169)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Land & Land Held for Development (500,000) -0-
Purchase of Buildings (1,000,000) -0-
Purchase of Plant Equipment (1,992,000) -0-
Purchase of Office Furniture & Fixtures (100,000) (22,500)
Additions to Other Assets (152,700) (95,203)
------------ ------------
Net Cash Provided (Used) by Investing Activities (3,744,700) (117,703)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Sale of Stock 1,606,402 612,000
Proceeds from Secured Equipment Loan Payable 2,500,000 -0-
Proceeds from Bridge Financing Notes Payable 450,000 -0-
Proceeds from Notes Payable, net 198,161 36,777
Payments on long-term debt (160,000) (500)
------------ ------------
Net Cash Provided (Used) by Financing Activities 4,594,563 648,277
------------ ------------
Net Income Increase (Decrease) in Cash $190,679 $ (32,595)
------------ ------------
Cash at Beginning of Period $ 33,860 $ 66,454
------------ ------------
Cash at End of Period $ 224,539 $ 33,860
------------ ------------
SUPPLEMENTAL DISCLOSURES
INTEREST PAID, EXCLUDING PURCHASE ORDER CONTRACT FINANCING $ 32,730 $30,149
------------ ------------
ISSUANCE OF COMMON STOCK FOR:
Professional Fees & Services -0- 150,000
------------
Conversion of Notes Payable -0- 125,000
------------
ACQUISITION OF OHIO RESOURCES RECOVERY PLANT, HEATH, OHIO FOR
COMMON STOCK AND ALLOCATED AS FOLLOWS:
Land & Land Held for Development 250,000 -0-
Buildings 1,000,000 -0-
Plant Equipment 4,650,000 -0-
Office Furniture & Fixtures 100,000 -0-
------------ ------------
6,000,000 -0-
------------ ------------
</TABLE>
The accompanying notes are an integral part
of these financial statements.
-6-
<PAGE>
FIX-CORP INTERNATIONAL, INC.
(FORMERLY LIFECHOICE, INC.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 & 1995
NOTE 1 - ORGANIZATION AND DESCRIPTION OF THE BUSINESS
Lifechoice, Inc. (Lifechoice) was incorporated on August 11, 1995 under
the laws of the State of Utah. On or about October 23, 1995, Fix-Corp
International, Inc. (Fix-Corp), a newly-formed Delaware corporation was
acquired by Lifechoice preparatory to a reverse merger in which Fix-Corp
assumed control over Lifechoice, a publicly traded company listed on the NASD
Bulletin Board. Lifechoice possessed no assets and no liabilities and was, in
effect, a shell corporation. The company assumed the name of Fix-Corp
International, Inc. and was redomiciled to Delaware.
Effective with the company's $9,400,000 acquisition of the Heath Resource
Recovery plant and manufacturing facility, more fully described in Note 4,
the Company's primary business will be plastic resin recycling. The Company's
business, therefor, consists of three (3) distinct segments: the recycling of
post consumer polyethylene and other plastic resins, merchandise or product
sales and purchase order contract financing. Prior to December 1996, the
Company was in the business of extending financing to small businesses,
collateralized by a Purchase Order issued by a reputable business. In effect,
the Company funds a portion of this Purchase Order in advance, then stands in
the place of its client, the Vendor, and becomes the owner of this Purchase
Order and its requisite proceeds.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed in
the preparation of these financial statements. The financial statements and
notes are the representation of the Company's Management, who is responsible
for their integrity and objectivity. The policies conform to generally
accepted accounting principles and have been consistently applied.
(A.) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(B.) Effect of New Accounting Pronouncements
Effective in 1996, Fix-Corp adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Under Statement No. 115, debt and marketable equity securities
are required to be classified in one of three categories: trading,
available-for-sale, or held to maturity. Fix-Corp's equity securities qualify
under the provisions of Statement No. 115 as available-for-sale. Such
securities are recorded at fair value, unrealized holding gains and losses,
net of the related tax effect, are not reflected in earnings but are reported
as a separate component of stockholders' equity until realized. A decline in
the market value of an available-for-sale security below cost that is deemed
other than temporary is charged to earnings and results in the establishment
of a new cost basis for the security.
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
requires that long-lived assets held and used by a company be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. SFAS No. 121 also
establishes the procedures for review of recoverability, and measurement of
impairment, if necessary, of long-lived assets. Fix-Corp, with the
acquisition of the Heath Resource Recovery plant, adopted SFAS No.121 and
determined that no impairment provision of the carrying cost of the plant was
necessary.
(C.) Allowance for Doubtful Accounts
It is the opinion of Management that all accounts receivable are
collectible, therefore an allowance for doubtful accounts is not necessary. The
Company incurred a bad debt of $962,471 charged against current operations in
1995.
-7-
<PAGE>
FIX-CORP INTERNATIONAL, INC.
(FORMERLY LIFECHOICE, INC.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(D.) Inventory
Inventory is stated at the lower of cost or market, using the First-in,
First-out, (FIFO), method of accounting, and consists of plastic recycled
products.
(E.) Property and Equipment
Property and equipment are stated at cost. Costs of maintenance and repairs
are charged to expense as incurred. Major improvements and renewals, in
general, are capitalized. Acquisitions to fixed assets are depreciated on the
straight-line method. The estimated useful lives used in computing depreciation
are as follows:
DESCRIPTION LIFE IN YEARS
- -------------------------------------------------------------------------------
Buildings 10-25 Years
Plant Machinery and Equipment 5-10 Years
Office Furniture and Fixtures 5-7 Years
Depreciation charged against operations for the years ended December 31,
1995 and 1996 were $3,214 and $3,214, respectively.
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
requires that long-lived assets held and used by a company be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. SFAS No. 121 also
establishes the procedures for review of recoverability, and measurement of
impairment, if necessary, of long-lived assets. Fix-Corp, with the
acquisition of the Heath Resource Recovery plant, adopted SFAS No.121 and
determined that no impairment provision of the carrying cost of the plant was
necessary.
(F.) Organizational Costs
Organizational costs are being amortized over a period of 60 months and is
presented net of accumulated amortization of $16,300 and $32,600 in 1995 and
1996, respectively. Amortization expense charged against operations for the
years ended December 31, 1995 and 1996 $16,300 and $16,300, respectively.
(G.) Investment in Life Insurance
In December 1995, the Company obtained certain life insurance policies on
the life of an unrelated third party as partial settlement for certain factored
purchase order financing contracts. At December 31, 1995 and 1996, the
investments in the policies was $9,676 and $9,676 respectively, with no policy
loans thereon. The ongoing policy premiums are paid out of the cash surrender
value of the policies. life insurance expense of $-0- and $-0- in 1995 and 1996
respectively, was included in other expense.
(H.) Deferred Taxes and Income Taxes
During 1995 and effective with the reverse merger, more fully described in
Notes 1 and 4, the Company adopted Financial Accounting Standards No. 109,
"Accounting for Income Taxes" and all years presented reflect the adoption of
this method. The Company has restated 1995 financial statements for comparative
purposes. The effect of this restatement is the recording of a deferred tax
asset of $359,300, net of a valuation allowance of $120,000, which arises solely
from the estimated future benefit of the net operating loss carry-forward of
approximately $1,114,000. The effect of this restatement was to reduce the net
loss for the year ended December 31, 1995 by $359,300 and to reduce the net
loss per common share by $.059 per share.
In prior years, the Company had elected to be taxed under Subchapter S of
the Internal Revenue Code. Effective with reverse merger and reincorporation
this election was discontinued and all adjustments, which were minor in nature
were included as a capital adjustment "Effect of Merger with Fix-Corp
International, Inc." in the Statement of Stockholders' Equity.
-8-
<PAGE>
FIX-CORP INTERNATIONAL, INC.
(FORMERLY LIFECHOICE, INC.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(I.) Revenue Recognition
Revenue from merchandise sales is generally recognized upon shipment,
provided that no significant vendor obligations remain and collection of the
resulting receivable is deemed probable. Fees on purchase order contract
financing, commissions and shared finance fees are recognized upon finalization
and collection of the related financing project.
(J.) Loss per Common Share
As of December 31, 1995 and 1996, loss per common share and common share
equivalent were computed by dividing the net loss by the weighted average number
of shares of common stock and common stock equivalents outstanding during the
year.
NOTE 3 - INVESTMENT IN MARKETABLE SECURITIES
Effective in 1996, the Fix-Corp adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Under Statement No. 115, debt and marketable equity securities
are required to be classified in one of three categories: trading,
available-for-sale, or held to maturity. Fix-Corp's equity securities qualify
under the provisions of Statement No. 115 as available-for-sale. Such
securities are recorded at fair value, unrealized holding gains and losses,
net of the related tax effect, are not reflected in earnings but are reported
as a separate component of stockholders' equity until realized. A decline in
the market value of an available-for-sale security below cost that is deemed
other than temporary is charged to earnings and results in the establishment
of a new cost basis for the security. During 1996 an $68,673 unrealized
holding loss on investments was charged directly to capital.
NOTE 4 - PLANT PURCHASE AND SALE AGREEMENT
On December 16, 1996 the Company acquired, subject to a certain Purchase
and Sale Agreement, a plant in Central Ohio, hereinafter referred to as the
"Resource Recovery" plant. The assets consist of a post-consumer plastic
recycling operation involving two parallel recycling lines under a single roofed
structure on its own plot of ground with a permanent easement for ingress and
egress to an adjoining railroad spur and truck scale and various other support
equipment permitting this business to function as an independent entity. The
purchase price, and allocation thereof, is summarized as follows:
AMOUNT
- -------------------------------------------------------------------------------
Land & Land Held for Development $750,000
Buildings 2,000,000
Plant Equipment 6,550,000
Office Furniture & Fixtures 100,000
---------
Total Purchase Price $9,400,000
---------
---------
As more fully described in Note 7, included in the acquisition of the
Resource Recovery plant was a Track Lease Agreement for 200' of railroad siding
(including land) for the sole purpose of the storage of railroad cars owned,
leased or consigned to the Company. The term of the lease is for a period of ten
(10) years beginning August 14, 1996 and expiring August 14, 2006, with an
option for an additional ten (10) years expiring August 14, 2016. Annual
rentals, paid in advance, are $1,000 per year. The price was paid as follows
AMOUNT
- -------------------------------------------------------------------------------
CASH $900,000
SECURED EQUIPMENT LOAN 2,500,000
COMMON STOCK (8,000,000 RESTRICTED SHARES) 6,000,000
---------
TOTAL PAYMENTS $9,400,000
---------
---------
-9-
<PAGE>
FIX-CORP INTERNATIONAL, INC.
(FORMERLY LIFECHOICE, INC.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
At closing, the Company received a general warranty deed (fee simple
title) for the ground and its improvements (i.e. the physical plant), and a
bill of sale for the remainder of the assets. The seller extended no express
or implied warranties for the equipment transferred and disclaimed any
implied warranty of merchantability and implied warranty of fitness for a
particular purpose. The seller did stipulate however, that the plant was not
subject to any contract or agreement with any labor union or linked to any
collective bargaining agreement, and that the plant was not subject to any
employee benefit or retirement programs. In addition, the seller agreed to
provide personnel to consult with Fix-Corp for up to one year and assist in
re-starting the facility. In addition, all blueprints, customer lists,
drawings and equipment specifications were made available.
NOTE 5 - OTHER ASSETS AND DEFERRED CHARGES
<TABLE>
<CAPTION>
OTHER ASSETS AND DEFERRED CHARGES CONSIST OF THE FOLLOWING: 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C>
Note Receivable from Affiliated Company $ 26,000 $ -0-
Disputed Finance Deposit Claim 90,000 -0-
Deferred Preoperating Plant Startup Costs 36,750 -0-
Organizational Costs 48,900 65,200
Investment in Life Insurance 9,676 9,676
Deposits 900 950
--------- -------
$212,226 $75,826
--------- -------
--------- -------
</TABLE>
The note receivable from affiliated company results from a loan to
Fix-Sports, Inc., a company partially owned by the Company's President. The
note bears interest at 10% and is signed personally by the president and
collateralized by 52,000 shares of the Company's Common Stock.
The Disputed Finance Deposit Claim results from a deposit that the
Company placed with a finance company in order to obtain financing for the
Resource Recovery acquisition. No consideration was received and the Company
intends to pursue action to recover the deposit. The Company's counsel
believes that they have a legitimate collectible claim .
Deferred preoperating plant startup costs consists of certain consulting,
labor and maintenance costs incurred by the Company subsequent to the
acquisition of the Resource Recovery plant, more fully described in Note 4. The
deferred costs will be amortized over a three (3) year (36 month) period
starting on the date that the plant became fully operational in February, 1997.
Additional deferred preoperating plant startup costs were incurred subsequent to
the balance sheet date, however, these costs are considered minor in nature.
As discussed in Note 2, in December 1995, the Company obtained certain
life insurance policies on the life of an unrelated third party as partial
settlement for certain factored purchase order financing contracts. The ongoing
policy premiums are paid out of the cash surrender value of the policies. Life
insurance expense of $-0- and $-0- in 1995 and 1996 respectively, was included
in other expense.
NOTE 6 - DEFERRED TAXES AND INCOME TAXES
During 1995 and effective with the reverse merger, more fully described in
Notes 1 and 2, the Company adopted Financial Accounting Standards No. 109,
"Accounting for Income Taxes" and all years presented reflect the adoption of
this method. The Company has restated 1995 financial statements for comparative
purposes. The effect of this restatement is the recording of a deferred tax
asset of $359,300, net of a valuation allowance of $120,000, which arises solely
from the estimated future benefit of the net operating loss carry-forward of
approximately $1,114,000. The effect of this restatement was to reduce the net
loss for the year ended December 31, 1995 by $359,300 and to reduce the net
loss per common share by $.059 per share.
-10-
<PAGE>
FIX-CORP INTERNATIONAL, INC.
(FORMERLY LIFECHOICE, INC.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
THE COMPONENTS OF THE DEFERRED TAX ASSET ARE AS FOLLOWS: 1996 1995
- --------------------------------------------------------------------------------
Tax asset arising form net operating loss carryforward:
Federal $447,375 $390,125
State 102,275 89,175
Total Deferred Tax Asset 549,650 479,300
Less valuation for deferred tax assets (137,500) (120,000)
--------- ---------
Deferred Taxes - net $412,150 $359,300
--------- ---------
--------- ---------
In prior years, the Company had elected to be taxed under Subchapter S of
the Internal Revenue Code. Effective with reverse merger and reincorporation,
this election was discontinued and all adjustments, which were minor in
nature, were included as a capital adjustment "Effect of Merger with Fix-Corp
International, Inc." in the Statement of Stockholders' Equity. The components
of the provision for taxes were as follows:
1996 1995
- -------------------------------------------------------------------------------
Provision for Deferred Taxes:
Federal $57,250 $390,125
State 13,100 89,175
Valuation Allowance (17,500) (120,000)
--------- ---------
Total $52,850 $359,300
--------- ---------
--------- ---------
The amounts and expiration dates of the net operating loss carryforward
available to the Company at December 31, 1996 are as follows:
AMOUNT EXPIRATION DATE
- -------------------------------------------------------------------------------
Loss for the year ended December 31, 1995 $1,114,642 2010
Loss for the year ended December 31, 1996 163,674 2011
-----------
Total Net Operating Loss Carryforward $1,278,316
-----------
-----------
NOTE 7 - SECURED EQUIPMENT LOAN PAYABLE
The Company is a party to a Loan and Security Agreement with Gordon
Brothers Capital Corporation, a Delaware company, and Mark Fixler, a principal
shareholder, President and CEO, personally. The loan is for $2,500,000 bearing
interest at 12 1/2% and is secured by an Open-End Mortgage to the premises
located at 1835 James Parkway, Heath, Ohio, namely the post consumer plastics
recycling facility or Resource Recovery plant.
In addition to this Open-End Mortgage, Gordon Brothers has been granted a
security interest, including a lien on and a pledge of all inventory, all
accounts and accounts receivables, contract rights, and all customer lists and
goodwill. Mr. Fixler has been required to sign as a guarantor for Fix-Corp
International. The schedule of payments required under the Loan portion of this
agreement is skewed so as to allow a modest initial payment, then a payment of
approximately $79,734 for the next five months, followed by a payment of
$123,000, then $250,000, then $394,000 for the final four months.
The contract contains a number of Negative Covenants, including but not
limited to, certain limitations on the issuance any additional evidences of
indebtedness; the creation, assumption, guarantee of indebtedness in addition
to the indebtedness of the lender; there can be no sale or transfer of
ownership without the Lender's prior written consent; and
-11-
<PAGE>
FIX-CORP INTERNATIONAL, INC.
(FORMERLY LIFECHOICE, INC.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
the borrower is barred from making any loans or advances to any individual or
officer of the Borrower. In addition, the Company is prohibited from paying
Dividends without the prior written permission of the Lender and may not make
any investments without the lender's prior written permission; the Borrower
may not merge or consolidate with or into any other corporation; the Borrower
may not sell, lease or dispose of its assets without the lender's prior
written consent and the Borrower may not grant any security interest in or
mortgage of any of its properties that are included in the lender's
collateral. Finally, the Borrower is barred from engaging in any business
other then the business in which it is currently engaged or a business
reasonably allied thereto.
NOTE 8 - BRIDGE FINANCING NOTES PAYABLE
1996 1995
- -------------------------------------------------------------------------------
Bridge Notes Payable to shareholders (5 individuals) $250,000 $ -0-
Bridge Notes Payable to others (1 individual) 200,000 -0-
------- -----
Total $450,000 $ -0-
-------- ------
-------- ------
Subject to a certain "Confidential Private Placement Memorandum", more
fully described in Note 10, the Company has sold $450,000 in Bridge Notes to
qualified accredited investors. The proceeds of Bridge Notes was used for the
purpose of acquiring the Resource Recovery Plant. The note holders are
entitled to a twenty-two (22%) percent return on investment as well as an
stock dividend of eighteen (18%) percent of monies invested at $.50 per share
or 18,000 shares of common stock, which was issued and held in escrow. The
Company retains the right to "repurchase" the shares upon payment of the
notes. The term of the loan is generally 120 to 180 days from closing.
In addition, The Company has communicated its intention to spin the
plant off in a public offering within a year. Should that plan become a
reality the Bridge note holders would receive 15,000 warrants at a price to
be set by the Underwriter.
Subsequent to the balance sheet date, $150,000 representing three (3)
Bridge Notes were retired in full. The corresponding stock was reacquired
from escrow at that time.
NOTE 9 - NOTES PAYABLE
1996 1995
- --------------------------------------------------------------------------------
Notes Payable to shareholders (3 individuals) $418,000 $190,000
12% Note Payable 80,000 -0-
Notes Payable to others (4 individuals) 100,000 310,000
------- -------
Total $598,000 $500,000
-------- --------
-------- --------
The proceeds of the notes have generally been used for working capital
and purchase order financing contracts. The notes are generally short-term
renewable notes bearing interest at from 1% to 4% per month. All notes are
current.
Interest Expense on the notes, including all contract financing, is
included as a separate line item in the Statements of Operations under Cost
of Sales and Contract Financing Operations, and totaled $398,087 and $250,822
for the years ended 1995 and 1996, respectively.
NOTE 10 - LEASE COMMITMENTS
On December 9, 1996, the Company entered into a one (1) year renewal
lease for office space that houses the corporate offices, purchase order and
merchandise sales segments of the business. Rent expense under prior lease
arrangements amounted to $10,800 and $10,800 for the years ended December 31,
1996 and 1995, respectively. Monthly rentals through December 31, 1997 are
$900 per month.
-12-
<PAGE>
FIX-CORP INTERNATIONAL, INC.
(FORMERLY LIFECHOICE, INC.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Pursuant to that certain Purchase and Sale Agreement, more fully
described in Note 4, involving the acquisition of the Resource Recovery Plant
in Heath, Ohio, the Company entered into a Track Lease Agreement for 200' of
railroad siding (including land) for the sole purpose of the storage of
railroad cars owned, leased or consigned to the Company. The term of the
lease is for a period of ten (10) years beginning August 14, 1996 and
expiring August 14, 2006, with an option for an additional ten (10) years
expiring August 14, 2016. Annual rentals, paid in advance, are $1,000 per
year.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
(A.) Bridge Note Financing
In conjunction with the $450,000 in Bridge Note financing, more fully
described in Note 8 , the note holders are entitled to a twenty-two (22%)
percent return on investment as well as a stock dividend of eighteen (18%)
percent of monies invested at $.50 per share or 18,000 shares of common
stock, which was issued and held in escrow. The Company has retained the
right to "repurchase" the shares upon payment of the notes. The term of the
loan is generally 120 to 180 days from closing.
In addition to the above, the Company has communicated its intention to
spin the plant and the related operations off in a public offering within a
year. Should that plan become a reality the Bridge note holders would receive
15,000 warrants at a price to be set by the Underwriter.
(B.) Merger with Lifechoice, Inc.
As indicated in Note 1, on or about October 23, 1995, Fix-Corp
International was acquired by Lifechoice, Inc., preparatory to a reverse
merger in which Fix-Corp assumed control over Lifechoice, Inc. and imbued
Lifechoice, Inc. with its operations and management. Lifechoice, Inc. was a
publicly traded company listed on the NASD Bulletin Board and possessed no
assets and no liabilities, in effect a shell corporation.
Lifechoice, Inc. was brought to the attention of Fix-Corp. by a business
in Florida called LBI Group, Inc. and by a firm in New York called the Accord
Group, Inc. These parties relied upon representations made by the seller of
the shell, namely a firm called the Worthington Company. Lifechoice, Inc. had
previously filed an Issuer Information Statement with NASD in compliance with
Rule 15c2-11 of Securities and Exchange Commission's rules. This Issuer
Information Statement was never rescinded and this permitted Lifechoice, Inc.
to remain listed with the NASD Bulletin Board and possess all of the overt
characteristics of a public company.
In actuality, the charter of Lifechoice, Inc. had previously been
canceled by the State of Utah and the seller had created a new Lifechoice,
Inc. under a different charter number and represented this new company as the
same entity listed on the NASD Bulletin Board. In the State of Utah, the
corporation, as defined by its charter number, is viewed as the owner of the
registration when this registration is procured. Consequently, the company
represented by the seller did not own any registration statement.
When the State of Utah opened an active investigation into this practice,
the seller recommended a redomiciling of the company from Utah to Delaware.
The movement of a company from one domicile to another does not cure the
defect consisting of a charter that cannot be linked to a registration
statement. As a consequence of this action, the seller has been barred by the
Securities and Exchange Commission from the securities business.
The State of Utah has reviewed the merger between Fix-Corp. and
Lifechoice, Inc. and they have determined that Fix-Corp is a victim of this
fraud. Accordingly, the State of Utah has opted to take no action against
Fix-Corp International.
The Company is aware of this flaw in its shell and has taken steps to
remedy the situation. The Company has filed two registration statements in
the State of New York, thus aligning registrations with its current charter.
The Company has also procured a secondary trading exemption from Standard &
Poor's. The Company further intends to file a registration statement in Utah
and thereby rectify the flaw which the Company unknowingly acquired when it
entered into this merger transaction with Lifechoice, Inc.
-13-
<PAGE>
FIX-CORP INTERNATIONAL, INC.
(FORMERLY LIFECHOICE, INC.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 12 - STOCKHOLDER'S EQUITY
Common Stock and Incorporation - On or about October 23, 1995, Fix-Corp
International, Inc. (Fix-Corp), a newly-formed Delaware corporation, was
acquired by Lifechoice preparatory to a reverse merger in which Fix-Corp
assumed control over Lifechoice, a publicly traded company listed on the NASD
Bulletin Board. Lifechoice possessed no assets and no liabilities and, was in
effect, a shell corporation. The Company assumed the name of Fix-Corp
International, Inc. and was redomiciled to Delaware. See Note 11.
Preferred Stock - The Company's Articles of Incorporation authorize the
issuance, upon resolution of the Board of Directors and without further
shareholder approval, of up to 2,000,000 shares of Preferred Stock with a par
value of $.001 per share, including any terms of one or more of the classes
or series of Preferred Stock, including dividend rights, conversion prices as
stipulated by the Board.
Stock Dividend and Shares Held in Escrow - In conjunction with the Bridge
Notes, more fully described in Note 11, the Company has committed to a stock
dividend of eighteen (18%) percent of monies invested at $.50 per share or
18,000 shares of common stock, which was issued and held in escrow. The
Company retains the right to "repurchase" the shares upon payment of the
notes.
Additional Equity Commitments - In addition to the above, the Company has
communicated its intention to spin the plant and the related operations off
in a public offering within a year. Should that plan become a reality the
Bridge note holders would receive 15,000 warrants at a price to be set by the
Underwriter.
Stock Option - An employment agreement was executed on January 3, 1997
with Mark Fixler, the Company's President, CEO and principal shareholder
that includes, among other provisions, an Option to the Employee to purchase
four million shares of stock at the fixed price of fifty cents per share.
This Option can be exercised at any time during the employment period. The
Company is similarly obligated to purchase $2 million dollars of Key Man
Insurance.
NOTE 13 - SEGMENT INFORMATION
As discussed in Note 1, the Company operates in three (3) major segments
of business: Recycled plastic, merchandise sales and purchase order contract
financing. Information concerning operations in these businesses at December
31, 1996 and 1995, and for the years then ended, is presented below:
For the year ended
December 31, Contract Product Recycled
1996 Financing Sales Plastic Total
- -------------------------------------------------------------------------------
Net Revenue $510,780 $232,823 $-0- $743,603
Cost of Sales and
Financing 293,761 126,153 -0- 419,914
------- ------- ----- -------
Gross Profit $217,019 $106,670 $-0- $323,689
------- ------- ----- -------
------- ------- -----
Other Costs & Expenses 434,512
-------
Net Loss ($110,823)
----------
----------
Capital Expenditures $-0- $-0- $9,492,000 $9,492,000
----- ----- --------- ----------
----- ----- --------- ----------
Deferred Plant
Startup Costs $-0- $-0- $36,750 $36,750
----- ----- ------- -------
----- ----- ------- -------
Depreciation &
Amortization $9,757 $9,757 $-0- $19,514
------- ------- ----- -------
------- ------- ----- -------
-14-
<PAGE>
FIX-CORP INTERNATIONAL, INC.
(FORMERLY LIFECHOICE, INC.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
FOR THE YEAR ENDED CONTRACT PRODUCT RECYCLED
DECEMBER 31, 1995 FINANCING SALES PLASTIC TOTAL
- -------------------------------------------------------------------------------
Net Revenue $663,752 $91,812 $-0- $755,564
Cost of Sales
and Financing 1,495,738 47,340 -0- 1,543,078
--------- ------ --- ---------
Gross Profit ($831,986) $44,472 $-0- ($787,514)
---------- ------- ----- ----------
---------- ------- ----- ----------
Other Costs & Expenses 327,128
-------
Net Loss ($1,114,642)
-----------
-----------
Capital Expenditures $11,250 $11,250 $-0- $22,500
------- ------- ----- -------
------- ------- ----- -------
Depreciation &
Amortization $9,757 $9,757 $-0- $19,514
------- ------- ----- -------
------- ------- ----- -------
NOTE 14 - SUBSEQUENT EVENTS
(A.) Bridge Notes Payable
Subsequent to the balance sheet date, $150,000 representing three (3)
Bridge Notes were retired in full. The corresponding stock was reacquired
from escrow at that time.
(B.) EMPLOYMENT AGREEMENTS
An employment agreement was executed on January 3, 1997 with Mark
Fixler, the Company's President, CEO and principal shareholder that
contemplates a three year term. Mr. Fixler's annual base salary was set at
$200,000 for 1997, $250,000 for the second year and $300,000 for the third
year. If the full term of the employment agreement is not honored, then the
Company is obligated to a $2,000,000 severance payment. The contract provides
for a $20,000 allowance for reasonable travel and other out-of-pocket
expenses, to be supported by bills and receipts, a $750 per month automobile
allowance plus reasonable car phone expenses and reasonable car maintenance
expenses, plus Health and Dental insurance and three weeks of paid vacation.
In addition, the contract provides for an Option to the Employee to
purchase four million shares of stock at the fixed price of fifty cents per
share. This Option can be exercised at any time during the employment period.
The Company is similarly obligated to purchase $2 million dollars of Key Man
Insurance.
-15-
<PAGE>
FIX-CORP INTERNATIONAL, INC.
FIXCOR, INC.
CONSOLIDATED BALANCE SHEET
NINE MONTHS TWELVE MOS.
9/30/97 12/31/96
ASSETS (UNAUDITED) (AUDITED)
CURRENT ASSETS
CASH $2,398,541 $224,539
INVESTMENT IN MARKETABLE SECURITIES 128,287 130,692
TRADE ACCOUNTS RECEIVABLE-NET 1,236,177 88,763
SPECIAL TRADE ACCOUNT 300,000 0
PURCHASE ORDER FINANCING CONTRACTS 215,500 221,672
INVENTORIES 877,876 96,002
OTHER CURRENT ASSETS 75,367 0
TOTAL CURRENT ASSETS 5,231,748 761,668
PROPERTY PLANT AND EQUIPMENT
LAND AND LAND HELD FOR DEVELOPMENT 750,000 750,000
BUILDINGS 2,000,000 2,000,000
EQUIPMENT 10,595,431 6,764,500
------- -------
13,345,431 9,514,500
LESS ACCUMULATED DEPRE/AMORT (550,000) (6,428)
PROPERTY, PLANT AND EQUIPMENT-NET 12,795,431 9,508,072
---------- ----------
OTHER ASSETS
LICENSING AGREEMENTS 30,000 0
DEFERRED INCOME TAXES 491,121 412,150
OTHERS ASSETS AND DEFERRED CHARGES 193,750 212,226
------- -------
TOTAL OTHER ASSETS 714,871 624,376
TOTAL ASSETS $18,742,050 $10,894,116
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
NOTES PAYABLE $1,748,582 $598,000
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 1,415,478 112,325
LINE OF CREDIT 1,037,843 2,950,000
--------- ---------
TOTAL CURRENT LIABILITIES 4,201,903 3,660,325
--------- ---------
LONG-TERM DEBT 3,383,347 0
---------
SHAREHOLDERS' EQUITY
PREFERRED STOCK, $.001 par value,
2,000,000 shares authorized, -0- shares
issued or outstanding
COMMON STOCK, $.001 par value. 2,646 2,097
100,000,000 shares
authorized and 22,465,010 issued
and outstanding as of September 30,1997
ADDITIONAL PAID-IN CAPITAL 12,997,332 8,246,406
UNREALIZED LOSS ON INVESTMENTS (68,673) (68,673)
RETAINED EARNINGS (DEFICIT) (1,774,505) (946,039)
TOTAL SHAREHOLDERS' EQUITY 11,156,800 7,233,791
----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $18,742,050 $10,894,116
----------- -----------
----------- -----------
NOTE: All adjustments, in management's opinion, have been made that are
necessary in order to make the financial statements not misleading.
<PAGE>
FIXCORP INTERNATIONAL, INC.
FIXCOR, INC.
CONSOLIDATED INCOME STATEMENT AND
RETAINED EARNINGS
NINE MONTHS TWELVE MOS.
9/30/97 12/31/96
(UNAUDITED) (AUDITED)
INCOME STATEMENT
REVENUE
FEES ON PURCHASE ORDER FINANCING $191,795 $510,779
MERCHANDISE SALES 5,629,189 232,824
SPECIAL ACCOUNT 500,000 0
-------
TOTAL REVENUE 6,320,984 743,603
---------
COST OF SALES
COST OF MERCHANDISE SALES 4,236,567 126,153
-------
GROSS PROFIT 2,084,417 617,450
-------
OPERATING EXPENSES
SALARIES, WAGES AND RELATED COSTS 240,998 277,317
LEGAL, PROFESSIONAL, AND CONSULTING FEES 170,338 98,513
OTHER GENERAL AND ADMINISTRATIVE 1,744,337 353,049
--------- -------
TOTAL OPERATING EXPENSES 2,155,673 728,879
OPERATING INCOME (LOSS) (71,256) (111,429)
-------- --------
OTHER INCOME (EXPENSE)
INTEREST EXPENSE AND FINANCING COSTS (205,710) (32,730)
DEPRECIATION AND AMORTIZATION (551,500) (19,514)
-------- --------
(757,210) (52,244)
--------- -------
NET INCOME (LOSS) BEFORE INCOME TAXES (828,466) (163,673)
PROVISION FOR INCOME TAXES 0 (52,850)
NET INCOME (LOSS) ($828,466) ($110,823)
RETAINED EARNINGS (DEFICIT) BEGINNING (946,038) (835,216)
RETAINED EARNINGS (DEFICIT) END ($1,774,505) ($946,039)
------------ ----------
------------ ----------
NOTE: All adjustments, in management's opinion, have been made that are
necessary in order to make the financial statements not misleading.
<PAGE>
PART III - INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NAME OF NAMES OF DATE OF
NUMBER DOCUMENT PARTIES TO DOCUMENT DOCUMENT
- ------ -------- ------------------- --------
<S> <C> <C> <C>
* 1 Amended and Restated Fix-Corp International, Inc. 05/27/97
Articles of Incorporation
* 2 Bylaws Fix-Corp International, Inc. 11/14/95
3 Acquisition Agreement Fix-Corp, Inc. and Lifechoice, Inc. 10/95
4 Purchase and Sale Agreement Quantum Chemical Corporation and 08/14/96
Fix-Corp International, Inc.
5 Amendment No. 1 to Quantum Chemical Corporation and 10/29/96
Purchase and Sale Agreement Fix-Corp International, Inc.
* 6 Employment Contract Fix-Corp International, Inc. and Mark 01/01/97
Fixler
* 7 Employment Agreement Fix-Corp International, Inc. and Gary 01/01/97
DeLaurentiis
8 Acquisition Agreement Fix-Corp International, Inc., Fixcor 04/16/97
Industries, Inc. and Mark Fixler
9 Loan and Security Agreement NationsCredit Commercial 05/14/97
Corporation through its NationsCredit
Commercial Funding Division, Lender
and Fixcor Industries, Inc., Borrower
10 Guaranty NationsCredit Commercial 05/14/97
Corporation through its NationsCredit
Commercial Funding Division, Lender
and Fixcor Industries, Inc., Borrower,
and Mark Fixler, Guarantor
26
<PAGE>
11 First Amendment to Loan and NationsCredit Commercial 07/16/97
Security Agreement Corporation through its NationsCredit
Commercial Funding Division, Lender
and Fixcor Industries, Inc., Borrower
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT NAME OF NAMES OF DATE OF
NUMBER DOCUMENT PARTIES TO DOCUMENT DOCUMENT
- ------ -------- ------------------- --------
<S> <C> <C> <C>
12 Term Note Palletech Inc., Fixcor Industries, Inc. 07/09/97
and Fix-Corp International, Inc.,
Borrowers and Gordon Brothers
Capital Corporation, Lender
13 Loan and Security Agreement Palletech Inc., Fixcor Industries, Inc. 07/09/97
and Fix-Corp International, Inc.,
Borrowers and Gordon Brothers
Capital Corporation, Lender
14 Purchase Warrant and Fix-Corp International, Inc. and 07/09/97
Agreement Gordon Brothers Capital Corporation
15 Intercreditor Agreement Gordon Brothers Capital Corporation 07/09/97
and NationsCredit Commercial
Corporation, through its NationsCredit
Commercial Funding Division
* 16 License and Marketing Nitro Plastics Technologies of Israel 07/07/97
Agreement and Palletech Inc.
17 Patent License Agreement Fixcor Industries, Inc. and 09/25/97
AlliedSignal, Inc.
18 Convertible Debenture Fix-Corp International, Inc., JNC 10/24/97
Purchase Agreement Opportunity Fund Ltd. and Diversified
Strategies Fund, L.P.
19 6% Convertible Debenture Fix-Corp International, Inc. and 10/24/97
Due October 24, 2000 Holder
20 Registration Rights Fix-Corp International, Inc., JNC 10/24/97
Agreement Opportunity fund Ltd., and Diversified
Strategies Fund, L.P.
21 Escrow Agreement Fix-Corp International, Inc., JNC 10/24/97
Opportunity Fund Ltd., Diversified
27
<PAGE>
Strategies Fund, L.P. and Robinson
Silverman Pearce Aronsohn & Berman
LLP
22 Warrant Fix-Corp International, Inc. and 10/24/97
Holder
* Filed Herewith
</TABLE>
28
<PAGE>
Exhibit 3
ACQUISITION AGREEMENT
Whereas Fix-Corp, Inc., a corporation which is registered in Ohio,
hereinafter referred to as "FIXX", and Lifechoice, Inc., a Utah corporation, to
become a Delaware corporation, hereinafter referred to as "MUNO", wish to effect
a stock purchase and reorganization; thereupon the said corporations agree as
follows:
I
MUNO, is a Utah corporation in good standing with the Secretary of State.
It is a public company and is currently trading on the NASD-OTC Bulletin Board.
There are no assets or liabilities with regard to said corporation's financial
status, and it is therefore commonly referred to as a "public shell". The
present capitalization consists of 9,798,990 free trading shares currently in
the ownership among approximately 291 shareholders. Said current shareholder
list will be presented to FIXX upon completion of the asset purchase herein. In
addition, there are 10,201,010 restricted shares owned by the Worthington
Company (DBA by Paul Parshall, wholly owned proprietorship entity).
II
All of the currently issued and outstanding shares of FIXX shall be
transferred into ownership by MUNO. Simultaneously, MUNO shall issue to the
current shareholders of FIXX new and additional shares, which shall be
restricted, so as to effect a 90% ownership by the current FIXX shareholders of
the total shares outstanding of MUNO. Prior to said issuance, the current total
number of MUNO shares shall be reverse split by a ratio of 50 to 1. Thereupon,
after said split and after said merger completion, the following resultant
number of shares shall be outstanding:
A. Current FIXX corporation shall own a total of 3,600,000 restricted
shares;
B. Worthington Company shall own a total of 204,020 restricted shares;
C. The 291 public stockholders of MUNO shall own a total of 195,980 free
trading shares ;
D. The resulting total outstanding and issued shares shall thereupon be
4,000,000.
III
In consideration of the transfer of said 90% controlling interest to FIXX,
the cash sum of $U.S. 125,000 shall be paid by FIXX by certified check to the
Worthington Company, for consulting fees, and 100,000 shares of restricted
common stock, with $125,000 payable upon the signing of this agreement.
<PAGE>
IV
The closing of said acquisition shall consist of both corporations
effecting signed resolutions by the respective Boards of Directors,
authorizing said acquisition, reverse split of shares, and said transfer
of shares. Paul Parshall agrees to travel to a mutually agreed on time and
place to carry out consulting activities to effect said acquisition. This shall
include the necessary documents to effect any required name changes, obtaining
a new CUSIP number, Standard and Poor's application, printing and issuance of
stock certificates, issuing press releases, verifying the minutes, books and
records of both corporations, and such other duties as he deems necessary to
effect the said acquisition. Upon the consolidation, all current officers and
directors of MUNO shall resign and the current shareholders of FIXX shall elect
new officers and directors.
In consideration for Paul Parshall offering the above-mentioned services,
which is contemplated to require approximately 3 full days in Florida or
Missouri, FIXX shall prepay Paul Parshall's air fare, travel expenses, and all
out-of-pocket expenses for food & lodging. However, prior to the said
consolidation being effected, FIXX and its current shareholders are requested to
obtain independent legal Counsel to advise them as to the consequences and
liability with regard to said consolidation. Any fees in connection with Paul
Parshall's services payable to outside third parties, or regulating agencies,
shall be paid by FIXX.
V
MUNO, represents to FIXX that it is a Utah corporation, in good standing
with said Secretary of State. There are no assets or liabilities within said
corporation. There is no pending litigation, either civil, criminal or
regulatory against MUNO, nor are there any current claims that Paul Parshall has
knowledge of that is reasonably expected to lead to such litigation in the
future, due to any past deeds or acts of MUNO, its past officers or past
directors, or shareholders. Upon the completion of this acquisition, FIXX's
assets shall become the property of MUNO, with 90% of MUNO's current outstanding
shares becoming owned by FIXX. In the event that within three (3) months of the
closing date of this acquisition, there are any substantial liabilities of
claims against MUNO which are discovered by FIXX within said three months time
period, thereupon FIXX shall have the right to rescind this agreement and effect
a transfer of its assets back to its current shareholders. However, said
rescission must be done in good faith and only in the event that said claims or
liabilities would have a significant impact upon the continuing operations of
FIXX. By way of an example, if a creditor asserts a claim for $500.00 due to a
past debt, and this is the only liability found, Paul Parshall shall have the
option to reimburse FIXX to avoid the rescission.
VI
FIXX assumes all liability and responsibility for any and all problems,
expenses, litigation, regulatory expenses and actions, in connection with MUNO
continued existence and operation, after the date of said acquisition. Paul
Parshall shall not be liable or assume any responsibility for any failure or
problems in connection with such matters as stock trading, liquidity, lack of
market
2
<PAGE>
makers, lack of regulatory permission to issue new stock for consideration,
which FIXX and MUNO may or may not be able to complete or comply with in the
future.
VII
This agreement is conditioned upon the financial statement and records and
business plan information of FIXX being physically mailed or presented to Paul
Parshall for his review and approval. Said records shall be presented to Paul
Parshall on or before October 06, 1995, and he shall thereupon have 72 hours to
approve or disapprove of said material. Said approval is being carried out as
part of a "due diligence" review on behalf of the current shareholders of MUNO.
VIII
It is contemplated that the name of MUNO, shall be changed to "Fix-Corp,
Inc.", upon the effective date of said acquisition, and Paul Parshall shall
assist with said name change.
IX
It is contemplated that the current transfer agent for MUNO is Transamerica
Securities Inc., an SEC approved transfer agent. FIXX agrees to continue to use
said transfer agent for a minimum of (2) years. By way of full disclosure, Paul
Parshall is a shareholder and director of said transfer agent. The fees to be
charged to effect any stock transfers shall be the usual and customary fees
currently being charged by similar transfer agents.
X
In the event that FIXX fails to complete this consolidation agreement,
unless extended by mutual consent, and MUNO is ready, willing and able to
complete said consolidation by said date, thereupon the aforesaid $125,000
deposit sum shall be retained by Paul Parshall as liquidated damages.
XI
This agreement shall be governed by the laws of Nevada, and in the event of
any dispute, the parties agree to binding arbitration, pursuant to the rules of
the American Arbitration Association, with the prevailing party to be awarded
attorney fees and all court costs in the event of any litigation.
3
<PAGE>
Wherefore the parties agree and co sent to the above.
- ----------------------------------- ----------------------------------
Fix-Corp, Inc. Lifechoice, Inc.
Mark Fixler Paul L. Parshall
President Chief Executive Officer
DATED DATED
------------------------------ -----------------------------
Mark Fixler Paul L. Parshall
27040 Cedar Rd., STE 104 115 Park Rd.
Beachwood, OH 44122 Worthington, OH 43085
Tel: (216) 292-3182 Tel: (614) 888-6200
4
<PAGE>
Exhibit 4
PURCHASE AND SALE AGREEMENT
THIS AGREEMENT made this 14th day of August, 1996, by and between QUANTUM
CHEMICAL CORPORATION, a Virginia corporation having its principal offices at
11500 Northlake Drive, Cincinnati, Ohio 45249 ("Quantum"), and FIX-CORP
INTERNATIONAL, INC., an Ohio Corporation, having its principal offices at 27040
Cedar Road, Suite 218, Cleveland, OH 44122 ("Buyer");
WITNESSETH:
WHEREAS, Quantum owns and has operated facilities at
Heath, Ohio, for the recycling of post consumer
polyethylene and other plastic resins; and,
WHEREAS, Quantum desires to sell such facilities and
portions of its post-consumer recycling business
associated therewith to Buyer; and
WHEREAS, Buyer desires to purchase such facilities and
portions of the post-consumer recycling from Quantum
upon the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the mutual agreements set forth in this
Agreement, the parties hereto do hereby agree as follows:
1. ASSETS TO BE ACQUIRED. Subject to the terms and conditions set
forth in this Agreement, at Closing (as later defined) Quantum agrees to sell,
convey, transfer, assign and deliver to Buyer and Buyer agrees to purchase and
accept, as hereinafter provided, the following assets, rights and property (i)
constituting Quantum's Resource Recovery plant at Heath. Ohio and (ii) relating
to portions of Quantum's post-consumer plastic recycling business (collectively
referred to as the "Assets").
1.01. A parcel of land and all buildings and improvements upon it (the
"Premises") as described more full described in Schedule 1.01A, subject to the
reservations, easements, and
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exceptions set forth in Schedule 1.01B and the existing or potential claims,
litigation, suits, charges, actions, governmental investigations or other
proceedings set forth in Schedule 5.08.
1.02. Personal property consisting of two parallel plastics recycling
lines (known as Line 7 and Line 8) composed of three primary processing areas
(dry processing, wet processing and finishing); bulk blending; truck scale;
office and shipping facilities; and other machinery and equipment. A listing of
the machinery and equipment for Line 7 and Line 8, plant support and obsolete
machinery and equipment to be sold and purchased is set forth in Schedule 1.02A.
Those assets attributable to that portion of Quantum's post consumer plastics
recycling business which is to be acquired by Buyer are set forth in Schedule
1.02B. Notwithstanding those items set forth on Schedule 1.02A, it is the
intention of the parties that all personal property, fixtures, equipment and
improvements located in the facility as of August 12, 1996 shall be included in
the personal property being sold to Buyer as set forth in Schedule 1.02A and
1.02B.
1.03. Buyer shall not purchase or acquire from Quantum pursuant to this
Agreement:
(a) Quantum's accounts receivable or notes receivable attributable to
Quantum's post-consumer plastics recycling business;
(b) Any of Quantum's covered hopper rail cars and vehicles not listed in
Schedule 1.02A;
(c) Any trade name of Quantum or any right to use any trade name of
Quantum;
(d) Any trademarks of Quantum or any right to use any trademarks of
Quantum;
(e) Any portion of Quantum's post consumer plastics recycling business
not set forth in Schedule 1.02B;
(C) Any finished goods inventories not located upon the Premises at
Closing;
(g) Any office equipment (including, but not limited to, personal
computers, Telephones and copy machines) located upon the Premises
at Closing and covered under master leases held by Quantum or owned
by Quantum which is not listed in Schedule 1.02A; and,
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(h) Any records or documents related to the operation of the Assets
which are not located on the Premises at Closing.
2. PURCHASE PRICE. Buyer shall pay to Quantum for the Assets a total
purchase price of THREE MILLION FOUR HUNDRED THOUSAND DOLLARS ($3,400,000.00)
(the "Purchase Price").
2.01. The parties have agreed to allocate the purchase price among the
Assets on the basis set forth in Schedule 2.01.
2.02. The Purchase Price shall be paid as follows:
(a) TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000.00) to be paid upon the
signing of this Agreement and to be held and administered in
accordance with the terms and conditions of this Agreement;
(b) THREE MILLION ONE HUNDRED FIFTY THOUSAND DOLLARS ($3,150,000.00) to
be paid at Closing;
2.03. The payment specified in Sections 2.02(a) shall be allocated as
follows:
(a) FIFTY THOUSAND DOLLARS ($50,000.00) shall be deemed to be a
non-refundable deposit, subject only to Section 2.03(c), required by
Quantum in order to remove sale of the facility from the market
pending the Closing of this transaction.
(b) TWO HUNDRED THOUSAND DOLLARS ($200,000.00) to be held in trust by
Quantum's attorney subject to release of Buyer's contingencies.
(c) In addition to the other terms and conditions set forth in this
agreement, the deposits referred to Section 2.03(a) and (b) above
shall be refunded to Buyer if Quantum fails to perform any of the
terms or provisions of this agreement and/or any representation of
Quantum as set forth in this agreement is not true or accurate.
3. CLOSING.
3.01. The consummation of the sale and acquisition of the Assets pursuant
to this Agreement ("Closing") shall take place at the offices of Quantum at
11500 Northlake Drive, Cincinnati, Ohio, during normal banking hours, Eastern
Standard Time, at a mutually convenient
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and agreeable date and as soon as practical after Buyer has been satisfied with
respect to or has waived the due diligence contingencies set forth in Section
9.04, but in no event later than sixty-six (66) days after the execution of this
Agreement. In the event the transaction does not close within said sixty-six
(66) day period, subject to the conditions precedent set forth in this
Agreement, this Agreement shall terminate in accordance with Section 11.03 or
any other provision dealing with termination based up failure to release
contingencies.
3.02. At Closing Quantum will deliver to Buyer a general warranty deed in
the form of Exhibit A to this Agreement for the Plant, a bill of sale in the
form of Exhibit B to this Agreement for the remainder of the Assets and such
other documents as specified in Section 9 of this Agreement or as mutually
agreed by the parties or as reasonably required by Buyer.
3.03. At Closing Buyer will deliver to Quantum all documents to be
delivered by Buyer to Quantum pursuant to Article 10 of this Agreement.
3.04. All documents to be delivered at Closing by either party to the
other shall have been reviewed and approved by the parties and their respective
legal counsel prior to Closing and as a condition precedent to Closing, subject
to the sixty-six day limit for Closing in Section 3.01.
4. TAXES. ASSESSMENTS. UTILITIES. TRANSFER TAXES AND FEES
4.01. Real estate and personal property taxes ("Tax" or "Taxes") imposed
upon the Assets for tax year 1995 have been or will be paid by Quantum. Quantum
shall give to Buyer at Closing a credit to the Purchase Price sufficient for
that portion of the 1996 Taxes representing Quantum's proportionate ownership of
the Plant during tax year 1996.
4.02. Any other similar ad valorem tax, tax or any special assessment
imposed on the real or personal property of the Plant shall be prorated between
Quantum and Buyer on the basis of the portion of the assessment period falling
before and after Closing, respectively.
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4.03. The parties shall make all reasonable efforts to change the billing
for water, electricity, sewer, telephone and other utilities from Quantum to
Buyer as of the date of Closing. All charges for water, electricity, sewage,
telephone and other utilities for the billing period encompassing Closing shall
be prorated between Buyer and Quantum as of Closing.
4.04. Any payments by either party to the other pursuant to Sections 4.02
and 4.03, or the prorations therein prescribed, shall be made within ten (10)
business days after receipt of invoices from the payee.
4.05. Buyer will pay or reimburse Quantum for all taxes, fees or other
charges payable to any federal, state or local governmental entity, except taxes
on or measured by the net income of either party or taxes imposed upon Quantum
as a result of any gain on this transaction, as a result of the sale or transfer
of the assets and business pursuant to this Agreement or any documents executed,
filed or recorded in connection with this Agreement.
5. REPRESENTATIONS AND WARRANTIES OF QUANTUM
Quantum represents and warrants as follows:
5.01. Quantum is a corporation duly organized, validly existing and in
good standing under the laws of the Commonwealth of Virginia and is qualified
and in good standing as a foreign corporation in the State of Ohio.
5.02. Quantum has full corporate power and authority to make and perform
this Agreement and to transfer and vest in Buyer title to all of the Assets.
5.03. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated by this Agreement by Quantum have
been or will have been, prior to Closing, duly authorized by all requisite
corporate action.
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5.04. The execution of this Agreement by Quantum and the performance of
its obligations under this Agreement will not violate any contract, mortgage,
indenture or similar agreement or restriction to which Quantum is a party or
constitute a default under any collective bargaining agreement or other
agreement to which Quantum is a party and which pertains to the Plant.
5.05. Quantum has and will convey to Buyer fee simple title to all of
the real estate and appurtenances set forth in Schedule 1.01 A free and clear
of all liens, encumbrances or other charges, except as disclosed in Schedule
1.01B with possession of the Premises and Assets to take place immediately
after Closing.
5.06. Quantum is the sole and exclusive title owner of all the personal
and other tangible property to be transferred to Buyer as set forth in Schedule
1.02A and Schedule 1.02B. Quantum shall transfer such assets to Buyer in the
same condition they were in on June 5, 1996, ordinary wear and tear excepted,
free and clear of all liens, encumbrances and/or claims by any other person or
entity except those listed on Schedule 5.08.
5.07. Quantum's facility is in compliance in all material respects with
all laws, regulations, ordinances, decrees and orders relating to health and
environmental controls, including but not limited to sprinkler system and
pollution control equipment relating to health and environmental controls.
5.08. Except with respect to the matters listed in Schedule 5.08 or to
which Quantum has given or shall give notice to Buyer in writing, there are (a)
no litigation, suits, charges, actions, findings, governmental investigations,
reports or orders or other proceedings of any kind or nature threatened or
pending against Quantum which would materially effect Quantum's right to convey
the real and personal property required by this Agreement. (Such governmental
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investigations and reports as referred to above shall include the Department of
Labor, OSHA and any EPA agency; the plant, facility and assets are not subject
to any contract or agreement with any labor union, organization or collective
bargaining agreement which would be subject to of materially effect transfer of
the assets as contemplated by this agreement; that none of the restrictions and
matters set forth in Schedule 1.01B, materially affect the use and operation of
the facility and assets), and (b) no administrative or judicial proceedings
arising under any federal, state or local law or provision relating to the
regulation of the discharge of materials into the environment or otherwise
relating to the protection of health and environment, whether initiated by a
third party or by Quantum, pending or, to the knowledge, information and belief
of Quantum, threatened against or relating to or involving the Premises or
Assets or the business to be sold to Buyer pursuant to this Agreement, or the
transaction contemplated by this Agreement.
5.09 EXCEPT AS OTHERWISE PROVIDED HEREIN, THERE ARE NO EXPRESS OR IMPLIED
WARRANTIES THAT APPLY TO THE TRANSACTIONS CONTEMPLATED HEREIN AND QUANTUM
SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTY OF MERCHANTABILITY AND ANY IMPLIED
WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE.
5.10 That the plant, facility and assets are not subject to any contract
or agreement with any labor union, organization or collective bargaining
agreement.
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5.11 That the plant, facility and assets are not subject to any employee
or employment contracts, employment benefit or retirement programs of any kind
or nature as such relate to this Agreement.
5.11A That Quantum's Resource Recovery plant located at Heath, Ohio when
shut down in October, 1995 was fully operational and would produce the goods
and/or products for which it was intended and which it has in the past produced
and sold and no modifications or changes to the equipment, plant and facility
have been made since October, 1995 which, to the best of Quantum's knowledge,
would prevent the facility from starting up and becoming operational. Further
that operation of the facility in its current condition which is consistent with
its operation in October, 1995 will not violate any Environmental statute,
regulation or order. Any previous additions or modifications to the plant and
facility by 3DM are not being warranted by Quantum as to their environmental
qualifications or acceptability.
5.12 All inventories, buildings, and fixed assets owned or leased by
Quantum located at the facility in Heath, Ohio are and will be adequately
insured against fire to the closing date and valid policies therefore are and
will be outstanding and duly in force and the premiums will be paid prior to the
closing date.
5.13 That Quantum will make available after Closing for a period of one
(1) year as time permits and with reasonable notice from Buyer, personnel to
consult with Buyer and to assist Buyer in re-starting the plant and equipment to
the extent that Quantum employs such personnel. Quantum will also make available
to Buyer any and all records, manuals, permits, drawings, blueprints,
specifications, etc. which deal with equipment specifications and operation,
overall operation of the facility and building layout, design and construction.
During the period of time from the Closing until 90 days thereafter, Buyer will
not be charged by Quantum for any expenses
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incurred by Quantum in sending its personnel to the facility to assist and
consult with the Buyer. Thereafter, Buyer will be responsible for paying Quantum
for expenses incurred by Quantum's personnel in travel to and from the facility.
6. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants as follows:
6.01. Buyer is a corporation duly organized and validly existing under the
laws of the State of Ohio and is in good standing therewith.
6.02 Buyer has full corporate power and authority to make and perform
this Agreement and to acquire title to the Assets Buyer is purchasing under this
Agreement.
6.03. The execution, delivery and performance of this Agreement and the
documents contemplated by this Agreement due from Buyer at Closing have been or
will have been, prior to Closing, duly authorized by all requisite corporate
action.
6.04. Buyer will complete its due diligence (including, but not limited
to, physical inspection of the Premises, the personal property and machinery and
equipment) prior to Closing based upon the fact that Buyer is not fully aware of
the condition of the Premises and machinery and equipment, and does not have
sufficient knowledge and awareness of any potential claims which it may need to
assume or resolve.
7. SURVIVAL OF REPRESENTATIONS
The representations and warranties of Quantum and Buyer contained in this
Agreement shall survive Closing in accordance with the applicable statutes of
limitations.
8. COVENANTS AND AGREEMENTS
8.01. Except as provided elsewhere in this Agreement, Buyer shall assume
no liabilities of Quantum including, without limiting the foregoing, any
accounts payable relating to the
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Premises, the Assets and the portions of the business to be acquired or any
liability of Quantum arising from acts or events occurring prior to Closing.
8.02. Except as provided elsewhere in this Agreement, Quantum agrees to
defend, indemnify and hold harmless Buyer, its officers, directors and employees
against and in respect of any and all claims, losses, costs, expenses,
obligations and liabilities (including without limiting the foregoing, and
subject to the provisions of Section 8.05, below, costs and expenses of
litigation and reasonable attorneys' fees) to the extent they arise or result
from or relate to (i) any breach by Quantum of any of its representations,
warranties, guarantees, agreements, commitments or covenants in this Agreement,
(ii) the operations at or upon the Premises and Quantum's plastics recycling
business prior to Closing which shall include, but not be limited to, any
liability arising out of or associated with any product, goods or processes
sold, delivered or distributed by Quantum, or (iii) any obligation, debt or
liability which Quantum shall have agreed to pay, perform or discharge pursuant
to this Agreement and/or any undisclosed debt, liability or obligation which
occurred, arose or accrued prior to Closing. This Section 8.02 shall not apply
to nor include any and all claims, losses, costs, expenses, obligations and
liabilities related to environmental damage, contamination, pollution, toxic or
hazardous chemicals which claims, losses, costs, expenses, obligations and
liabilities are the subject matter of a separate environmental indemnification
agreement between the parties in the form of Exhibit C to this Agreement.
8.03. Buyer agrees to and does hereby indemnify, defend and hold Quantum,
its officers, directors and employees harmless against and in respect of any and
all claims, losses, costs, expenses, obligations and liabilities (including
without limiting the foregoing, and subject to the provisions of Section 8.05
hereof, costs and expenses of litigation and reasonable attorneys' fees)
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to the extent they arise or result from or relate to (i) any breach by Buyer of
any of its representations, warranties, guarantees, commitments or covenants in
this Agreement, (ii) the operations at or upon the Premises and Buyer's plastics
recycling business on and after Closing to the extent unrelated to the items set
forth in Section 8.02(iii) above, or (iii) any obligation, debt or liability
which Buyer shall have agreed to pay, perform or discharge pursuant to this
Agreement. This Section 8.02 shall not apply to nor include any and all claims,
losses, costs, expenses, obligations and liabilities related to environmental
damage, contamination, pollution, toxic or hazardous chemicals which claims,
losses, costs, expenses, obligations and liabilities are the subject matter of a
separate environmental indemnification agreement between the parties in the form
of Exhibit C to this Agreement.
8.04. The indemnification provided for in Sections 8.02 and 8.03 shall
include any and all claims of liability of any type or nature against the
Indemnitee (as this term is defined in Section 8.05, below), except for claims
of gross negligence or willful misconduct against the Indemnitee.
8.05. With respect to any claim for which indemnification is sought
pursuant to this Agreement, the party seeking indemnification ("Indemnitee")
shall promptly after knowledge of such claim, notify in writing the party from
whom indemnification is sought or is owed ("Indemnitor"), in as much detail as
is feasible, of the existence and nature of the claim. At its sole cost and
expense, and with counsel of its choosing, Indemnitor shall defend against any
claim of a third party and shall pay any resulting settlements, judgments or
decrees. Indemnitee must have taken reasonable steps to mitigate any damages
resulting from any such third party claim. In its notice to the Indemnitor,
Indemnitee must grant to Indemnitor the full power, authority and right on
Indemnitee's behalf to control the defense or settlement of any such claim, so
long as
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Indemnitor diligently prosecutes the defense of the claim or suit. Indemnitor
shall keep Indemnitee informed at all times as to the status of the claim, and
Indemnitee may, at its own election and expense, participate in the defense of
any such claim. Should the Indemnitor, after the Indemnitee has fulfilled its
obligations under this Section, fail to defend or to prosecute diligently the
defense of any claim of a third party, the Indemnitee, without waiving any
rights against the Indemnitor, may defend or settle any such claim and shall be
entitled to recover from the Indemnitor the amount of any settlement or judgment
or decree and all costs and expenses, including, without limitation, reasonable
attorneys' fees. Each of the parties to this Agreement shall extend reasonable
cooperation to the other parties in connection with such defense or settlement.
The right of the Indemnitor to defend against any such claim shall be limited by
the right of an insurance company to defend against the claim if the claim
involves an insured risk.
8.06. After Closing Quantum shall give Buyer, its counsel, accountants,
engineers and other representatives access to the Assets' operational records,
including customer lists, which had been stored and/or were available prior to
Closing either at the adjacent compounding plant or off site of the Plant.
Access to such records shall be granted at reasonable times during the regular
daytime work hours of the facility or facilities in which the records and
documents are stored. Representatives of Buyer inspecting these records and
documents must upon request of Quantum execute confidentiality agreements and
must comply with the safety and security regulations of the facility in which
such inspections are made. Quantum shall have the right to have representatives
present at all times during such inspections. Buyer shall have the right to make
copies of such records and documents and shall reimburse Quantum for its costs
in making any such copies.
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8.07. Buyer recognizes that Quantum has shared operations and operating
systems between the Premises and the adjacent compounding plant. Buyer will
grant access to the Premises to Quantum, its employees, agents and contractors
for the purpose of utilizing, repairing, replacing, maintaining or disconnecting
shared operations and operating systems for which Quantum shall be financially
responsible. With respect to the shared operations or operating systems, Quantum
and Buyer agree that:
(a) Within twelve (12) months after Closing, Quantum shall disconnect
its adjacent compounding plant from the Premises' fire pump system
at Quantum's sole expense;
(b) Buyer shall grant to Quantum an easement, in the form of Exhibit D
to this Agreement, for the purpose of ingress and egress to and
utilization of the truck scale and the rail car unloading area;
(c) Quantum will maintain and repair the unloading ramps for the rail
car unloading area within the easement granted to it by Buyer at its
sole expense; and
(d) Buyer will maintain and repair the truck scale upon the Premises so
as to keep its operation in accordance with the standards of the
State of Ohio for certified scales at its sole expense.
8.08. Quantum shall lease to Buyer, in the form of Exhibit E to this
Agreement, sufficient linear footage for three (3) rail car spots on the
railroad spur located upon the premise of Quantum's adjacent compounding plant.
8.08A. This agreement is contingent upon Buyer's due diligence and
approval of Sections 8.07 and 8.08 above prior to Closing. Should Buyer after
completion of its due diligence find the provisions of Sections 8.07 and/or
8.08 to interfere with operation of the equipment, plant or facility or cause
excessive expense, the parties shall first endeavor to negotiate a resolution
thereof. If they cannot resolve their differences, then this agreement shall
terminate,
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Buyers full deposit shall be returned and each of the parties shall be released
from the terms and conditions of this agreement.
8.09. Without Quantum's prior approval, Buyer shall not accept any return
of products purchased by Quantum's post-consumer plastic resin customers from
Quantum. In the event any customer attempts to return product or notifies Buyer
that it intends to return product sold by Quantum, Buyer shall immediately
notify Quantum and shall inform Quantum of any reasons stated by a customer for
the return of product. Quantum shall then deal directly with the customer
concerning such return of product and any credits or refund associated therewith
and shall defend, save harmless and indemnify Buyer in regard to any matters
associated therewith.
8.10. Buyer shall not use "Quantum", "Quantum Chemical" or any other
similar name for the Premises or the business operated at the Premises which
might create the false or erroneous appearance or impression that the Premises
is owned or operated by Quantum after the Closing without specific written
consent from Quantum, although Buyer shall be entitled to retain as its own and
use the telephone number(s) which Quantum used during its ownership of the
facility.
8.11. Quantum agrees to immediately cease any further attempts to market,
sell or dispose of the Assets and/or Premises to, and to solicit offers for the
purchase or transfer of the Assets and/or Premises from, any prospective third
party purchasers or transferee unless or until this Agreement is terminated.
8.12. For the period between the execution of this Agreement and Closing,
Buyer shall have the right to limited, escorted access to the Premises in order
to complete its due diligence and/or to show the Premises and machinery and
equipment to lenders, investors and employees and to determine how to operate
the facility and Buyer's obligation pursuant to this agreement is
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contingent upon completion of such due diligence to Buyer's satisfaction prior
to Closing. In no event will Buyer be permitted to operate the machinery or
equipment without Quantum's written consent and without a representative of
Quantum present or to make improvements, modifications or repairs to the
Premises or the machinery and equipment prior to Closing without Quantum's
written consent. Buyer shall make prior arrangements with Quantum's designee for
access to the Premises.
9. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE. The obligation
of Buyer to proceed with Closing are, at Buyer's option, subject to the
satisfaction, waiver or release of the following conditions on or before
Closing.
9.01. All of the representations and warranties made by Quantum in this
Agreement shall be true and correct as of the time of Closing.
9.02. Quantum shall have delivered to Buyer an opinion of Quantum's
counsel, dated as of Closing, to the effect that:
(a) Quantum is a corporation duly organized, validly existing and in
good standing under the laws of the Commonwealth of Virginia and is
qualified and in good standing as a foreign corporation in the State
of Ohio.
(b) All proceedings required by law or by the provisions of this
Agreement or by Quantum's certificate of incorporation or by-laws,
or any other document binding upon Quantum, to be taken by Quantum
in connection with the due consummation of the transactions
contemplated by this Agreement have been duly and validly taken.
(c) Quantum has complete and unrestricted power to sell, convey,
transfer, assign and deliver to Buyer all of the assets to be sold
by Quantum to Buyer under this Agreement.
(d) The sale, conveyances, transfers, and deliveries under this
Agreement to Buyer are not in contravention of any applicable
federal, state or local law, or of any contract, indenture or other
instrument or document to which Quantum is a party or is bound.
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9.03. The Assets and the intended use thereof are not or have not been
adversely affected in a material way by a casualty or other event, whether
insured or uninsured, between the date of this Agreement and Closing. If such a
casualty or other event occurs, Buyer shall have the option: (i) proceed with
Closing according to the terms of this Agreement, (ii) proceed with Closing
except that the Purchase Price shall be reduced by the dollar amount of the cost
of repair or replacement of the assets affected, providing the parties to this
Agreement can agree on said dollar amount, or (iii) terminate this Agreement, in
which event the parties shall have no further obligation under this Agreement
and Buyer's entire deposit as set forth in Section 2.02(a) shall be immediately
returned to Buyer. Buyer may elect course (ii) and then select course (i) or
(iii) in the event the parties are unable to agree on the cost of repair or
replacement. For purposes of this Section 9.03 only, "adversely affected in a
material way" shall mean an estimated cost of $250,000.00 or more.
9.03A. Buyer makes a good faith effort to complete its financing of this
transaction by obtaining a firm commitment from its lender or lenders within
sixty-six (66) days after the date this Agreement is executed. If Buyer does not
obtain a firm commitment for financing satisfactory to Buyer or if this
financing contingency is not waived and/or released by Buyer in writing prior to
Closing, then all but $50,000.00 of Buyer's deposit as described in Section
2.02(a) shall be promptly returned to Buyer and the parties shall each be
released from further liability on this Agreement and Quantum shall be entitled
to retain $50,000.00 of Buyer's deposit free and clear of any claim by Buyer.
9.04 Buyer's obligation to Close this transaction is further contingent
upon Buyer's completion of its due diligence within twenty one (21) days after
execution of this Agreement by all parties and further that the results of the
Buyer's due diligence is satisfactory to Buyer. Such
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due diligence shall include but not be limited to the following: (a) Buyer
verifying and being satisfied that the assets being purchased are sufficient to
currently startup and operate the facility and are of the quality represented;
(b) Buyer being satisfied that Quantum's shutting down of the shared operation
as described in Section 8.05 and those matters described in Sections 8.07 and
8.08 above will not interfere with Buyer's operation of the facility or cause
Buyer to incur additional expenses associated with the shut down and/or the
operation of its facility thereafter; (c) Buyer being satisfied that the
facility as shut down and when started up and operated after the Closing is in
conformance with all Environmental laws, statutes, regulations and orders and
has not been notified of any violation in regards thereto and all equipment
located in the facility used to comply with Environmental laws, statutes,
regulations and orders is operating and in good order and repair; (d) Buyer
being satisfied that the plant and facility can be operated and will manufacture
the products as represented by Quantum; (e) Buyer being satisfied that it will
be able to obtain assistance from Quantum in putting the plant and facility back
into operation; and (f) review of Quantum's financials relating to this
transaction as described on Schedule 5.08A. This contingency must be released in
writing by notice from the Buyer to Quantum within Twenty one (21) days after
execution of this Agreement as provided above, otherwise should Buyer fail to
release this contingency in writing, each of the parties' obligations pursuant
to this Agreement shall terminate and each shall be released therefrom with
Buyer's payment/deposit as described in Section 2.02(a) being returned to Buyer
within five (5) days thereafter.
10. CONDITIONS PRECEDENT TO QUANTUM'S OBLIGATION TO CLOSE. The
obligation of Quantum to proceed with Closing are, at Quantum's option, subject
to the satisfaction, waiver or release of the following conditions on or before
Closing.
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10.01. Quantum have received the consideration to be paid at or before
Closing by Buyer to Quantum pursuant to Sections 2.02(a) and 2.02(b).
10.02. Buyer shall have delivered to Quantum an opinion of Buyer's counsel
dated as of Closing, to the effect that:
(a) Buyer is a corporation duly organized and validly existing under the
laws of the State of Ohio and in good standing therewith.
(b) All proceedings required by law or by the provisions of this
Agreement or by Buyer's articles of organization or operating
agreement, or any other document binding upon Buyer, to be taken by
Buyer in connection with the due consummation of the transactions
contemplated by this Agreement have been duly and validly taken.
(c) Buyer has complete and unrestricted power to purchase and accept all
of the assets sold by Quantum to Buyer under this Agreement and the
specific power and authority to execute the promissory note and
mortgage contemplated by this Agreement.
(d) That the purchase and receipt of the Assets from Quantum are not in
contravention of any applicable federal, state or local law, or of
any contract, indenture or other instrument or document to which
Buyer is a party or is bound.
11. MISCELLANEOUS.
11.01. BROKER'S. Quantum and Buyer each represents to the other that it has
not retained any broker or finder and that no fee, commission or other
compensation is payable to any broker or finder in connection with the
transactions contemplated by this Agreement as a result of each one's respective
actions.
11.02. PUBLICITY. Buyer agrees that it will make no public statements,
press releases or announcements regarding this transaction until Closing. Should
the Buyer breach this provision, then Quantum shall have the right, at its sole
discretion, to retain the payment made pursuant to Section 2.02(a) and to
terminate this Agreement without recourse by Buyer.
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11.03. SURVIVAL OF TERMS. In the event this Agreement is terminated by
either party, Sections 8.02 (Quantum's Indemnification of Buyer), 8.03 (Buyer's
Indemnification of Quantum), 8.04 (Exceptions to Indemnification), 8.05 (Claims
for Indemnification) and 11.02 (Publicity) shall survive such termination and
shall be effective in accordance with their respective terms.
11.04. PARTIES. This Agreement shall inure to the benefit of and be binding
upon the parties to this Agreement and their respective successors and assigns.
11.05. ENTIRE AGREEMENT. This Agreement contains the full and complete
agreement between the parties with respect to the sale by Quantum and purchase
by Buyer of the assets which are the subject matter of this Agreement. This
Agreement may only be modified or amended by written instrument signed by both
parties.
11.06. NOTICES. All notices, requests, demands and other communications
either required or given under this Agreement shall be in writing and shall be
deemed to have been duly given on the date of delivery in person to the officers
named below or three (3) days after mailing by certified or registered mail,
postage prepaid, return receipt requested to the following address:
IF TO QUANTUM: IF TO BUYER:
Quantum Chemical Company Fix-Corp International, Inc.
11500 Northlake Drive 27040 Cedar Road, Suite 218
Cincinnati, OH 45249 Cleveland, OH 44122
Attention: President Attention: President
or such other address or person as the parties may designate from time to time.
11.07. APPLICABLE LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Ohio.
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11.08. SCHEDULES AND EXHIBITS. All schedules and exhibits referred to in
this Agreement are incorporated into and made a part of this Agreement.
11.09. BULK SALES. Quantum and Buyer agree that the Uniform Commercial Code
and other statutes relating to the bulk sale or transfer of property are not
applicable to the transactions contemplated by this Agreement.
11.10. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original. This Agreement and any
counterpart so executed shall be deemed to be one and the same instrument. It
shall not be necessary in making proof of this Agreement or any counterpart of
this Agreement to produce or account for any of the other counterparts.
11.11. INVALIDITY. In the event any provision is held invalid or
unenforceable, the Parties shall attempt to agree on a valid or enforceable
provision which shall be a reasonable substitute for such invalid or
unenforceable provision in light of the tenor of the Agreement and, on so
agreeing, shall incorporate such substitute provision into this Agreement.
11.12. EXPENSES. Except as the parties may otherwise agreed, the parties
shall bear their respective fees, costs and expenses in connection with the
transactions contemplated by this Agreement.
11.13. WAIVER. No waiver by any party, whether express or implied, of any
right under any provision of the Agreement shall constitute a waiver of such
party's right at any other time or a waiver of such party's rights under any
other provision of the Agreement unless it is made in writing and signed by the
President or a Vice President of the party waiving the condition. No failure by
any party to this Agreement to take any action with respect to any breach of the
Agreement or default by another party shall constitute a waiver of the former
party's right to
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enforce any provision of the Agreement or to take action with respect to such
breach or default or any subsequent breach or default by such other party.
11.14. SECTION HEADINGS. The section and subsection headings in this
Agreement are for convenience of reference only.
11.15. LIQUIDATED DAMAGES. In the event Buyer fails to consummate the
transaction for any reason other than the failure of the contingencies set forth
in this Agreement, Quantum will be entitled to retain as liquidated damages, in
lieu of any other damages, liabilities, cost or expenses incurred by Quantum and
in complete satisfaction of the Buyer's liabilities to Quantum on account of
such failure or action, Buyer's payment in the amount of TWO HUNDRED FIFTY
THOUSAND DOLLARS ($250,000.00) pursuant to Section 2.02(a).
11.16. TIME OF ESSENCE. The parties to this Agreement agree that time is of
the essence in the performance of duties and obligations required of or pursuant
to this Agreement.
11.17. RELEASE; TERMINATION. Upon execution of this Agreement, Quantum
hereby releases and discharges Buyer and Buyer's officers and directors from any
claims, demands or liabilities associated with Case No. A-96-2928 pending in the
Common Pleas Court of Hamilton County, Ohio. Furthermore, prior to the
completion of Closing, in the event that any legal action is commenced against
Buyer by any person or entity not a party to this transaction which has as a
basis for the claim alleged therein Buyer's proposed purchase of Quantum's
Heath, Ohio facility and/or any of the assets being set forth in this agreement,
then Buyer shall have the option of terminating this agreement and receiving an
immediate return of its payment/deposit made to Quantum as set forth in Section
2.02(a) above.
IN WITNESS WHEREOF, the parties to this Agreement have caused this
Agreement to be duly executed by their authorized representatives as of the day
and year first set forth above.
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QUANTUM CHEMICAL CORPORATION FIX-CORP INTERNATIONAL, INC.
[Signatures -See Page 24]
By: By:
---------------------------- -----------------------------
Attest: Attest:
----------------------- -------------------------
22
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have caused this
Agreement to duly executed by their authorized representatives as of the day and
year first set forth above.
QUANTUM CHEMICAL CORPORATION FIX-CORP INTERNATIONAL, INC.
By: By:
---------------------------- -----------------------------
Attest: Attest:
----------------------- -------------------------
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Exhibit 5
AMENDMENT NO. 1
TO
PURCHASE AND SALE AGREEMENT
THIS AGREEMENT made and to be effective as of October 29, 1996, by and
between QUANTUM CHEMICAL CORPORATION, a Virginia corporation having its
principal offices at 11500 Northlake Drive, Cincinnati, Ohio 45249 ("Quantum"),
and FIX-CORP INTERNATIONAL, INC., an Ohio Corporation, having its principal
offices at 27040 Cedar Road, Suite 218, Cleveland, Ohio 44122 ("Buyer");
WITNESSETH:
WHEREAS, Quantum and Buyer have entered into a Purchase and Sale Agreement
dated August 14, 1996 (the "Agreement") for the sale and purchase of the
Assets, as that term is defined in the Agreement; and
WHEREAS, Quantum and Buyer now wish to amend the Agreement so as to extend
the time for Closing.
NOW, THEREFORE, in consideration of the mutual agreements set forth in this
Amendment No. 1 and other good and valuable consideration, the parties to the
Agreement and this Amendment agree as follows.
1. EXTENSION OF TIME FOR CLOSING.
1.01. Quantum agrees to extend the Closing, as that term is defined in
the Agreement, for thirty (30) days commencing from November 1, 1996 in exchange
for Buyer paying Quantum the sum of Seventy-five Thousand Dollars ($75,000.00)
via wire transfer. This wire transfer must be made by Buyer prior to 3:00 p.m.
EST on Wednesday, October 30, 1996 or this Amendment and the Agreement will
terminate as of 5:00 p.m. EST Wednesday, October 30, 1996.
1.02. If so requested in writing by Buyer, Quantum will agree to a
second extension of the Closing for thirty one (31) days commencing from
December 1, 1996 in exchange for Buyer paying Quantum the sum of Seventy-five
Thousand Dollars ($75,000.00) via wire transfer.
<PAGE>
Receipt of this wire transfer must be confirmed by Quantum by 3:00 p.m. EST on
or before November 30, 1996, or this Amendment and the Agreement will terminate
as set forth in Section 3, below.
1.03. If so requested in writing by Buyer, Quantum will agree to a
third extension of the Closing for thirty one (31) days commencing from January
1, 1997 in exchange for Buyer paying Quantum the sum of One Hundred Thousand
Dollars ($100,000.00) via wire transfer. Receipt of this wire transfer must be
confirmed by Quantum by 3.00 p.m. EST on or before December 31, 1996, or this
Amendment and the Agreement will terminate as set forth in Section 3, below.
1.04. After the third extension of the Closing, no further extensions
of the Closing may be requested by Buyer, none shall be granted by Quantum and
all sums paid by Buyer to Quantum shall be retained by Quantum in accordance
with Section 3, below.
2. CREDITS TOWARD CLOSING. In the event Closing takes place prior to the
expiration of any extension period, all payments made by Buyer to Quantum
pursuant to Sections 1.01, 1.02 and 1.03, above, shall be credited towards the
Purchase Price and shall reduce the amount due to Quantum from Buyer at Closing
pursuant to Section 2.02(b) of the Agreement.
3. FAILURE TO CLOSE. In the event the Buyer fails to Close through no
fault of Quantum prior to the expiration of an extension period or Buyer fails
to timely request a second or third extension of the Closing or Buyer fails to
wire transfer payments for extensions of time to Close by the dates set forth in
Sections 1.01, 1.02 or 1.03, above, the Agreement shall immediately terminate.
In such event, Quantum shall retain, without any recourse by Buyer whatsoever,
all sums paid to it by Buyer pursuant to Section 2.02(a) of the Agreement and
Sections 1.01, 1.02 and 1.03 of this Amendment as liquidated damages and not as
a penalty.
4.0 This Amendment may be executed in two counterparts each of which shall
be deemed an original. This Amendment and any counterpart so executed shall be
deemed to be one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have caused this
Agreement to be duly executed by their authorized representatives as of the day
and year first set forth above.
QUANTUM CHEMICAL CORPORATION FIX-CORP INTERNATIONAL, INC.
By: By:
---------------------- ---------------------------
Attest: Attest:
------------------ -----------------------
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Exhibit 8
ACQUISITION AGREEMENT
PURCHASE OF QUANTUM CHEMICAL COMPANY'S ASSETS
FOR FIX-CORP INTERNATIONAL'S STOCK
THIS AGREEMENT, executed on the date (or dates) set forth below, by and
between:
FIX-CORP INTERNATIONAL, Inc., a Delaware corporation with its principal
place of business located at 27040 Cedar Road, Suite 218, Beachwood, Ohio 44122,
acting through its authorized agent Sherry Durst, and hereafter referred to as
interchangeably as "Fix-Corp International, Inc." or "Purchaser";
- and -
FIX-COR INDUSTRIES, Inc., a Delaware corporation with offices at 27040
Cedar Road, Suite 218, Beachwood, Ohio 44122, and with a plastics recycling
plant located at Mid-Ohio Industrial Part, 1835 James Parkway, Heath, Ohio
43065, formerly known as Quantum Chemical Company, acting through its authorized
agent Gary DeLorentis and hereafter referred to as "Fix-Cor";
- and -
Mark Fixler, an individual residing at 6758 Bramblewood Lane, Mayfield,
Village 44143, acting on his behalf and hereafter referred to as the
"Stockholder";
Declare as their mutual intent and purpose as follows.
RECITALS:
WHEREAS, Fix-Corp International, Inc. and Quantum Chemical Corporation, a
Virginia corporation with its principal offices at 11500 Northlake Drive,
Cincinnati, Ohio 45249 entered into a Purchase and Sale Agreement for the
Quantum Resource Recovery plant located at Heath, Ohio, involving Quantum's
post-consumer plastic recycling business and said Purchase and Sale Agreement
was consummated on December 16, 1996. A copy of said Purchase and Sale Agreement
is hereby attached and labeled Exhibit A.; and
WHEREAS, Fix-Corp International lacked the financial capacity to consummate
this transaction by itself and, because of this lack of capacity, Mark Fixler,
Stockholder herein and the President of Fix-Corp International, was engaged in a
personal capacity and was asked to sign and in fact did sign as Guarantor on a
Loan and Security Agreement with Gordon Brothers Capital Corporation, a Delaware
corporation with its principal office located at 40 Broad Street, Boston,
Massachusetts 02109 and, without Mr. Fixler's signature on this Loan and
Security Agreement, the transaction between Fix-Corp International, Inc. and
Quantum Chemical Corporation would not have been consummated. A copy of the Loan
and Security Agreement is attached and labeled Exhibit B; and
<PAGE>
WHEREAS, Fix-Corp International, Inc. has established a wholly owned
subsidiary called Fix-Cor Industries, Inc. and Fix-Cor Industries purpose for
existing is to operate the assets and the business acquired from Quantum
Chemical Corporation on behalf of Fix-Corp International, Inc.; and
WHEREAS, Fix-Corp International, Inc. desires to compensate Mark Fixler,
Stockholder herein, for his assistance in the procurement of financing for the
acquisition of Quantum Chemical Company assets and, in addition to providing
compensation for Stockholder's guarantee, Purchaser further desires to acquire
all legal and equitable interest acquired by Stockholder in said Quantum
Chemical Company assets, thereby vesting full legal and equitable title in said
Quantum Chemical Company with Fix-Corp International, Inc., Purchaser herein;
and
WHEREAS, Purchaser further desires to transfer all assets acquired from
Quantum Chemical Company and place said assets with Fix-Cor Industries, Inc.;
WHEREAS, Purchaser further desires to accomplish its acquisition of all
legal and equitable interest held by Stockholder, Mark Fixler, through a noncash
transaction involving an exchange of restricted Common Stock with par value of
$0.001 per share; and
WHEREAS, Stockholder is also amenable to accepting a block of Restricted
Common Stock with par value of $0.001 and with market value, calculated pursuant
to the terms set forth below, of six million dollars ($6,000,000); and
WHEREAS; Fix-Cor is agreeable to accepting all assets acquired from Quantum
Chemical Corporation and operating said assets on behalf of Purchaser and for
Purchaser's benefit, pursuant to the terms and conditions set forth below;
NOW, THEREFORE, in exchange for the above covenants and with all Parties
intending to be legally bound, Purchaser hereby agrees to convey, transfer and
vest Fix-Cor Industries with all assets acquired by Purchaser from Quantum
Chemical Company and Purchaser further agrees to acquire all legal and equitable
interest held by Stockholder in said Quantum Chemical Company assets in exchange
for the Purchaser's restricted voting common stock, pursuant to the terms and
conditions which follow.
REPRESENTATIONS AND WARRANTIES
OF FIX-COR AND STOCKHOLDER
Section One : Fix-Cor and Stockholder represent and warrant to Purchaser as
follows:
Section 1.01 Organization and Qualification
(a) Fix-Cor possesses the requite personnel and knowledge to operate all
the assets and properties formerly known and referred to as Quantum Resource
Recovery plant and acquired from Quantum Chemical Company, and said assets and
properties are listed in Exhibit C.
2
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Other than the assets of Quantum Chemical Company, Fix-Cor is operating and
engaging in no other business or economic enterprise of any nature whatsoever
and Fix-Cor further warrants that it has no subsidiaries or affiliates
(excluding Purchaser) which are engaging in any other enterprise or business
activity.
(b) Fix-Cor is a corporation duly organized, validly existing, and in good
standing under the laws of Delaware, with all requisite power and authority, and
all necessary consents, authorizations, approvals, orders, licenses,
certificates, and permits of and from, and declarations and filings with, all
pertinent governmental authorities to own, lease, license, and use its
properties and assets, and to carry on the business in which it is now engaged
and the business in which it contemplates engaging. Fix-Cor is duly qualified to
transact the business in which it is engaged and is in the process of applying
for good standing as a foreign corporation in Ohio, and it is further warranted
that said application of good standing from Ohio will be perfunctorily granted
once a Franchise Tax return is filed.
Section 1.02 Capitalization
(a) The authorized capital stock of Fix-Cor consists of one thousand
(1,000) shares of common stock, par value $0.001 per share ("Fix-Cor Common
Stock"), of which one thousand shares are outstanding. Each outstanding share of
Fix-Cor Common Stock is validly authorized, validly issued, fully paid, and
subject to any liability imposed by Section 630 of the New York Business
Corporation Law, nonassessable, has not been issued and is not owned or held in
violation of any preemptive right of stockholders, and is owned of record and
beneficially by Purchaser in accordance with the following table:
NAME OF STOCKHOLDER NUMBER OF SHARES
Fix-Corp International, Inc. 1,000
(b) There is no commitment, plan, or arrangement to issue, and no
outstanding option, warrant, or other right calling for the issuance of, any
share of capital stock of Fix-Cor, or any security or other instrument
convertible into, exercisable for, or exchangeable for capital stock of Fix-Cor.
There is outstanding no security or other instrument convertible into or
exchangeable for capital stock of Fix-Cor.
Section 1.03 Financial Worth
(a) The following appraisals of the Quantum Chemical Company are hereby
attached and labeled as set forth below.
(1) An appraisal prepared for Quantum Chemical Company by Selvage &
Associates, a firm located on 1506 White Road in Grove City, Ohio 43123, signed
by Butch Selvage and dated February 8, 1996 (Exhibit D); and
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(2) An appraisal prepared for Purchaser by Wilber W. Wilson, real estate
appraiser whose business is located at 25 South Park Place, Suite 105, Newark,
Ohio 43055 signed by Wilber Wilson and Kerry Progtor, and dated December 23,
1996 (Exhibit E).
(b) Since January 8, 1997, during which time Fix-Cor operated the assets
and properties of Quantum Chemical Company on behalf of Purchaser in a de facto
capacity, Fix-Cor warrants that:
(1) There has been no material adverse change in the financial condition,
results of operations, business, properties, assets, liabilities, or future
prospects of Fix-Cor; and the plastics recycling business has operated
profitably.
(2) Fix-Cor has not authorized, declared, paid, or effected any dividend,
or liquidating or other distribution, in respect of its capital stock, or any
direct or indirect redemption, purchase, or other acquisition of any of that
stock.
(3) The operations and business of Fix-Cor have been conducted in all
respects only in the ordinary course.
(4) Management of Fix-Cor reasonably believes that the plastic recycling
operations will meet or exceed the pro forma statements and, further, management
of Fix-Cor is not aware of any purchase order or quotation for the future sale
of the plastic products produced by Fix-Cor which will not be profitable.
(5) Fix-Cor has not suffered an extraordinary loss (whether or not covered
by insurance) or waived any right of substantial value.
(6) Management of Fix-Cor further asserts that there are no known facts to
Fix-Cor which would materially affects in an adverse manner, the financial
condition, results of operations, business, properties, assets, liabilities, or
future prospects of Fix-Cor; provided, however, that Fix-Cor expresses no
opinion as to political or economic matters of general applicability.
Section 1.04 Tax and Other Liabilities
(a) Fix-Cor has no liability of any nature, accrued or contingent,
including, without limitation, liabilities for federal, state, local, or foreign
taxes and liabilities to customers or suppliers, other than the following:
(1) Liabilities for which full provision has been made on the last interim
balance sheet ("Last Balance Sheet") as of February 29, 1997 (hereafter referred
to as the "Last Balance Sheet Date"); and
(2) Other liabilities arising since the Last Balance Sheet Date and prior
to the Closing in the ordinary course of business (which shall not include
liabilities to customers on account of
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defective products or services) which are not inconsistent with the
representations and warranties of Fix-Cor or Stockholder or any other provision
of this Agreement.
Section 1.05 Litigation and Claims
(a) There is no litigation, arbitration, claim, governmental or other
proceeding (formal or informal), or investigation pending, threatened, or in
prospect or any basis therefor known to Fix-Cor or to Stockholder with respect
to the assets and properties formerly known as Quantum Chemical Company. Fix-Cor
is not affected by any present or threatened strike or other labor disturbance
nor, to the knowledge of Fix-Cor, is any union attempting to represent any
employee of Fix-Cor as collective bargaining agent. Fix-Cor is not in violation
of, or in default with respect to, any law, rule, regulation, order, judgment,
or decree; nor is Fix-Cor required to take any action in order to avoid such a
violation or default.
Section 1.06 Properties
(b) Quantum Chemical Company has passed good and marketable title in fee
simple absolute to Fix-Cor for all real properties and good title to all other
properties and assets used in their business or formerly owned by them, except
for permanent easements to a railroad siding and access to a truck scale plus
other properties (if any) operated pursuant to a license, free and clear of all
liens, mortgages, security interests, pledges, charges, and encumbrances.
(a) All accounts and notes receivable reflected on the Last Balance Sheet,
or arising since the Last Balance Sheet Date, have been collected, or are and
will be good and collectible, in each case at the aggregate recorded amounts
thereof without right of recourse, defense, deduction, return of goods,
counterclaim, offset, or set off on the part of the obligor, and, if not
collected, can reasonably be anticipated to be paid within 90 days of the date
incurred.
(b) All inventory of raw materials and work in process of Fix-Cor is
usable, and all inventory of finished goods is good and marketable, on a normal
basis in the existing product lines of Fix-Cor, as the case may be. In no event
do the inventories represent more than a 1 month supply measured by the
projected volume of sales or use for the year ended December 31, 1997,
predicated upon the pro forma operating statements referenced herein. All
inventory is merchantable and fit for the particular purpose for which it is
intended.
(c) Attached as Exhibit F is a true and complete list of all real and
other properties and assets owned, leased, or licensed to Fix-Cor (including
inventory but not including Intangibles, as defined in Section 1.09), including,
with respect to properties and assets owned by Fix-Cor, a statement of cost,
book value and (except for land) reserve for depreciation of each item for tax
purposes, and net book value of each item for financial reporting purposes, and,
with respect to properties and assets leased or licensed by Fix-Cor, a
description of that lease or license. All real and other properties and assets
(including Intangibles) owned by Fix-Cor are reflected on the Last Balance Sheet
(except for acquisitions subsequent to the Last Balance Sheet Date and prior to
the Closing which are either noted on Exhibit B or C or are approved in writing
by the Purchaser). All real and other tangible properties and assets owned,
leased, or licensed by Fix-Cor are in good
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<PAGE>
and usable condition (which is herein defined as reflecting reasonable wear and
tear which does not adversely affect the operation of the business of Acquired
Corporation or of that Subsidiary excepted).
(d) No real property owned, leased, licensed, or used by Fix-Cor is, or to
the knowledge of Fix-Cor will be subject to zoning, use, or building code
restrictions which would prohibit its use in the commercial business in which
Fix-Cor is engaged, and no state of facts relating to the actions or inaction of
another person or entity or his or its ownership, leasing, licensing, or use of
any real or personal property exists or will exist which would prevent, the
continued effective ownership, leasing, licensing, or use of that real property
in the business in which Fix-Cor is now engaged or the business in which it
contemplates engaging.
(e) The real and other properties and assets (including Intangibles)
owned, leased or licensed by Fix-Cor constitute all properties and assets which
are necessary to the business of recycling plastic as presently conducted and as
it is contemplated conducting in the foreseeable future.
Section 1.07 Contracts and Other Instruments
(a) Exhibit G, titled List of Contracts, Agreements and Instruments and
Arrangements, accurately and completely sets forth the information required to
be contained therein with respect to Fix-Cor, identifying whether the matter
disclosed therein relates to Fix-Cor or to Stockholder.
(1) The certificate of incorporation (or other charter document) and
By-laws of Fix-Cor and all amendments thereto, as presently in effect, certified
by the Secretary of the corporation, and
(b) The following, initialed by the chief executive officer of Fix-Cor:
(i) true and correct copies of all contracts, agreements, and instruments
referred to in Exhibit G;
(ii) true and correct copies of all leases and licenses (if any); and
(iii)true and correct written descriptions of all supply, distribution,
agency, financing, or other arrangements or understandings referred to in
Exhibit G.
(c) Neither Fix-Cor, nor to the knowledge of Fix-Cor or Stockholder, any
other party to any of those contracts, agreements, instruments, leases, or
licenses is now or expects in the future to be in violation of, or in default
with respect to complying with, any material provision thereof, and each
contract, agreement, instrument, lease, or license is in full force and
constitutes the legal, valid, and binding obligation of the parties and is
enforceable in accordance with its terms.
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(d) Each supply, distribution, agency, financing, or other arrangement or
understanding is a valid and continuing arrangement or understanding; neither
Fix-Cor, nor any other party to any arrangement or understanding has given
notice of termination or taken any action inconsistent with the continuance of
that arrangement or understanding; and the execution, delivery, and performance
of this Agreement will not prejudice any of those arrangements or understandings
in any way.
(e) Fix-Cor enjoys peaceful and undisturbed possession under all leases
and licenses under which it is operating. Fix-Cor is not a party to or bound by
any contract, agreement, instrument, lease, license, arrangement, or
understanding, or subject to any charter or other restriction, which has had, or
to the knowledge of Fix-Cor or Stockholder may in the future have, a material
adverse effect on the financial condition, results of operations, business,
properties, assets, liabilities, or future prospects of Fix-Cor.
Fix-Cor has not engaged nor is it engaging in, nor does it intend to
engage in any transaction with any Stockholder, any director, officer, or
employee of Fix-Cor, any relative or affiliate of any Stockholder or of any
director, officer, or employee, or any other corporation or enterprise in
which any Stockholder, any director, officer, or employee, or any relative or
affiliate then had or now has a 5 percent [5 %] or greater equity or voting
or other substantial interest, other than contracts and agreements listed and
so specified in Exhibit D.
Fix-Cor is not in violation or breach of, or in default with respect to any
term of its certificate of incorporation (or other charter document) or Bylaws.
Section 1.08 Questionable Payments
Neither Fix-Cor, nor any director, officer, agent, employee, or other
person associated with or acting on behalf of Fix-Cor, nor any Stockholder has,
directly or indirectly:
(a) Used any corporate funds for unlawful contributions, gifts,
entertainment, or other unlawful expenses relating to political activity;
(b) Made any unlawful payment to foreign or domestic government officials
or employees, or to foreign or domestic political parties or campaigns, from
corporate funds;
(c) Violated any provision of the Foreign Corrupt Practices Act of 1977;
(d) Established or maintained any unlawful or unrecorded fund of corporate
monies or other assets;
(e) Made any false or fictitious entry on the books or records of Fix-Cor;
(f) Made any bribe, rebate, payoff, influence payment, kickback, or other
unlawful payment;
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(g) Given any favor or gift which is not deductible for federal income tax
purposes; or
(h) Made any bribe, kickback, or other payment of a similar or comparable
nature, whether lawful or not, to any person or entity, private or public,
regardless of form, whether in money, property, or services, to obtain favorable
treatment in securing business or to obtain special concessions, or to pay for
favorable treatment for business secured or for special concessions already
obtained.
Section 1.09 Authority to Sell
(a) Fix-Cor and Stockholder have all requisite power and authority to
execute, deliver, and perform this Agreement. All necessary corporate
proceedings of Fix-Cor have been duly taken to authorize the execution,
delivery, and performance of this Agreement by Fix-Cor. This Agreement has been
duly authorized, executed, and delivered by Fix-Cor, and it has been duly
executed and delivered by Stockholder, and this Agreement constitutes the legal,
valid, and binding obligation of Fix-Cor and Stockholder, and is enforceable in
accordance with its terms.
(b) No consent, authorization, approval, order, license, certificate, or
permit of or from, or declaration or filing with, any federal, state, local, or
other governmental authority or any court or other tribunal is required by
Fix-Cor, or by Stockholder for the execution, delivery, or performance of this
Agreement by Fix-Cor and Stockholder. No consent of any party to any contract,
agreement, instrument, lease, license, arrangement, or understanding to which
Fix-Cor or Stockholder is a party, or to which any of its or his properties or
assets are subject, is required for the execution, delivery, or performance of
this Agreement; and the execution, delivery, and performance of this Agreement
will not violate, result in a breach of, conflict with, or (with or without the
giving of notice or the passage of time or both) entitle any party to terminate
or call a default under any contract, agreement, instrument, lease, license,
arrangement, or understanding, or violate or result in a breach of any term of
the certificate of incorporation (or other charter document) or By-laws of
Fix-Cor, or violate, result in a breach of, or conflict with any law, rule,
regulation, order, judgment, or decree binding on Fix-Cor or any Stockholder, or
to which any of its or his operations, business, properties, or assets are
subject. Upon the Closing, Purchaser will pass to Fix-Cor good and marketable
title in fee simple absolute to all the real properties and good title to all
other properties and assets used in the business of Fix-Cor (except real and
other properties and assets held pursuant to leases or permanent easements
described in Exhibits B and C), free and clear of all liens, mortgages, security
interests, pledges, charges, and encumbrances (except those listed in Exhibit
D).
Section 1.10 Nondistributive Intent
Stockholder is acquiring the shares of Purchaser Common Stock to be issued
hereunder for his own account for investment and not with a view to the
distribution thereof. Stockholder will not sell or otherwise dispose of those
shares (whether pursuant to a liquidating dividend or otherwise) for at least
two years and then, only when such sale shall become eligible for an exemption
from registration. The certificate or certificates representing the shares will
contain a legend to the foregoing effect. By virtue of its position, Stockholder
has access to the kind of
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financial and other information about the Purchaser as would be contained in a
registration statement filed under the Securities Act of 1933. Stockholder
understands that he cannot sell or otherwise dispose of the shares for at least
two years and, after two years, Stockholder must still procure an exemption from
the registration provisions of the Securities Act of 1933.
Section 1.11 Completeness of Disclosure
No representation or warranty by Fix-Cor or Stockholder in this Agreement
contains any untrue statement of material fact, or omits to state a material
fact necessary to make the statements made herein not misleading.
II. Representations and Warranties of Purchaser: Purchaser represents and
warrants to Fix-Cor and Stockholder as follows:
Section 2.01 Organization
Purchaser is a corporation duly organized, validly existing, and in good
standing under the laws of its jurisdiction of incorporation, with all requisite
power and authority to own, lease, license, and use its properties and assets,
and to carry on the business in which it is now engaged and the business in
which it contemplates engaging.
Section 2.02 Validity of Shares
The shares of Purchaser Common Stock delivered to Stockholder pursuant to
this Agreement are validly authorized, validly issued, fully paid, and subject
to any liability imposed by Section 630 of the New York Business Corporation Law
nonassessable.
Section 2.03 Authority to Buy
Purchaser has all requisite power and authority to execute, deliver, and
perform this Agreement. All necessary corporate proceedings of the Purchaser
have been duly taken to authorize the execution, delivery, and performance of
this Agreement by the Purchaser. This Agreement has been duly authorized,
executed, and delivered by the Purchaser. This Agreement further constitutes the
legal, valid, and binding obligation of the Purchaser and is enforceable in
accordance with its terms.
III. Exchange
Section 3.01 Terms of Exchange
On the basis of the representations, warranties, covenants, and
agreements contained in this Agreement and subject to the terms and
conditions of this Agreement:
(a) Purchaser shall sell, assign, transfer, and convey as a going concern
to Fix-Cor at the Closing all properties and assets of the business formerly
known as Quantum Chemical
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Company at the date of the Closing of every kind and nature whatsoever,
including the names, trademarks, contractual rights, books and records and
business and goodwill of the business formerly known as Quantum Chemical
Company; and, in consideration therefor, Purchaser shall:
(i) Deliver at the Closing to Stockholder, a stock certificate registered
in his name for the equivalent of six million dollars worth of Purchaser's
Stock, determined to be 8,000,000 shares, and
(ii) Purchaser shall assume at the Closing all obligations and liabilities
of a certain loan agreement tided Loan and Security Agreement, previously
executed by Stockholder whose signature appears thereon as a party personally
liable and responsible for the obligations contained therein, and Purchaser
shall further indemnify and hold Stockholder harmless from the obligations
contained therein.
(b) Except as set forth in Section 3.01(a)(ii), neither the Stockholder
nor Fix-Cor shall assume or be responsible for any obligation or liability of
Quantum Chemical Company of any nature, accrued or contingent.
(c) With respect to any properties or assets sold hereunder that cannot be
physically delivered to Fix-Cor because they are in the possession of third
parties or otherwise, Purchaser shall give irrevocable instructions to the party
in possession thereof, if such be the case, with copies to Fix-Cor, that all
right, title, and interest therein have been vested in Fix-Cor, and that the
same are to be held for Fix-Cor's exclusive use and benefit.
Section 3.02 Closing
(a) The closing of the transaction contemplated by Sections 3.01(a)(i) and
3.01(a)(ii) shall take place at the offices of Fix-Corp International, 27040
Cedar Road - Suite 218, Beachwood, Ohio 44122, at :00 _.M., local time, on
[ , 19 ]. The closing of the transaction contemplated by Sections 3.01(a)(i)
and 3.01(a)(ii) is herein called the "Closing."
Section 3.03 Transactions at Closing
(a) The following transactions shall take place at the Closing
(1) Fix-Cor shall deliver to Purchaser all such documents representing all
the outstanding shares of capital stock of Fix-Cor.
(b) Purchaser shall deliver to Stockholder a stock certificate registered
in Stockholders name for six million dollars ($6,000,000) worth of shares of
Purchaser Common Stock, and all said shares shall bear a Restrictive Legend,
stating that these shares are not registered and that these shares are being
exchanged pursuant to the Private Offering Exemption, under Section 4(2) of the
Securities Act of 1933.
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(c) Purchaser shall deliver to Stockholder an instrument of assumption of
the obligations and liabilities of Stockholder which Purchaser has agreed to
assume pursuant to Section 3.01(a)(ii).
(d) Purchaser shall deliver to Fix-Cor an undertaking to transfer the
title of all properties held by Purchaser to Fix-Cor, immediately upon payment
of all incumbent indebtedness or upon the transition to permanent financing of
said properties, whichever should occur first in time.
Section 3.04 Right of Purchaser to Withhold Future Payments
(a) If, prior to the time all shares of Purchaser's Common Stock are
delivered pursuant to Section 3.01(a)(i), Purchaser has learned of a breach of
any representation, warranty, covenant, or agreement of Fix-Cor or Stockholder
contained in this Agreement, Purchaser, in its discretion by written notice to
Stockholder, can deduct from the number of shares of Purchaser's Common Stock
otherwise deliverable by Purchaser, a number of shares whose aggregate value is
equal to the aggregate of
(i) the amount necessary to cure or make whole that breach; and
(ii) the amount of losses, deficiencies, damages, and legal and other
expenses (including legal fees and expenses of attorneys chosen by any
Indemnitee) incurred or demonstrably in prospect of being incurred by any
Indemnitee in connection with claims, suits, actions, proceedings (formal or
informal), investigations, judgments, or settlements as a result of, or to
remedy a situation or circumstance caused by, the breach.
(b) Shares of Purchaser's Common Stock shall be valued for purposes of
this Section 3.04 as follows:
(i) If shares of Purchaser Common Stock are traded on a national
securities exchange, at the average closing price per share during the period
commencing 40 days prior to the date of the Closing and ending 10 days prior to
the date of the Closing ("Valuation Period") on the principal securities
exchange on which those shares are traded.
(ii) If the shares are traded in the over-the-counter market, at the
average closing asked price per share during the Valuation Period.
(c) If no public market exists for Purchaser Common Stock, at a price
equal to the fair market value per share of the shares, as determined by an
independent appraiser selected by the Purchaser.
IV. Conditions to Obligations of Purchaser
The obligations of Purchaser under this Agreement are subject, at the
option of Purchaser to the following conditions:
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Section 4.01 Accuracy of Representations and Compliance With Conditions
(a) All representations and warranties of Fix-Cor and Stockholder
contained in this Agreement shall be accurate when made and, in addition, shall
be accurate as of the Closing, as though the representations and warranties were
then made in exactly the same language by Fix-Cor or Stockholder and regardless
of knowledge or lack thereof on the part of Fix-Cor or Stockholder or changes
beyond its or his control; as of the Closing, Fix-Cor and Stockholder shall have
performed and complied with all covenants and agreements and satisfied all
conditions required to be performed and complied with by any of them at or
before that time by this Agreement; and Purchaser shall have received
certificates signed by the chief executive officer of Fix-Cor and by Stockholder
dated the date of the Closing to that effect, substantially in the form of
Exhibits I and J, respectively.
Section 4.02 Opinion of Counsel
(a) Fix-Cor and Stockholder shall have delivered to Purchaser on the date
this Agreement is executed and on the date of the Closing the opinion of counsel
to Fix-Cor and Stockholder, dated as of those dates, in form and substance
satisfactory to counsel for the Purchaser, that:
(1) Fix-Cor is a corporation validly existing and in good standing under
the laws of the State of Delaware, with all requisite corporate power and
authority to own its properties and to carry on the business in which it is now
engaged.
(b) Fix-Cor is duly qualified to transact the business in which it is
engaged and is in the process of applying for good standing as a foreign
corporation in the Ohio. Furthermore, Ohio is the only jurisdiction in which the
real or personal property owned or leased, or business conducted by the former
Quantum Chemical Company is material to the operations of its plastics recycling
business taken as a whole.
(c) The authorized and outstanding capital stock of Fix-Cor is as set
forth in Section 1.02 of this Agreement; and all outstanding shares of capital
stock of Fix-Cor are validly authorized and issued, fully paid, and
nonassessable.
(d) All necessary corporate proceedings of Fix-Cor have been duly taken to
authorize the execution, delivery. and performance of this Agreement by Fix-Cor
and the consummation of the transactions contemplated by this Agreement.
(f) Fix-Cor has corporate power and authority to execute, deliver, and
perform this Agreement, and the Stockholder has power and authority to execute,
deliver, and perform this Agreement, and this Agreement has been duly
authorized, executed, and delivered by Fix-Cor, and this Agreement has been duly
executed and delivered by Stockholder, and this Agreement constitutes the legal,
valid, and binding obligation of Fix-Cor and Stockholder, and (subject to
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applicable bankruptcy, insolvency, and other laws affecting the enforceability
of creditors' rights) is enforceable as to Fix-Cor and Stockholder in accordance
with its terms.
(g) The execution, delivery, and performance of this Agreement will not
violate or result in a breach of any term of Fix-Cor's certificate of
incorporation (or other charter document) or of Fix-Cor's by-laws; and the
execution, delivery, and performance of this Agreement by Fix-Cor and
Stockholder will not violate, result in a breech of, or constitute a default
under any term of any of the following agreements: Loan and Security Agreement
with Gordon Brothers Capital Corporation, and the Purchase and Sale Agreement
with Quantum Chemical Corporation.
(h) After reasonable investigation, counsel has no actual knowledge of any
consent of, or declaration or filing with, any governmental authority which is
required of Fix-Cor for execution or performance of this Agreement by Fix-Cor.
(i) After reasonable investigation, such counsel has no actual knowledge
of any action, suit, or proceeding pending or threatened against Fix-Cor at law
or in equity, or before any federal, state, municipal, or other governmental
department, commission, board, bureau, agency, or instrumentality that
(i) Can reasonably be expected to result in any materially adverse change
in the business, properties, operations, prospects, or assets, or in the
condition, financial or otherwise, of Fix-Cor, or
(ii) Seeks to prohibit or otherwise challenge the consummation of the
transaction contemplated by this Agreement.
Section 4.03 Accountants' Letter
(a) Fix-Cor and Stockholder shall deliver to the Purchaser on the date of
Closing, a letter from a Certified Public Accountant addressed to Purchaser in
form and substance satisfactory to Purchaser, stating, in effect:
(1) They are, and during the period covered by their report relating to
the financial statements referred to in Section 1.03 they were, certified public
accountants with respect to Fix-Cor.
(2) On the basis of procedures (but not an examination made in accordance
with generally accepted auditing standards) consisting of a reading of the
latest available unaudited consolidated interim financial statements of Fix-Cor
(with an indication of the date of the latest available unaudited interim
financial statements), a reading of the latest available minutes of the
stockholders and Boards of Directors of Fix-Cor, inquiries to certain officers
and other employees of Fix-Cor responsible for financial and accounting matters,
and other specified procedures and inquiries, nothing has come to their
attention that caused them to believe that
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(i) There was any change in the capital stock or debt of Fix-Cor or any
decrease in the net current assets or stockholders' equity of Fix-Cor as of the
date of the latest available consolidated monthly financial statements of
Fix-Cor or as of a specified date not more than five business days prior to the
date of that letter, each as compared with the amounts shown in the Last Balance
Sheet, other than as disclosed in this Agreement or any change or decrease
(which shall be set forth in that letter) which the Purchaser in its sole
discretion shall accept, or
Section 4.04 Review of Proceedings
(a) All actions, proceedings, instruments, and documents required to carry
out this Agreement or incidental thereto and all other related legal matters
shall be subject to the reasonable approval of counsel to the Purchaser, and
Fix-Cor and Stockholder shall have furnished that counsel those documents
counsel may have reasonably requested for the purpose of enabling him to pass
upon such matters.
Section 4.05 Legal Action
(a) There shall not have been instituted or threatened any legal
proceeding relating to, or seeking to prohibit or otherwise challenge the
consummation of, the transaction contemplated by this Agreement, or to obtain
substantial damages with respect thereto.
(b) There shall not have been any action taken, or any law, rule,
regulation, order, or decree proposed, promulgated, enacted, entered, enforced,
or deemed applicable to the transaction contemplated by this Agreement by any
federal, state, local, or other governmental authority, or by any court or other
tribunal, including the entry of a preliminary or permanent injunction, which,
in the sole judgment of Purchaser,
(i) Makes any of the transactions contemplated by this Agreement illegal,
(ii) Results in a delay in the ability of Purchaser to consummate the
transaction contemplated by this Agreement,
(iii)Imposes material limitations on the ability of Purchaser to
effectively to exercise full rights of ownership with respect to the properties
and assets purported to be sold pursuant to this Agreement, or
(iv) Otherwise prohibits, restricts, or delays consummation of the
transaction contemplated by this Agreement, or impairs the contemplated benefits
to Purchaser of the transaction contemplated by this Agreement.
Section 4.06 Title Insurance
(a) Purchaser shall have received, at or prior to the Closing, a
commitment for title insurance by a title insurance company or companies
designated by the Purchaser to issue an American Land Title Association Owner's
Policy Form B-1976 (or a policy Purchaser considers
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its equivalent), and, if requested by Purchaser, a current survey certified to
Purchaser and to that title insurance company showing all improvements,
rights-of-way, and easements and no encroachments, all at Purchaser's expense,
with respect to the real property owned by Purchaser, that commitment to show to
the satisfaction of Fix-Cor that immediately prior to the time of the Closing,
Purchaser had good and marketable title in fee simple absolute to the real
property, free and clear of all liens, mortgages, security interests, pledges,
charges, and encumbrances (except those listed in Exhibit _).
Section 4.07 Release of Guarantee
(a) In so far as Purchaser is concerned and, by inference, in so far as
the stockholders of Purchaser are concerned (but not with regard to any
third-party lender), Stockholder shall be released at or prior to the Closing
from the guarantee of an obligation of Purchaser listed in Exhibit _ and, if any
suit or action of any kind should be initiated by any officer or stockholder of
Purchaser against Stockholder, the Purchaser shall defend Stockholder and hold
Stockholder harmless from any ensuing litigation which should arise, including
all attorney fees.
V. Conditions to Obligations of Fix-Cor and Stockholder
The obligations of Purchaser under this Agreement are subject, at the
option of Fix-Cor and Stockholder, to the following conditions:
Section 5.01 Accuracy of Representations and Compliance With Conditions
(a) All representations and warranties of Purchaser contained in this
Agreement shall be accurate when made and, in addition, shall be accurate as of
the Closing, as though the representations and warranties were then made in
exactly the same language by Purchaser and regardless of knowledge or lack
thereof on the part of Purchaser or changes beyond its control; as of the
Closing, Purchaser shall have performed and complied with all covenants and
agreements and satisfied all conditions required to be performed and complied
with by any of them at or before that time by this Agreement; and Fix-Cor and
Stockholder shall have received written assurances signed by an authorized
executive officer of Purchaser dated the date of the Closing to that effect.
Section 5.02 Review of Proceedings
(a) All actions, proceedings, instruments, and documents required to carry
out this Agreement or incidental thereto and all other related legal matters
shall be subject to the reasonable approval of counsel to Fix-Cor and
Stockholder, and Purchaser shall have furnished that counsel those documents
counsel may have reasonably requested for the purpose of enabling him to pass
upon such matters.
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5.03 Legal Action
(a) There shall not have been instituted or threatened any legal
proceeding relating to, or seeking to prohibit or otherwise challenge the
consummation of, the transaction contemplated by this Agreement, or to obtain
substantial damages with respect thereto.
(b) There shall not have been any action taken, or any law, rule,
regulation, order, or decree proposed, promulgated, enacted, entered, enforced,
or deemed applicable to the transaction contemplated by this Agreement by any
federal, state, local, or other governmental authority, or by any court or other
tribunal, including the entry of a preliminary or permanent injunction, which,
in the sole judgment of Purchaser,
(i) Makes any of the transactions contemplated by this Agreement illegal,
(ii) Results in a delay in the ability of Fix-Cor and Stockholder to
consummate the transaction contemplated by this Agreement,
(iii) Imposes material limitations on the ability of Purchaser to
effectively to exercise full rights of ownership with respect to the
properties and assets purported to be transferred pursuant to this Agreement,
or
(iv) Otherwise prohibits, restricts, or delays consummation of the
transaction contemplated by this Agreement, or impairs the contemplated
benefits to Fix-Cor and Stockholder of the transaction contemplated by this
Agreement.
VI. Covenants and Agreements of Fix-Cor and Stockholder
Acquired Corporation and Stockholders covenant and agree as follows:
Section 6.01 Access
(a) Fix-Cor will afford the officers, employees, attorneys, agents,
investment bankers, accountants, and other representatives of Purchaser free and
full access to the plants, properties, books, and records of Fix-Cor, and will
permit them to make extracts from and copies of such books and records, and
will, from time to time, furnish Purchaser with additional financial and
operating data and other information as to the financial condition, results of
operations, business, properties, assets, liabilities, or future prospects of
Fix-Cor that Purchaser from time to time may request. Fix-Cor will cause its
independent certified public accountants to make available to Purchaser and its
independent certified public accountants the work papers relating to the audits
of Fix-Cor.
Section 6.02 Conduct of Business
(a) Fix-Cor will conduct their affairs so that at the Closing no
representation or warranty of Fix-Cor will be inaccurate, no covenant or
agreement of Fix-Cor will he breached,
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and no condition in this Agreement will remain unfulfilled by reason of the
actions or omissions of Fix-Cor. Except as otherwise requested by Purchaser in
writing, until the Closing or the earlier rightful termination of this
Agreement, Fix-Cor will use its best efforts to preserve the business operations
of the former Quantum Chemical Company intact, and to the extent feasible (given
the fact that the plant did not operate for approximately one year) keep
available the services of their present personnel, to preserve in full force and
effect the contracts, agreements, instruments, leases, licenses, arrangements,
and understandings of the former Quantum Chemical Company, and to preserve the
goodwill of their suppliers, customers, and others having business relations
with any of them. Until the Closing or earlier rightful termination of this
Agreement, Fix-Cor will conduct the business and operations of the former
Quantum Chemical Company, in all respects, only in the ordinary course.
Section 6.03 Advise of Changes
(a) Until the Closing or the earlier rightful termination of this
Agreement, Fix-Cor and Stockholder will immediately advise Purchaser, in a
detailed written notice, of any fact or occurrence or any pending or threatened
occurrence of which any of them obtains knowledge and which (a) (if existing and
known at the date of the execution of this Agreement) would have been required
to be set forth or disclosed in or pursuant to this Agreement or an Exhibit
hereto, (b) (if existing and known at any time prior to or at the Closing) would
make the performance by any party of a covenant contained in this Agreement
impossible or make that performance materially more difficult than in the
absence of that fact or occurrence, or (c) (if existing and known at the time of
the Closing) would cause a condition to any party's obligations under this
Agreement not to be fully satisfied.
Section 6.04 Confidentiality
(a) Fix-Cor shall insure that all confidential information which it has
acquired directly or indirectly through Quantum Chemical Company, or through any
of its respective officers, directors, employees, attorneys, agents, investment
bankers, or accountants, or any former employees, attorneys, agents, investment
bankers, or accountants of Quantum Chemical Company, or any of its attorneys,
agents, investment bankers, or accountants may now possess or may hereafter
create or obtain relating to the financial condition, results of operations,
business, properties, assets, liabilities, or future prospects of Fix-Cor shall
not be published, disclosed, except as required in duly issued reports to
stockholders, or made accessible by any of them to any other person or entity at
any time or used by any of them except for the benefit of Purchaser.
Section 6.05 Public Statements
(a) Before Fix-Cor releases any information concerning this Agreement or
the transactions contemplated by this Agreement which is intended for or may
result in public dissemination thereof, Fix-Cor shall cooperate with Purchaser,
shall furnish drafts of all documents or proposed oral statements to Purchaser
for comments, and shall not release any information without the written consent
of Purchaser. Nothing contained herein shall prevent Fix-
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Cor or Stockholder from furnishing any information to any governmental authority
if required to do so by law.
VII. Covenants and Agreements of Purchaser
Purchaser covenants and agrees as follows.
Section 7.01 Conduct of Business
(a) Purchaser will conduct its affairs so that at the Closing no
representation or warranty of Purchaser will be inaccurate, no covenant or
agreement of Purchaser will be breached, and no condition in this Agreement will
remain unfulfilled by reason of the actions or omissions of Purchaser. Except as
otherwise requested by Fix-Cor in writing, until the Closing or the earlier
rightful termination of this Agreement, Purchaser will use its best efforts to
preserve the business operations of its company and preserve in full force and
effect the contracts, agreements, instruments, leases, licenses, arrangements,
and understandings of the Purchaser's business, in all respects, only in the
ordinary course.
Section 7.02 Advise of Changes
(a) Until the Closing or the earlier rightful termination of this
Agreement, Purchaser will immediately advise Fix-Cor and Stockholder, in a
detailed written notice, of any fact or occurrence or any pending or threatened
occurrence of which any of them obtains knowledge and which (a) (if existing and
known at the date of the execution of this Agreement) would have been required
to be set forth or disclosed in or pursuant to this Agreement or an Exhibit
hereto, (b) (if existing and known at any time prior to or at the Closing) would
make the performance by any party of a covenant contained in this Agreement
impossible or make that performance materially more difficult than in the
absence of that fact or occurrence, or (c) (if existing and known at the time of
the Closing) would cause a condition to any party's obligations under this
Agreement not to be fully satisfied.
Section 7.03 Confidentiality
(a) Purchaser shall insure that all confidential information which it has
acquired directly or indirectly or may now possess or may hereafter create or
obtain relating to the financial condition, results of operations, business,
properties, assets, liabilities, or future prospects of Purchaser shall not be
published, disclosed, except as required in duly issued reports to stockholders,
or made accessible by any of them to any other person or entity at any time or
used by any of them except for the benefit of Fix-Cor and Stockholder.
Section 7.04 Public Statements
(a) Before Purchaser releases any information concerning this Agreement or
the transactions contemplated by this Agreement which is intended for or may
result in public dissemination thereof, Purchaser shall cooperate with Fix-Cor,
shall furnish drafts of all
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documents or proposed oral statements to Fix-Cor for comments, and shall not
release any information without the written consent of Fix-Cor. Nothing
contained herein shall prevent Purchaser from furnishing any information to any
governmental authority if required to do so by law.
VIII. Miscellaneous
Section 8.01 Brokerage Fees
(a) If any person shall assert a claim to a fee, commission, or other
compensation on account of alleged employment as a broker or finder, or alleged
performance of services as a broker or finder, in connection with or as a result
of the transaction contemplated by this Agreement, Fix-Cor and Stockholder shall
indemnify and hold harmless the Purchaser against and in respect of any and all
claims, suits, actions, and proceedings (formal or informal), investigations,
judgments, deficiencies, damages, settlements, liabilities, and legal and other
expenses (including legal fees and expenses of attorneys chosen by any
Indemnitee) as and when incurred arising out of or based upon that claim by that
person, and Fix-Cor and Stockholder shall, at their sole expense, defend any and
all suits, actions, proceedings (formal or informal), or investigations
involving the claim that may at any time be brought against any Indemnitee and
satisfy promptly any settlement or judgment arising therefrom; but, if Fix-Cor
and Stockholder fail to defend that suit, action, proceeding, or investigation
in a timely manner, Purchaser or any Indemnitee made a defendant therein or a
party thereto shall have the right to defend and settle the same and pay any
judgment or settlement pertaining thereto, as it or he may reasonably deem
appropriate, at the cost and expense of Fix-Cor and Stockholder. If, however, it
is ultimately determined in any suit, action, or proceeding (in which Purchaser
and all Indemnitees made a defendant therein or a party thereto were afforded
the opportunity to have their counsel participate in the defense) that Purchaser
or any Indemnitee made a defendant therein or a party thereto was the sole
employer of the broker or finder, or services were performed solely for
Purchaser or any Indemnitee made a defendant therein or a party thereto, then
Fix-Cor and Stockholder shall not be responsible under this Section 8.01 and
amounts theretofore paid by them by reason of this Section 8.01 shall be
reimbursed by Purchaser or the Indemnitee, as the case may be, who was the sole
employer.
Section 8.02 Further Actions
(a) At any time and from time to time, each party agrees, at its or his
expense, to take actions and to execute and deliver documents as may be
reasonably necessary to effectuate the purposes of this Agreement.
Section 8.03 Availability of Equitable Remedies
Since a breach of the provisions of this Agreement could not adequately be
compensated by money damages, any party shall be entitled, either before or
after the Closing, in addition to any other right or remedy available to it, to
an injunction restraining the breach or threatened breach and to specific
performance of any provision of this Agreement, and, in either case, no
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bond or other security shall be required in connection therewith, and the
parties hereby consent to the issuance of such an injunction and to the ordering
of specific performance.
8.04 Survival
(a) The covenants, agreements, representations, and warranties contained
in or made pursuant to this Agreement shall survive the Closing and any delivery
of shares of Purchaser's Common Stock by Purchaser, irrespective of any
investigation made by or on behalf of any party.
8.05 Modification
(a) This Agreement and the Exhibits hereto set forth the entire
understanding of the parties with respect to the subject matter hereof (except
as provided in Section 8.04), supersede all existing agreements among them
concerning the subject matter, and may be modified only by a written instrument
duly executed by each party with the approval of the Board of Directors of each
corporate party.
Section 8.06 Notices
(a) Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be mailed by certified mail, return
receipt requested or by the most nearly comparable method if mailed from or to a
location outside of the United States, or delivered against receipt to the party
to whom it is to be given at the address of that party set forth in the preamble
to this Agreement (or to another address the party shall have furnished in
writing in accordance with the provisions of this Section 8.07) with a copy to
each of the other parties hereto. Any notice given to any corporate party shall
be addressed to the attention of the Corporate Secretary. Notice to the estate
of any party shall be sufficient if addressed to the party as provided in this
Section 8.07. Any notice or other communication given by certified mail shall be
deemed given at the time of certification thereof, except for a notice changing
a party's address which will be deemed given at the time of receipt thereof.
Section 8.07 Waiver
(a) Any waiver by any party of a breach of any provision of this Agreement
shall not operate as or be construed to be a waiver of any other breach of that
provision or of any breach of any other provision of this Agreement. The failure
of a party to insist upon strict adherence to any term of this Agreement on one
or more occasions will not be considered a waiver or deprive that party of the
right thereafter to insist upon strict adherence to that term or any other term
of this Agreement. Any waiver must be in writing and, in the case of a corporate
party, be authorized by a resolution of the Board of Directors or by an officer
of the waiving patty.
Section 8.08 Binding Effect
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(a) The provisions of this Agreement shall be binding upon and inure to
the benefit of Stockholder, Purchaser, and Fix-Cor, and their respective
successors and assigns, and each Stockholder, and his assigns, heirs, and
personal representatives.
Section 8.09 No Third-Party Beneficiaries
(a) This Agreement does not create, and shall not be construed as
creating, any rights enforceable by any person not a party to this Agreement.
Section 8.10 Separability
(a) If any provision of this Agreement is invalid, illegal, or
unenforceable, the balance of this Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances.
Section 8.11 Headings
(a) The headings in this Agreement are solely for convenience of reference
and shall be given no effect in the construction or interpretation of this
Agreement.
Section 8.14 Counterparts; Governing Law
(a) This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument. It shall be governed by and construed in
accordance with the laws of Delaware, without giving effect to conflict of laws.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date (or dates) set forth below.
Purchaser Fix-Cor Industries, Inc.
- ----------------------------------- -------------------------------------
By: Sherry Durst By:
Title: Assistant Secretary Title: President
Dated: 4-16-97 Dated: 4-16-97
----------------------------- -------------------------------
Stockholder
- -----------------------------------
Mark Fixler
Dated: 4-16-97
-----------------------------
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NOTARY PUBLIC
SUBSCRIBED AND SWORN TO before me, __________________, a duly licensed
officer of the Court and administer of oaths, by Mark Fixler, Sherry Durst and
Gary DeLorentis, all of whom were personally identified and all of whom further
averred that their signatures above have been duly authorized by their
respective corporate bodies and said signatures appear hereon by each party's
own free will.
--------------------------------------------------
My Commission Expires
-----------------------------
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Exhibit 9
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement (as it may be amended, this "AGREEMENT")
is entered into on May 14, 1997 between NATIONSCREDIT COMMERCIAL CORPORATION,
THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING DIVISION ("LENDER"), having an
address at 1177 Avenue of the Americas, 36th Floor, New York, New York 10036 and
FIXCOR INDUSTRIES, INC. ("BORROWER"), whose chief executive office is located at
27040 Cedar Road, Suite 218, Beachwood, Ohio 44122 ("BORROWER'S ADDRESS"). The
Schedules to this Agreement are an integral part of this Agreement and are
incorporated herein by reference. Terms used, but not defined elsewhere, in this
Agreement are defined in Schedule B.
1. LOANS AND CREDIT ACCOMMODATIONS.
1.1 AMOUNT. Subject to the terms and conditions contained in this
Agreement, Lender will:
(a) REVOLVING LOANS AND CREDIT ACCOMMODATIONS. From time to time
during the Term at Borrower's request, make revolving loans to Borrower
("REVOLVING LOANS"), and make letters of credit, bankers acceptances and
other credit accommodations ("CREDIT ACCOMMODATIONS") available to Borrower,
in each case to the extent that there is sufficient Availability at the time
of such request to cover, dollar for dollar, the requested Revolving Loan or
Credit Accommodation; PROVIDED, that after giving effect to such Revolving
Loan or Credit Accommodation, (x) the outstanding balance of all monetary
Obligations (INCLUDING the principal balance of any Term Loan and, solely for
the purpose of determining compliance with this provision, the Credit
Accommodation Balance) will not exceed the Maximum Facility Amount set forth
in Section 1(a) of Schedule A and (y) none of the other Loan Limits set forth
in Section 1 of Schedule A will be exceeded. For this purpose, "AVAILABILITY"
means:
(i) the aggregate amount of Eligible Accounts (less maximum
existing or asserted taxes, discounts, credits and allowances) multiplied
by the Accounts Advance Rate set forth in Section 1(b)(i) of Schedule A but
not to exceed the Accounts Sublimit set forth in Section 1(c) of Schedule A
PLUS
(ii) the lower of cost or market value of Eligible Inventory
multiplied by the Inventory Advance Rate(s) set forth in Section l(b)(ii)
of Schedule A, but not to exceed the Inventory Sublimit(s) set forth in
Section 1(d) of Schedule A;
MINUS
(iii) all Reserves which Lender has established pursuant to
Section 1.2 (including those to be established in connection with the
requested Revolving Loan or Credit Accommodation);
<PAGE>
MINUS
(iv) the outstanding balance of all of the monetary Obligations
(excluding the Credit Accommodation Balance and the principal balance of
the Term Loan); and
PLUS
(v) the Overadvance Amount, if any, set forth in Section 1(g) of
Schedule A.
(b) TERM LOAN. On the date of this Agreement, make (i) an advance to
Borrower computed with respect to the value of Borrower's Eligible Equipment
(the ("EQUIPMENT ADVANCE") in the principal amount, if any, set forth in Section
2(a)(i) of Schedule A; and (ii) an advance to Borrower computed with respect to
the value of Borrower's Eligible Real Property (the ("REAL PROPERTY ADVANCE") in
the principal amount, if any, set forth in Section 2(a)(ii) of Schedule A. The
Equipment Advance and the Real Property Advance are collectively referred to as
the "TERM LOAN."
1.2 RESERVES. Lender may from time to time establish and revise such
reserves as Lender deems appropriate in its sole discretion ("RESERVES") to
reflect (i) events, conditions, contingencies or risks which affect or may
affect (A) the Collateral or its value, or the security interests and other
rights of Lender in the Collateral or (B) the assets, business or prospects of
Borrower or any Obligor, (ii) Lender's good faith concern that any Collateral
report or financial information furnished by or on behalf of Borrower or any
Obligor to Lender is or may have been incomplete, inaccurate or misleading in
any material respect, (iii) any fact or circumstance which Lender determines in
good faith constitutes, or could constitute, a Default or Event of Default or
(iv) any other events or circumstances which Lender determines in good faith
make the establishment or revision of a Reserve prudent. Without limiting the
foregoing, Lender shall (x) in the case of each Credit Accommodation issued for
the purchase of Inventory (a) which meets the criteria for Eligible Inventory
set forth in clauses (i), (ii), (iii), (v) and (vi) of the definition of
Eligible Inventory, (b) which is or will be in transit to one of the locations
set forth in Section 9(d) of Schedule A, (c) which is fully insured in a manner
satisfactory to Lender and (d) with respect to which Lender is in possession of
all bills of lading and all other documentation which Lender has requested, all
in form and substance satisfactory to Lender in its sole discretion, establish a
Reserve equal to the cost of such Inventory (plus all duties, freight, taxes,
insurance, costs and other charges and expenses relating to such Credit
Accommodation or such Eligible Inventory) multiplied by a percentage equal to
100% minus the Inventory Advance Rate applicable to Eligible Inventory and (y)
in the case of any other Credit Accommodation issued for any purpose, establish
a Reserve equal to the full amount of such Credit Accommodation plus all costs
and other charges and expenses relating to such Credit Accommodation. In
addition, (x) Lender shall establish a permanent Reserve in the amount set forth
in Section 1(f) of Schedule A, and (y) if the outstanding principal balance of
the Term Loan advance with respect to Eligible Equipment exceeds the percentage
set forth in Section 2(a)(i) of Schedule A of the appraised
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<PAGE>
value of such Eligible Equipment, Lender may establish an additional Reserve in
the amount of such excess (and, for this purpose, if payments of principal on
the Term Loan advances against Eligible Equipment and Real Property are not
calculated separately, payments of principal of the Term Loan made by Borrower
shall be deemed to apply to the Term Loan advance with respect to Eligible
Equipment and Real Property, respectively, in proportion to the original
principal amounts of such advances). Lender may, in its discretion, establish
and revise Reserves by deducting them in determining Availability or by
reclassifying Eligible Accounts or Eligible Inventory as ineligible. In no
event shall the establishment of a Reserve in respect of a particular actual or
contingent liability obligate Lender to make advances hereunder to pay such
liability or otherwise obligate Lender with respect thereto.
1.3 OTHER PROVISIONS APPLICABLE TO CREDIT ACCOMMODATIONS. Lender may, in
its sole discretion and on terms and conditions acceptable to Lender, make
Credit Accommodations available to Borrower either by issuing them, or by
causing other financial institutions to issue them supported by Lender's
guaranty or indemnification; provided, that after giving effect to each Credit
Accommodation, the Credit Accommodation Balance will not exceed the Credit
Accommodation Limit set forth in Section 1(e) of Schedule A. Any amounts paid by
Lender in respect of a Credit Accommodation will be treated for all purposes as
a Revolving Loan which shall be secured by the Collateral and bear interest, and
be payable, in the same manner as a Revolving Loan. Borrower agrees to execute
all documentation required by Lender or the issuer of any Credit Accommodation
in connection with any such Credit Accommodation.
1.4 REPAYMENT. Accrued interest on all monetary Obligations shall be
payable on the first day of each month. Principal of the Term Loan shall be
repaid as set forth in Section 2(b) of Schedule A. If at any time any of the
Loan Limits are exceeded, Borrower will immediately pay to Lender such amounts
(or provide cash collateral to Lender with respect to the Credit Accommodation
Balance in the manner set forth in Section 7.3), as shall cause Borrower to be
in full compliance with all of the Loan Limits. Notwithstanding the foregoing,
Lender may, in its sole discretion, make or permit Revolving Loans, the Term
Loan, any Credit Accommodations or any other monetary Obligations to be in
excess of any of the Loan Limits; PROVIDED, that Borrower shall, upon Lender's
demand, pay to Lender such amounts as shall cause Borrower to be in full
compliance with all of the Loan Limits. All unpaid monetary Obligations shall be
payable in full on the Maturity Date (as defined in Section 7.1) or, if earlier,
the date of any early termination pursuant to Section 7.2.
1.5 MINIMUM BORROWING. Subject to the terms and conditions of this
Agreement, Borrower agrees to (i) borrow sufficient amounts to cause the
outstanding principal balance of the Loans to equal or exceed, at all times
prior to the Maturity Date, the Minimum Loan Amount set forth in Section 4 of
Schedule A and (ii) maintain Availability sufficient to enable Borrower to do
so. However, Lender shall not be obligated to loan Borrower the Minimum Loan
Amount other than in accordance with all of the terms and conditions of this
Agreement.
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<PAGE>
2. INTEREST AND FEES.
2.1 INTEREST. All Loans and other monetary Obligations shall bear interest
at the Interest Rate(s) set forth in Section 3 of Schedule A, except where
expressly set forth to the contrary in this Agreement or another Loan Document;
PROVIDED, that after the occurrence of an Event of Default, all Loans and other
monetary Obligations shall, at Lender's option, bear interest at a rate per
annum equal to two percent (2%) in excess of the rate otherwise applicable
thereto (the "DEFAULT RATE") until paid in full (notwithstanding the entry of
any judgment against Borrower or the exercise of any other right or remedy by
Lender), and all such interest shall be payable on demand. Changes in the
Interest Rate shall be effective as of the date of any change in the Prime Rate.
Notwithstanding anything to the contrary contained in this Agreement, the
aggregate of all amounts deemed to be interest hereunder and charged or
collected by Lender is not intended to exceed the highest rate permissible under
any applicable law, but if it should, such interest shall automatically be
reduced to the extent necessary to comply with applicable law and Lender will
refund to Borrower any such excess interest received by Lender.
2.2 FEES AND WARRANTS. Borrower shall pay Lender the following fees, and
issue Lender the following warrants, which are in addition to all interest and
other sums payable by Borrower to Lender under this Agreement, and are not
refundable:
(a) CLOSING FEE. A closing fee in the amount set forth in Section
6(a) of Schedule A, which shall be deemed to be fully earned as of, and payable
on, the date hereof.
(b) FACILITY FEES. A facility fee for the Initial Term in the amount
set forth in Section 6(b)(i) of Schedule A (which shall be fully earned as of
the date of this Agreement and shall be payable in equal installments due,
respectively, on each anniversary of the date of this Agreement during the
Initial Term), and a facility fee for each Renewal Term in the amount set forth
in Section 6(b)(ii) of Schedule A (which shall be fully earned as of the first
day of such Renewal Term and shall be payable in equal installments due,
respectively, on the first day of such Renewal Term and on each anniversary
thereof during such Renewal Term).
(c) SERVICING FEE. A monthly servicing fee in the amount set forth in
Section 6(c) of Schedule A, in consideration of Lender's administration and
other services for each month (or part thereof), which shall be fully earned as
of; and payable in advance on, the date of this Agreement and on the first day
of each month thereafter so long as any of the Obligations are outstanding.
(d) UNUSED LINE FEE. An unused line fee at a rate equal to the
percentage per annum set forth in Section 6(d) of Schedule A of the amount by
which the Maximum Facility Amount set forth in Section 1(a) of Schedule A
exceeds the average daily outstanding principal balance of the Loans and the
Credit Accommodation Balance during the immediately preceding month (or part
thereof), which fee shall be payable, in arrears, on the first day of each month
so long as any of the Obligations are outstanding and on the Maturity Date.
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<PAGE>
(e) MINIMUM BORROWING FEE. A minimum borrowing fee equal to the
excess, if any, of (i) interest which would have been payable in respect of each
period set forth in Section 6(e)(i) of Schedule A if, at all times during such
period, the principal balance of the Loans was equal to the Minimum Loan Amount
over (ii) the actual interest payable in respect of such period, which fee shall
be fully earned as of the last day of such period and payable on the date set
forth in Section 6(e)(ii) of Schedule A and on the Maturity Date, commencing
with the immediately following period.
(f) SUCCESS FEE. A success fee in the amount set forth in Section
6(f) of Schedule A, which shall be fully earned as of the date of this Agreement
and payable as set forth in Section 6(f) of Schedule A.
(g) WARRANTS. Warrants to acquire the capital stock of Borrower, as
summarized in Section 6(g) of Schedule A and as more fully set forth in a
separate warrant agreement executed by Borrower contemporaneously with this
Agreement.
(h) CREDIT ACCOMMODATION FEES. All of the fees relating to Credit
Accommodations set forth in Section 6(i) of Schedule A.
2.3 COMPUTATION OF INTEREST AND FEES. All interest and fees shall be
calculated daily on the closing balances in the Loan Account based on the actual
number of days elapsed in a year of 360 days. For purposes of calculating
interest and fees, if the outstanding daily principal balance of the Revolving
Loans is a credit balance, such balance shall be deemed to be zero.
2.4 LOAN ACCOUNT; MONTHLY ACCOUNTINGS. Lender shall maintain a loan
account for Borrower reflecting all advances, charges, expenses and payments
made pursuant to this Agreement (the "Loan Account'), and shall provide Borrower
with a monthly accounting reflecting the activity in the Loan Account. Each
accounting shall be deemed correct, accurate and binding on Borrower and an
account stated (except for reverses and reapplications of payments made and
corrections of errors discovered by Lender), unless Borrower notifies Lender in
writing to the contrary within sixty days after such account is rendered,
describing the nature of any alleged errors or admissions. However, Lender's
failure to maintain the Loan Account or to provide any such accounting shall not
affect the legality or binding nature of any of the Obligations. Interest, fees
and other monetary Obligations due and owing under this Agreement (including
fees and other amounts paid by Lender to issuers of Credit Accommodations) may,
in Lender's discretion, be charged to the Loan Account, and will thereafter be
deemed to be Revolving Loans and will bear interest at the same rate as other
Revolving Loans.
3. SECURITY INTEREST.
3.1 To secure the full payment and performance of all of the Obligations
when due, Borrower hereby grants to Lender a continuing security interest in all
of Borrower's property and interests in property, whether tangible or
intangible, now owned or in existence or hereafter acquired or arising, wherever
located, including Borrower's interest in all of the following, whether or not
eligible for lending purposes: (i) all Accounts, Chattel Paper, Instruments,
5
<PAGE>
Documents, Goods (including Inventory, Equipment, farm products and consumer
goods), Investment Property, General Intangibles, Deposit Accounts and money,
(ii) all proceeds and products of all of the foregoing (including proceeds of
any insurance policies, proceeds of proceeds and claims against third parties
for loss or any destruction of any of the foregoing) and (iii) all books and
records relating to any of the foregoing.
4. ADMINISTRATION.
4.1 LOCK BOXES AND BLOCKED ACCOUNTS. Borrower will, at its expense,
establish (and revise from time to time as Lender may require) collection
procedures acceptable to Lender, in Lender's sole discretion, for the collection
of checks, wire transfers and other proceeds of Accounts ("ACCOUNT PROCEEDS"),
which may include (i) directing all Account Debtors to send all such proceeds
directly to a post office box designated by Lender either in the name of
Borrower (but as to which Lender has exclusive access) or, at Lender's option,
in the name of Lender (a "LOCK BOX") or (ii) depositing all Account Proceeds
received by Borrower into one or more bank accounts maintained in Lender's name
(each, a "BLOCKED ACCOUNT"), under an arrangement acceptable to Lender with a
depository bank acceptable to Lender, pursuant to which all funds deposited into
each Blocked Account are to be transferred to Lender in such manner, and with
such frequency, as Lender shall specify or (iii) a combination of the foregoing.
Borrower agrees to execute, and to cause its depository banks to execute, such
Lock Box and Blocked Account agreements and other documentation as Lender shall
require from time to time in connection with the foregoing.
4.2 REMITTANCE OF PROCEEDS. Except as provided in Section 4.1, all
proceeds arising from the sale or other disposition of any Collateral shall be
delivered, in kind, by Borrower to Lender in the original form in which received
by Borrower not later than the following Business Day after receipt by Borrower.
Until so delivered to Lender, Borrower shall hold such proceeds separate and
apart from Borrower's other funds and property in an express trust for Lender.
Nothing in this Section 4.2 shall limit the restrictions on disposition of
Collateral set forth elsewhere in this Agreement.
4.3 APPLICATION OF PAYMENTS. Lender may, in its sole discretion, apply,
reverse and re-apply all cash and non-cash proceeds of Collateral or other
payments received with respect to the Obligations, in such order and manner as
Lender shall determine, whether or not the Obligations are due, and whether
before or after the occurrence of a Default or an Event of Default. For purposes
of determining Availability, such amounts will be credited to the Loan Account
and the Collateral balances to which they relate upon Lender's receipt of advice
from Lender's Bank (set forth in Section 11 of Schedule A) that such items have
been credited to Lender's account at Lender's Bank (or upon Lender's deposit
thereof at Lender's Bank in the case of payments received by Lender in kind), in
each case subject to final payment and collection. However, for purposes of
computing interest on the Obligations, such items shall be deemed applied by
Lender three Business Days after Lender's receipt of advice of deposit thereof
at Lender's Bank.
4.4 NOTIFICATION; VERIFICATION. Lender or its designee may, from time to
time, whether or not a Default or Event of Default has occurred: (i) verify
directly with the Account Debtors the
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<PAGE>
validity, amount and other matters relating to the Accounts and Chattel Paper,
by means of mail, telephone or otherwise, either in the name of Borrower or
Lender or such other name as Lender may choose; (ii) notify Account Debtors that
Lender has a security interest in the Accounts and that payment thereof is to be
made directly to Lender; and (iii) demand, collect or enforce payment of any
Accounts and Chattel Paper (but without any duty to do so).
4.5 POWER OF ATTORNEY. Borrower hereby grants to Lender an irrevocable
power of attorney, coupled with an interest, authorizing and permitting Lender
(acting through any of its officers, employees, attorneys or agents), at any
time (whether or not a Default or Event of Default has occurred and is
continuing, except as expressly provided below), at Lender's option, but without
obligation, with or without notice to Borrower, and at Borrower's expense, to do
any or all of the following, in Borrower's name or otherwise: (i) execute on
behalf of Borrower any documents that Lender may, in its sole discretion, deem
advisable in order to perfect and maintain Lender's security interests in the
Personal Property Collateral (including such financing statements and
continuation financing statements, and amendments thereto, as Lender shall deem
necessary or appropriate) and to file as a financing statement any copy of this
Agreement or any financing statement signed by Borrower, (ii) after the
occurrence of a Default or an Event of Default, execute on behalf of Borrower
any document exercising, transferring or assigning any option to purchase, sell
or otherwise dispose of or lease (as lessor or lessee) any personal property
which is part of the Personal Property Collateral or in which Lender has an
interest, in each case in connection with any disposition of such personal
property in accordance with the provisions of applicable law; (iii) execute on
behalf of Borrower any invoices relating to any Accounts, any draft against any
Account Debtor, any proof of claim in bankruptcy, any notice of Lien or claim,
and any assignment or satisfaction of mechanic's, materialman's or other Lien,
in each case to the extent necessary to protect Lender's Lien on, or the value
of; any of the Personal Property Collateral; (iv) execute on behalf of Borrower
any notice to any Account Debtor; (v) receive and otherwise take control in any
manner of any cash or non-cash items of payment or proceeds of Personal Property
Collateral, to the extent Lender is entitled to possession of the same pursuant
to this Agreement or applicable law; (vi) endorse Borrower's name on all checks
and other forms of remittances received by Lender; (vii) pay, contest or settle
any Lien, charge, encumbrance, security interest and adverse claim in or to any
of the Personal Property Collateral, or any judgment based thereon, or otherwise
take any action to terminate or discharge the same; provided, that Lender agrees
to use its best efforts to provide prior notice thereof to Borrower (but shall
have no liability for its failure to do so); (viii) after the occurrence of a
Default or Event of Default, grant extensions of time to pay, compromise claims
relating to, and settle Accounts, Chattel Paper and General Intangibles for less
than face value and execute all releases and other documents in connection
therewith; (ix) pay any sums required on account of Borrower's taxes or to
secure the release of any Liens therefor; (x) pay any amounts necessary to
obtain, or maintain in effect, any of the insurance described in Section 5.12;
(xi) in Lender's reasonable judgment, settle and adjust, and give releases of;
any insurance claim that relates to any of the Personal Property Collateral and
obtain payment therefor; (xii) instruct any third party having custody or
control of any Personal Property Collateral or books or records belonging to, or
relating to, Borrower to give Lender the same rights of access and other rights
with respect thereto as Lender has under this Agreement; and (xiii) after the
occurrence of a Default or Event of Default, change the address for delivery of
Borrower's mail and receive and open all mail
7
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addressed to Borrower. Any and all sums paid, and any and all costs, expenses,
liabilities, obligations and reasonable attorneys' fees incurred, by Lender with
respect to the foregoing shall be added to and become part of the Obligations,
shall be payable on demand, and shall bear interest at a rate equal to the
highest interest rate applicable to any of the Obligations. Borrower agrees that
Lender's rights under the foregoing power of attorney or any of Lender's other
rights under this Agreement or the other Loan Documents shall not be construed
to indicate that Lender is in control of the business, management or properties
of Borrower.
4.6 DISPUTES. Borrower shall promptly notify Lender of all disputes or
claims relating to Accounts and Chattel Paper. Borrower will not, without
Lender's prior written consent, compromise or settle any Account or Chattel
Paper for less than the full amount thereof; grant any extension of time of
payment of any Account or Chattel Paper, release (in whole or in part) any
Account Debtor or other person liable for the payment of any Account or Chattel
Paper or grant any credits, discounts, allowances, deductions, return
authorizations or the like with respect to any Account or Chattel Paper; except
that prior to the occurrence of an Event of Default, Borrower may take any of
such actions in the ordinary course of its business, provided that Borrower
promptly reports the same to Lender.
4.7 INVOICES. At Lender's request, Borrower will cause all invoices and
statements which it sends to Account Debtors or other third parties to be
marked, in a manner satisfactory to Lender, to reflect Lender's security
interest therein.
4.8 INVENTORY.
(a) RETURNS. Provided that no Event of Default has occurred and is
continuing, if any Account Debtor returns any Inventory to Borrower in the
ordinary course of its business, Borrower will promptly determine the reason for
such return and promptly issue a credit memorandum to the Account Debtor in the
appropriate amount (sending a copy to Lender). After the occurrence of an Event
of Default, Borrower will not accept any return without Lender's prior written
consent. Regardless of whether an Event of Default has occurred, Borrower will
(i) hold the returned Inventory in trust for Lender; (ii) segregate all returned
Inventory from all of Borrower's other property; (iii) conspicuously label the
returned Inventory as Lender's property; and (iv) immediately notify Lender of
the return of such Inventory, specifying the reason for such return, the
location and condition of the returned Inventory and, at Lender's request,
deliver such returned Inventory to Lender at an address specified by Lender.
(b) OTHER COVENANTS. Borrower will not, without Lender's prior
written consent, (i) store any Inventory with any warehouseman or other third
party other than as set forth in Section 9(d) of Schedule A or (ii) sell any
Inventory on a sale-or-return, guaranteed sale, consignment, or other contingent
basis. All of the Inventory has been produced only in accordance with the Fair
Labor Standards Act of 1938 and all rules, regulations and orders promulgated
thereunder.
4.9 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times, and on
one Business Day's notice, prior to the occurrence of a Default or an Event of
Default, and at any
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time and with or without notice after the occurrence of a Default or an Event of
Default, Lender or its agents shall have the right to inspect the Collateral,
and the right to examine and copy Borrower's books and records. Lender shall
take reasonable steps to keep confidential all information obtained in any such
inspection or examination, but Lender shall have the right to disclose any such
information to its auditors, regulatory agencies, attorneys and participants,
and pursuant to any subpoena or other legal process. Borrower agrees to give
Lender access to any or all of Borrower's premises to enable Lender to conduct
such inspections and examinations. Such inspections and examinations shall be at
Borrower's expense and the charge therefor shall be $650 per person per day (or
such higher amount as shall represent Lender's then current standard charge),
plus reasonable out-of-pocket expenses. Lender may, at Borrower's expense, use
Borrower's personnel, computer and other equipment, programs, printed output and
computer readable media, supplies and premises for the collection, sale or other
disposition of Collateral to the extent Lender, in its sole discretion, deems
appropriate. Borrower hereby irrevocably authorizes all accountants and third
parties to disclose and deliver to Lender, at Borrower's expense, all financial
information, books and records, work papers, management reports and other
information in their possession regarding Borrower. Borrower will not enter into
any agreement with any accounting firm, service bureau or third party to store
Borrower's books or records at any location other than Borrower's Address
without first obtaining Lender's written consent (which consent may be
conditioned upon such accounting firm, service bureau or other third party
agreeing to give Lender the same rights with respect to access to books and
records and related rights as Lender has under this Agreement).
5. REPRESENTATIONS, WARRANTIES AND COVENANTS.
To induce Lender to enter into this Agreement, Borrower represents,
warrants and covenants as follows (it being understood that (i) each such
representation and warranty will be deemed remade as of the date on which each
Loan is made and each Credit Accommodation is provided and shall not be affected
by any knowledge of; or any investigation by, Lender, and (ii) the accuracy of
each such representation, warranty and covenant will be a condition to each Loan
and Credit Accommodation):
5.1 EXISTENCE AND AUTHORITY. Borrower is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation or
formation. Borrower is qualified and licensed to do business in all
jurisdictions in which any failure to do so would have a material adverse effect
on Borrower. The execution, delivery and performance by Borrower of this
Agreement and all of the other Loan Documents have been duly and validly
authorized, do not violate Borrower's articles or certificate of incorporation,
by-laws or other organizational documents, or any law or any agreement or
instrument or any court order which is binding upon Borrower or its property, do
not constitute grounds for acceleration of any indebtedness or obligation under
any agreement or instrument which is binding upon Borrower or its property, and
do not require the consent of any Person. This Agreement and such other Loan
Documents have been duly executed and delivered by, and are enforceable against,
Borrower, and all other Obligors who have signed them, in accordance with their
respective terms. Sections 9(g) and 9(h) of Schedule A set forth the ownership
of Borrower and the names and ownership of Borrower's Subsidiaries as of the
date of this Agreement.
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5.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in the
heading to this Agreement is its correct and complete legal name as of the date
hereof. Listed in Sections 9(a), 9(b) and 9(c) of Schedule A are all prior names
of Borrower and all of Borrower's present and prior trade names. Borrower shall
give Lender at least 30 days' prior written notice before changing its name or
doing business under any other name. Borrower has complied with all laws
relating to the conduct of business under a fictitious business name. Borrower
represents and warrants that (i) each trade name does not refer to another
corporation or other legal entity; (ii) all Accounts invoiced under any such
trade names are owned exclusively by Borrower and are subject to the security
interest of Lender and the other terms of this Agreement and (iii) all schedules
of Accounts, including any sales made or services rendered using any trade name
shall show Borrower's name as assignor.
5.3 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower has good and marketable
title to the Collateral. The Collateral now is and will remain free and clear of
any and all liens, charges, security interests, encumbrances and adverse claims,
except for Permitted Liens. Lender now has, and will continue to have, a
first-priority perfected and enforceable security interest in all of the
Collateral, subject only to the Permitted Liens, and Borrower will at all times
defend Lender and the Collateral against all claims of others. None of the
Collateral which is Equipment is or will be affixed to any real property in such
a manner, or with such intent, as to become a fixture. Except for leases or
subleases as to which Borrower has delivered to Lender a landlord's waiver in
form and substance satisfactory to Lender, Borrower is not a lessee or sublessee
under any real property lease or sublease pursuant to which the lessor or
sublessor may obtain any rights in any of the Collateral, and no such lease or
sublease now prohibits, restrains, impairs or conditions, or will prohibit,
restrain, impair or condition, Borrower's right to remove any Collateral from
the premises. Whenever any Collateral is located upon premises in which any
third party has an interest (whether as owner, mortgagee, beneficiary under a
deed of trust, lien or otherwise), Borrower shall, whenever requested by Lender,
cause each such third party to execute and deliver to Lender, in form acceptable
to Lender, such waivers and subordinations as Lender shall specify, so as to
ensure that Lender's rights in the Collateral are, and will continue to be,
superior to the rights of any such third party. Borrower will keep in full force
and effect, and will comply with all the terms of; any lease of real property
where any of the Collateral now or in the future may be located.
5.4 ACCOUNTS AND CHATTEL PAPER. As of each date reported by Borrower, all
Accounts which Borrower has reported to Lender as being Eligible Accounts comply
in all respects with the criteria for eligibility established by Lender and in
effect at such time. All Accounts and Chattel Paper are genuine and in all
respects what they purport to be, arise out of a completed, bona fide and
unconditional and non-contingent sale and delivery of goods or rendition of
services by Borrower in the ordinary course of its business and in accordance
with the terms and conditions of all purchase orders, contracts or other
documents relating thereto, each Account Debtor thereunder had the capacity to
contract at the time any contract or other document giving rise to such Accounts
and Chattel Paper were executed, and the transactions giving rise to such
Accounts and Chattel Paper comply with all applicable laws and governmental
rules and regulations.
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5.5 INVESTMENT PROPERTY. Borrower will take any and all actions required
or requested by Lender, from time to time, to (i) cause Lender to obtain
exclusive control of any Investment Property in a manner acceptable to Lender
and (ii) obtain from any issuers of Investment Property and such other Persons
as Lender shall specify, for the benefit of Lender, written confirmation of
Lender's exclusive control over such Investment Property and take such other
actions as Lender may request to perfect Lender's security interest in such
Investment Property. For purposes of this Section 5.5, Lender shall have
exclusive control of Investment Property if (A) such Investment Property
consists of certificated securities and Borrower delivers such certificated
securities to Lender (with appropriate endorsements if such certificated
securities are in registered form); (B) such Investment Property consists of
uncertificated securities and either (x) Borrower delivers such uncertificated
securities to Lender or (y) the issuer thereof agrees, pursuant to documentation
in form and substance satisfactory to Lender, that it will comply with
instructions originated by Lender without further consent by Borrower, and (C)
such Investment Property consists of security entitlements and either (x) Lender
becomes the entitlement holder thereof or (y) the appropriate securities
intermediary agrees, pursuant to documentation in form and substance
satisfactory to Lender, that it will comply with entitlement orders originated
by Lender without further consent by Borrower.
5.6 PLACE OF BUSINESS; LOCATION OF COLLATERAL. Borrower's Address is
Borrower's chief executive office and the location of its books and records. In
addition, except as provided in the immediately following sentence, Borrower has
places of business and Collateral located only at the locations set forth on
Sections 9(d) and 9(e) of Schedule A. Borrower will give Lender at least 30
days' prior written notice before opening any additional place of business,
changing its chief executive office or the location of its books and records, or
moving any of the Collateral to a location other than Borrower's Address or one
of the locations set forth in Sections 9(d) and 9(e) of Schedule A, and will
execute and deliver all financing statements and other agreements, instruments
and documents which Lender shall require as a result thereof.
5.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial statements
delivered to Lender by or on behalf of Borrower have been prepared in conformity
with GAAP and completely and fairly reflect the financial condition of Borrower,
at the times and for the periods therein stated. Between the last date covered
by any such financial statement provided to Lender and the date hereof (or, with
respect to the remaking of this representation in connection with the making of
any Loan or the providing of any Credit Accommodation, the date such Loan is
made or such Credit Accommodation is provided), there has been no material
adverse change in the financial condition or business of Borrower. Borrower is
solvent and able to pay its debts as they come due, and has sufficient capital
to carry on its business as now conducted and as proposed to be conducted. All
schedules, reports and other information and documentation delivered by Borrower
to Lender with respect to the Collateral are, or will be, when delivered, true,
correct and complete as of the date delivered or the date specified therein.
5.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has timely
filed all tax returns and reports required by applicable law, has timely paid
all applicable taxes, assessments, deposits and contributions owing by Borrower
and will timely pay all such items in
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the future as they became due and payable. Borrower may, however, defer payment
of any contested taxes; PROVIDED, that Borrower (i) in good faith contests
Borrower's obligation to pay such taxes by appropriate proceedings promptly and
diligently instituted and conducted; (ii) notifies Lender in writing of the
commencement of; and any material development in, the proceedings; (iii) posts
bonds or takes any other steps required to keep the contested taxes from
becoming a Lien upon any of the Collateral and (iv) maintains adequate reserves
therefor in conformity with GAAP. Borrower is unaware of any claims or
adjustments proposed for any of Borrower's prior tax years which could result in
additional taxes becoming due and payable by Borrower. Borrower has paid, and
shall continue to pay, all amounts necessary to fund all present and future
pension, profit sharing and deferred compensation plans in accordance with their
terms, and Borrower has not withdrawn from participation in, permitted partial
or complete termination of; or permitted the occurrence of any other event with
respect to, any such plan which could result in any liability of Borrower,
including any liability to the Pension Benefit Guaranty Corporation or any other
governmental agency.
5.9 COMPLIANCE WITH LAWS. Borrower has complied in all material respects
with all provisions of all applicable laws and regulations, including those
relating to Borrower's ownership of real or personal property, the conduct and
licensing of Borrower's business, the payment and withholding of taxes, ERISA
and other employee matters, safety and environmental matters.
5.10 LITIGATION. Section 9(f) of Schedule A discloses all claims,
proceedings, litigation or investigations pending or (to the best of Borrower's
knowledge) threatened against Borrower. There is no claim, suit, litigation,
proceeding or investigation pending or (to the best of Borrower's knowledge)
threatened by or against or affecting Borrower in any court or before any
governmental agency (or any basis therefor known to Borrower) which may result,
either separately or in the aggregate, in any material adverse change in the
financial condition or business of Borrower, or in any material impairment in
the ability of Borrower to carry on its business in substantially the same
manner as it is now being conducted. Borrower will promptly inform Lender in
writing of any claim, proceeding, litigation or investigation in the future
threatened or instituted by or against Borrower.
5.11 USE OF PROCEEDS. All proceeds of all Loans will be used solely for
lawful business purposes.
5.12 INSURANCE. Borrower will at all times carry property, liability and
other insurance, with insurers acceptable to Lender, in such form and amounts,
and with such deductibles and other provisions, as Lender shall require, and
Borrower will provide evidence of such insurance to Lender, so that Lender is
satisfied that such insurance is, at all times, in full force and effect. Each
property insurance policy shall name Lender as loss payee and shall contain a
lender's loss payable endorsement in form acceptable to Lender, each liability
insurance policy shall name Lender as an additional insured, and each business
interruption insurance policy shall be collaterally assigned to Lender, all in
form and substance satisfactory to Lender. All policies of insurance shall
provide that they may not be cancelled or changed without at least thirty days'
prior written notice to Lender, shall contain breach of warranty coverage, and
shall otherwise be
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in form and substance satisfactory to Lender. Upon receipt of the proceeds of
any such insurance, Lender shall apply such proceeds in reduction of the
Obligations as Lender shall determine in its sole discretion. Borrower will
promptly deliver to Lender copies of all reports made to insurance companies.
5.13 FINANCIAL AND COLLATERAL REPORTS. Borrower has kept and will keep
adequate records and books of account with respect to its business activities
and the Collateral in which proper entries are made in accordance with GAAP
reflecting all its financial transactions, and will cause to be prepared and
furnished to Lender the following (all to be prepared in accordance with GAAP,
unless Borrower's certified public accountants concur in any change therein and
such change is disclosed to Lender):
(a) COLLATERAL REPORTS. On or before the fifteenth day of each month,
an aging of Borrower's Accounts, Chattel Paper and notes receivable, and weekly
Inventory physical counts, all in such form, and together with such additional
certificates, schedules and other information with respect to the Collateral or
the business of Borrower or any Obligor, as Lender shall request; provided, that
Borrower's failure to execute and deliver the same shall not affect or limit
Lender's security interests and other rights in any of the Accounts, nor shall
Lender's failure to advance or lend against a specific Account affect or limit
Lender's security interest and other rights therein. Together with each such
schedule, Borrower shall furnish Lender with copies (or, at Lender's request,
originals) of all contracts, orders, invoices, and other similar documents, and
all original shipping instructions, delivery receipts, bills of lading, and
other evidence of delivery, for any goods the sale or disposition of which gave
rise to such Accounts, and Borrower warrants the genuineness of all of the
foregoing. In addition, Borrower shall deliver to Lender the originals of all
Instruments, Chattel Paper, security agreements, guaranties and other documents
and property evidencing or securing any Accounts, immediately upon receipt
thereof and in the same form as received, with all necessary endorsements.
Lender may destroy or otherwise dispose of all documents, schedules and other
papers delivered to Lender pursuant to this Agreement (other than originals of
Instruments, Chattel Paper, security agreements, guaranties and other documents
and property evidencing or securing any Accounts) six months after Lender
receives them, unless Borrower requests their return in writing in advance and
arranges for their return to Borrower at Borrower's expense.
(b) ANNUAL STATEMENTS. Not later than 90 days after the close of each
fiscal year of Borrower, unqualified (except for a qualification for a change in
accounting principles with which the accountant concurs) audited financial
statements of Parent and its Subsidiaries as of the end of such year, on a
consolidated and consolidating basis, certified by a firm of independent
certified public accountants of recognized standing selected by Parent but
acceptable to Lender, together with a copy of any management letter issued in
connection therewith and a letter from such accountants acknowledging that
Lender is relying on such financial statements;
(c) INTERIM STATEMENTS. Not later than fifteen days after the end of
each month hereafter, including the last month of Parent's fiscal year,
unaudited interim financial statements of Parent and its Subsidiaries as of the
end of such month and of the portion of Parent's fiscal year then elapsed, on a
consolidated and consolidating basis, certified by the principal financial
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officer of Parent as prepared in accordance with GAAP and fairly presenting the
consolidated financial position and results of operations of Parent and its
Subsidiaries for such month and period subject only to changes from audit and
year-end adjustments and except that such statements need not contain notes;
(d) PROJECTIONS, ETC. Such business projections, Availability
projections, business plans, budgets and cash flow statements for Parent and its
Subsidiaries as Lender shall request from time to time;
(e) SHAREHOLDER REPORTS, ETC. Promptly after the sending or filing
thereof; as the case may be, copies of any proxy statements, financial
statements or reports which Parent has made available to its shareholders and
copies of any regular, periodic and special reports or registration statements
which Parent files with the Securities and Exchange Commission or any
governmental authority which may be substituted therefor, or any national
securities exchange;
(f) ERISA REPORTS. Upon request by Lender, copies of any annual
report to be filed pursuant to the requirements of ERISA in connection with each
plan subject thereto; and
(g) OTHER INFORMATION. Such other data and information (financial and
otherwise) as Lender, from time to time, may reasonably request, bearing upon or
related to the Collateral or Parent's and each of its Subsidiary's financial
condition or results of operations.
5.14 LITIGATION COOPERATION. Should any third-party suit or proceeding be
instituted by or against Lender with respect to any Collateral or in any manner
relating to Borrower, Borrower shall, without expense to Lender, make available
Borrower and its officers, employees and agents, and Borrower's books and
records, without charge, to the extent that Lender may deem them reasonably
necessary in order to prosecute or defend any such suit or proceeding.
5.15 MAINTENANCE OF COLLATERAL, ETC. Borrower will maintain all of its
Equipment in good working condition, ordinary wear and tear excepted, and
Borrower will not use the Collateral for any unlawful purpose. Borrower will
immediately advise Lender in writing of any material loss or damage to the
Collateral and of any investigation, action, suit, proceeding or claim relating
to the Collateral or which may result in an adverse impact upon Borrower's
business, assets or financial condition.
5.16 NOTIFICATION OF CHANGES. Borrower will promptly notify Lender in
writing of any change in its officers or directors, the opening of any new bank
account or other deposit account, or any material adverse change in the business
or financial affairs of Borrower or the existence of any circumstance which
would make any representation or warranty of Borrower untrue in any material
respect or constitute a material breach of any covenant of Borrower.
5.17 FURTHER ASSURANCES. Borrower agrees, at its expense, to take all
actions, and execute or cause to be executed and delivered to Lender all
promissory notes, security agreements, agreements with landlords, mortgagees and
processors and other bailees, subordination and intercreditor agreements and
other agreements, instruments and documents as
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Lender may request from time to time, to perfect and maintain Lender's security
interests in the Collateral and to fully effectuate the transactions
contemplated by this Agreement.
5.18 NEGATIVE COVENANTS. Except as set forth in Section 12 of Schedule A,
Borrower will not, without Lender's prior written consent (which will not be
unreasonably withheld), (i) merge or consolidate with another Person, form any
new Subsidiary or acquire any interest in any Person; (ii) acquire any assets
except in the ordinary course of business and as otherwise permitted by this
Agreement and the other Loan Documents; (iii) enter into any transaction outside
the ordinary course of business; (iv) sell or transfer any Collateral or other
assets, except that Borrower may sell finished goods Inventory in the ordinary
course of its business; (v) make any loans to, or investments in, any Affiliate
(including without limitation Parent) or other Person in the form of money or
other assets; (vi) incur any debt outside the ordinary course of business; (vii)
guaranty or otherwise become liable with respect to the obligations of another
party or entity; (viii) pay or declare any dividends or other distributions on
Borrower's stock, if Borrower is a corporation (except for dividends payable
solely in capital stock of Borrower) or with respect to any equity interests, if
Borrower is not a corporation; (ix) redeem, retire, purchase or otherwise
acquire, directly or indirectly, any of Borrower's capital stock or other equity
interests; (x) make any change in Borrower's capital structure; (xi) dissolve or
elect to dissolve; (xii) pay any principal or interest on any indebtedness owing
to an Affiliate (including without limitation Parent), (xiii) enter into any
transaction with an Affiliate (including without limitation Parent) other than
on arms-length terms; or (xiv) agree to do any of the foregoing.
5.19 FINANCIAL COVENANTS.
(a) CAPITAL EXPENDITURES. Borrower will not expend or commit to
expend, directly or indirectly, for capital expenditures (including capital
lease obligations) in excess of the amount set forth in Section 8(a) of Schedule
A as the Capital Expenditure Limitation in any fiscal year.
(b) NET WORTH. Borrower will at all times maintain a net worth of at
least the amount set forth in Section 8(b) of Schedule A.
(c) TANGIBLE NET WORTH. Borrower will at all times maintain a minimum
tangible net worth of at least the amount set forth in Section 8(c) of Schedule
A.
(d) WORKING CAPITAL. Borrower will at all times maintain working
capital of at least the amount set forth in Section 8(d) of Schedule A.
(e) NET LOSSES. Borrower will not permit its cumulative net loss to
exceed the amount set forth in Section 8(e) of Schedule A.
(f) NET INCOME. Borrower will not permit its cumulative net income to
be less than the amount set forth in Section 8(f) of Schedule A.
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(g) LEVERAGE. Borrower will not permit the ratio of its total
liabilities to its net worth to exceed, at any time, the ratio set forth in
Section 8(g) of Schedule A.
(h) OTHER FINANCIAL COVENANTS. Borrower will comply with any
additional financial covenants set forth in Section 8(j) of Schedule A.
5.20 OTHER COVENANTS. Borrower will comply with any additional covenants
set forth in Section 13 of Schedule A.
6. RELEASE AND INDEMNITY.
6.1 RELEASE. Borrower hereby releases Lender and its Affiliates and their
respective directors, officers, employees, attorneys and agents and any other
Person affiliated with or representing Lender (the "RELEASED PARTIES") from any
and all liability arising from acts or omissions under or pursuant to this
Agreement, whether based on errors of judgment or mistake of law or fact, except
for those arising from willful misconduct. However, in no circumstance will any
of the Released Parties be liable for lost profits or other special or
consequential damages. Such release is made on the date hereof and remade upon
each request for a Loan or Credit Accommodation by Borrower. Without limiting
the foregoing:
(a) Lender shall not be liable for (i) any shortage or discrepancy
in, damage to, or loss or destruction of; any goods, the sale or other
disposition of which gave rise to an Account; (ii) any error, act, omission, or
delay of any kind occurring in the settlement, failure to settle, collection or
failure to collect any Account; (iii) settling any Account in good faith for
less than the full amount thereof; or (iv) any of Borrower's obligations under
any contract or agreement giving rise to an Account; and
(b) In connection with Credit Accommodations or any underlying
transaction, Lender shall not be responsible for the conformity of any goods to
the documents presented, the validity or genuineness of any documents, delay,
default or fraud by Borrower, shippers and/or any other Person. Borrower agrees
that any action taken by Lender, if taken in good faith, or any action taken by
an issuer of any Credit Accommodation, under or in connection with any Credit
Accommodation, shall be binding on Borrower and shall not create any resulting
liability to Lender. In furtherance thereof; Lender shall have the full right
and authority to clear and resolve any questions of non-compliance of documents,
to give any instructions as to acceptance or rejection of any documents or
goods, to execute for Borrower's account any and all applications for steamship
or airway guaranties, indemnities or delivery orders, to grant any extensions of
the maturity of; time of payment for, or time of presentation of; any drafts,
acceptances or documents, and to agree to any amendments, renewals, extensions,
modifications, changes or cancellations of any of the terms or conditions of any
of the Credit Accommodations or applications and other documentation pertaining
thereto.
6.2 INDEMNITY. Borrower hereby agrees to indemnify the Released Parties
and hold them harmless from and against any and all claims, debts, liabilities,
demands, obligations, actions, causes of action, penalties, costs and expenses
(including attorneys' fees), of every
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nature, character and description, which the Released Parties may sustain or
incur based upon or arising out of any of the transactions contemplated by this
Agreement or the other Loan Documents or any of the Obligations, including any
transactions or occurrences relating to the issuance of any Credit
Accommodation, the Collateral relating thereto, any drafts thereunder and any
errors or omissions relating thereto (including any loss or claim due to any
action or inaction taken by the issuer of any Credit Accommodation) (and for
this purpose any charges to Lender by any issuer of Credit Accommodations shall
be conclusive as to their appropriateness and may be charged to the Loan
Account), or any other matter, cause or thing whatsoever occurred, done, omitted
or suffered to be done by Lender relating to Borrower or the Obligations (except
any such amounts sustained or incurred as the result of the willful misconduct
of the Released Parties). Notwithstanding any provision in this Agreement to the
contrary, the indemnity agreement set forth in this Section shall survive any
termination of this Agreement.
7. TERM.
7.1 MATURITY DATE. Lender's obligation to make Loans and to provide Credit
Accommodations under this Agreement shall initially continue in effect until the
Initial Maturity Date set forth in Section 7 of Schedule A (the "INITIAL TERM");
provided, that such date shall automatically be extended (the Initial Maturity
Date, as it may be so extended, being referred to as the "MATURITY DATE") for
successive additional terms of three years each (each a "RENEWAL TERM"), unless
one party gives written notice to the other, not less than sixty days prior to
the Maturity Date, that such party elects not to extend the Maturity Date. This
Agreement and the other Loan Documents and Lender's security interests in and
Liens upon the Collateral, and all representations, warranties and covenants of
Borrower contained herein and therein, shall remain in full force and effect
after the Maturity Date until all of the monetary Obligations are indefeasibly
paid in full.
7.2 EARLY TERMINATION. Lender's obligation to make Loans and to provide
Credit Accommodations under this Agreement may be terminated prior to the
Maturity Date as follows: (i) by Borrower, effective thirty business days after
written notice of termination is given to Lender or (ii) by Lender at any time
after the occurrence of an Event of Default, without notice, effective
immediately; PROVIDED, that if any Affiliate of Borrower is also a party to a
financing arrangement with Lender, no such early termination shall be effective
unless such Affiliate simultaneously terminates its financing arrangement with
Lender. If so terminated under this Section 7.2, Borrower shall pay to Lender
(i) an early termination fee (the "EARLY TERMINATION FEE") in the amount set
forth in Section 6(h) of Schedule A plus (ii) any earned but unpaid Facility
Fee. Such fee shall be due and payable on the effective date of termination and
thereafter shall bear interest at a rate equal to the highest rate applicable to
any of the Obligations. In addition, if Borrower so terminates and repays the
Obligations without having provided Lender with at least thirty days' prior
written notice thereof; an additional amount equal to thirty days of interest at
the applicable Interest Rate(s), based on the average outstanding amount of the
Obligations for the six month period immediately preceding the date of
termination.
7.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay in full all Obligations,
whether or not all or any part of such
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Obligations are otherwise then due and payable. Without limiting the generality
of the foregoing, if; on the Maturity Date or on any earlier effective date of
termination, there are any outstanding Credit Accommodations, then on such date
Borrower shall provide to Lender cash collateral in an amount equal to 110% of
the Credit Accommodation Balance to secure all of the Obligations (including
estimated attorneys' fees and other expenses) relating to said Credit
Accommodations or such greater percentage or amount as Lender reasonably deems
appropriate, pursuant to a cash pledge agreement in form and substance
satisfactory to Lender.
7.4 EFFECT OF TERMINATION. No termination shall affect or impair any right
or remedy of Lender or relieve Borrower of any of the Obligations until all of
the monetary Obligations have been indefeasibly paid in full. Upon indefeasible
payment and performance in full of all of the monetary Obligations (and the
provision of cash collateral with respect to any Credit Accommodation Balance as
required by Section 7.3) and termination of this Agreement, Lender shall
promptly deliver to Borrower termination statements, requests for reconveyances
and such other documents as may be reasonably required to terminate Lender's
security interests in the Collateral.
8. EVENTS OF DEFAULT AND REMEDIES.
8.1 EVENTS OF DEFAULT. The occurrence of any of the following events shall
constitute an "EVENT OF DEFAULT" under this Agreement, and Borrower shall give
Lender immediate written notice thereof: (i) if any warranty, representation,
statement, report or certificate made or delivered to Lender by Borrower or any
of Borrower's officers, employees or agents is untrue or misleading; (ii) if
Borrower fails to pay when due any principal or interest on any Loan or any
other monetary Obligation; (iii) if Borrower breaches any covenant or obligation
contained in (a) any of the first sentence of Section 5.1, Section 5.5, Section
5.8, Section 5.9, Section 5.12 or Section 5.14, of this Agreement and such
breach has not been cured to Lender's satisfaction within 10 days of the
occurrence thereof or (b) any Section of this Agreement other than those listed
in clause (a), or any section of any other Loan Document or fails to perform any
other non-monetary Obligation; (iv) if any levy, assessment, attachment,
seizure, lien or encumbrance (other than a Permitted Lien) is made or permitted
to exist on all or any part of the Collateral; (v) if one or more judgments
aggregating in excess of $25,000, or any injunction or attachment, is obtained
against Borrower or any Obligor or which remains unstayed for more than ten days
or is enforced; (vi) the occurrence of any default under any financing
agreement, security agreement or other agreement, instrument or document
executed and delivered by (A) Borrower with, or in favor of; any Person other
than Lender or (B) Borrower or any Affiliate of Borrower with, or in favor of;
Lender or any Affiliate of Lender; (vii) the dissolution, death, termination of
existence in good standing, insolvency or business failure or suspension or
cessation of business as usual of Borrower or any Obligor (or of any general
partner of Borrower or any Obligor if it is a partnership) or the appointment of
a receiver, trustee or custodian for all or any part of the property of; or an
assignment for the benefit of creditors by Borrower or any Obligor, or the
commencement of any proceeding by Borrower or any Obligor under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect, or if Borrower makes or sends a notice of a bulk transfer or
calls a meeting of its creditors; (viii) the commencement of any proceeding
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against Borrower or any Obligor under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect; (ix) the actual or
attempted revocation or termination of; or limitation or denial of liability
upon, any guaranty of the Obligations, or any security document securing the
Obligations, by any Obligor; (x) if Borrower makes any payment on account of any
indebtedness or obligation which has been subordinated to the Obligations other
than as permitted in the applicable subordination agreement, or if any Person
who has subordinated such indebtedness or obligations attempts to limit or
terminate its subordination agreement; (xi) if there is any actual or threatened
indictment of Borrower or any Obligor under any criminal statute or commencement
or threatened commencement of criminal or civil proceedings against Borrower or
any Obligor, pursuant to which the potential penalties or remedies sought or
available include forfeiture of any property of Borrower or such Obligor; (xii)
if there is a change in the record or beneficial ownership of an aggregate of
more than 20% of the outstanding shares of stock of Borrower (or partnership or
membership interests if it is a partnership or limited liability company), in
one or more transactions, compared to the ownership of outstanding shares of
stock (or partnership or membership interests) of Borrower as of the date
hereof; without the prior written consent of Lender; (xiii) if there is any
change in the chief executive officer, chief operating officer or chief
financial officer of Borrower; (xiv) if an Event of Default occurs under any
Loan and Security Agreement between Lender and an Affiliate of Borrower; or (xv)
if Lender determines in good faith that the Collateral is insufficient to fully
secure the Obligations or that the prospect of payment of performance of the
Obligations is impaired.
8.2 REMEDIES. Upon the occurrence of any Default, and at any time
thereafter, Lender, at its option, may cease making Loans or otherwise extending
credit to Borrower under this Agreement or any other Loan Document. Upon the
occurrence of any Event of Default, and at any time thereafter, Lender, at its
option, and without notice or demand of any kind (all of which are hereby
expressly waived by Borrower), may do any one or more of the following: (i)
cease making Loans or otherwise extending credit to Borrower under this
Agreement or any other Loan Document; (ii) accelerate and declare all or any
part of the Obligations to be immediately due, payable and performable,
notwithstanding any deferred or installment payments allowed by any instrument
evidencing or relating to any of the Obligations; (iii) take possession of any
or all of the Collateral wherever it may be found, and for that purpose Borrower
hereby authorizes Lender, without judicial process, to enter onto any of
Borrower's premises without interference to search for, take possession of;
keep, store, or remove any of the Collateral, and remain (or cause a custodian
to remain) on the premises in exclusive control thereof; without charge for so
long as Lender deems it reasonably necessary in order to complete the
enforcement of its rights under this Agreement or any other agreement; PROVIDED,
that if Lender seeks to take possession of any of the Collateral by court
process, Borrower hereby irrevocably waives (A) any bond and any surety or
security relating thereto required by law as an incident to such possession, (B)
any demand for possession prior to the commencement of any suit or action to
recover possession thereof and (C) any requirement that Lender retain possession
of; and not dispose of; any such Collateral until after trial or final judgment;
(iv) require Borrower to assemble any or all of the Collateral and make it
available to Lender at one or more places designated by Lender which are
reasonably convenient to Lender and Borrower, and to remove the Collateral to
such locations as Lender may deem advisable; (v) complete the processing,
manufacturing or repair of any
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<PAGE>
Collateral prior to a disposition thereof and, for such purpose and for the
purpose of removal, Lender shall have the right to use Borrower's premises,
vehicles and other Equipment and all other property without charge; (vi) sell,
lease or otherwise dispose of any of the Collateral, in its condition at the
time Lender obtains possession of it or after further manufacturing, processing
or repair, at one or more public or private sales, in lots or in bulk, for cash,
exchange or other property, or on credit (a "SALE"), and to adjourn any such
Sale from time to time without notice other than oral announcement at the time
scheduled for Sale (and, in connection therewith, (A) Lender shall have the
right to conduct such Sale on Borrower's premises without charge, for such times
as Lender deems reasonable, on Lender's premises, or elsewhere, and the
Collateral need not be located at the place of Sale; (B) Lender may directly or
through any of its Affiliates purchase or lease any of the Collateral at any
such public disposition, and if permissible under applicable law, at any private
disposition and (C) any Sale of Collateral shall not relieve Borrower of any
liability Borrower may have if any Collateral is defective as to title, physical
condition or otherwise at the time of sale); (vii) demand payment of and collect
any Accounts, Chattel Paper, Instruments and General Intangibles included in the
Collateral and, in connection therewith, Borrower irrevocably authorizes Lender
to endorse or sign Borrower's name on all collections, receipts, Instruments and
other documents, to take possession of and open mail addressed to Borrower and
remove therefrom payments made with respect to any item of Collateral or
proceeds thereof and, in Lender's sole discretion, to grant extensions of time
to pay, compromise claims and settle Accounts, General Intangibles and the like
for less than face value; and (viii) demand and receive possession of any of
Borrower's federal and state income tax returns and the books and records
utilized in the preparation thereof or relating thereto. In addition to the
foregoing remedies, upon the occurrence of any Event of Default resulting from a
breach of any of the financial covenants set forth in Section 5.19, Lender may,
at its option, upon not less than ten days' prior notice to Borrower, reduce any
or all of the Advance Rates set forth in Section 1(b) of Schedule A to the
extent Lender, in its sole discretion, deems appropriate. In addition to the
rights and remedies set forth above, Lender shall have all the other rights and
remedies accorded a secured party after default under the UCC and under all
other applicable laws, and under any other Loan Document, and all of such rights
and remedies are cumulative and non-exclusive. Exercise or partial exercise by
Lender of one or more of its rights or remedies shall not be deemed an election
or bar Lender from subsequent exercise or partial exercise of any other rights
or remedies. The failure or delay of Lender to exercise any rights or remedies
shall not operate as a waiver thereof; but all rights and remedies shall
continue in full force and effect until all of the Obligations have been fully
paid and performed. If notice of any sale or other disposition of Collateral is
required by law, notice at least seven days prior to the sale designating the
time and place of sale in the case of a public sale or the time after which any
private sale or other disposition is to be made shall be deemed to be reasonable
notice, and Borrower waives any other notice. If any Collateral is sold or
leased by Lender on credit terms or for future delivery, the Obligations shall
not be reduced as a result thereof until payment is collected by Lender.
8.3 APPLICATION OF PROCEEDS. Subject to any application required by law,
all proceeds realized as the result of any Sale shall be applied by Lender to
the Obligations in such order as Lender shall determine in its sole discretion.
Any surplus shall be paid to Borrower or other persons legally entitled thereto;
but Borrower shall remain liable to Lender for any deficiency. If
20
<PAGE>
Lender, in its sole discretion, directly or indirectly enters into a deferred
payment or other credit transaction with any purchaser at any Sale, Lender shall
have the option, exercisable at any time, in its sole discretion, of either
reducing the Obligations by the principal amount of the purchase price or
deferring the reduction of the Obligations until the actual receipt by Lender of
the cash therefor.
9. GENERAL PROVISIONS.
9.1 NOTICES. All notices to be given under this Agreement shall be in
writing and shall be given either personally, by reputable private delivery
service, by regular first-class mail or certified mail return receipt requested,
addressed to Lender or Borrower at the address shown in the heading to this
Agreement, or by facsimile to the facsimile number shown in Section 9(i) of
Schedule A, or at any other address (or to any other facsimile number)
designated in writing by one party to the other party in the manner prescribed
in this Section 9.1. All notices shall be deemed to have been given when
received or when delivery is refused by the recipient.
9.2 SEVERABILITY. If any provision of this Agreement, or the application
thereof to any party or circumstance, is held to be void or unenforceable by any
court of competent jurisdiction, such defect shall not affect the remainder of
this Agreement, which shall continue in full force and effect.
9.3 INTEGRATION. This Agreement and the other Loan Documents represent the
final, entire and complete agreement between Borrower and Lender and supersede
all prior and contemporaneous negotiations, oral representations and agreements,
all of which are merged and integrated into this Agreement THERE ARE NO ORAL
UNDERSTANDINGS, REPRESENTATIONS OR AGREEMENTS BETWEEN THE PARTIES WHICH ARE NOT
SET FORTH IN THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS.
9.4 WAIVERS. The failure of Lender at any time or times to require
Borrower to strictly comply with any of the provisions of this Agreement or any
other Loan Documents shall not waive or diminish any right of Lender later to
demand and receive strict compliance therewith. Any waiver of any default shall
not waive or affect any other default, whether prior or subsequent, and whether
or not similar. None of the provisions of this Agreement or any other Loan
Document shall be deemed to have been waived by any act or knowledge of Lender
or its agents or employees, but only by a specific written waiver signed by an
authorized officer of Lender and delivered to Borrower. Borrower waives demand,
protest, notice of protest and notice of default or dishonor, notice of payment
and nonpayment, release, compromise, settlement, extension or renewal of any
commercial paper, Instrument. Account, General Intangible, Document, Chattel
Paper, Investment Property or guaranty at any time held by Lender on which
Borrower is or may in any way be liable, and notice of any action taken by
Lender, unless expressly required by this Agreement, and notice of acceptance
hereof.
9.5 AMENDMENT. The terms and provisions of this Agreement may not be
amended or modified except in a writing executed by Borrower and a duly
authorized officer of Lender.
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<PAGE>
9.6 TIME OF ESSENCE. Time is of the essence in the performance by Borrower
of each and every obligation under this Agreement and the other Loan Documents.
9.7 ATTORNEYS FEES AND COSTS. Borrower shall reimburse Lender for all
reasonable attorneys' and paralegals' fees (including in-house attorneys and
paralegals employed by Lender) and all filing, recording, search, title
insurance, appraisal, audit, and other costs incurred by Lender, pursuant to, in
connection with, or relating to this Agreement, including all reasonable
attorneys' fees and costs Lender incurs to prepare and negotiate this Agreement
and the other Loan Documents; to obtain legal advice in connection with this
Agreement and the other Loan Documents or Borrower or any Obligor; to administer
this Agreement and the other Loan Documents (including the cost of periodic
financing statement, tax lien and other searches conducted by Lender); to
enforce, or seek to enforce, any of its rights; prosecute actions against, or
defend actions by, Account Debtors; to commence, intervene in, or defend any
action or proceeding; to initiate any complaint to be relieved of the automatic
stay in bankruptcy; to file or prosecute any probate claim, bankruptcy claim,
third-party claim, or other claim; to examine, audit, copy, and inspect any of
the Collateral or any of Borrower's books and records; to protect, obtain
possession of; lease, dispose of; or otherwise enforce Lender's security
interests in, the Collateral; and to otherwise represent Lender in any
litigation relating to Borrower. If either Lender or Borrower files any lawsuit
against the other predicated on a breach of this Agreement, the prevailing party
in such action shall be entitled to recover its reasonable costs and attorneys'
fees, including reasonable attorneys' fees and costs incurred in the enforcement
of, execution upon or defense of any order, decree, award or judgment. All
attorneys' fees and costs to which Lender may be entitled pursuant to this
Section shall immediately become part of the Obligations, shall be due on
demand, and shall bear interest at a rate equal to the highest interest rate
applicable to any of the Obligations.
9.8 BENEFIT OF AGREEMENT; ASSIGNABILITY. The provisions of this Agreement
shall be binding upon and inure to the benefit of the respective successors,
assigns, heirs, beneficiaries and representatives of Borrower and Lender;
provided, that Borrower may not assign or transfer any of its rights under this
Agreement without the prior written consent of Lender, and any prohibited
assignment shall be void. No consent by Lender to any assignment shall release
Borrower from its liability for any of the Obligations. Lender shall have the
right to assign all or any of its rights and obligations under the Loan
Documents, and to sell participating interests therein, to one or more other
Persons, and Borrower agrees to execute all agreements, instruments and
documents requested by Lender in connection with each such assignment and
participation.
9.9 HEADINGS; CONSTRUCTION. Section and subsection headings are used in
this Agreement only for convenience. Borrower and Lender acknowledge that the
headings may not describe completely the subject matter of the applicable
Sections or subsections, and the headings shall not be used in any manner to
construe, limit, define or interpret any term or provision of this Agreement.
This Agreement has been fully reviewed and negotiated between the parties and no
uncertainty or ambiguity in any term or provision of this Agreement shall be
construed strictly against Lender or Borrower under any rule of construction or
otherwise.
22
<PAGE>
9.10 GOVERNING LAW; CONSENT TO FORUM, ETC. THIS AGREEMENT HAS BEEN
NEGOTIATED, EXECUTED AND DELIVERED, AND SHALL BE DEEMED TO HAVE BEEN MADE, IN
NEW YORK, NEW YORK, AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF SUCH STATE. BORROWER HEREBY CONSENTS AND AGREES THAT THE STATE AND
FEDERAL COURTS IN NEW YORK, NEW YORK OR THE STATE IN WHICH ANY OF THE COLLATERAL
IS LOCATED SHALL HAVE NON-EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY
CLAIMS OR DISPUTES BETWEEN BORROWER AND LENDER PERTAINING TO THIS AGREEMENT, ANY
OTHER LOAN DOCUMENTS OR ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT
OR THE OTHER LOAN DOCUMENTS. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE
TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND
WAIVES ANY OBJECTION WHICH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. BORROWER ALSO AGREES THAT
ANY CLAIM OR DISPUTE BROUGHT BY BORROWER AGAINST LENDER PURSUANT TO THIS
AGREEMENT, ANY OTHER LOAN DOCUMENT OR ANY MATTER ARISING OUT OF THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT SHALL BE BROUGHT EXCLUSIVELY IN THE STATE AND FEDERAL
COURTS OF NEW YORK. BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS,
COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES
THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE IN THE
MANNER AND SHALL BE DEEMED RECEIVED AS SET FORTH IN SECTION 9.1 FOR NOTICES, TO
THE EXTENT PERMITTED BY LAW. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR
OPERATE TO AFFECT THE RIGHT OF LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY LENDER OF ANY JUDGMENT OR
ORDER OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO
ENFORCE THE SAME IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION.
9.11 WAIVER OF JURY TRIAL, ETC. BORROWER WAIVES (i) THE RIGHT TO TRIAL BY
JURY (WHICH LENDER ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM
OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS, THE
OBLIGATIONS OR THE COLLATERAL OR ANY CONDUCT, ACTS OR OMISSIONS OF LENDER OR
BORROWER OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS OR
AGENTS OR ANY OTHER PERSONS AFFILIATED WITH LENDER OR BORROWER, WHETHER SOUNDING
IN CONTRACT, TORT OR OTHERWISE; (ii) THE RIGHT TO INTERPOSE ANY CLAIMS,
DEDUCTIONS, SETOFFS OR COUNTERCLAIMS OF ANY KIND IN ANY ACTION OR PROCEEDING
INSTITUTED BY LENDER WITH RESPECT TO THE LOAN DOCUMENTS OR ANY MATTER RELATING
THERETO, EXCEPT FOR COMPULSORY COUNTERCLAIMS; (iii) NOTICE PRIOR TO LENDER'S
TAKING POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH
MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF
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<PAGE>
LENDER'S REMEDIES AND (iv) THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND
EXEMPTION LAWS. BORROWER ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A MATERIAL
INDUCEMENT TO LENDER'S ENTERING INTO THIS AGREEMENT AND THAT LENDER IS RELYING
UPON THE FOREGOING WAIVERS IN ITS FUTURE DEALINGS WITH BORROWER. BORROWER
WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING WAIVERS WITH ITS
LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
IN WITNESS WHEREOF, Borrower and Lender have signed this Agreement as of
the date set forth in the heading.
BORROWER: LENDER:
FIXCOR INDUSTRIES, INC. NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING
DIVISION
By By
--------------------------------- -------------------------------------
Its Its Authorized Signatory
------------------------------
24
<PAGE>
SCHEDULE A
DESCRIPTION OF CERTAIN TERMS
This Schedule is an integral part of the Loan and Security Agreement
between FIXCOR INDUSTRIES, INC. and NATIONSCREDIT COMMERCIAL CORPORATION,
THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING DIVISION (the "AGREEMENT").
1. Loan Limits for Revolving
Loans:
(a) Maximum Facility
Amount: $7,000,000
(b) Advance Rates:
(i) Accounts 85%; provided, that if the Dilution
Advance Rate: Percentage exceeds 4%, such advance
rate will be reduced by the number
of full or partial percentage
points of such excess
(ii) Inventory Advance
(A) Finished goods: 50%
(B) Raw materials: 50%
(C) Work in process: not applicable
(c) Accounts Sublimit not applicable
(d) Inventory Sublimit(s):
(i) Overall sublimit $1,000,000
on advances against
Eligible Inventory
A-1
<PAGE>
(ii) Sublimit on advances not applicable
against finished goods
(iii) Sublimit on advances not applicable
against raw materials
(iv) Sublimit on advances not applicable
against work in process
(e) Credit Accommodation Limit: not applicable
(f) Permanent Reserve Amount: not applicable
(g) Overadvance Amount: not applicable
2. Loan Limits for Term Loan:
(a) Principal Amount:
(i) Equipment Advance The lesser of $2,434,000 and 90%
of the appraised auction sale value
of Borrower's Eligible Equipment
(ii) Real Property $1,167,000
Advance:
(b) Repayment Schedule:
(i) Equipment Advance: The Equipment Advance shall be
repaid in equal consecutive
monthly installments amortized
over 72 months payable on the
first day of each calendar month
commencing June 1, 1997, with the
entire unpaid balance due and
payable on the Maturity Date
(ii) Real Property The Real Property Advance shall
Advance: be repaid in equal consecutive
monthly installments amortized
over 120 months payable on the
first day of each calendar month
commencing June 1, 1997, with the
entire unpaid balance due and
payable on the Maturity Date
A-2
<PAGE>
3. Interest Rates:
(a) Revolving Loans 1.50% per annum in excess of the
Prime Rate
(b) Term Loan: 1.50% per annum in excess of the
Prime Rate
4. Minimum Loan Amount: $2,000,000
5. Maximum Days:
(a) Maximum days after
original INVOICE DATE 90
for Eligible Accounts:
(b) Maximum days after
original INVOICE DUE
DATE for Eligible 60
Accounts:
6. Fees:
(a) Closing Fee: $70,000
(b) Facility Fee:
(i) Initial Term: $140,000
(ii) Renewal Term(s): $105,000
(c) Servicing Fee: $1,000 per month
(d) Unused Line Fee: 0.50% per annum
(e) Minimum Borrowing Fee:
(i) Applicable period: Each month
(ii) Date payable: The first day of each month
(f) Success Fee: not applicable
(g) Warrants: not applicable
A-3
<PAGE>
(h) Early Termination Fee: 2.00% of the Maximum Facility
Amount if terminated during the
first year of the Initial Term
and 1.00% of the Maximum Facility
Amount if terminated during the
second year of the Initial Term
(i) Fees for letters of not applicable
credit and other Credit
Accommodations (or
guaranties thereof by
Lender):
7. Initial Maturity Date: May 14, 2002
8. Financial Covenants:
(a) Capital Expenditure not applicable
Limitation:
(b) Minimum Net Worth not applicable
Requirement:
(c) Minimum Tangible not applicable
Net Worth:
(d) Minimum Working not applicable
Capital:
(e) Maximum Cumulative not applicable
Net Loss:
(f) Minimum Cumulative not applicable
Net Income:
(g) Maximum Leverage Ratio: not applicable
(h) Limitation on not applicable
Purchase Money Security
Interests:
(i) Limitation on Equipment not applicable
Leases:
(j) Additional Financial not applicable
A-4
<PAGE>
Covenants:
9. Borrower Information:
(a) Prior Names of None
Borrower:
(b) Prior Trade Names None
of Borrower:
(c) Existing Trade Names None
of Borrower:
(d) Inventory Locations: 1835 James Parkway
Heath, Ohio 43056
(e) Other Locations: None
(f) Litigation: None
(g) Ownership of 100% owned by Parent
Borrower:
(h) Subsidiaries (and None
ownership thereof):
(i) Facsimile Numbers:
Borrower: (216) 292-6187
Lender: (212) 597-1666
10. Description of Real See attached Exhibit A
Property:
11. Lender's Bank The First National Bank of Chicago
One First National Plaza
Chicago, Illinois 60670
12. Exceptions to Negative Borrower may from time to time (a)
Covenants: declare and pay dividends to Parent
and/or (b) make loans to Parent,
in each case in order to permit
Parent to make (i) payments of
interest in respect of Parent's
indebtedness for borrowed money
on the regularly scheduled
payment dates thereof, so long as
no Default or Event of Default has
A-5
<PAGE>
occurred and is then continuing,
and (ii) monthly payments of
principal in respect of Parent's
indebtedness for borrowed money
on any Payment Date, in such
amounts as Parent may from time
to time determine, so long as (i)
Availability is at least $250,000
immediately after making each
such payment, (ii) no Default or
Event of Default has occurred and
is then continuing and (iii) Net
Cashflow of Parent for the
applicable Determination Period,
as demonstrated by the interim or
audited financial statements
delivered to Lender for such
Determination Period pursuant to
this Agreement, as applicable,
would be positive after deducting
the amount of such payment and
all other payments of principal
in respect of Parent's
indebtedness for borrowed money
made or to be made on such
Payment Date.
13. Additional Covenants: (a) On or before September 14,
1997, Borrower will (i) establish
and implement accounting and
reporting systems and controls
with respect to its Accounts that
are satisfactory to Lender in its
sole discretion and (ii)
demonstrate to Lender's
satisfaction (in its sole
discretion) that its books and
records accurately and timely
reflect all available information
with respect to Borrower's
Accounts and Eligible Accounts
(b) One or before September 14,
1997, Borrower shall repay in full
all of its indebtedness to
Reservoir Capital Corporation and
terminate its financing
relationship with Reservoir
Capital Corporation and Borrower
will not thereafter incur any
indebtedness to Reservoir Capital
Corporation
A-6
<PAGE>
IN WITNESS WHEREOF, Borrower and Lender have signed this Schedule A as of
the date set forth in the heading to the Agreement.
BORROWER: LENDER:
FIXCOR INDUSTRIES, INC. NATIONSCREDIT COMMERCIAL CORPORATION,
THROUGH ITS NATIONSCREDIT COMMERCIAL
FUNDING DIVISION
By By
--------------------------------- -------------------------------------
Its Its Authorized Signatory
------------------------------
A-7
<PAGE>
SCHEDULE B
DEFINITIONS
This Schedule is an integral part of the Loan and Security Agreement
between FIXCOR INDUSTRIES, INC. and NATIONSCREDIT COMMERCIAL CORPORATION,
THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING DIVISION (the "AGREEMENT").
As used in the Agreement, the following terms have the following meanings:
"ACCOUNT" means any right to payment for Goods sold or leased or for
services rendered which is not evidenced by an Instrument or Chattel Paper,
whether or not it has been earned by performance.
"ACCOUNT DEBTOR" means the obligor on an Account or Chattel Paper.
"ACCOUNT PROCEEDS" has the meaning set forth in Section 4.1.
"AFFILIATE" means, with respect to any Person, a relative, partner,
shareholder, member, manager, director, officer, or employee of such Person, any
parent or subsidiary of such Person, or any Person controlling, controlled by or
under common control with such Person or any other Person affiliated, directly
or indirectly, by virtue of family membership, ownership, management or
otherwise.
"AGREEMENT" and "this Agreement" mean the Loan and Security Agreement
of which this Schedule B is a part and the Schedules thereto.
"AVAILABILITY" has the meaning set forth in Section 1.1(a)
"BANKRUPTCY CODE" means the United States Bankruptcy Code (11 U.S.C.
Section 101 et seq.).
"BLOCKED ACCOUNT" has the meaning set forth in Section 4.1.
"BORROWER" has the meaning set forth in the heading to the Agreement
"BORROWER ADDRESS" has the meaning set forth in the heading to the Agreement
"BUSINESS DAY" means a day other than a Saturday or Sunday or any
other day on which Lender or banks in New York are authorized to close.
"CHATTEL PAPER" has the meaning set forth in the UCC.
"COLLATERAL" means all property and interests in property in or upon
which a security interest or other Lien is granted pursuant to this Agreement or
the other Loan Documents.
B-1
<PAGE>
"CREDIT ACCOMMODATION" has the meaning set forth in Section 1.1(a).'
"CREDIT ACCOMMODATION BALANCE" means the sum of (i) the aggregate
undrawn face amount of all outstanding Credit Accommodations and (ii) all
interest, fees and costs due or, in Lender's estimation, likely to become due in
connection therewith.
"DEFAULT" means any event which with notice or passage of time, or
both, would constitute an Event of Default.
"DEFAULT RATE" has the meaning set forth in Section 2.1.
"DEPOSIT ACCOUNT" has the meaning set forth in the UCC.
"DETERMINATION PERIOD" means with respect to each Payment Date
relating to (i) any calendar month falling in calendar year 1997, the period
beginning on January 1, 1997 and ending on the last day of such month and (ii)
any calendar month falling after calendar year 1997, the period of twelve months
ending on the last day of such month.
"DILUTION PERCENTAGE" means the gross amount of all returns,
allowances, discounts, credits, write-offs and similar items relating to
Borrower's Accounts computed as a percentage of Borrower's gross sales,
calculated on a ninety (90) day rolling average.
"DOCUMENT" has the meaning set forth in the UCC.
"EASY TERMINATION FEE" has the meaning set forth in Section 7.2.
"ELIGIBLE ACCOUNT" means, at any time of determination, an Account
which satisfies the general criteria set forth below and which is otherwise
acceptable to Lender (provided, that Lender may, in its sole discretion, change
the general criteria for acceptability of Eligible Accounts upon at least
fifteen days prior notice to Borrower). An Account shall be deemed to meet the
current general criteria if (i) neither the Account Debtor nor any of its
Affiliates is an Affiliate, creditor or supplier of Borrower, (ii) it does not
remain unpaid more than the earlier to occur of (A) the number of days after the
original invoke date set forth in Section 5(a) of Schedule A or (B) the number
of days after the original invoice due date set forth in Section 5(b) of
Schedule A; (iii) the Account Debtor or its Affiliates are not past due on other
Accounts owing to Borrower comprising more than 50% of all of the Accounts owing
to Borrower by such Account Debtor or its Affiliates; (iv) all Accounts owing by
the Account Debtor or its Affiliates do not represent more than 20% of all
otherwise Eligible Accounts (provided, that Accounts which are deemed to be
ineligible solely by reason of this clause (iv) shall be considered Eligible
Accounts to the extent of the amount thereof which does not exceed 20% of all
otherwise Eligible Accounts); (v) no covenant, representation or warranty
contained in this Agreement with respect to such Account (including any of the
representations set forth in Section 5.4) has been breached; (vi) the Account is
not subject to any contra relationship, counterclaim, dispute or set-off
(provided, that Accounts which are deemed to be ineligible solely by reason of
this clause (vi) shall be considered Eligible Accounts to the extent of the
B-2
<PAGE>
amount thereof which is not affected by such contra relationships,
counterclaims, disputes or setoffs); (vii) the Account Debtor's chief executive
office or principal place of business is located in the United States or
Provinces of Canada which have adopted the Personal Property Security Act or a
similar act, unless (A) the sale is fully backed by a letter of credit, guaranty
or acceptance acceptable to Lender in its sole discretion, and if backed by a
letter of credit, such letter of credit has been issued or confirmed by a bank
satisfactory to Lender, is sufficient to cover such Account, and if required by
Lender, the original of such letter of credit has been delivered to Lender or
Lender's agent and the issuer thereof notified of the assignment of the proceeds
of such letter of credit to Lender or (B) such Account is subject to credit
insurance payable to Lender issued by an insurer and on terms and in an amount
acceptable to Lender; (viii) it is absolutely owing to Borrower and does not
arise from a sale on a bill-and-hold, guarantied sale, sale-or-return,
sale-on-approval, consignment, retainage or any other repurchase or return basis
or consist of progress billings; (ix) Lender shall have verified the Account in
a manner satisfactory to Lender; (x) the Account Debtor is not the United States
of America or any state or political subdivision (or any department, agency or
instrumentality thereof), unless Borrower has complied with the Assignment of
Claims Act of 1940 (31 U.S.C. Section 203 et seq.) or other applicable similar
state or local law in a manner satisfactory to Lender; (xi) it is at all times
subject to Lender's duly perfected, first priority security interest and to no
other Lien that is not a Permitted Lien, and the goods giving rise to such
Account (A) were not, at the time of sale, subject to any Lien except Permitted
Liens and (B) have been delivered to and accepted by the Account Debtor, or the
services giving rise to such Account have been performed by Borrower and
accepted by the Account Debtor; (xii) the Account is not evidenced by Chattel
Paper or an Instrument of any kind and has not been reduced to judgment; (xiii)
the Account Debtor's total indebtedness to Borrower does not exceed the amount
of any credit limit established by Borrower or Lender and the Account Debtor is
otherwise deemed to be creditworthy by Lender (provided, that Accounts which are
deemed to be ineligible solely by reason of this clause (xiii) shall be
considered Eligible Accounts to the extent the amount of such Accounts does not
exceed the lower of such credit limits); (xiv) there are no facts or
circumstances existing, or which could reasonably be anticipated to occur, which
might result in any adverse change in the Account Debtor's financial condition
or impair or delay the collectibility of all or any portion of such Account;
(xv) Lender has been furnished with all documents and other information
pertaining to such Account which Lender has requested, or which Borrower is
obligated to deliver to Lender, pursuant to this Agreement; (xvi) Borrower has
not made an agreement with the Account Debtor to extend the time of payment
thereof beyond the time periods set forth in clause (ii) above; and (xvii)
Borrower has not posted a surety or other bond in respect of the contract under
which such Account arose.
"ELIGIBLE EQUIPMENT" means, at any time of determination, Equipment
owned by Borrower which Lender, in its sole discretion, deems to be eligible for
borrowing purposes.
"ELIGIBLE INVENTORY" means, at any time of determination, Inventory
(other than work-in-process, packaging materials and supplies) which satisfies
the general criteria set forth below and which is otherwise acceptable to Lender
(provided, that Lender may, in its sole discretion, change the general criteria
for acceptability of Eligible Inventory upon at least fifteen days' prior
written notice to Borrower). Inventory shall be deemed to meet the current
general
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<PAGE>
criteria if (i) it consists of raw materials or finished goods; (ii) it is in
good, new and saleable condition, (iii) it is not slow-moving, obsolete,
unmerchantable, returned or repossessed; (iv) it is not in the possession of a
processor, consignee or bailee, or located on premises leased or subleased to
Borrower, or on premises subject to a mortgage in favor of a Person other than
Lender, unless such processor, consignee, bailee or mortgagee or the lessor or
sublessor of such premises, as the case may be, has executed and delivered all
documentation which Lender shall require to evidence the subordination or other
limitation or extinguishment of such Person's rights with respect to such
Inventory and Lender's right to gain access thereto; (v) it meets all standards
imposed by any governmental agency or authority; (vi) it conforms in all
respects to any covenants, warranties and representations set forth in the
Agreement; (vii) it is at all times subject to Lender's duly perfected, first
priority security interest and no other Lien except a Permitted Lien, and (viii)
it is situated at an Inventory Location listed in Section 9(d) of Schedule A or
other location of which Lender has been notified as required by Section 5.6.
"ELIGIBLE REAL PROPERTY" means, at any time of determination, Real
Property owned by Borrower which Lender, in its sole discretion, deems to be
eligible for borrowing purposes.
"EQUIPMENT" means all Goods which are used or bought for use primarily
in business (including farming or a profession) or by a Person who is a
non-profit organization or governmental subdivision or agency and which are not
Inventory, farm products or consumer goads, including all machinery, molds,
machine tools, motors, furniture, equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dies and jigs, and all attachments,
accessories, accessions, replacements, substitutions, additions or improvements
to, or spare parts for, any of the foregoing.
"EQUIPMENT ADVANCE" has the meaning set forth in Section 1.1(b).
"ERISA" means the Employee Retirement Income Security Act of 1974 and
all rules, regulations and orders promulgated thereunder.
"EVENT OF DEFAULT" has the meaning set forth in Section 8.1.
"GAAP" means generally accepted accounting principles as in effect
from time to time, consistently applied.
"GENERAL INTANGIBLES" has the meaning set forth in the UCC, and
includes all books and records pertaining to the Collateral and other business
and financial records in the possession of Borrower or any other Person,
inventions, designs, drawings, blueprints, patents, patent applications,
trademarks, trademark applications (other than "intent to use" applications
until a verified statement of use is filed with respect to such applications)
and the goodwill of the business symbolized thereby, names, trade names, trade
secrets, goodwill, copyrights, registrations, licenses, franchises, customer
lists, security and other deposits, causes of action and other rights in all
litigation presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, rights to
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<PAGE>
purchase or sell real or personal property, rights as a licensor or licensee of
any kind, royalties, telephone numbers, internet addresses, proprietary
information, purchase orders, and all insurance policies and claims (including
life insurance, key man insurance, credit insurance, liability insurance,
property insurance and other insurance), tax refunds and claims, letters of
credit, banker's acceptances and guaranties, computer programs, discs, tapes and
tape files in the possession of Borrower or any other Person, claims under
guaranties, security interests or other security held by or granted to Borrower,
all rights to indemnification and all other intangible property of every kind
and nature.
"GOODS" means all things which are movable at the time the security
interest attaches or which are fixtures (other than money, Documents,
Instruments, Investment Property, Accounts, Chattel Paper, General Intangibles,
or minerals or the like (including oil and gas) before extraction), including
standing timber which is to be cut and removed under a conveyance or contract
for sale, the unborn young of animals, and growing crops.
"INITIAL TERM" has the meaning set forth in Section 7.1.
"INSTRUMENT" has the meaning set forth in the UCC.
"INVENTORY" means all Goods held for sale or lease or furnished or to
be furnished under contracts of service, including all raw materials, work in
process, finished goods, goods in transit and materials and supplies which are
or might be used or consumed in a business or used in connection with the
manufacture, packing, shipping, advertising, selling or finishing of such Goods,
and all products of the foregoing, and shall include interests in goods
represented by Accounts, returned, reclaimed or repossessed goods and rights as
an unpaid vendor.
"INVESTMENT PROPERTY" shall mean all of Borrower's securities, whether
certificated or uncertificated, securities entitlements, securities accounts,
commodity contracts and commodity accounts.
"LENDER" has the meaning set forth in the heading to the Agreement
"LIEN" means any interest in property securing an obligation owed to,
or a claim by, a Person other than the owner of the property, whether such
interest is based on common law, statute or contract, including rights of
sellers under conditional sales contracts or title retention agreements and
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other title exceptions and encumbrances
affecting property. For the purpose of this Agreement, Borrower shall be deemed
to be the owner of any property which it has acquired or holds subject to a
conditional sale agreement or other arrangement pursuant to which title to the
property has been retained by or vested in some other Person for security
purposes.
"LOAN ACCOUNT" has the meaning set forth in Section 2.4.
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<PAGE>
"LOAN DOCUMENTS" means the Agreement and all notes, guaranties,
security agreements, certificates, landlord's agreements, Lock Box and Blocked
Account agreements and all other agreements, documents and instruments now or
hereafter executed or delivered by Borrower or any Obligor in connection with,
or to evidence the transactions contemplated by, this Agreement.
"LOAN LIMITS" means, collectively, the Availability limits and all
other limits on the amount of Loans and Credit Accommodations set forth in this
Agreement.
"LOANS" means, collectively, the Revolving Loans and any Term Loan.
"LOCK BOX" has the meaning set forth in Section 4.1.
"MATURITY DATE" has the meaning set forth in Section 7.1.
"NET CASHFLOW" means net income during any period, plus depreciation
and amortization during such period, MINUS repayment of indebtedness for
borrowed money during such period, and minus capital expenditures during such
period, all determined for Parent and its subsidiaries on a consolidated basis
and in accordance with GAAP.
"OBLIGATIONS" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to Lender, whether evidenced by this Agreement or any
other Loan Document, whether arising from an extension of credit; opening of a
Credit Accommodation, guaranty, indemnification or otherwise (including all
fees, costs and other amounts which may be owing to issuers of Credit
Accommodations and all taxes, duties, freight, insurance, costs and other
expenses, costs or amounts payable in connection with Credit Accommodations or
the underlying goods), whether direct or indirect (including those acquired by
assignment and any participation by Lender in Borrower's indebtedness owing to
others), whether absolute or contingent, whether due or to become due, and
whether arising before or after the commencement of a proceeding under the
Bankruptcy Code or any similar statute, including all interest, charges,
expenses, fees, attorney's fees, expert witness fees, audit fees, letter of
credit fees, loan fees, Early Termination Fees, Minimum Borrowing Fees and any
other sums chargeable to Borrower under this Agreement or under any other Loan
Document.
"OBLIGOR" means any guarantor, endorser, acceptor, surety or other
person liable on, or with respect to, the Obligations or who is the owner of any
property which is security for the Obligations, other than Borrower.
"PARENT" means Fix-Corp International, Inc., a Delaware corporation
and an Affiliate of Borrower.
"PAYMENT DATE" means the date that is 10 days after the delivery of
interim financial statements for any month (other than the last month of any
fiscal year) pursuant to Section 5.13(c) hereof or, with respect to the last
month of any fiscal year, the date that is 10
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<PAGE>
days after the delivery of audited financial statements for such fiscal year
pursuant to Section 5.13(b) hereof.
"PERMITTED LIENS" means: (i) purchase money security interests in
specific items of Equipment in an aggregate amount not to exceed the limit set
forth in Section 8(h) of Schedule A; (ii) leases of specific items of Equipment
in an aggregate amount not to exceed the limit set forth in Section 8(i) of
Schedule A; (iii) Liens for taxes not yet due and payable; (iv) additional Liens
which are fully subordinate to the security interests of Lender and are
consented to in writing by Lender, (v) security interests being terminated
concurrently with the execution of this Agreement; (vi) Liens of materialmen,
mechanics, warehousemen or carriers arising in the ordinary course of business
and securing obligations which are not delinquent, (vii) Liens incurred in
connection with the extension, renewal or refinancing of the indebtedness
secured by Liens of the type described in clause (i) or (ii) above; provided,
that any extension, renewal or replacement Lien is limited to the property
encumbered by the existing Lien and the principal amount of the indebtedness
being extended, renewed or refinanced does not increase; (viii) Liens in favor
of customs and revenue authorities which secure payment of customs duties in
connection with the importation of goods; (ix) security deposits posted in
connection with real property leases or subleases; and (x) until the earlier of
September __, 1997 and the date upon which Borrower repays in full its
indebtedness to Reservoir Capital Corporation and terminates its financing
relationship with Reservoir Capital Corporation, Liens on Borrower's Accounts
and the proceeds thereof in favor of Reservoir Capital Corporation. Lender will
have the right to require, as a condition to its consent under clause (iv)
above, that the holder of the additional Lien sign an intercreditor agreement in
form and substance satisfactory to Lender, in its sole discretion, acknowledging
that the Lien is subordinate to the security interests of Lender, and agreeing
not to take any action to enforce its subordinate Lien so long as any
Obligations remain outstanding, and that Borrower agree that any uncured default
in any obligation secured by the subordinate Lien shall also constitute an Event
of Default under this Agreement.
"PERSON" means any individual, sole proprietorship, partnership, joint
venture, limited liability company, trust, unincorporated organization,
association, corporation, government or any agency or political division
thereof, or any other entity.
"PERSONAL PROPERTY COLLATERAL" means all Collateral other then the
Real Property.
"PRIME RATE" means, at any given time, the prime rate as quoted in The
Wall Street Journal as the base rate on corporate loans posted as of such time
by at least 75% of the nation's 30 largest banks (which rate is not necessarily
the lowest rate offered by such banks).
"REAL PROPERTY" means the real property described in Section 10 of
Schedule A.
"REAL PROPERTY ADVANCE" has the meaning set forth in Section 1.1(b).
"RELEASED PARTIES" has the meaning set forth in Section 6.1.
"RENEWAL TERM" has the meaning set forth in Section 7.1.
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<PAGE>
"RESERVES" has the meaning set forth in Section 1.2.
"REVOLVING LOANS" has the meaning set forth in Section 1.1(b).
"SALE" has the meaning set forth in Section 8.2.
"SUBSIDIARY" means any corporation or other entity of which a Person
owns, directly or indirectly, through one or more intermediaries, more than 50%
of the capital stock or other equity interest at the time of determination.
"TERM" means the period commencing on the date of this Agreement and
ending on the Maturity Date.
"TERM LOAN" has the meaning set forth in Section 1.1(b).
"UCC" means, at any given time, the Uniform Commercial Code as adopted
and in effect at such time in the State of New York.
All accounting terms used in this Agreement, unless otherwise indicated,
shall have the meanings given to such terms in accordance with GAAP. All other
terms contained in this Agreement, unless otherwise indicated, shall have the
meanings provided by the UCC, to the extent such terms are defined therein. The
term "including," whenever used in this Agreement, shall mean "including but not
limited to." The singular form of any term shall include the plural form, and
vice versa, when the context so requires. References to Sections, subsections
and Schedules are to Sections and subsections of, and Schedules to, this
Agreement. All references to agreements and statutes shall include all
amendments thereto and successor statutes in the case of statutes.
IN WITNESS WHEREOF, Borrower and Lender have signed this Schedule B as of
the date set forth in the heading to the Agreement.
BORROWER: LENDER:
FIXCOR INDUSTRIES, INC. NATIONSCREDIT COMMERCIAL CORPORATION,
THROUGH ITS NATIONSCREDIT
COMMERCIAL FUNDING DIVISION
By By
---------------------------------- ------------------------------------
Its Its Authorized Signatory
-------------------------------
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<PAGE>
EXHIBIT A
REAL PROPERTY
B-9
<PAGE>
EXHIBIT B TO
UCC FINANCING STATEMENT SHOWING
FIX-CORP INTERNATIONAL, INC. AS DEBTOR AND
NATIONSCREDIT COMMERCIAL CORPORATION,
THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING DIVISION. AS
SECURED PARTY
Record Owner: Fix-Corp International, Inc.
Legal Description:
Situated in the State of Ohio, County of Licking and City of Heath. and bounded
and described as follows:
Being in T-1. R-12 at the United States Military Lands, and in the Mid-Ohio
Industrial Park, Addition No. 3. as recorded in Plat Book 13, Page 51. in the
Licking County Deed Records. and being more fully bounded and described as
follows:
Being all of Reserve "A", Lot 40 and the following portion at Lot 41:
Beginning in the westerly right of way line of James Parkway, said point being
the southeast corner of said Lot 41;
Thence South 89 deg. 25' 37" West, along the south line at Lot 41, 662.49 feet
to the southwest corner of Lot 41:
Thence North 0 deg. 45' 14" West, along the easterly line at the New York
Central Railway Company, 243.50 feet, to a point;
Thence South 89 deg. 25' 37" East. passing through Lot 41, a distance of 663.41
feet to a point;
Thence South 0 deg. 31' 52" East. passing along the westerly right of way line
of James Parkway. 243.50 feet to the place of beginning;
The above 10.00 acre survey includes 0.79 acres in Reserve "A", 5.504 acres in
Lot 40 and 3.706 acres in Lot 41.
The above description was prepared as the result of a survey by William S.
Henderson, Registered Surveyor No. 5242. dated July 6, 1989.
<PAGE>
Being part of the 3 a.m. real estate conveyed by Herbert I. Murphy, Jr. and
Patricia R. Murphy, his wife, to Mid-Ohio Development Corporation by deed dated
December 3, 1971, and recorded in Volume 681. page 608. Deed Records. Licking
County. Ohio.
<PAGE>
Exhibit 10
GUARANTY
Borrower: FIXCOR Industries, Inc., a
Delaware corporation
Guarantor: Mark Fixler, an
individual
Borrower has requested that NationsCredit Commercial Corporation,
through its NationsCredit Commercial Funding Division ("Lender") provide
certain financial accommodations to Borrower pursuant to the terms of a Loan
and Security Agreement between Borrower and Lender dated of even date
herewith (as amended from time to time, the "Loan Agreement"). As one of the
conditions to providing financing, Lender has required that Mark Fixler
("Guarantor") guaranty all obligations of Borrower to Lender.
For value received and in consideration of any loan, advance or
financial accommodation of any kind whatsoever heretofore, now or hereafter
made, given or granted to Borrower by Lender pursuant to the Loan Agreement;
Guarantor unconditionally guaranties the full and prompt payment when due,
whether at maturity or earlier, by reason of acceleration or otherwise, and
at all times thereafter, of the indebtedness, liabilities and obligations of
every kind and nature of Borrower to Lender (including interest whether or
not permitted in bankruptcy), howsoever created, arising or evidenced,
whether direct or indirect, absolute or contingent, joint or several, now or
hereafter existing, or due or to become due, in each case arising under the
Loan Agreement and the other Loan Documents, plus all costs and expenses
(including, without limitation, all court costs and reasonable attorneys' and
paralegals' fees and expenses) paid or incurred by Lender in endeavoring to
collect all or any part of such indebtedness, liabilities and obligations
from, or in prosecuting any action against, Guarantor or any other guarantor
of all or any part of such indebtedness, liabilities and obligations (all
such indebtedness, liabilities, obligations, costs and expenses being
hereinafter referred to as "Borrower's Obligations"). All sums becoming due
under this Guaranty shall bear interest from the due date thereof until paid
at the highest rate charged with respect to any of Borrower's Obligations
under the Loan Agreement.
NOTWITHSTANDING ANYTHING IN THIS GUARANTY TO THE CONTRARY, (A) THE
LIABILITY OF GUARANTOR HEREUNDER SHALL NOT EXCEED $750,000.00, PLUS COSTS AND
EXPENSES OF COLLECTION AND PROSECUTION OF ACTIONS AGAINST GUARANTOR AND PLUS
INTEREST AS PROVIDED FOR IN THIS GUARANTY AND (B) LENDER SHALL NOT MAKE ANY
CLAIM FOR PAYMENT PURSUANT TO THIS GUARANTY UNTIL THE EXPIRATION OF THREE
MONTHS AFTER LENDER HAS DELIVERED TO GUARANTOR WRITTEN NOTICE OF LENDER'S
INTENT TO MAKE SUCH CLAIM.
<PAGE>
Guarantor agrees that his obligations under this Guaranty are
unconditional, irrespective of (i) the validity or enforceability of
Borrower's Obligations or any note or other instrument evidencing Borrower's
Obligations, (ii) the absence of any attempt by Lender to collect Borrower's
Obligations from Borrower or any other guarantor, (iii) Lender's waiver or
consent with respect to any provision of the Loan Documents, (iv) Lender's
failure to perfect or maintain its security interests in, or to preserve its
rights with respect to, any of the Collateral, (v) Lender's election, in any
proceeding under Chapter 11 of the Bankruptcy Code, of the application of
Section 1111(b)(2) of the Bankruptcy Code, (vi) any borrowing or grant of a
security interest by Borrower as debtor-in-possession under Section 364 of
the Bankruptcy Code, (vii) the disallowance, under Section 502 of the
Bankruptcy Code, of all or any of Lender's claims for repayment of Borrower's
Obligations or (viii) any other circumstance which might constitute a legal
or equitable discharge or defense of Borrower or a guarantor.
No payment made by or for the account or benefit of Guarantor
(including (i) a payment made by Borrower in respect of Borrower's
Obligations, (ii) a payment made by any person under any other guaranty of
Borrower's Obligations or (iii) a payment made by means of set off or other
application of funds by Lender) pursuant to this Guaranty shall entitle
Guarantor, by subrogation or otherwise, to any payment by Borrower or from or
out of any property of Borrower, and Guarantor shall not exercise any rights
or remedies against Borrower or any property of Borrower including any right
of contribution, indemnity or reimbursement by reason of any performance by
Guarantor under this Guaranty, all of such rights of subrogation,
contribution, indemnity and reimbursement being hereby waived by Guarantor.
The provisions of this paragraph shall survive the termination of this
Guaranty or the release or discharge of Guarantor from liability hereunder.
Guarantor and Lender hereby agree that Borrower is a third party beneficiary
of the provisions of this paragraph.
Guarantor hereby waives diligence, presentment, demand for payment,
filing of claims with a court in the event of receivership or bankruptcy of
Borrower, protest or notice with respect to Borrower's Obligations and all
demands whatsoever, and covenants that this Guaranty will not be discharged,
except by complete and irrevocable payment and performance of the obligations
and liabilities contained herein. No notice to any party, including
Guarantor, shall be required for Lender to make demand hereunder. Such demand
shall constitute a mature and liquidated claim against Guarantor. At any time
after maturity of Borrower's Obligations, whether by acceleration or
otherwise, Lender may, at its sole election, proceed directly and at once,
without notice, against Guarantor to collect and recover the full amount or
any portion of Borrower's Obligations, without first proceeding against
Borrower or any other person or against any of the Collateral. Lender shall
have the exclusive right to determine the application of payments and
credits, if any, from Guarantor, Borrower or any other person, on account of
Borrower's Obligations.
Lender is hereby authorized, without notice or demand to Guarantor
and without affecting or impairing the liability of Guarantor hereunder, to
from time to time (i) renew, extend, accelerate or otherwise change the time
for payment of, or other terms relating to, Borrower's Obligations or
otherwise modify, amend or change the terms of any promissory note or other
agreement, document or instrument now or hereafter executed by Borrower and
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<PAGE>
delivered to Lender, (ii) accept partial payments on Borrower's Obligations;
(iii) take and hold collateral for the payment of Borrower's Obligations, or for
the payment of this Guaranty, or for the payment of any other guaranties or
Borrower's Obligations or other liabilities of Borrower, and exchange, enforce,
waive and release any such security or collateral; (iv) apply such security or
collateral and direct the order or manner of sale thereof as in its sole
discretion it may determine; and (v) settle, release, compromise, collect or
otherwise liquidate Borrower's Obligations and any security or collateral
therefor in any manner.
At any time after maturity of Borrower's Obligations, Lender may, in
its sole discretion, without notice to Guarantor and regardless of the
acceptance of any security or collateral for the payment hereof, appropriate
and apply toward payments of Borrower's Obligations that remain unpaid, (i)
any indebtedness due or to become due from Lender to Guarantor and (ii) any
moneys, credits or other property belonging to Guarantor at any time held by
or coming into the possession of Lender or any affiliates of Lender, whether
for deposit or otherwise.
Guarantor assumes responsibility for keeping himself informed of the
financial condition of Borrower and all other guarantors of all or any of
Borrower's Obligations, and of all other circumstances bearing upon the risk
of nonpayment of Borrower's Obligations or any part thereof that diligent
inquiry might reveal, and Guarantor agrees that Lender shall have no duty to
advise Guarantor of information known to Lender regarding any of the
foregoing. Guarantor acknowledges familiarity with Borrower's financial
condition and represents that he has not relied on any statements made, or
information furnished, by Lender or its agents in obtaining such familiarity.
If Lender provides any such information to Guarantor, Lender shall be under
no obligation to (i) undertake any investigation not a part of its regular
business routine, (ii) disclose any information which, pursuant to accepted
or reasonable commercial finance practices, Lender wishes to maintain
confidential or (iii) make any other or future disclosures of any information
to Guarantor.
Notwithstanding any contrary provision of this Guaranty, it is
intended that neither this Guaranty nor any liens or security interests
securing this Guaranty constitute a "Fraudulent Conveyance" (as defined
below). Consequently, Guarantor agrees that if this Guaranty or any liens or
security interests securing this Guaranty, would, but for the application of
this sentence, constitute a Fraudulent Conveyance, this Guaranty and each
such lien and security interest shall be valid and enforceable only to the
maximum extent that would not cause this Guaranty or such lien or security
interest to constitute a Fraudulent Conveyance, and this Guaranty shall
automatically be deemed to have been amended accordingly at all relevant
times. For purposes hereof, a "Fraudulent Conveyance" means a fraudulent
conveyance under Section 548 of the Bankruptcy Code or a fraudulent
conveyance or fraudulent transfer under any applicable fraudulent conveyance
or fraudulent transfer law or similar law of any state or other governmental
unit as in effect from time to time.
Guarantor waives the right to assert the doctrine of marshaling with
respect to any collateral held by Lender to secure any of the Borrower's
Obligations. Guarantor further agrees that, to the extent Borrower makes one
or more payments to Lender, or Lender receives any
3
<PAGE>
proceeds of collateral which are subsequently invalidated, declared to be
fraudulent or preferential, set aside or required to be repaid to Borrower, its
estate, trustee, receiver or any other party under the Bankruptcy Code or other
law, that portion of Borrower's Obligations which has been paid, reduced or
satisfied by such payment shall be reinstated and continued in full force and
effect as of the date such initial payment, reduction or satisfaction occurred
and this Guaranty shall continue to be in existence and in full force and
effect, irrespective of whether any evidence of indebtedness or this Guaranty
has been surrendered or canceled.
Guarantor agrees that all payments hereunder shall be made without
setoff or counterclaims and Guarantor waives all presentments, demands for
performance, notices of nonperformance, protests, notices of protest, notices
of dishonor and notices of acceptance of this Guaranty. Guarantor further
waives all notices of the existence, creation or incurring of new or
additional indebtedness, arising either from additional loans extended to
Borrower or otherwise, and also waives all notices that the principal amount,
or any portion thereof, or any interest on any Instrument or document
evidencing all or any part of Borrower's Obligations is due, notices of any
and all proceedings to collect from the maker, any endorser or any other
guarantor of all or any part of Borrower's Obligations, or from anyone else,
and, to the extent permitted by law, notices of exchange, sale, foreclosure,
surrender or other handling of any security or collateral securing payment of
Borrower's Obligations.
No delay on the part of Lender in the exercise of any right or
remedy shall operate as a waiver thereof, and no single or partial exercise
by Lender of any right or remedy shall preclude any further exercise thereof
except as expressly set forth in a writing duly signed and delivered on
Lender's behalf by an authorized officer or agent of Lender; nor shall any
modification or waiver of any of the provisions of this Guaranty be binding
upon Lender, except as expressly set forth in a writing duly signed and
delivered on Lender's behalf by an authorized officer or agent of Lender.
Lender's failure at any time or times hereafter to require strict performance
by Borrower or Guarantor of any of the provisions, warranties, terms and
conditions contained in any promissory note, security agreement, agreement,
guaranty, instrument or document now or at any time or times hereafter
executed by Borrower or Guarantor and delivered to Lender, shall not waive,
affect or diminish any right of Lender at any time or times hereafter to
demand strict performance thereof and such right shall not be deemed to have
been waived by any act or knowledge of Lender, or its respective agents,
officers or employees, unless such waiver is contained in an instrument in
writing signed by an officer or agent of Lender, and directed to Borrower or
Guarantor, as applicable, specifying such waiver. No waiver by Lender of any
default shall operate as a waiver of any other default or the same default on
a future occasion, and no action by Lender permitted hereunder shall in any
way affect or impair Lender's rights or the obligations of Guarantor under
this Guaranty. Any determination by a court of competent jurisdiction of the
amount of any principal or interest owing by Borrower to Lender shall be
conclusive and binding on Guarantor irrespective of whether Guarantor was a
party to the suit or action in which such determination was made.
Guarantor hereby represents and warrants that (i) it is in
Guarantor's direct interest to assist Borrower in procuring credit, because
Borrower is an affiliate of Guarantor, (ii) this Guaranty has been duly and
validly executed and delivered and constitutes the valid and
4
<PAGE>
binding obligation of Guarantor, enforceable in accordance with its terms, and
(iii) the execution and delivery of this Guaranty does not violate or constitute
a default under (with or without the giving of notice, the passage of time, or
both) any order, judgment, decree, instrument or agreement to which Guarantor is
a party or by which it or its assets are affected or bound.
This Guaranty shall be binding upon Guarantor and upon the heirs,
legal representatives, successors and permitted assigns of Guarantor and
shall inure to the benefit of Lender and its successors and assigns. All
references herein to Borrower shall be deemed to include its successors and
permitted assigns and all references herein to Lender shall be deemed to
include its successors and assigns. Borrower's and Guarantor's heirs, legal
representatives, successors and permitted assigns shall include a receiver,
trustee, custodian or debtor in possession of or for Borrower or Guarantor or
any of their respective assets. All references to the singular shall be
deemed to include the plural where the context so requires.
GUARANTOR HEREBY CONSENTS AND AGREES THAT THE STATE AND FEDERAL
COURTS IN NEW YORK SHALL HAVE NONEXCLUSIVE JURISDICTION TO HEAR AND DETERMINE
ANY CLAIMS OR DISPUTES WITH RESPECT TO THIS GUARANTY AND WAIVES ANY OBJECTION
WHICH HE MAY HAVE BASED ON IMPROPER VENUE OR FORUM NON CONVENIENS TO THE
CONDUCT OF ANY PROCEEDING IN ANY SUCH COURT AND CONSENTS THAT ALL SERVICE OF
PROCESS UPON GUARANTOR BE MADE BY REGISTERED MAIL OR MESSENGER DIRECTED TO
GUARANTOR AT THE ADDRESS SET FORTH BELOW GUARANTOR'S SIGNATURE AND THAT
SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF.
GUARANTOR HEREBY AGREES THAT ANY CLAIM OR DISPUTE BROUGHT BY GUARANTOR
AGAINST LENDER OR ANY MATTER ARISING OUT OF THIS GUARANTY SHALL BE BROUGHT
EXCLUSIVELY IN THE STATE AND FEDERAL COURTS IN NEW YORK GUARANTOR AND LENDER
EACH HEREBY WAIVE, TO THE EXTENT PERMITTED BY LAW, TRIAL BY JURY. NOTHING
CONTAINED HEREIN SHALL AFFECT THE RIGHT OF LENDER TO SERVE LEGAL PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF LENDER TO BRING ANY
ACTION OR PROCEEDING AGAINST GUARANTOR OR ITS PROPERTY IN THE COURTS OF ANY
OTHER JURISDICTION.
THIS GUARANTY SHALL BE GOVERNED IN ALL RESPECTS BY THE INTERNAL LAWS
OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF
LAWS.
Wherever possible each provision of this Guaranty shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Guaranty shall be prohibited by or invalid under
such law, such provision shall be ineffective to the extent of such
prohibition or invalidity without invalidating the remainder of such
provision or the remaining provisions of this Guaranty.
5
<PAGE>
IN WITNESS WHEREOF, this Guaranty has been duly executed by
Guarantor this, 14th day of May, 1997.
----------------------------------
Mark Fixler
Address:
6758 Bramblewood Lane
Mayfield, Ohio 44143
6
<PAGE>
Exhibit 11
FIRST AMENDMENT TO
LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT (this "Amendment") is entered into as of July __,
1997, between FIXCOR INDUSTRIES, a Delaware corporation ("Borrower"), and
NATIONSCREDIT COMMERCIAL CORPORATION, THROUGH ITS NATIONSCREDIT COMMERCIAL
FUNDING DIVISION ("Lender").
WHEREAS, Borrower has requested that Lender consent to the formation of
Palletech Inc. by Fix-Corp International, Inc. and certain financial
arrangements among Borrower, Fix-Corp International, Inc., Palletech Inc and
Gordon Brothers Capital Corporation, and Lender has agreed to do so on the
condition, among others, that Borrower agree to amend the Loan Agreement dated
May 14,1997 (the "Loan Agreement") as provided herein;
NOW THEREFORE, in consideration of the premises and mutual agreements
herein contained the parties hereto agree as follows:
1. DEFINED TERMS. Unless otherwise defined herein, capitalized terms
used herein shall have the meanings ascribed to such terms in the Loan
Agreement.
2. AMENDMENT TO LOAN AGREEMENT. The definition of "Eligible Account"
contained in Schedule B of the Loan Agreement is amended by (a) deleting the
word "and" immediately following clause (xvi) thereof and (b) inserting the
following immediately following clause (xvii) thereof, but prior to the period:
"; and (xviii) the Account Debtor for such Account is not also an Account Debtor
of Palletech Inc."
3. OTHER AMENDMENTS. This Amendment shall constitute an amendment to the
Loan Agreement and all of the other Loan Documents as appropriate to express the
agreement contained herein. In all other respects, the Loan Agreement and the
other Loan Documents shall remain unchanged and in full force and effect in
accordance with their original terms.
4. MISCELLANEOUS.
(a) WARRANTIES AND ABSENCE OF DEFAULTS. In order to induce Lender to
enter into this Amendment, Borrower hereby warrants, to Lender, as of the date
hereof, that:
(i) The representations and warranties of Borrower contained
in the Loan Agreement are true and correct as of the date hereof as if
made on the date hereof.
(ii) All information, reports and other papers and data
heretofore furnished to Lender by Borrower in connection with this
Amendment, the Loan Agreement and the other Loan Documents are
accurate and correct in all material respects and complete insofar as
may be necessary to give Lender true and accurate knowledge of the
subject matter thereof. Borrower has disclosed to
<PAGE>
Lender every fact of which it is aware which might adversely affect the
business, operations or financial condition of Borrower or the ability of
Borrower to perform its obligations under this Amendment, the Loan
Agreement or under any of the other Loan Documents. None of the information
furnished to Lender by or on behalf of Borrower contained any material
misstatement of fact or omitted to state a material fact or any fact
necessary to make the statements contained herein or therein not materially
misleading.
(iii) No Event of Default or Default exists as of the date
hereof.
(b) EXPENSES. Borrower agrees to pay on demand all costs and expenses of
Lender (including the reasonable fees and expenses of outside counsel for
Lender) in connection with the preparation, negotiation, execution, delivery and
administration of this Amendment and all other instruments or documents provided
for herein or delivered in connection herewith. In addition, Borrower agrees to
pay, and save Lender harmless from all liability for, any stamp or other taxes
which may be payable in connection with the execution or delivery of this
Amendment or the Loan Agreement, amended hereby, and the execution and delivery
of any instruments or documents provided for herein or delivered or to be
delivered hereunder or in connection herewith. All obligations provided in this
SECTION 4(b) shall survive any termination of this Amendment and the Loan
Agreement as amended hereby.
(c) GOVERNING LAW. This Amendment shall be a contract made under and
governed by the internal laws of the State of New York.
(d) COUNTERPARTS. This Amendment may be executed in any number of
counterparts, and by the parties hereto on the same or separate counterparts,
and each such counterpart, when executed and delivered, shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same Amendment.
(e) REFERENCE TO LOAN AGREEMENT. On and after the effectiveness of the
amendment to the Loan Agreement accomplished hereby, each reference in the Loan
Agreement to "this Agreement," "hereunder," "hereof" "herein" or words of like
import, and each reference to the Loan Agreement in any other Loan Documents, or
other agreements, documents or other instruments executed and delivered pursuant
to the Loan Agreement, shall mean and be a reference to the Loan Agreement, as
amended by this Amendment.
(f) SUCCESSORS. This Amendment shall be binding upon Borrower, Lender and
their respective successors and assigns, and shall inure to the benefit of
Borrower, Lender and the successors and assigns of Lenders.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized and delivered at
New York, New York as of the date first above written.
FIXCOR INDUSTRIES, INC.
By
--------------------------------------
Its
-------------------------------------
NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING
DIVISION
By
--------------------------------------
Its
-------------------------------------
The undersigned gurantors hereby acknowledge the foregoing amendment and
ratify and reaffirm their respective guarantees of the obligations of FIXCOR
Industries, Inc.
FIX-CORP INTERNATIONAL, INC.
By:
-------------------------------------
Its:
------------------------------------
PALLETECH INC.
By:
-------------------------------------
Its:
------------------------------------
3
<PAGE>
Exhibit 12
TERM NOTE
$3,500,000.00 July 9, 1997
For value received, the undersigned (the "Borrower"), jointly and
severally, promises to pay to Gordon Brothers Capital Corporation ("Lender"),
or order, the principal amount of three million five hundred thousand dollars
and zero cents ($3,500,000.00) on or before October 31, 1998, with interest
from the date hereof on the said principal balance from time to time
outstanding. The aggregate principal balance outstanding shall bear interest
thereon at a per annum rate equal to twelve (12.0%) percent payable monthly
in arrears on the first business day of each month, commencing on August 1,
1997.
Principal and interest shall be payable at the Lender's main office in
lawful money of the United States of America without set-off, deduction or
counterclaim. Interest shall be calculated on the basis of actual number of days
elapsed and a 360-day year.
In addition to all other amounts due respecting this Note, the Borrower
shall pay to the Lender an exit fee (the "Exit Fee") at the time (the "Payoff
Time") all amounts outstanding respecting this Note are paid in full equal to
the greater of (i) $250,000; or (ii) an amount calculated by multiplying (x) the
average daily balance of the amount outstanding respecting this Note from the
date of this Note until the Payoff Time, as calculated by Lender in its
reasonable discretion, by (y) the number of actual days from the date of this
Note until the Payoff Time, and by (z) a percentage equal to twenty-five (25%)
percent divided by 360.
At the option of the holder, this Note shall become immediately due and
payable without notice or demand upon the occurrence at any time of any of the
following events of default: (1) default of any liability, obligation or
undertaking of the Borrower to the Lender, hereunder or otherwise, including
failure to pay in full and when due any installment of principal or interest, or
of any endorser or guarantor of any liability, obligation or undertaking,
hereunder or otherwise, to the Lender continuing for 5 business days with
respect to any monetary obligation or continuing for 5 business days after the
giving of notice by the Lender with respect to all other obligations; (2)
failure of the Borrower to maintain aggregate collateral security value
satisfactory to the Lender continuing for 5 business days after the giving of
notice by the Lender; (3) default of any material liability, obligation or
undertaking of the Borrower to any other party continuing for 5 business days
after the giving of notice by the Lender; (4) if any statement, representation
or warranty heretofore, now or hereafter made in connection with the loan
evidenced by this Note, or in any supporting financial statement of the Borrower
or of any endorser or guarantor hereof shall be determined by Lender to have
been false in any material respect when made continuing for 5 business days
after the giving of notice by the Lender; (5) if the Borrower or any endorser or
guarantor is a corporation, trust or partnership, the liquidation, termination
or dissolution of any such organization, or the merger or consolidation of such
organization into another entity, or its ceasing to carry on actively its
present business or the appointment of a receiver for its property; (6) the
death of the Borrower or of any endorser or guarantor hereof and, if any of the
Borrower or any endorser or guarantor hereof is a partnership, the death of any
partner; (7) the institution by or against the Borrower or any endorser or
<PAGE>
guarantor hereof of any proceedings under the Bankruptcy Code 11 USC Section 101
et seq. or any other law in which the Borrower or any endorser or guarantor
hereof is alleged to be insolvent or unable to pay their respective debts as
they mature, or the making by the Borrower or endorser or guarantor hereof of an
assignment for the benefit of creditors or the granting by the Borrower or
endorser or guarantor hereof of a trust mortgage for the benefit of creditors;
(8) the service upon the holder hereof of a writ in which the holder is named as
trustee of the Borrower or of any endorser or guarantor hereof; (9) a judgment
or judgments for the payment of money shall be rendered against the Borrower or
endorser or guarantor hereof, and any such judgment shall remain unsatisfied and
in effect for any period of thirty (30) consecutive days without a stay of
execution; (10) any levy, seizure, attachment, execution or similar process
shall be issued or levied on any of the property of the Borrower or any endorser
or guarantor hereof; (11) the termination of any guaranty hereof; or (12) the
occurrence of such a change in the condition or affairs (financial or otherwise)
of the Borrower or of any endorser, guarantor or other surety for any obligation
of the Borrower to the Lender or the occurrence of any event or circumstance
such that the holder, in its sole discretion, deems that it is insecure or that
the prospects for timely or full payment or performance of any obligation of the
Borrower to holder has been or may be impaired.
Any payments received by the Lender on account of this Note prior to demand
shall be applied first, to any costs, expenses or charges then owed to the
Lender by the Borrower; second, to accrued and unpaid interest; and third, to
the unpaid principal balance hereof. Any payments so received after demand shall
be applied in such manner as the Lender may determine. The Borrower hereby
authorizes the Lender to charge any deposit account which the Borrower may
maintain with the Lender for any payment required hereunder.
The Borrower represents to the Lender that the proceeds of this Note will
not be used for personal, family or household purposes.
Any and all deposits or other sums at any time credited by or due to the
undersigned or any endorser or guarantor hereof from the Lender or any of its
banking or lending affiliates or any Lender acting as a participant under any
loan arrangement between the Lender and the Borrower, any endorser or guarantor
hereof, and any cash, securities, instruments or other property of the
undersigned in the possession of the Lender or any of its banking or lending
affiliates, or any Lender acting as a participant under any loan arrangement
between the Lender and the Borrower, any endorser or guarantor hereof, whether
for safekeeping or other, or in transit to or from the Lender or any of its
banking or lending affiliates or any such participant, or in the possession of
any third party acting on the Lenders behalf (regardless of the reason the
Lender had received same or whether the Lender has conditionally released the
same) shall at all times constitute security for all of the liabilities and
obligations of the undersigned and any endorser and guarantor hereof to the
Lender and may be applied or set off against such liabilities and obligations of
the undersigned or any endorser or guarantor hereof to the Lender at any time,
whether or not such are then due, whether or not demand has been made and
whether or not other collateral is then available to the Lender.
2
<PAGE>
No delay or omission on the part of the holder in exercising any right
hereunder shall operate as a waiver of such right or of any other right of such
holder, nor shall any delay, omission or waiver on any one occasion be deemed a
bar to or waiver of the same or any other right on any future occasion. The
Borrower and every other maker and every endorser or guarantor of this Note,
regardless of the time, order or place of signing, waives presentment, demand,
protest and notices of every kind and assents to any extension or postponement
of the time of payment or any other indulgence, to any substitution, exchange or
release of collateral, and to the addition or release of any other party or
person primarily or secondarily liable. The Borrower and each endorser and
guarantor of this Note waive any rights to any homestead exemptions on record as
of the date of this Note respecting any premises.
The Borrower and each endorser and guarantor of this Note shall indemnify,
defend and hold the Lender and its directors, officers, employees, agents and
attorneys harmless against any claim brought or threatened against the Lender by
the Borrower, by any endorser or guarantor, or by any other person (as well as
from attorneys' reasonable fees and expenses in connection therewith) on account
of the Lender's relationship with the Borrower or any endorser or guarantor
hereof (each of which may be defended, compromised, settled or pursued by the
Lender with counsel of the Lender's selection, but at the expense of the
Borrower and any endorser and/or guarantor) excluding any claim arising out of
the gross negligence or willful misconduct of Lender.
The Borrower and each endorser and guarantor of this Note agree to pay,
upon demand, costs of collection of the principal of and interest on this Note,
including without limitation reasonable attorneys' fees. After demand, interest
shall accrue at a rate per annum equal to the aggregate of Four (4%) percent
plus the rate provided for herein. If any payment due under this Note is unpaid
for Ten (10) days or more, the Borrower shall pay in addition to any other sums
due under this Note (and without limiting the holder's other remedies on account
thereof), a late charge equal to Five (5%) payment of such unpaid amount.
This Note shall be binding upon the Borrower and each endorser and
guarantor hereof and upon their respective heirs, successors, assigns and legal
representatives, and shall inure to the benefit of the Lender and its
successors, endorsees and assigns.
The liabilities of the Borrower and any endorser or guarantor of this Note
are joint and several; provided, however, the release by the Lender of the
Borrower or any one or more endorser or guarantor shall not release any other
person obligated on account of this Note. Any and all present and future debts
of the Borrower to any endorser or guarantor of this Note are subordinated to
the full payment and performance of all present and future debts and obligations
of the Borrower to the Lender. Each reference in this Note to the Borrower, any
endorser, and any guarantor, is to such person individually and also to all such
persons jointly. No person obligated on account of this Note may seek
contribution from any other person also obligated, unless and until all
liabilities, obligations and indebtedness to the Lender of the person from whom
contribution is sought have been satisfied in lull. The release or compromise
by the Lender of any collateral shall not release any person obligated on
account of this Note.
3
<PAGE>
The Borrower and each endorser and guarantor hereof each authorizes the
Lender to complete this Note if delivered incomplete in any respect. A
photographic or other reproduction of this Note may be made by the Lender, and
any such reproduction shall be admissible in evidence with the same effect of
the original itself in any judicial or administrative proceeding, whether or not
the original is in existence.
This Note is delivered to the Lender at one of its offices in
Massachusetts, shall be governed by the laws of the Commonwealth of
Massachusetts, and shall take effect as a sealed instrument.
The Borrower and each endorser and guarantor of this Note each irrevocably
submits to the nonexclusive jurisdiction of any federal or state court sitting
in Massachusetts, over any suit, action or proceeding arising out of or relating
to this Note. Each Borrower, endorser or guarantor irrevocably waives, to the
fullest extent it may effectively do so under applicable law, any objection it
may now or hereafter have to the laying of the venue of any such suit, action or
proceeding brought in any such court and any claim that the same has been
brought in an inconvenient forum. Each Borrower endorser or guarantor
irrevocably appoints the Secretary of State of the State of Ohio as its
authorized agent to accept and acknowledge on its behalf any and all process
which may be served in any such suit, action or proceeding, consents to such
process being severed (i) by mailing a copy thereof by registered or certified
mail, postage prepaid, return receipt requested, to such Borrowers, endorsers or
guarantors address shown below or as notified to the Lender and (ii) by serving
the same upon such agent, and agrees that such service shall in every respect be
deemed effective service upon such Borrower, endorser or guarantor.
EACH BORROWER, ENDORSER AND GUARANTOR AND LENDER EACH HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY, AND AFTER AN OPPORTUNITY TO CONSULT WITH LEGAL
COUNSEL, WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING
IN CONNECTION WITH THIS NOTE, ALL OF THE OBLIGATIONS OF EACH BORROWER TO THE
LENDER, AND ALL MATTERS CONTEMPLATED HEREBY AND DOCUMENTS EXECUTED IN CONNECTION
HEREWITH. EACH BORROWER, ENDORSER AND GUARANTOR CERTIFIES THAT NEITHER THE
LENDER NOR ANY OF ITS REPRESENTATIVES, AGENTS OR COUNSEL HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT THE LENDER WOULD NOT IN THE EVENT OF ANY SUCH
PROCEEDING SEEK TO ENFORCE THIS WAIVER OF RIGHT TO TRIAL BY JURY.
4
<PAGE>
Executed as an instrument under seal as of July 9, 1997.
Witness Borrower:
Palletech, Inc.
By:
- ------------------------------ -----------------------------------
Gary DeLaurentiis, President
1835 James Parkway
Heath, Ohio
FIXCOR Industries, Inc.
By:
- ------------------------------ -----------------------------------
Gary DeLaurentiis, President
1835 James Parkway
Heath, Ohio
Fix-Corp International, Inc.
By:
- ------------------------------ -----------------------------------
Mark Fixler, President
5
<PAGE>
Exhibit 13
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT dated as of July 9, 1997, between Palletech,
Inc., a Delaware Corporation, with an address of 1835 James Parkway, Heath, Ohio
43056 ("Palletech"); FIXCOR Industries, Inc., with an address of 1835 James
Parkway, Heath, Ohio 43056 ("FIXCOR"); Fix-Corp International, Inc., a Delaware
corporation, with an address of 27040 Cedar Road, Suite 218, Beachwood, Ohio
44122 ("Fix-Corp"; and collectively, along with Palletech and FIXCOR, the
"Borrowers"; and each a "Borrower") and Gordon Brothers Capital Corporation, a
Delaware corporation with an address of 40 Broad Street, Boston, Massachusetts
02109 (the "Lender").
FOR VALUE RECEIVED, and in consideration of the granting by the Lender of
financial accommodations to Borrowers, Borrowers represent and agree with the
Lender, as of the date hereof and as of the date of each credit and/or other
financial accommodation, as follows:
1. THE LOAN
1.1 LOAN. Lender agrees, subject to the terms and conditions set forth herein,
to establish an equipment acquisition line of credit (the "Equipment Line") for
Palletech and FIXCOR pursuant to which Lender agrees to Lend to Palletech and
FIXCOR upon Palletech's OR FIXCOR'S request up to three million five hundred
thousand dollars and zero cents ($3,500,000.00) (the "Equipment Loan Amount") to
assist Palletech's and FIXCOR'S purchase of capital equipment. All advances
shall be limited to a maximum of 80% of the Hard Costs (as hereinafter defined)
of all capital equipment purchased with the proceeds. Hard Costs shall mean the
invoice price of such equipment less delivery and installation costs and taxes.
Each request for financing will be reviewed by the Lender in its sole discretion
based upon invoices or other evidence acceptable to the Lender, indicating the
purchase, delivery and acceptance of capital equipment, and all advances shall
be approved by the Lender in its sole discretion. Lender may refuse to make any
advance in the event that Lender deems in its sole discretion that it does not
have adequate collateral for such advance. Advances may be made respecting this
Equipment Line from time to time from the date of this Agreement up to and
including October 31, 1998 (the "Maturity Date"). The amounts outstanding
respecting the Equipment Line are evidenced by that certain Term Note, of even
date herewith by Palletech and FIXCOR in favor of the Lender in the original
principal amount of the Equipment Loan Amount (the "Equipment Note") which is
due and payable in full on the Maturity Date. This Agreement, the Equipment
Note, and any and all other documents, amendments or renewals executed and
delivered in connection with any of the foregoing are collectively hereinafter
referred to as the "Loan Documents".
2. GRANT OF SECURITY INTEREST
2.1 GRANT OF SECURITY INTEREST. In consideration of the Lender's extending
credit and other financial accommodations to the Borrowers, each Borrower hereby
grants to the Lender a security interest in (including, without limitation, a
lien on and pledge of) all of such Borrower's
<PAGE>
Collateral (as hereinafter defined). The security interest granted by this
Agreement is given to and shall be held by the Lender as security for the
payment and performance of all Obligations.
2.2 DEFINITIONS. The following definitions shall apply:
(a) "Code" shall mean the Massachusetts Uniform Commercial Code (General
Law, Chapter 106) as amended from time to time.
(b) "Collateral" shall mean all of each Borrower's present and future
right, title and interest in and to any and all of the following
property, whether such property is now existing or hereafter created:
(i) All goods including without limitation all Inventory (as
hereinafter defined), farm products, Equipment (as hereinafter
defined), including without limitation machinery, furniture, trade
fixtures;
(ii) All accounts, accounts receivable, contract rights and chattel
paper, regardless of whether or not they constitute proceeds of other
Collateral;
(iii) All general intangibles, regardless of whether or not they
constitute proceeds of other Collateral, including, without
limitation, all of such Borrower's rights to tax refunds and all of
such Borrower's rights (which the Lender may exercise or not as it in
its sole discretion may determine) to acquire or obtain goods and/or
services with respect to the manufacture, processing, storage, sale,
shipment, delivery or installation of any of such Borrower's inventory
or other Collateral:
(iv) All products of and accessions to any of the Collateral;
(v) All liens, guaranties, securities, rights, remedies and
privileges pertaining to any of the Collateral, including the right of
stoppage in transit;
(vi) All obligations owing to such Borrower of every kind and
nature; and all choses in action;
(vii) All goodwill, trade secrets, computer programs, customer
lists, trade names, trademarks and patents;
(viii) All documents and instruments (whether negotiable or
nonnegotiable, and regardless of their being attached to chattel
paper);
(ix) All proceeds of Collateral of every kind and nature in
whatever form, including, without limitation, both cash and noncash
proceeds resulting or arising from the rendering of services by such
Borrower or the sale or other disposition by such Borrower of the
Inventory or other Collateral;
2
<PAGE>
(x) All books and records relating to the conduct of such
Borrower's business including, without in any way limiting the
generality of the foregoing, those relating to its accounts; and
(xi) All deposit accounts maintained by such Borrower with any
Lender, trust company, investment firm or fund, or any similar
institution or organization.
(c) "Contract Rights" or "contract rights" means rights of each Borrower
to payment under contracts not yet earned by performance and not
evidenced by instruments or chattel paper.
(d) "Debtors" shall mean each Borrower's customers who are indebted to
such Borrower.
(e) "Equipment" shall mean and include all of each Borrower's machinery,
equipment, furniture, trade fixtures and motor vehicles and intending
to include all tangible personal property, or goods, utilized in the
conduct of each Borrower's business, but excluding therefrom
inventory, as that term is defined in the Code, and all replacements
or substitutions therefor and all accessions thereto.
(f) "Inventory" means all inventory of whatever name, nature, kind or
description, all goods held for sale or lease or to be furnished under
contracts of service, finished goods, work in process, raw materials,
materials used or consumed by each Borrower, parts, supplies, all
wrapping, packaging, advertising labeling, and shipping materials,
devices, names and marks, all contract rights and documents relating
to any of the foregoing, whether any of the foregoing be now existing
or hereafter arising, wherever located, now owned or hereafter
acquired by such Borrower.
(g) "Obligation(s)" shall mean, without limitation, all loans, advances,
indebtedness, notes, liabilities and amounts, liquidated or
unliquidated, owing by each Borrower to the Lender at any time, of
each and every kind, nature and description, whether arising under
this Agreement or otherwise, and whether secured or unsecured, direct
or indirect (that is, whether the same are due directly by such
Borrower to the Lender; or are due indirectly by such Borrower to the
Lender as endorser, guarantor or other surety, or as borrower of
obligations due third persons which have been endorsed or assigned to
the Lender, or otherwise), absolute or contingent, due or to become
due, now existing or hereafter contracted. Said term shall also
include all interest and other charges chargeable to each Borrower or
due from each Borrower to the Lender from time to time and all costs
and expenses referred to in this Agreement.
(h) "Person" or "party" shall include individuals, firms, corporations and
all other entities.
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All words and terms used in this Agreement other than those specifically
defined herein shall have the meanings accorded to them in the Code.
2.3 ORDINARY COURSE OF BUSINESS. The Lender hereby authorizes and permits the
Borrowers to hold, process, sell, use or consume in the manufacture or
processing of finished goods, or otherwise dispose of the Inventory for fair
consideration, all in the ordinary course of each Borrower's business,
excluding, without limitation, sales to creditors or in bulk or sales or other
dispositions occurring under circumstances which would or could create any lien
or interest adverse to the Lender's security interest or other right hereunder
in the proceeds resulting therefrom. The Lender also hereby authorizes and
permits the Borrowers to receive from the Debtors all amounts due as proceeds of
the Collateral at each Borrower's own cost and expense, and also liability, if
any, subject to the direction and control of the Lender at all times; and the
Lender may at any time, without cause or notice, and whether or not a default
has occurred or demand has been made, terminate all or any part of the authority
and permission herein or elsewhere in this Agreement granted to the Borrowers
with reference to the Collateral.
Until the Lender shall otherwise notify the Borrowers, all proceeds of and
collections of Collateral shall be retained by the Borrowers and used solely for
the ordinary and usual operation of each Borrower's business. From and after
notice by the Lender to any Borrower, all proceeds of and collections of the
Collateral shall be held in trust by such Borrower for the Lender and shall not
be commingled with such Borrower's other funds or deposited in any Lender
account of such Borrower; and such Borrower agrees to deliver to the Lender on
the dates of receipt thereof by such Borrower, duly endorsed to the Lender or to
bearer, or assigned to the Lender, as may be appropriate, all proceeds of the
Collateral in the identical form received by such Borrower.
2.4 ALLOWANCES. Each Borrower may grant such allowances or other adjustments to
Debtors (exclusive of extending the time for payment of any item which shall not
be done without first obtaining the Lender's written consent in each instance)
as such Borrower may reasonably deem to accord with sound business practice,
including, without limiting the generality of the foregoing, accepting the
return of all or any part of the Inventory (subject to the provisions set forth
in this Agreement with reference to returned Inventory).
2.5 RECORDS. Each Borrower shall hold its books and records relating to the
Collateral segregated from all such Borrower's other books and records in a
manner satisfactory to the Lender; and shall deliver to the Lender from time to
time promptly at its request all invoices, original documents of title,
contracts, chattel paper, instruments and any other writings relating thereto,
and other evidence of performance of contracts, or evidence of shipment or
delivery of the merchandise or of the rendering of services; and each Borrower
will deliver to the Lender promptly at the Lender's request from time to time
additional copies of any or all of such papers or writings, and such other
information with respect to any of the Collateral and such schedules of
Inventory, schedules of accounts and such other writings as the Lender may in
its sole discretion deem to be necessary or effectual to evidence any loan
hereunder or the Lender's security interest in the Collateral.
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2.6 LEGENDS. Each Borrower shall promptly make, stamp or record such entries or
legends on such Borrower's books and records or on any of the Collateral as the
Lender shall request from time to time, to indicate and disclose that the Lender
has a security interest in such Collateral.
2.7 INSPECTION. The Lender, or its representatives, at any time and from time
to time, shall have the right, and each Borrower will permit it and them:
(a) to examine, check, make copies of or extracts from any of such
Borrower's books, records and files (including, without limitation,
orders and original correspondence);
(b) to inspect and examine the Collateral and to check and test the same
as to quality, quantity, value and condition; and each Borrower agrees
to reimburse the Lender for its reasonable costs and expenses in so
doing; and
(c) to verify the Collateral or any portion or portions thereof or each
Borrower's compliance with the provisions of this Agreement.
3. REPRESENTATIONS AND WARRANTIES
3.1 ORGANIZATION AND QUALIFICATION. Each Borrower is a duly organized and
existing corporation under the laws of the State of its incorporation, as
indicated above, in good standing under the laws of said state, and is duly
qualified to do business under the laws of each state where the nature of the
business done or property owned requires such qualification.
3.2 SUBSIDIARIES. Each Borrower has no subsidiaries other than those listed on
Schedule 3.2, if any, and each Borrower has never consolidated, merged or
acquired substantially all of the assets of any other entity or person other
than those listed on Schedule 3.2, if any.
3.3 CORPORATE RECORDS. Each Borrower's Corporate Charter, Articles of
Organization or Incorporation and all amendments thereto have been duly filed
and are in proper order. All outstanding capital stock issued by each Borrower
was and is properly issued and all books and records of each Borrower, including
but not limited to its minute books, bylaws and books of account, are accurate
and up to date and will be so maintained.
3.4 TITLE TO PROPERTIES: ABSENCE OF LIENS. Each Borrower has good and clear
record and marketable title to all of its properties and assets, and all of its
properties and assets including the Collateral are free and clear of all
mortgages, liens, pledges, charges, encumbrances, setoffs, except (a) the
mortgages and security interests as set forth on Schedule 3.4a, if any, and (b)
the leases of personal property as set forth on Schedule 3.4b, if any.
3.5 PLACES OF BUSINESS. Each Borrower's chief executive office is correctly
stated in the preamble to this Agreement, and each Borrower shall, during the
term of this Agreement, keep the Lender currently and accurately informed in
writing of each of its other places of business, and shall not change the
location of such chief executive office or open or close, move or change any
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existing or new place of business without giving the Lender at least thirty (30)
days prior written notice thereof.
3.6 VALID OBLIGATIONS. The execution, delivery and performance of the Loan
Documents have been duly authorized by all necessary corporate action and each
represents a legal, valid and binding obligation of each Borrower and is fully
enforceable according to its terms, except as limited by laws relating to the
enforcement of creditors' rights.
3.7 CONFLICTS WITH OTHER AGREEMENTS. There is no provision in any indenture,
contract or agreement to which any Borrower is a party which prohibits the
execution, delivery or performance of the Loan Documents.
3.8 GOVERNMENTAL APPROVALS. The execution, delivery and performance of the Loan
Documents does not require any approval of any governmental agency or authority.
3.9 LITIGATION. There are no actions, suits or proceedings pending or to the
knowledge of any Borrower threatened against any Borrower which might materially
adversely affect the ability of any Borrower to perform its obligations under
the Loan Documents.
3.10 FINANCIAL STATEMENTS. Each Borrower has furnished to the Lender the
following Financial Statements (the "Financial Statements"): balance sheet as of
December 31, 1996 and statement of profit and loss for the period ending
December 31,1996. The balance sheet fairly presents the condition of each such
Borrower at the date thereof and the statement of profit and loss fairly
presents the results of the operations of each such Borrower for the period
indicated, all in conformity with generally accepted accounting principles,
consistently applied.
3.11 ACCOUNTS AND CONTRACT RIGHTS. All accounts arise out of legally
enforceable and existing contracts; and represent unconditional and
undisputed bona fide indebtedness by the Debtor for sales or leases of
Inventory shipped and delivered or services rendered by any Borrower to a
Debtor, and are not and will not be subject to any discount (except such cash
or trade discount as may be shown on any invoice, contract or other writing
delivered to the Lender). No contract right, account, general intangible or
chattel paper is or will be represented by any note or other instrument, and
no contract right, account or general intangible is, or will be represented
by any conditional or installment sales obligation or other chattel paper,
except such instruments or chattel paper as have been or immediately upon
receipt by a Borrower will be delivered to the Lender (duly endorsed or
assigned), such delivery, in the case of chattel paper, to include all
executed copies except those in the possession of the installment buyer and
any security for or guaranty of any of the Collateral shall be delivered to
the Lender immediately upon receipt thereof by a Borrower, with such
assignments and endorsements thereof as the Lender may request.
3.12 TITLE TO COLLATERAL. At the date hereof each Borrower is (and as to
Collateral that such Borrower may acquire after the date hereof, will be) the
lawful owner of the Collateral, and that the Collateral and each item thereof
is, will be and shall continue to be free of all restrictions, liens,
encumbrances or other rights, title or interests (other than the security
interest therein granted to the Lender hereby), credits, defenses, recoupments,
set-offs or counterclaims
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whatsoever; that each Borrower has and will have full power and authority to
grant to the Lender a security interest therein, and that each Borrower has not
transferred, assigned, sold, pledged, encumbered, subjected to lien or granted
any security interest in, and will not transfer, assign, sell (except sales or
other dispositions in the ordinary course of business in respect to Inventory as
expressly permitted in this Agreement), pledge, encumber, subject to lien or
grant any security interest in any of the Collateral (or any of such Borrower's
right, title or interest therein), to any person other than the Lender; that the
Collateral is and will be valid and genuine in all respects; that all accounts
arise out of legally enforceable and existing contracts in accordance with their
tenor; and that upon each Borrower's acquisition of any interest in contract
rights, it shall in writing immediately notify the Lender thereof, specifically
identifying the same as contract rights, and, except for such contract rights,
no part of the Collateral (or the validity or enforceability by the Lender
thereof) is or shall be contingent upon the fulfillment of any agreement or
condition whatsoever and that the Collateral, other than Inventory and
Equipment, shall represent unconditional and undisputed bona fide indebtedness
by the Debtor for sales or leases of Inventory shipped and delivered or services
rendered by a Borrower to Debtor, and is not and will not be subject to any
discount (except such cash or trade discount as may be shown on any invoice,
contract or other writing delivered to the Lender); and that each Borrower will
warrant and defend the Lender's right to and interest in the Collateral against
all claims and demands of all persons whatsoever.
3.13 LOCATION OF COLLATERAL. Except for sale, processing, use, consumption or
other disposition in the ordinary course of business, each Borrower will keep
all Inventory and Equipment only at locations specified in this Agreement; that
each Borrower shall, during the term of this Agreement, keep the Lender
currently and accurately informed in writing of each location where such
Borrower's records relating to its accounts and contract rights, respectively,
are kept, and shall not remove such records or any of them to another state
without giving the Lender at least thirty (30) days prior written notice
thereof. In addition Palletech and FIXCOR will keep all capital equipment
purchased with proceeds from the Loan at Palletech's and FIXCOR's facility
located at 1835 James Parkway, Heath, Ohio 43056.
3.14 THIRD PARTIES. The Lender shall not be deemed to have assumed any
liability or responsibility to any Borrower or any third person for the
correctness, validity or genuineness of any instruments or documents that may
be released or endorsed to a Borrower by the Lender (which shall
automatically be deemed to be without recourse to the Lender in any event) or
for the existence, character, quantity, quality, condition, value or delivery
of any goods purporting to be represented by any such documents; and that the
Lender, by accepting such security interest in the Collateral, or by
releasing any Collateral to a Borrower, shall not be deemed to have assumed
any obligation or liability to any supplier or Debtor or to any other third
party, and each Borrower agrees to indemnify and defend the Lender and hold
it harmless in respect to any claim or proceeding arising out of any matter
referred to in this paragraph.
3.15 PAYMENT OF ACCOUNTS. Each account or other item of Collateral, other than
Inventory and Equipment, will be paid in full on or before the date shown as its
due date in the schedule of Collateral, in the copy of the invoice(s) relating
to the account or other Collateral or in contracts relating thereto; that upon
any suspension of business, assignment or trust mortgage for the
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benefit of creditors, dissolution, petition in receivership or under any chapter
of the Bankruptcy Code as amended from time to time by or against any Debtor,
any Debtor becoming insolvent or unable to pay its debts as they mature or any
other act of the same or different nature amounting to a business failure, each
Borrower will forthwith notify the Lender thereof.
3.16 NOTIFICATION OF DAMAGE. Each Borrower will immediately notify the Lender
of any loss or damage to, or material diminution in or any occurrence that would
adversely affect the value of the Inventory, the Equipment or other Collateral.
3.17 CHANGES. Since the date of the Financial Statements, there have been no
changes in the assets, liabilities, financial condition or business of each
Borrower, other than changes in the ordinary course of business, the effect of
which have, in the aggregate, been materially adverse.
3.18 TAXES. Each Borrower has filed all Federal, state and other tax returns
required to be filed (except for such returns for which current and valid
extensions have been filed), and all taxes, assessments and other governmental
charges due from each Borrower have been fully paid. Each Borrower has
established on its books reserves adequate for the payment of all Federal, state
and other tax liabilities (if any).
3.19 USE OF PROCEEDS. No portion of any Loan is to be used for the purpose of
purchasing or carrying any "margin security" or "margin stock" as such terms are
used in Regulations G and U of the Board of Governors of the Federal Reserve
System, 12 C.F.R. 207 and 221.
4. AFFIRMATIVE COVENANTS
4.1 PAYMENTS. Each Borrower will duly and punctually pay all interest and
principal becoming due the Lender and will duly and punctually perform all
things on its part to be done or performed under this Agreement.
4.2 FACILITY/COLLATERAL MONITORING FEE. In addition to all amounts due and
payable respecting the Loan pursuant to the Equipment Note and the other Loan
Documents, Borrowers hereby agree to pay to Lender a "Facility/Collateral
Monitoring Fee" equal to $5,000 per month in advance on the first business day
of every calendar month commencing July 1, 1997 and on the first business day of
each month thereafter through and including December 1, 1997 and $10,000 per
month in advance on the first business day of every calendar month commencing
January 2, 1998 and on the first business day of each month thereafter so long
as any amounts are outstanding respecting the Loan and the Equipment Note.
4.3 BOOKS AND RECORDS: INSPECTION. Each Borrower will at all times keep proper
books of account in which full, true and correct entries will be made of its
transactions in accordance with generally accepted accounting principles,
consistently applied and which are, in the opinion of a Certified Public
Accountant acceptable to Lender, adequate to determine fairly the financial
condition and the results of operations of each Borrower. Each Borrower will at
all reasonable times make its books and records available in its offices for
inspection and examination by the
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Lender and the Lender's representatives and will permit inspection of the
Collateral and all of its properties by the Lender and the Lender's
representatives. Each Borrower will from time to time furnish the Lender with
such information and statements as the Lender may request in its sole discretion
with respect to the Obligations or the Lender's security interest in the
Collateral. Each Borrower shall, during the term of this Agreement, keep the
Lender currently and accurately informed in writing of each location where such
Borrower's records relating to its accounts and contract rights are kept, and
shall not remove such records to another state without giving the Lender at
least thirty (30) days prior written notice thereof.
4.4 FINANCIAL STATEMENTS. Each Borrower will furnish to Lender:
(a) as soon as available to such Borrower, but in any event within 15 days
after the close of each month, a full and complete signed copy of
financial statements, which shall include a balance sheet of such
Borrower, as at the end of such month, and statement of profit and
loss of such Borrower reflecting the results of its operations during
such month and shall be prepared by such Borrower and certified by
such Borrower's chief financial officer as to correctness in
accordance with generally accepted accounting principles, consistently
applied, subject to year-end adjustments;
(b) as soon as available to such Borrower, but in any event within 30 days
after the close of each quarterly period of its fiscal year, a full
and complete signed copy of financial statements, prepared by
certified public accountants acceptable to Lender, which shall include
a balance sheet of such Borrower, as at the end of such quarter, and
statement of profit and loss of such Borrower reflecting the results
of its operations during such quarter, bearing the opinion of such
certified public accountants and prepared on a compiled basis in
accordance with generally accepted accounting principles, consistently
applied, subject to year-end adjustments;
(c) as soon as available to such Borrower, but in any event within 90 days
after the close of each fiscal year, a full and complete signed copy
of financial statements, prepared by certified public accountants
acceptable to Lender, which shall include a balance sheet of such
Borrower, as at the end of such year, and statement of profit and loss
of such Borrower reflecting the results of its operations during such
year, bearing the opinion of such certified public accountants and
prepared on an audited basis in accordance with generally accepted
accounting principles, consistently applied together with any
so-called management letter;
(d) on or before May 1 of each year or such other date approved by the
Lender, such Borrower's filed federal and state tax returns for the
prior year;
(e) from time to time, such financial data and information about such
Borrower as Lender may reasonably request; and
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(f) any financial data and information about any guarantors of the
Obligations as Lender may reasonably request.
4.5 CONDUCT OF BUSINESS. Each Borrower will maintain its corporate existence in
good standing and comply with all laws and regulations of the United States and
of any state or states thereof and of any political subdivision thereof, and of
any governmental authority which may be applicable to it or to its business;
provided that this covenant shall not apply to any tax, assessment or charge
which is being contested in good faith and with respect to which reserves have
been established and are being maintained.
4.6 NOTICE TO ACCOUNT DEBTORS. Each Borrower agrees, at the request of the
Lender, to notify all or any of the Debtors in writing of the Lender's security
interest in the Collateral in whatever manner the Lender requests and, if the
Lender so requests, to permit the Lender to notify all or any of the Debtors at
the Borrowers' expense.
4.7 TAXES. Each Borrower will promptly pay all real and personal property
taxes, assessments and charges and all franchise, income, unemployment, old age
benefits, withholding, sales and other taxes assessed against it or payable by
it before delinquent; provided that this covenant shall not apply to any tax
assessment or charge which is being contested in good faith and with respect to
which reserves have been established and are being maintained. The Lender may,
at its option, from time to time, discharge any taxes, liens or encumbrances of
any of the Collateral, and the Borrowers will pay to the Lender on demand or the
Lender in its sole discretion may charge to the Borrowers all amounts so paid or
incurred by it.
4.8 MAINTENANCE. Each Borrower will keep and maintain the Collateral and its
other properties, if any, in good repair, working order and condition. Each
Borrower will immediately notify the Lender of any loss or damage to or any
occurrence which would adversely affect the value of any Collateral. The Lender
may, at its option, from time to time, take any other action that the Lender may
deem proper to repair, maintain or preserve any of the Collateral, and the
Borrowers will pay to the Lender on demand or the Lender in its sole discretion
may charge to the Borrowers all amounts so paid or incurred by it.
4.9 INSURANCE. Each Borrower will maintain in force casualty insurance on all
Collateral and any other property of such Borrower, if any, against risks
customarily insured against by companies engaged in businesses similar to that
of such Borrower containing such terms and written by such companies as may be
satisfactory to the Lender, such insurance to be payable to the Lender as its
interest may appear in the event of loss; no loss shall be adjusted thereunder
without the Lender's approval; and all such policies shall provide that they may
not be canceled without first giving at least ten (10) days' written notice of
cancellation to the Lender. In the event that any Borrower fails to provide
evidence of such insurance, the Lender may, at is option, secure such insurance
and charge the cost thereof to the Borrowers. At the option of the Lender, all
insurance proceeds received from any loss or damage to any of the Collateral
shall be applied either to the replacement or repair thereof or as a payment on
account of the Obligations. From and after the occurrence of an Event of
Default, the Lender is authorized to cancel any insurance maintained
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hereunder and apply any returned or unearned premiums, all of which are hereby
assigned to the Lender, as a payment on account of the Obligations.
4.10 NOTIFICATION OF DEFAULT. Within five (5) days of becoming aware of the
existence of any condition or event which constitutes an Event of Default, or
any condition or event which would upon notice or lapse of time, or both,
constitute an Event of Default, a Borrower shall give Lender written notice
thereof specifying the nature and duration thereof and the action being or
proposed to be taken with respect thereto.
4.11 NOTIFICATION OF MATERIAL LITIGATION. Each Borrower will promptly notify
the Lender in writing of any litigation or of any investigative proceedings of a
governmental agency or authority commenced or threatened against it which would
or might be materially adverse to the financial condition of such Borrower.
4.12 PENSION PLANS. With respect to any pension or benefit plan maintained by a
Borrower, or to which such Borrower contributes ("Plan"), the benefits under
which are guarantied, in whole or in part, by the Pension Benefit Guaranty
Corporation created by the Employee Retirement Income Security Act of 1974, P.L.
93-406, or any governmental authority succeeding to any or all of the functions
of the Pension Benefit Guaranty Corporation ("Pension Benefit Guaranty
Corporation"), such Borrower will (a) fund each Plan as required by the
provisions of Section 412 of the Internal Revenue Code of 1986, as amended; (b)
cause each Plan to pay all benefits when due; (c) furnish Lender (i) promptly
with a copy of any notice of each Plan's termination sent to the Pension Benefit
Guaranty Corporation and (ii) no later than the date of submission to the
Department of Labor or to the Internal Revenue Service, as the case may be, a
copy of any request for waiver from the funding standards or extension of the
amortization periods required by Section 412 of the Internal Revenue Code of
1954, as amended; and (d) subscribe to any contingent liability insurance
provided by the Pension Benefit Guaranty Corporation to protect against employer
liability upon termination of a guarantied pension plan, if available to
Borrower.
4.13 ENVIRONMENTAL. As of the date hereof neither the Borrowers nor any of
Borrowers' agents, employees or independent contractors (1) have caused or are
aware of a release or threat of release of Materials (as defined herein) on any
of the premises or personal property owned or controlled by Borrower, or any
abutting property, which could give rise to liability under any Superfund and
Hazardous Waste Laws (as defined herein) or any other federal, state or local
law, rule or regulation; (2) have arranged for the transport of or transported
any Materials in a manner as to violate, or result in potential liabilities
under, any Superfund and Hazardous Waste Laws; (3) have received any notice,
order or demand from the Environmental Protection Agency or the Ohio Department
of Environmental Protection under any Superfund and Hazardous Waste Laws; (4)
have incurred any liability under any Superfund and Hazardous Waste Laws in
connection with the mismanagement, improper disposal or release of Materials;
(5) are aware of any inspection or investigation of any of the premises or
personal property owned or controlled by Borrowers or abutting property by any
federal, state or local agency for possible violations of the Superfund and
Hazardous Waste Laws.
To the best of each Borrower's knowledge, no prior owner or tenant of any
premises or property presently controlled or owned by such Borrower committed or
omitted any act which caused the
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release of Materials on such premises or property which could give rise to a
lien thereon by any federal, state or local government. No notice or statement
of claim or lien affecting any property or premises owned or controlled by a
Borrower has been recorded or filed in any public records by any federal, state
or local government for costs, penalties, fines or other charges as to such
property.
Borrowers agree to indemnify and hold Lender harmless from all liability,
loss, cost, damage and expense, including attorney fees and costs of litigation,
arising from any and all of its violations of the Superfund and Hazardous Waste
Laws including those arising from any lien on any premises or property owned or
controlled by Borrowers by any federal, state and local government arising from
the presence of Materials. Borrowers further agree to reimburse Lender upon
demand for any costs incurred by Lender in connection with the foregoing.
Borrowers agree their obligations hereunder shall be continuous and shall
survive the repayment of all debts to Lender including repayment of all
Obligations.
The term "Materials" means any "oil," "hazardous material," "hazardous
wastes" or "hazardous substances" as defined under the Comprehensive
Environmental Response, Compensation, and Liability Act, 42 U.S.C. Section 9601
et seq., as amended, the Resource Conservation and Recovery Act of 1976, 42
U.S.C. Section 6901 et seq., as amended, and Ohio hazardous waste laws and
regulations, and the foregoing are collectively the "Superfund and Hazardous
Waste Laws."
5. NEGATIVE COVENANTS
5.1 EBIT. Palletech and FIXCOR each will not permit their earnings before
interest and taxes to be less than the amounts shown on Schedule 5.1 for the
periods indicated on Schedule 5.1.
5.2 EQUIPMENT PURCHASE. Equipment financed under this Agreement will not be
delivered more than seven (7) days after the scheduled delivery date (each a
"Scheduled Delivery Date") approved by Lender for each item of equipment ordered
unless Borrowers repay to Lender all advances made by Lender respecting any such
equipment within seven (7)days of the Scheduled Delivery Date for such item of
equipment.
5.3 LIMITATIONS ON INDEBTEDNESS. Each Borrower will not issue any evidence of
indebtedness or create, assume, guarantee, become contingently liable for, or
suffer to exist indebtedness in addition to Indebtedness to the Lender, except
indebtedness or liabilities of such Borrower, other than for money borrowed,
incurred or arising in the ordinary course of business or as approved in writing
by Lender, which approval will not be unreasonably withheld.
5.4 SALE OF INTEREST. There shall not be any sale or transfer of ownership of
any interest in any Borrower without the Bank's prior written consent.
5.5 LOANS OR ADVANCES. Each Borrower will not make any loans or advances to any
individual, firm or corporation, including without limitation its officers and
employees; provided, however,
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that a Borrower may make advances to its employees, including its officers, with
respect to expenses incurred or to be incurred by such employees which expenses
are reimbursable by such Borrower; and provided further, however, that such
Borrower may extend credit in the ordinary course of business in accordance with
customary trade practices.
5.6 DIVIDENDS AND DISTRIBUTIONS. Each Borrower will not, without prior written
permission of the Lender, which shall not be unreasonably withheld, pay any
dividends on or make any distribution on account of any class of such Borrower's
capital stock in cash or in property (other than additional shares of such
stock), or redeem, purchase or otherwise acquire, directly or indirectly, any of
such stock, except if such Borrower is a Subchapter S corporation, under the
regulations of the Internal Revenue Service of the United States, in which
event, so long as such Borrower is not in default hereunder, such Borrower may
distribute to the stockholders of such Borrower such amounts as are necessary to
pay the tax liability of such stockholders due as a result of such stockholders
interest in such Borrower.
5.7 INVESTMENTS. Without the prior written consent of Lender, which shall not
be unreasonably withheld, each Borrower will not (i) make investments in, or
advances to, any individual, partnership, corporation, limited liability
company, trust or other organization or person; or (ii) purchase or otherwise
invest in or hold securities, nonoperating real estate or other nonoperating
assets or purchase all or substantially all the assets of any entity.
5.8 MERGER. Each Borrower will not merge or consolidate or be merged or
consolidated with or into any other corporation.
5.9 SALE OF ASSETS. Each Borrower will not without Lender's prior written
consent sell, lease or otherwise dispose of any of its assets, except in the
ordinary and usual course of business and except for the purpose of replacing
machinery, equipment or other personal property which, as a consequence of wear,
duplication or obsolescence, is no longer used or necessary in such Borrower's
business, provided that fair consideration is received therefor; provided,
however, the Lender shall not unreasonably withhold consent in the event such
Borrower proposes to transfer any assets to a corporation (a "Subsidiary") for
which one hundred percent of the issued and outstanding capital stock is owned
by such Borrower, provided such Subsidiary executes and delivers such
guarantees, security agreements and other agreements reasonably requested by
Lender to perfect and preserve Lender's rights under this Agreement and the
other Loan Documents.
5.10 RESTRICTION ON LIENS. Each Borrower will not grant any security interest
in, or mortgage of, any of its properties or assets including the Collateral.
5.11 OTHER BUSINESS. Each Borrower will not engage in any business other than
the business in which it is currently engaged or a business reasonably allied
thereto.
6. DEFAULT
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6.1 DEFAULT. "Event of Default" shall mean the occurrence of one or more of any
of the following events:
(a) Default of any liability, obligation or undertaking of any Borrower to
the Lender, hereunder or otherwise, including failure to pay in full
and when due any installment of principal or interest continuing for 5
business days with respect to any monetary obligation or continuing
for 5 business days after the giving of notice by the Lender with
respect to all other obligations.
(b) Failure of any Borrower to maintain aggregate collateral security
value satisfactory to the Lender continuing for 5 business days after
the giving of notice by the Lender.
(c) Default of any material liability, obligation or undertaking of any
Borrower to any other party continuing for 5 business days after the
giving of notice by the Lender.
(d) If any statement, representation or warranty heretofore, now or
hereafter made in connection with this Agreement or in any supporting
financial statement of any Borrower shall be determined by Lender to
have been false in any material respect when made continuing for 5
business days after the giving of notice by the Lender.
(e) The liquidation, termination or dissolution of, or the merger
consolidation of any Borrower, into another entity, or any Borrower
ceasing to carry on actively its present business or the appointment
of a receiver for the Borrower.
(f) The liquidation, termination or dissolution of any guarantor of the
Obligations or if a corporation, the merger or consolidation of any
such guarantor into another entity, or any guarantor of the
Obligations ceasing to carry on actively its present business, or the
appointment of a receiver for any guarantor of the Obligations or the
death of any guarantor of the Obligations or any partner or trustee of
any guarantor of the Obligations.
(g) The institution by or against any Borrower or guarantor of the
Obligations of any proceedings under the Bankruptcy Code 11 USC
Section 101 et seq. or any other law in which such Borrower or any
guarantor of the Obligations is alleged to be insolvent or unable to
pay their respective debts as they mature, or the making by any
Borrower or any guarantor of the Obligations of an assignment for the
benefit of creditors or the granting of a trust mortgage for the
benefit of creditors.
(h) The service upon the Lender hereof of a writ in which the Lender is
named as trustee of any Borrower or of any guarantor of the
Obligations.
(i) A judgment or judgments for the payment of money shall be rendered
against any Borrower and any such judgment shall remain unsatisfied
and in effect for any period of thirty (30) consecutive days without a
stay of execution.
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<PAGE>
(j) Any levy, seizure, attachment, execution or similar process shall be
issued or levied on any of the property of any Borrower.
(k) The termination of any guaranty of the Obligations.
(l) The occurrence of such a change in the condition or affairs (financial
or otherwise) of any Borrower or any guarantor or other surety for any
of the obligations, or the occurrence of any event or circumstance
such that the Lender, in its sole discretion, deems that it is
insecure or that the prospects for timely or full payment or
performance of any of the Obligations have been or may be impaired.
6.2 DEFAULT. If an Event of Default shall occur, at the election of the Lender,
all Obligations shall become immediately due and payable without notice or
demand, except with respect to Obligations payable on DEMAND, which shall be due
and payable on DEMAND, whether or not an Event of Default has occurred.
The Lender is hereby authorized, at its election, after an Event of Default
or after Demand, without any further demand or notice except to such extent as
notice may be required by applicable law, to take possession and/or sell or
otherwise dispose of all or any of the Collateral at public or private sale; and
the Lender may also exercise any and all other rights and remedies of a secured
party under the Code or which are otherwise accorded to it by applicable law,
all as the Lender may determine. If notice of a sale or other action by the
Lender is required by applicable law, unless the Collateral is perishable or
threatens to decline speedily in value or is of a type customarily sold on a
recognized market, each Borrower agrees that five (5) days' written notice to
such Borrower, or the shortest period of written notice permitted by such law,
whichever is larger, shall be sufficient notice; and that to the extent
permitted by law, the Lender, its officers, attorneys and agents may bid and
become purchasers at any such sale, if public, and may purchase at any private
sale any of the Collateral that is of a type customarily sold on a recognized
market or which is the subject of widely distributed standard price quotations.
Any sale (public or private) shall be free from any right of redemption, which
each Borrower hereby waives and releases. No purchaser at any sale (public or
private) shall be responsible for the application of the purchase money. Any
balance of the net proceeds of sale remaining after paying all Obligations of
the Borrowers to the Lender shall be returned to the Borrowers or to such other
party as may be legally entitled thereto; and if there is a deficiency, the
Borrowers shall be responsible for the same, with interest. Upon demand by the
Lender, each Borrower shall assemble the Collateral and make it available to the
Lender at a place designated by the Lender which is reasonably convenient to the
Lender and such Borrower. Each Borrower hereby acknowledges that the Lender has
extended credit and other financial accommodations to such Borrower upon
reliance of such Borrower's granting the Lender the rights and remedies
contained in this Agreement including without limitation the right to take
immediate possession of the Collateral upon the occurrence of an Event of
Default or after DEMAND with respect to Obligations payable on DEMAND and each
Borrower hereby acknowledges that the Lender is entitled to equitable and
injunctive relief to enforce any of its rights and remedies hereunder or under
the Code and each
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<PAGE>
Borrower hereby waives any defense to such equitable or injunctive relief based
upon any allegation of the absence of irreparable harm to the Lender.
6.3 POWER OF ATTORNEY. Each Borrower hereby irrevocably constitutes and
appoints the Lender as such Borrower's true and lawful attorney, with full power
of substitution, at the sole cost and expense of such Borrower but for the sole
benefit of the Lender, upon the occurrence of an Event of Default or after
DEMAND with respect to Obligations payable on DEMAND, to convert the Collateral
into cash, including, without limitation, completing the manufacture or
processing of work in process, and the sale (either public or private) of all or
any portion or portions of the Inventory and other Collateral; to enforce
collection of the Collateral, either in its own name or in the name of such
Borrower, including, without limitation, executing releases, compromising or
settling with any Debtors and prosecuting, defending, compromising or releasing
any action relating to the Collateral; to receive, open and dispose of all mail
addressed to such Borrower and to take therefrom any remittances or proceeds of
Collateral in which the Lender has a security interest; to notify Post Office
authorities to change the address for delivery of mail addressed to such
Borrower to such address as the Lender shall designate; to endorse the name of
such Borrower in favor of the Lender upon any and all checks, drafts, money
orders, notes, acceptances or other instruments of the same or different nature;
to sign and endorse the name of such Borrower on and to receive as secured party
any of the Collateral, any invoices schedules of Collateral, freight or express
receipts, or bills of lading, storage receipts, warehouse receipts, or other
documents of title of the same or different nature relating to the Collateral;
to sign the name of such Borrower on any notice of the Debtors or on
verification of the Collateral; and to sign and file or record on behalf of such
Borrower any financing or other statement in order to perfect or protect the
Lender's security interest. The Lender shall not be obliged to do any of the
acts or exercise any of the powers hereinabove authorized, but if the Lender
elects to do any such act or exercise any such power, it shall not be
accountable for more than it actually receives as a result of such exercise of
power, and it shall not be responsible to the Borrowers except for willful
misconduct in bad faith. All powers conferred upon the Lender by this Agreement,
being coupled with an interest, shall be irrevocable so long as any Obligation
of the Borrowers to the Lender shall remain unpaid.
6.4 NONEXCLUSIVE REMEDIES. All of the Lender's rights and remedies not only
under the provisions of this Agreement but also under any other agreement or
transaction shall be cumulative and not alternative or exclusive, and may be
exercised by the Lender at such time or times and in such order of preference as
the Lender in its sole discretion may determine.
6.5 REASSIGNMENT TO BORROWER. Whenever the Lender deems it desirable that any
legal action be instituted with respect to any Collateral or that any other
action be taken in any attempt to effectuate collection of any Collateral, the
Lender may reassign the item in question to the Borrowers (and if the Lender
shall execute any such reassignment, it shall automatically be deemed to be
without recourse to the Lender in any event) and require the Borrowers to
proceed with such legal or other action at the Borrowers' sole liability, cost
and expense, in which event all amounts collected by the Borrowers on such item
shall nevertheless be subject to the Lender's security interest.
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<PAGE>
7. MISCELLANEOUS
7.1 WAIVERS. Each Borrower waives notice of nonpayment, demand, presentment,
protest or notice of protest of the Collateral, and all other notices, consents
to any renewals or extensions of time of payment thereof, and generally waives
any and all suretyship defenses and defenses in the nature thereof.
7.2 SEVERABILITY. If any provision of this Agreement or portion of such
provision or the application thereof to any person or circumstance shall to any
extent be held invalid or unenforceable, the remainder of this Agreement (or the
remainder of such provision) and the application thereof to other persons or
circumstances shall not be affected thereby.
7.3 SET-OFF. Any deposits, balances or other sums credited by or due from the
Lender or any of its affiliates to any Borrower and any security or other
property of any Borrower in the possession of the Lender, whether for
safekeeping or otherwise, may, at any time whether or not an Event of Default
has occurred or demand has been made, without notice to any Borrower, or
compliance with any other condition precedent now or hereafter imposed by
statute, rule of law, or otherwise (all of which are hereby expressly waived) be
set off, appropriated and applied by Lender against any and all of the
Obligations in such manner as the Lender in its sole discretion may
determine.
7.4 INDEMNIFICATION. Each Borrower shall indemnify, defend and hold the Lender
harmless of and from any claim brought or threatened against the Lender by such
Borrower, any guarantor or endorser of the Obligations, or any other person (as
well as from attorneys' reasonable fees and expenses in connection therewith) on
account of the Lender's relationship with such Borrower, or any guarantor or
endorser of the Obligations (each of which may be defended, compromised, settled
or pursued by the Lender with counsel of the Lender's election, but at the
expense of the Borrowers), except for any claim arising out of the gross
negligence or willful misconduct of the Lender. The within indemnification shall
survive payment of the Obligations, and/or any termination, release or discharge
executed by the Lender in favor of the Borrowers.
7.5 COSTS AND EXPENSES. The Borrowers shall pay to the Lender any and all costs
and expenses (including, without limitation, reasonable attorneys' fees, court
costs, litigation and other expenses) incurred or paid by the Lender in
establishing, maintaining, protecting or enforcing any of the Lender's rights or
the Obligations, including, without limitation, any and all such costs and
expenses incurred or paid by the Lender in defending the Lender's security
interest in, title or right to the Collateral or in collecting or attempting to
collect or enforcing or attempting to enforce payment of the Collateral.
7.6 COUNTERPARTS. This Agreement may be executed in two or more counterparts,
each of which shall be an original, but all of which shall constitute but one
agreement.
7.7 BINDING EFFECT OF AGREEMENT. This Agreement shall be binding upon and
inure to the benefit of the respective heirs, executors, administrators, legal
representatives, successors and assigns of the parties hereto, and shall remain
in full force and effect (and the Lender shall be entitled to rely thereon)
until terminated as to future transactions by written notice from either
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<PAGE>
party to the other party of the termination hereof; provided that any such
termination shall not release or affect any Collateral in which the Lender
already has a security interest or any Obligations incurred or rights accrued
hereunder prior to the effective date of such notice (as hereinafter defined) of
such termination. Notwithstanding any such termination, the Lender shall have a
security interest in all Collateral to secure the payment and performance of
Obligations arising after such termination as a result of commitments or
undertakings made or entered into by the Lender prior to such termination. The
Lender may transfer and assign this Agreement and deliver the Collateral to the
assignee, who shall thereupon have all of the rights of the Lender; and the
Lender shall then be relieved and discharged of any responsibility or liability
with respect to this Agreement and the Collateral.
7.8 FURTHER ASSURANCES. Each Borrower will from time to time execute and
deliver to the Lender and take or cause to be taken, all such other further
action as the Lender may request in order to effect and confirm or vest more
securely in the Lender all rights contemplated or to vest more fully in or
assure to the Lender the security interest in the Collateral granted to the
Lender by this Agreement or to comply with applicable statute or law and to
facilitate the collection of the Collateral.
7.9 AMENDMENTS AND WAIVERS. This Agreement may be amended and each Borrower may
take any action herein prohibited, or omit to perform any act herein required to
be performed by it, if such Borrower shall obtain the Lender's prior written
consent to each such amendment, action or omission to act. No delay or omission
on the part of Lender in exercising any right hereunder shall operate as a
waiver of such right or any other right and waiver on any one or more occasions
shall not be construed as a bar to or waiver of any right or remedy of Lender on
any future occasion.
7.10 TERMS OF AGREEMENT. This Agreement shall continue in force and effect so
long as any Obligations or obligation of any Borrower to Lender shall be
outstanding and is supplementary to each and every other agreement between each
Borrower and Lender and shall not be so construed as to limit or otherwise
derogate from any of the rights or remedies of Lender or any of the liabilities,
obligations or undertakings of each Borrower under any such agreement, nor shall
any contemporaneous or subsequent agreement between any Borrower and the Lender
be construed to limit or otherwise derogate from any of the rights or remedies
of Lender or any of the liabilities, obligations or undertakings of each
Borrower hereunder, unless such other agreement specifically refers to this
Agreement and expressly so provides.
7.11 NOTICES. Any notices under or pursuant to this Agreement shall be deemed
duly received and effective if delivered in hand to any officer of agent of any
Borrower or Lender, or if mailed by registered or certified mail, return receipt
requested, addressed to a Borrower or Lender at address set forth in this
Agreement or as any party may from time to time designate by written notice to
the other party.
7.12 MASSACHUSETTS LAW. This Agreement is intended to take effect as a sealed
instrument and has been executed or completed and is to be performed in
Massachusetts, and it and all transactions thereunder or pursuant thereto shall
be governed as to interpretation, validity, effect,
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<PAGE>
rights, duties and remedies of the parties thereunder and in all other respects
by the domestic laws of Massachusetts.
7.13 REPRODUCTIONS. This Agreement and all documents which have been or may be
hereinafter furnished by any Borrower to the Lender may be reproduced by the
Lender by any photographic, photostatic, microfilm, xerographic or similar
process, and 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).
7.14 VENUE. Each Borrower irrevocably submits to the nonexclusive jurisdiction
of any federal or state court sitting in Massachusetts, over any suit, action or
proceeding arising out of or relating to this Agreement. Each Borrower
irrevocably waives, to the fullest extent it may effectively do so under
applicable law, any objection it may now or hereafter have to the laying of the
venue of any such suit, action or proceeding brought in any such court and any
claim that the same has been brought in an inconvenient forum each Borrow
irrevocably appoints the Secretary of State, at the State of Ohio as its
authorized agent to accept and acknowledge on its behalf any and all process
which may be served in any such suit, action or proceeding, consents to such
process being served (i) by mailing a copy thereof by registered or certified
mail, postage prepaid, return receipt requested to a Borrower and (ii) by
serving the same upon such agent, and agrees that such service shall in every
respect be deemed effective service upon a Borrower.
7.15 JURY WAIVER. THE BORROWERS AND LENDER EACH HEREBY KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY, AND AFTER AN OPPORTUNITY TO CONSULT WITH LEGAL COUNSEL, WAIVE
ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING IN CONNECTION
WITH THIS AGREEMENT, THE OBLIGATIONS, ALL MATTERS CONTEMPLATED HEREBY AND
DOCUMENTS EXECUTED IN CONNECTION HEREWITH. THE BORROWERS CERTIFY THAT NEITHER
THE LENDER NOR ANY OF ITS REPRESENTATIVES, AGENTS OR COUNSEL HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT THE LENDER WOULD NOT IN THE EVENT OF ANY SUCH
PROCEEDING SEEK TO ENFORCE THIS WAIVER OF RIGHT TO TRIAL BY JURY.
Witness Borrower:
Witness Borrower:
Palletech, Inc.
By:
- ----------------------------------- --------------------------------
Gary DeLaurentiis, President
Witness Borrower:
FIXCOR Industries, Inc.
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By:
- ----------------------------------- ---------------------------------
Gary DeLaurentiis, President
Fix-Corp International, Inc.
By:
- ----------------------------------- ---------------------------------
Mark Fixler, President
Accepted at Boston, Massachusetts: Gordon Brothers Capital Corporation
By:
------------------------------
Name: Warren H. Feder
Title: President
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<PAGE>
SCHEDULE 5.1.
FIXCORP PALLETECH
------- ---------
August, 1997 -0-
September, 1997 -0-
October, 1997 307,440.00
November, 1997 307,440.00
December, 1997 307,440.00
January, 1998 307,440.00 382,905.00
February, 1998 307,440.00 382,905.00
March, 1998 307,440.00 382,905.00
April, 1998 307,440.00 382,905.00
May, 1998 307,440.00 382,905.00
June, 1998 307,440.00 382,905.00
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Exhibit 14
Right to purchase 500,000 shares
of Common Stock of Fix-Corp International,
Inc. (subject to adjustment as provided herein)
FIX-CORP INTERNATIONAL, INC.
PURCHASE WARRANT END AGREEMENT
JULY 9, 1997
Fix-Corp International, Inc., a Delaware corporation with principal offices
at 27040 Cedar Road, Suite 213, Beachwood, OH 44l22 (the "Company"), hereby
certifies that, for value received Gordon Brothers Capital Corporation
("Gordon"), a corporation with an office at 40 Broad Street, Boston,
Massachusetts 02109, is entitled, subject to the terms and conditions contained
herein, to purchase from the Company after July 9, 1997 but before 5:00 p.m.,
New York time, on July 9, 1999 (the "Expiration Date"), five hundred thousand
(500,000) shares of the Company's $.001 par value common stock at a purchase
price of twelve and one half cents ($.125) per share (the "Purchase Price").
The number and character of such shares of stock and the Purchase Price are
subject to adjustment as provided herein. Unless the common stock is registered
in accordance with Gordon's right under Section 6 of this Agreement such common
stock shall be unregistered.
1. CERTAIN DEFINITIONS. As used herein, the following terms shall have
the respective meaning ascribed thereto, unless the context otherwise requires;
(A) "COMPANY" shall mean Fix-Corp International, Inc. and any
corporation or other entity which shall succeed or assume the obligations of the
Company hereunder.
(B) "COMMON STOCK" shall mean the Company's $.001 par value common
stock, as authorized on the date hereof.
(C) "COMMON STOCK EQUIVALENTS" shall mean (i) any capital stock of
any class or classes (however designated) of the Company, authorized on or after
the date hereof, the holder of which shall 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, and (ii) any other securities into which or for
which the Common Stock and/or any of the securities described in (i) may be
converted or exchanged pursuant to a plan of recapitalization, reorganization,
merger, sale of assets or otherwise.
<PAGE>
(D) "CURRENT MARKET PRICE" means the per share price determined in
accordance with Section 3(E) of this Warrant.
(E) "REGISTRABLE SECURITIES" means any Warrant Shares issued to
Warrantholder and/or its designees or transferees and/or other securities that
may be or are issued by the Company upon exercise of the Warrant, including
those which may thereafter be issued by the Company in respect of any such
securities by means of any stock splits, stock dividends, recapitalizations,
reclassifications or the like, and as adjusted pursuant to Section 9 hereof.
(F) "REGISTRATION EXPENSES" means any and all expenses incurred in
connection with any registration or action incident to performance of or
compliance by the Company with Section 4 including, without limitation, (i) all
Securities and Exchange Commission, national securities exchange and NASD
registration and filing fees; all listing fees and all transfer agent fees; (ii)
all fees and expenses incurred in complying with state securities or blue sky
laws (including the fees and disbursements of counsel in connection with blue
sky qualifications of the Registrable Securities); (iii) all printing, mailing,
messenger and delivery expenses and (iv) all fees and disbursements of counsel
for the Company and the Warrantholder and their respective accountants,
including the expenses of any special audits and/or "cold comfort" letters
required by or incident to such performance and compliance, but excluding
underwriting discounts and commissions, brokerage fees and transfer taxes, if
any.
(G) "REGISTRATION STATEMENT" means any registration statement of the
Company filed or to be filed with the Securities and Exchange Commission which
covers any of the Registrable Securities pursuant to the provisions of this
Warrant, including all amendments (including post-effective amendments) and
supplements thereto, all exhibits thereto and all material incorporated therein
by reference.
(H) "SECURITIES LAWS" means the Securities Act of 1933, the
Securities Exchange Act of 1934, as they may be amended, any applicable state
securities laws and the rules and regulations of the Securities and Exchange
Commission (or of any other Federal or state agency administering any Securities
Laws, as then in effect).
(I) "WARRANT SHARES" means any capital stock, including Common Stock,
Common Stock Equivalents and other securities of the Company or any other person
(corporate or otherwise) which the holder of the Warrant (the "Warrantholder"),
shall at any time be entitled to receive, or shall have received, on the
exercise of this Warrant, 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 pursuant to Section 5 of this warrant or otherwise.
2. EXERCISE OF WARRANT.
(A) EXERCISE. This Warrant may be exercised in full or in part by
the Warrantholder by surrender of this Warrant, with the form of subscription at
the end hereof duly executed by such Warrantholder, to the Company at its
principal office, accompanied by payment in a manner permitted by this Warrant,
in the amount obtained by multiplying the number of
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<PAGE>
shares of Common Stock for which this Warrant is being exercised by the Purchase
Price then in effect. On any partial exercise the Company at its expense will
forthwith issue and deliver to or upon the order of the Warrantholder a new
Warrant or Warrants of like tenor, in the name of the Warrantholder or as such
Warrantholder may request (upon payment by such Warrantholder of any applicable
transfer taxes), calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock for which such Warrant or Warrants may still be
exercised.
(B) PAYMENT. Payment of the Purchase Price may be made (i) in
immediately available funds in lawful money of the United States of America;
(ii) by exchange of or reduction in the outstanding principal balance due under
any note, each dollar of principal amount and/or each dollar of accrued interest
outstanding under such note to be applied to one dollar of the Purchase Price;
and/or (iii) by "Cashless Exercise". A "Cashless Exercise" permits the
Warrantholder to pay for the shares being purchased by delivering to the Company
a portion of the shares for which the Warrant is being exercised (the "Payment
Shares"), with the Warrantholder receiving the balance of the shares. The number
of Payment Shares shall equal a quotient, the NUMERATOR of which is the number
of shares for which the Warrant is being exercised, and the DENOMINATOR of which
equals another quotient, the NUMERATOR of which is the Current Market Price and
the DENOMINATOR of which is the Purchase Price.
(C) DELIVERY OF STOCK CERTIFICATES, ETC. ON EXERCISE. As soon as
practicable after the satisfaction by the Warrantholder of its obligations set
forth in Sections 2(A) and 2(B), the Company shall promptly (and in any event
within seven days), and at its expense (including the payment by it of any
applicable issue taxes), cause to be issued in the name of and delivered to the
Warrantholder, or as such Warrantholder may direct (upon payment of any
applicable transfer taxes), a certificate or certificates for the number of
fully paid and nonassessable Warrant Shares to which the Warrantholder shall be
entitled on such exercise, plus, in lieu of any fractional share to which such
Warrantholder would otherwise be entitled, one additional share, together with
any other stock or other securities and property (including cash, where
applicable) to which such Warrantholder is entitled upon such exercise. The
Company shall pay any and all documentary, transfer and similar federal, state
and other taxes which may be payable in respect of the issuance of this warrant
and/or any Warrant Shares or other property upon the exercise of the Warrant.
(D) STOCKHOLDER. The certificate(s) referenced in Section 2(C) shall
be deemed to be issued, and such Warrantholder or any other person so designated
to be named in such certificate(s) as the record holder thereof, shall be deemed
for all purposes to have become a holder of record of such Warrant Shares as of
the date on which the Warrantholder shall have satisfied its obligations set out
in Section 2(A) and 2(B) in respect to much exercise. Subject to the
immediately previous sentence, the Warrantholder shall be deemed to be the
holder of record of the Warrant Shares issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such Warrant Shares shall not then be
actually delivered to the Warrantholder.
3. CONTINUATION OF TERMS. Upon any reorganization, consolidation, merger
or transfer (and any dissolution following any transfer) referred to in this
Section 3, this Warrant shall continue in full force and effect and the terms
hereof shall be applicable to the shares of stock and
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<PAGE>
other securities and property receivable on the exercise of this Warrant after
the consummation of such reorganization, consolidation or merger or the
effective date of dissolution following any such transfer, as the case may be,
and shall be binding upon the issuer of any such stock or other securities,
including, in the case of any such transfer, the person acquiring all or
substantially all of the properties or assets of the Company, whether or not
such person shall have expressly assumed the terms of this Warrant.
4. NOTICE OF RECORD DATE, ETC. The Company shall give written notice to
the Warrantholder if at any time prior to the Expiration Date or the exercise in
full of the Warrant, any of the following events shall occur:
(A) the Company shall authorize the issuance of any right to
subscribe for, purchase or otherwise acquire any shares of capital stock of any
class or any other securities or property, or to receive any other right;
(B) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company, or any transfer of all
or substantially all the assets of the Company to or consolidation or merger of
the Company with or into any other person; or
(C) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company.
In each such event the Company's notice shall be given at least fifteen (15)
business days prior to the date fixed as a record date or effective date or the
date of closing of the Company's stock transfer books for the determination of
stockholders entitled to such dividend, distribution or subscription rights, or
for the determination of the stockholders entitled to vote on such proposed
merger, consolidation, sale, conveyance, dissolution, liquidation or winding-up.
The notice shall specify (i) the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and stating the amount
and character of such dividend, distribution or right, and (ii) the date on
which any such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up is to take place,
and the time, if any 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 securities or other property deliverable on such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding-up. Failure to give such notice, or
any defect therein, shall not affect the legality or validity of any action
taken in connection with such dividend, distribution or subscription rights, or
proposed merger, consolidation, sale, conveyance, dissolution, liquidation or
winding-up.
5. RESERVATION OF SHARES. The Company covenants and agrees that it will
cause to be reserved and kept available, solely for issuance and delivery on the
exercise of the Warrant, that number of authorized and unissued shares of Common
Stock, or any authorized and issued shares of Common Stock held in its treasury,
the number of shares of Common Stock that will be sufficient to permit the
exercise in full of the warrant. The Company further covenants and agrees
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<PAGE>
that it will take all such action as may be necessary to ensure that all shares
of Common Stock and/or other securities delivered upon exercise of the Warrant
shall, at the time of delivery of the certificate(s) for such shares or other
securities (subject to payment of the Purchase Price), be duly and validly
authorized and issued and fully paid and nonassessable shares or securities,
free and clear of all liens, security interests, charges and other encumbrances
or restrictions on sale and free and clear of all preemptive rights.
6. REGISTRATION RIGHTS.
(A) "PIGGY BACK" REGISTRATION. If at any time or from time to time
prior to the Expiration Date or the exercise in full of the Warrant the Company
proposes to register any of its securities under the Securities Act (including
pursuant to a demand of any stockholder of the Company exercising registration
rights and whether or not for its own account, but excluding a registration on
Form S-4 or Form S-8 or their respective equivalent), it shall as promptly as
reasonably possible notify the Warrantholder of such potential registration and
the Warrantholder's rights under this Section. If within thirty (30) days after
receipt of such notice, the Warrantholder shall so request in writing, the
Company shall include in such Registration Statement all or any part of the
Registrable Securities the Warrantholder requests to be registered. No
incidental right under this Section 6(A) shall be construed to limit any
registration required under Section 6(B).
If in connection with any piggy back registration being offered by or
through one or more underwriters, the managing underwriter shall in good faith
advise the Company and the Warrantholder that the offering will be materially
adversely affected without a limitation of the number of shares being included
in such offering, the Company shall not be required to include all Registrable
Securities in its Registration Statement therefore; PROVIDED, HOWEVER, that if
other selling stockholders, including directors, officers, employees and other
affiliates of the Company, have requested registration of securities in such
proposed offering, the Company shall reduce or eliminate such other selling
stockholders' securities from the offering on a PRO RATA basis to the
Registrable Securities the Warrantholder designated for registration. In such an
event, the Warrantholder may delay any offering by it of all Registrable
Securities requested to be included or that portion of such Registrable
Securities eliminated for such period not exceeding sixty (60) days, as the
managing underwriter shall request, and the Company shall file such supplements
and post-effective amendments and take such other action necessary under
applicable Securities Laws and regulations as may be necessary to permit the
Warrantholder to make its proposed offering for a period of ninety (90) days
following such period of delay.
(B) REGISTRATION ON FORM S-3. In addition to the foregoing
registration rights provided to Warrantholder, if the registration of
Registrable Securities can be effected on Form S-3 (or any similar form
promulgated by the Securities and Exchange Commission), the Company will so
notify the Warrantholder and thereafter will, as expeditiously as possible, use
its best efforts to effect qualification and registration on said Form S-3 of
all or such portion of the Registrable Securities as the Warrantholder shall
specify; PROVIDED HOWEVER, that no more than two (2) of such registration
statements need be filed in any twelve (12) month period.
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(C) EFFECTIVENESS. The company shall keep each Registration
Statement pursuant to which any of the Registrable Securities are being offered
in effect and maintain compliance with all applicable securities Laws for the
period necessary for the Warrantholder to effect the proposed sale or other
disposition of the Registrable Securities.
(D) INDEMNIFICATION OF WARRANTHOLDER. In the event that the Company
registers any of the Registrable Securities under the applicable Securities
Laws, the Company will indemnify and hold harmless the Warrantholder from and
against any and all losses, claims damages, expenses or liabilities, joint or
several, to which it becomes subject under the Securities Laws or under any
other statute or at common law or otherwise, and except as hereinafter provided,
will reimburse the Warrantholder for any legal or other expenses it reasonably
incurs in connection with investigating or defending any actions whether or not
resulting in any liability, insofar as such losses, claims, damages, expenses,
liabilities or actions arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in the registration
statement, in any preliminary or amended preliminary prospectus or in the
prospectus (or the Registration Statement or prospectus as from time to time
amended or supplemented by the Company), or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading or any violation by the Company of any rule or regulation promulgated
under the Securities Laws applicable to the Company and relating to action or
inaction required of the Company in connection with such registration, unless
such untrue statement or omission was made in such Registration Statement,
prospectus or preliminary prospectus, or such amendment or supplement, in
reliance upon and in conformity with information furnished in writing to the
Company in connection therewith by the Warrantholder expressly for use therein.
Promptly after receipt by the Warrantholder of notice of the commencement of any
action in respect of which indemnity may be sought against the Company, the
Warrantholder will notify the Company in writing of the commencement thereof
and, subject to the provision, hereinafter stated, the Company shall assume the
defense of such action (including the employment of counsel, who shall be
counsel satisfactory to the Warrantholder), and the payment of expenses insofar
as such action shall relate to any alleged liability in respect of which
indemnity may be sought against the Company. The Warrantholder shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof but the fees and expenses of such counsel shall not be at the
expense of the Company unless the emplacement of such counsel and payment of
such fees and expenses by the Company has been specifically authorized by the
Company. The Company shall not be liable to indemnify any person for any
settlement of any such action effected without the Company's written consent.
(E) INDEMNIFICATION OF COMPANY. In the event that the Company
registers any of the Registrable Securities under the Securities Laws, the
Warrantholder will indemnify and hold harmless the Company, each of its
directors and each of its officers who have signed the Registration Statement
against any and all losses, claims, damages, expenses or liabilities, joint or
several, to which they or any of them may become subject under the Securities
Laws or under any other statute or at common law or otherwise, and, except as
hereinafter provided, will reimburse the Company and each such director or
officer for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any actions whether or not resulting
in any
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liability, insofar as such losses, claims, damages, expenses, liabilities or
actions arise out of or are based upon any untrue statement of a material act
contained in the Registration Statement, the prospectus or preliminary
prospectus or any amendment thereof or supplement thereto, or arise out of or
are based upon the omission to state therein a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading, but only insofar as any such statement or omission was made in
reliance upon and in conformity with information furnished in writing to the
Company in connection therewith by the Warrantholder expressly for use therein;
PROVIDED, HOWEVER, that the Warrantholder's obligations hereunder shall be
limited to an amount equal to the proceeds received by the Warrantholder on
account of the Registrable Securities sold in such registration. Promptly after
receipt of notice of the commencement of any action in respect or which
indemnity may be sought against the Warrantholder, the Company will notify the
Warrantholder in writing of the commencement thereof, and the Warrantholder
shall, subject to the provisions hereinafter stated, assume the defense of such
action (including the employment of counsel, who shall be counsel satisfactory
to the Company) and the payment of expenses insofar as such action shall relate
to the alleged liability in respect of which indemnity may be sought against the
Warrantholder. The Company and each such director and officer shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof but the fees and expenses of such counsel shall not be at the
expense of the Warrantholder unless employment of such counsel and payment of
such fees and expenses by the Warrantholder has been specifically authorized by
the Warrantholder. The Warrantholder shall not be liable to indemnify any person
for any settlement of any such action effected without the Warrantholder's
written consent.
(F) FURTHER OBLIGATIONS OF THE COMPANY. Whenever under this Section
the Company is required to register any Registrable Securities, it agrees that
it shall also do the following:
(i) furnish to the Warrantholder such copies of each
preliminary and final prospectus and such other documents as the Warrantholder
may reasonably request to facilitate the public offering of its Registrable
Securities;
(ii) enter into such agreements (including an underwriting
agreement) and take all such other actions reasonably required in connection
therewith to expedite or facilitate the disposition of such Registrable
Securities and in such connection, if the registration is in connection with an
underwritten offering (1) make such representations and warranties to the
underwriters in such form, substance and scope as are customarily made by
issuers to underwriter, in underwritten offerings and confirm the same if and
when requested; (2) obtain opinions of counsel to the Company and updates
thereof (which counsel opinions in form, scope and substance shall be reasonably
satisfactory to the underwriters) addressed to the underwriters and the
Warrantholder covering the matters customarily covered in opinions requested in
underwritten offerings and such other matters as may be reasonably requested by
such underwriters; (3) obtain "cold comfort" letters and updates thereof from
the Company's accountants addressed to the underwriters, such letters to be in
customary form and covering matters of the type customarily covered in "cold
comfort" letters by underwriters and a holder of registrable securities in
connection with underwritten offerings; and (4) deliver such documents and
certificates as may be
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reasonably requested by the underwriters to evidence compliance with any
customary conditions contained in an underwriting agreement;
(iii) permit the Warrantholder and/or his counsel and other
representatives to inspect and copy such corporate documents, financial and
other Company records as may reasonably be requested by them, and cause the
company's directors, officers and employees, and, if possible, financial
analysts, to supply all reasonably requested information in connection with the
Company and the offering, and
(iv) furnish to the Warrantholder a copy of all documents filed
and all correspondence from or to the Securities and Exchange Commission in
connection with any such offering.
(G) EXPENSES. The Company shall bear all Registration Expenses for
each and every registration under this Section 6.
7. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, 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 and 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 of the
Warrant against dilution or other impairment. Without limiting the generality of
the foregoing, the Company (i) will not increase the par value of any shares of
stock receivable on the exercise of the Warrant above the amount payable
therefor on such exercise, (ii) 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 warrant from time to
time, (iii) will not consolidate with or merge into any other person or permit
any such person to consolidate with or merge into the Company (if the Company is
not the surviving person), unless such other person shall expressly assume in
writing and will be bound by all the terms of the Warrant.
8. EXCHANGE OF WARRANTS. On surrender for exchange of any Warrant,
properly endorsed, to the Company, the Company at its expense will issue and
deliver to or on the order of the holder thereof a new Warrant or Warrants of
like tenor, in the name of such holder or as such holder (on payment by such
holder or any applicable transfer taxes) may direct, calling in the aggregate on
the face or faces thereof for the number of shares of Common Stock called for on
the face or faces of the Warrant or Warrants so surrendered. The Company shall
have the right to require the Warrantholder to pay a sum sufficient to cover any
tax or governmental charge that may be imposed in connection with any split up,
combination, exchange or transfer of this warrant.
9. REPLACEMENT OF WARRANTS. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of the
Warrant and, in the case of any such loss, theft or destruction of any Warrant,
on delivery of an indemnity agreement or security reasonably satisfactory in
form and amount to the Company or, in the case of any such mutilation,
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on surrender and cancellation of such Warrant, the Company at its expense will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
10. WARRANT REGISTER. The Company will maintain a register containing the
names and addresses of the holder(s) of the Warrant(s). The "registered holder"
of any Warrant shall be the person in whose name such Warrant is registered in
said warrant register. Any registered holder of this Warrant may change its
address as shown on the Warrant registered by written notice to the Company
requesting such change.
11. REMEDIES. The Company acknowledges that the remedies at law of the
holder of this Warrant 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 are not and will not be adequate, and that damages will not be readily
ascertainable. The Company therefore expressly agrees that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
12. NEGOTIABILITY, ETC. Subject to applicable Securities Laws, title to
this Warrant may be transferred by endorsement (by the Warrantholder executing
the form of assignment attached hereto) and delivery in the same manner as in
the case of a negotiable instrument transferable by endorsement and delivery.
Any person in possession of this Warrant properly endorsed is authorized to
represent himself as absolute owner hereof and is empowered to transfer absolute
title hereto by endorsement and delivery hereof to a bone fide purchaser hereof
for value; each prior taker or owner waives and renounces all of his equities or
rights in this Warrant in favor of each such bone fide purchaser, and each such
bone fide purchaser shall acquire absolute title hereto and to all rights
represented hereby.
13. ACQUISITION FOR INVESTMENT. Unless a current Registration Statement
under the Securities Laws shall be in effect with respect to the Warrant Shares,
the Warrantholder, by accepting this Warrant, covenant, and agrees that, at the
time of exercise hereof, and at the time of any proposed transfer of securities
acquired upon exercise hereof, such holder will deliver to the Company a written
statement that the securities acquired by the holder upon exercise hereof are
for the account of the Warrantholder for investment and are not acquired with a
view to, or for sale in connection with, any distribution thereof (or any
portion thereof) and with no present intention (at any such time) of offering
and distributing such securities (or any portion thereof). The certificates
evidencing the Warrant Shares, if such Warrant Shares are not subject to a
current Registration Statement, shall bear a legend to the effect that shares
evidenced by such certificates have not been so registered and may not be
transferred except pursuant to an effective Registration Statement under the
Securities Laws, or an opinion of counsel satisfactory to the Company that such
registration is not required. Further, the Warrantholder shall comply with all
applicable provisions of the Securities Laws.
14. MISCELLANEOUS. This Warrant is being executed as an instrument under
seal and shall be construed and enforced in accordance with and governed by the
internal laws of the Commonwealth of Massachusetts. The invalidity or
enforceability of any provision of this Warrant shall not affect the other
provisions of this Warrant, but this Warrant shall be construed and
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reformed to the fullest extent possible. This Warrant shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns. This warrant cannot be modified or amended except by written agreement
executed by the party affected thereby. No term or provision hereof shall be
deemed waived and no breach hereof shall be deemed consented to or excused,
unless such waiver, consent or excuse shall be expressly made in writing and
signed by the party claimed to have so waived, consented or excused. Should
either party consent, waive or excuse a breach by the other party, such consent,
waiver or excuse shall not constitute a consent to, waiver of or excuse of any
other different or subsequent breach, whether or not of the same kind as the
original breach. The headings and captions contained in this Warrant shall not
be considered to be part hereof for purposes of interpreting or applying this
Warrant, but are for convenience of reference only. All notices, requests,
demands and other communications required or permitted under this Warrant shall
be deemed to have been duly delivered if (i) delivered by hand, (ii) deposited
in the United States mail, postage prepaid and registered or certified with
return receipt requested or (iii) delivered by prepaid courier service to the
address set forth on the first page of this Warrant or to such other address as
either party shall hereafter notify the other. Notice shall be deemed to have
been delivered upon receipt. This Warrant may be executed in one or more
counterparts, each of which shall be an original and all of which, when taken
together, shall constitute one and the same Agreement.
Dated: FIX-CORP INTERNATIONAL, INC.
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(Corporate Seal)
By:
-------------------------------------
Title:
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Attest:
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Exhibit 15
INTERCREDITOR AGREEMENT
THIS INTERCREDITOR AGREEMENT (the "Agreement"), dated as of this_____ day
of July, 1997, is made by Gordon Brothers Capital Corporation ("Creditor'), with
an office at 40 Broad Street, Boston, Massachusetts 02109 and NationsCredit
Commercial Corporation, through its NationsCredit Commercial Funding Division
("Nations"), with an office at 1177 Avenue of the Americas, 36th floor, New
York, New York 10036.
1. BACKGROUND.
(a) Fix-Corp International, Inc., a Delaware corporation ("Fix-Corp"),
FIXCOR Industries, Inc., a Delaware corporation ("FIXCOR"), and Palletech, Inc.,
a Delaware corporation ("Palletech"), have granted to Creditor liens upon, and
security interests in, the Collateral (as defined below) to secure loans and
advances that have been or hereafter may be made by Creditor to any of FIXCOR,
Fix-Corp and Palletech.
(b) Palletech, FIXCOR and Fix-Corp (individually each an "Obligor", and
collectively "Obligors") have granted to Nations liens upon, and security
interests in, the Collateral to secure loans and advances that have been or
hereafter may be made by Nations to FIXCOR and guaranties by Palletech and
Fix-Corp made in favor of Nations with respect to such loans and advances.
(c) Nations and Creditor desire to agree between themselves on their
relative rights, priorities and interests in the Collateral and certain other
matters as set forth herein.
Therefore, in consideration of the foregoing and the mutual covenants set
forth below, the parties hereby agree as follows.
2. DEFINITIONS. For purposes of this Agreement:
(a) "Collateral" means any existing or hereafter acquired property of each
Obligor, whether realty or personalty, and whether tangible or intangible,
including without limitation accounts, inventory, general intangibles,
equipment, documents, instruments and chattel paper, together with all proceeds
of the foregoing.
(b) "Creditor's Debt" means all obligations, liabilities and indebtedness
from time to time owing by each Obligor to Creditor under Creditor's Documents
or otherwise, including without limitation the outstanding balance of principal
and accrued interest (including without limitation any interest accruing after
the commencement of insolvency proceedings with respect to any Obligor, whether
or not such interest is allowed as a claim in such proceedings), fees and
premiums from time to time owing by each Obligor to Creditor pursuant to
Creditor's Documents and all costs and expenses (including reasonable attorneys'
fees) owing by each Obligor to Creditor under Creditor's Documents.
<PAGE>
(c) "Creditor's Documents" means any and all agreements, instruments and
documents, together with any amendments, renewals, extensions or supplements
thereto or replacements thereof, now or hereafter evidencing or securing a
financing arrangement or arrangements between Creditor and each Obligor,
including without limitation the Term Note of even date herewith executed by the
Obligors in favor of Gordon Brothers and the Loan and Security Agreement of even
date herewith executed by the Obligors in favor of Gordon Brothers.
(d) "Creditor Senior Collateral" means the Pallet Equipment, all proceeds
of the Pallet Equipment and any right to payment for the inventory created
solely through the use of the Pallet Equipment, which is not evidenced by an
instrument (as defined in the Uniform Commercial Code as adopted and in effect
at such time in the State of New York) or chattel paper (as defined in the
Uniform Commercial Code as adopted and in effect at such time in the State of
New York) ("Pallet Account Receivables"), PROVIDED THAT, if and when Nations
notifies Creditor in writing that either (i) the Pallet Account Receivables are
to be included in the definition of "Eligible Accounts" (pursuant to the Loan
Agreement (defined below)) or (ii) Nations intends to make loans to Palletech
directly under any circumstances, such Pallet Account Receivables shall
immediately cease to be Creditor Senior Collateral and shall become Nations
Senior Collateral (as defined below) indefinitely.
(e) "Nations' Debt" means all obligations, liabilities and indebtedness
from time to time owing by each Obligor to Nations under Nations' Documents or
otherwise, including without limitation the outstanding balance of principal and
accrued interest (including without limitation any interest accruing after the
commencement of insolvency proceedings with respect to any Obligor, whether or
not such interest is allowed as a claim in such proceedings), fees and premiums
from time to time owing by each Obligor to Nations pursuant to Nations'
Documents and all costs and expenses (including reasonable attorneys' fees)
owing by each Obligor to Nations under Nations' Documents.
(f) "Nations' Documents" means any and all agreements, instruments and
documents, together with any amendments, renewals, extensions or supplements
thereto or replacements thereof, evidencing or securing a financing arrangement
or arrangements between Nations and each Obligor, including without limitation
the Loan and Security Agreement dated as of May 14, 1997 between Nations and
FIXCOR (the "Loan Agreement"), the Security Agreement dated as of May 14, 1997
between Nations and Fix-Corp and the Security Agreement dated July ____ 1997
between Nations and Palletech, all as amended or supplemented from time to time.
(g) "Nations Senior Collateral" means all of the Collateral other than the
Pallet Equipment, the Pallet Account Receivables (pursuant to the proviso in (d)
above), together with all proceeds of the foregoing.
(h) "Pallet Equipment" means the equipment purchased with advances from
Creditor under the Creditor's Documents, including but not limited to the
equipment described on EXHIBIT A attached hereto.
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Each term used in this Agreement and not otherwise defined herein shall
have the meaning ascribed to such term in the Uniform Commercial Code of the
State of New York.
3. PRIORITIES: SUBORDINATION: PAYMENTS: STANDBY.
(a) Nations and Creditor each agree that regardless of the time or order
of attachment, or the time, order or manner of perfection, or the time or order
of filing or recording of financing statements or mortgages or deeds of trust,
Nations' lien on and security interest in the Nations Senior Collateral shall be
senior to that of Creditor in the Nations Senior Collateral. Creditor agrees to
subordinate, and does hereby subordinate, any security interests and liens it
now or hereafter has in and upon the Nations Senior Collateral under Creditor's
Documents or otherwise to the security interests and liens of Nations in and
upon the Nations Senior Collateral.
(b) Nations and Creditor each agree that regardless of the time or order
of attachment, or the time, order or manner of perfection, or the time or order
of filing or recording of financing statements or mortgages or deeds of trust,
Creditor's lien on and security interest in the Creditor Senior Collateral shall
be senior to that of Nations in the Creditor Senior Collateral. Nations agrees
to subordinate, and does hereby subordinate, any security interests and liens it
now or hereafter has in and upon the Creditor Senior Collateral under Nations'
Documents or otherwise to the security interests and liens of Creditor in and
upon the Creditor Senior Collateral.
(c) Regardless of whether a default exists under any of Creditor's
Documents, Creditor shall not, without the prior written consent of Nations: (i)
take any action to enforce any security interest in or lien on, or exercise any
other rights with respect to, the Nations Senior Collateral (including without
limitation any action to commence a foreclosure action with respect to the
Nations Senior Collateral or exercise any right Creditor may have to notify any
account debtor of any Obligor or otherwise attempt to collect payment from any
account debtor) until all of Nations' Documents have been terminated and all of
Nations' Debt has been fully paid and satisfied in cash; PROVIDED that, subject
to all of Nations' rights under this Agreement, including without limitation
Nations' prior right to all proceeds derived from the sale or other disposition
of the Nations Senior Collateral, in the event that Nations has instituted and
is then maintaining any proceeding or action to foreclose Nations' liens and
security interests with respect to any of the Nations Senior Collateral,
Creditor may foreclose Creditor's liens and security interests in such
Collateral in such proceeding initiated by Nations, so long as Creditor does not
in any event notify account debtors of any Obligor or interfere with or impede
such action or proceeding of Nations.
(d) Regardless of whether a default exists under any of Nations'
Documents, Nations shall not, without the prior written consent of Creditor,
take any action to enforce any security interest in or lien on, or exercise any
other rights with respect to, the Creditor Senior Collateral (including without
limitation any action to commence a foreclosure action with respect to the
Creditor Senior Collateral) until all of the Creditor's Documents have been
terminated and all of Creditor's Debt has been fully paid and satisfied in cash;
PROVIDED that, subject to all of Creditor's rights under this Agreement,
including without limitation Creditor's prior right to all proceeds derived from
the sale or other disposition of the Creditor Senior Collateral, in the event
that Creditor has instituted and is then maintaining any proceeding or action to
foreclose Creditor's
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liens and security interests with respect to any of the Creditor Senior
Collateral, Nations may foreclose Nations' liens and security interests in such
Collateral in such proceeding initiated by Creditor so long as Nations does not
in any event interfere with or impede such action or proceeding of Creditor.
(e) In the event of default by any Obligor in the payment or performance
of any of its liabilities or obligations to Nations, Creditor agrees not to
restrict or prohibit the use of the Pallet Equipment to complete the manufacture
of any Obligor's inventory; PROVIDED that Creditor can demand that such use
ceases no earlier than sixty (60) days following the institution of a
foreclosure action by Creditor permitted hereunder with respect to the Pallet
Equipment.
(f) In the event any Obligor desires to sell any of the Nations Senior
Collateral and Nations consents to such sale, such Obligor or Nations shall
endeavor to provide at least two (2) days' prior written notice of such sale to
Creditor and Creditor shall be deemed to have consented to such sale free and
clear of any liens and security interests of Creditor in such Nations Senior
Collateral and Creditor agrees that any purchaser of any Nations Collateral may
rely on this Agreement as evidence of Creditor's consent to such sale free and
clear of any liens and security interests of Creditor in such Nations Senior
Collateral; PROVIDED, that the proceeds of such sale shall be distributed as set
forth in Section 3(h) below. Creditor agrees to execute such releases with
respect to the Nations Senior Collateral to be sold as such Obligor or as
Nations requests; PROVIDED that the failure of Creditor to execute such releases
shall not affect the right of the purchaser of such Nations Senior Collateral to
rely on this Agreement. In the event Creditor receives any proceeds of Nations
Senior Collateral to which Nations is entitled under Nations' Documents,
Creditor shall hold such proceeds in trust and promptly remit such proceeds in
the same form received to Nations unless Nations has been paid in full in cash.
(g) In the event any Obligor desires to sell any of the Creditor Senior
Collateral and Creditor consents to such sale, such Obligor or Creditor shall
endeavor to provide at least two (2) days' prior written notice of such sale and
Nations shall be deemed to have consented to such sale free and clear of any
liens and security interests of Nations in such Creditor Senior Collateral and
Nations agrees that any purchaser of any Creditor Senior Collateral may rely on
this Agreement as evidence of Nations' consent to such sale free and clear of
any liens and security interests of Nations in such Creditor Senior Collateral;
PROVIDED, that the proceeds of such sale shall be distributed as set forth in
Section 3(h) below. Nations agrees to execute such releases with respect to the
Creditor Senior Collateral to be sold as such Obligor or as Creditor requests;
PROVIDED, that the failure of Nations to execute such releases shall not affect
the right of the purchasers of such Creditor Senior Collateral to rely on this
Agreement. In the event Nations receives any proceeds of Creditor Senior
Collateral to which Creditor is entitled under Creditor's Documents, Nations
shall hold such proceeds in trust and promptly remit such proceeds in the same
form received to Creditor unless Creditor has been paid in full in cash.
(h) All proceeds of the Nations Senior Collateral shall be applied first,
to Nations' Debt, and after the indefeasible payment in cash of Nations' Debt,
to Creditor's Debt. All proceeds of the Creditor Senior Collateral shall be
applied first, to Creditor's Debt, and after the indefeasible payment in full in
cash of Creditor's Debt, to Nations' Debt. If Creditor receives any
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proceeds of Nations Senior Collateral which are to be applied to Nations' Debt
as provided above, Creditor shall hold such proceeds in trust, and deliver such
proceeds in the same form received to Nations, and if Nations receives any
proceeds of Creditor Senior Collateral which are to be applied to Creditor's
Debt as provided above, Nations shall hold such proceeds in trust and deliver
such proceeds in the same form received to Creditor.
(i) Neither party hereto shall contest the validity, perfection, priority
(as established pursuant to the terms of this Agreement) or enforceability of
any lien or security interest on or in the Collateral granted by each Obligor to
the other party hereto.
4. REPRESENTATIONS WARRANTIES AND COVENANTS. Nations and Creditor each
represent, warrant and covenant that it has not assigned or transferred, and
agrees that it will not assign or transfer at any time this Agreement remains in
effect, any right, claim or interest of any kind in or to the Collateral, unless
such right, claim and interest remains subject to this Agreement.
5. AMENDMENTS TO DOCUMENTS. Creditor agrees that Nations may at any time
or times, in its discretion, (i) renew or extend the time of payment of Nations'
Debt, (ii) waive or release any collateral or guaranties which may be held
therefor, or (iii) modify or amend Nations' Documents or Nations' Debt in any
manner, in each case without further consent from Creditor or any other party,
and without impairing or affecting this Agreement or any of Nations' rights
hereunder. Nations agrees that Creditor may at any time or times, in its
discretion, (i) renew or extend the time of payment of Creditor's Debt, (ii)
waive or release any collateral or guaranties which may be held therefor, or
(iii) modify or amend Creditor's Documents or Creditor's Debt in any manner, in
each case without further consent from Nations or any other party, and without
impairing or affecting this Agreement or any of Creditor's rights hereunder.
6. CREDITOR'S WAIVERS. Creditor expressly waives all notice of the
acceptance by Nations of the subordination and other provisions of this
Agreement and all the notices not specifically required pursuant to the terms of
this Agreement whatsoever and Creditor expressly waives reliance by Nations upon
the subordination and other agreements as herein provided. Creditor agrees that
Nations (i) has made no warranties or representations with respect to the
legality, validity, completeness, enforceability or the collectibility of
Nations' Debt or any liens or security interests securing Nations' Debt, and
(ii) shall be entitled to manage and supervise its loans to each Obligor in
accordance with applicable law and its usual practices with each Obligor without
affecting the validity or enforceability of this Agreement, modified from time
to time as it deems appropriate under the circumstances, without regard to the
existence of any rights that Creditor may now or hereafter have in or to any of
the assets of each Obligor. The validity and enforceability of this Agreement
shall not be affected by (a) any and all actions which Nations takes or omits to
take (including without limitation actions with respect to the creation,
perfection or continuation of liens or security interests in any Collateral,
actions with respect to the occurrence of an Event of Default under Nations'
Documents, actions with respect to the foreclosure upon, sale, release or
depreciation of, or failure to realize upon any of the Collateral), (b) Nations'
election, in any proceeding instituted under Chapter 11 of Title 11 of the
United States Code (11 U.S.C. Section 101 ET SEQ.) (the "Bankruptcy Code"), of
the application of Section 111l(b)(2) of the Bankruptcy Code, and/or (c) any
borrowing or grant of a security interest under
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Section 363 or 364 of the Bankruptcy Code by any Obligor, as debtor in
possession with respect to the Nations Senior Collateral. In that regard,
Creditor agrees that (A) if any Obligor desires to use cash collateral under
Section 363 of the Bankruptcy Code and Nations consents to such use, Creditor
will also consent to such use without asserting any objection of any kind
(including an objection on the grounds of failure to provide adequate protection
for Creditor's junior lien on such Nations Senior Collateral), and (B) if such
Obligor desires to obtain credit from Nations under Section 364 of the
Bankruptcy Code to be secured by the Nations Senior Collateral, Creditor will
consent to such credit without asserting any objection of any kind (including an
objection on the grounds of failure to provide adequate protection for
Creditor's junior lien on such Nations Senior Collateral).
7. NATIONS' WAIVERS. Nations expressly waives all notice of the
acceptance by Creditor of the subordination and other provisions of this
Agreement and all the notices not specifically required pursuant to the terms of
this Agreement whatsoever and Nations expressly waives reliance by Creditor upon
the subordination and other agreements as herein provided. Nations agrees that
Creditor (i) has made no warranties or representations with respect to the
legality, validity, completeness, enforceability or the collectibility of
Creditor's Debt or any liens or security interests securing Creditor's Debt, and
(ii) shall be entitled to manage and supervise its loans to each Obligor in
accordance with applicable law and its usual practices with each Obligor without
affecting the validity or enforceability of this Agreement, modified from time
to time as it deems appropriate under the circumstances, without regard to the
existence of any rights that Nations may now or hereafter have in or to any of
the assets of each Obligor. The validity and enforceability of this Agreement
shall not be affected by (a) any and all actions which Creditor takes or omits
to take (including without limitation actions with respect to the creation,
perfection or continuation of liens or security interests in any Collateral,
actions with respect to the occurrence of an Event of Default under Creditor's
Documents, actions with respect to the foreclosure upon, sale, release or
depreciation of, or failure to realize upon any of the Collateral), (b)
Creditor's election, in any proceeding instituted under Chapter 11 of Title 11
of the United States Code (11 U.S.C. Section 101 ET SEQ.) (the "Bankruptcy
Code"), of the application of Section 1111(b)(2) of the Bankruptcy Code, and/or
(c) any borrowing or grant of a security interest under Section 363 or 364 of
the Bankruptcy Code by any Obligor, as debtor in possession with respect to the
Creditor Senior Collateral. In that regard, Nations agrees that (A) if any
Obligor desires to use cash collateral under Section 363 of the Bankruptcy Code
and Creditor consents to such use, Nations will also consent to such use without
asserting any objection of any kind (including an objection on the grounds of
failure to provide adequate protection for Nations' junior lien on such Creditor
Senior Collateral), and (B) if such Obligor desires to obtain credit from
Creditor under Section 364 of the Bankruptcy Code to be secured by the Creditor
Senior Collateral, Nations will consent to such credit without asserting any
objection of any kind (including an objection on the grounds of failure to
provide adequate protection for Nations' junior lien on such Creditor Senior
Collateral).
8. MARSHALING. Creditor hereby waives any rights Creditor has or may have
in the future to require Nations to marshall the Nations Senior Collateral, and
agrees that Nations may proceed against the Nations Senior Collateral in any
order that it deems appropriate in the exercise of its absolute discretion.
Nations hereby waives any rights Nations has or may have in
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the future to require Creditor to marshall the Creditor Senior Collateral, and
agrees that Creditor may proceed against the Creditor Senior Collateral (subject
to the terms of this Agreement) in any order that it deems appropriate in the
exercise of its absolute discretion.
9. REPRESENTATIONS CONCERNING OBLIGORS: LIABILITY OF PARTIES. Neither of
the parties hereto, nor any of such party's directors, officers, agents or
employees, shall be responsible to any other party hereto or to any other person
for (i) any Obligor's solvency, financial condition or ability to repay its
indebtedness to any party hereto, (ii) any oral or written statements of any
Obligor, or (iii) the validity, sufficiency or enforceability of such
indebtedness, Creditor's Documents, Nations' Documents or the security interests
and liens granted by each Obligor to any party hereto. Each party hereto has
entered into its financing arrangement with each Obligor based upon such party's
own independent investigation, and makes no warranty or representation to any
other party hereto, nor does such party rely on any warranty or representation
of any other party hereto, with respect to the matters referred to in this
paragraph.
10. MISCELLANEOUS.
(a) THE VALIDITY OF THIS AGREEMENT, ITS CONSTRUCTION, INTERPRETATION, AND
ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS
ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING
EFFECT TO ITS CONFLICT OF LAWS PRINCIPLES. THE PARTIES AGREE THAT ALL ACTIONS OR
PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND
LITIGATED ONLY IN THE STATE AND FEDERAL COURTS OF NEW YORK OR, AT THE SOLE
OPTION OF NATIONS, IN ANY OTHER COURT IN WHICH NATIONS SHALL INITIATE LEGAL OR
EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER
IN CONTROVERSY. EACH OF CREDITOR AND NATIONS WAIVES, TO THE EXTENT PERMITTED
UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM
NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN
ACCORDANCE WITH THIS SECTION 10. CREDITOR AND NATIONS HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW OR STATUTORY CLAIMS. CREDITOR AND NATIONS REPRESENT THAT EACH HAS
REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL
RIGHTS. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL BY THE COURT.
(b) Each party consents that any service of process may be made by
service upon Creditor or Nations, as applicable, or by certified or
registered mail directed to Creditor or
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Nations at its address set forth below; however, nothing contained herein shall
prevent service of process in any other manner permitted by applicable law. This
Agreement contains the entire agreement among the parties hereto with respect to
this subject, and may only be modified by a writing signed by each of the
parties hereto.
(c) Neither party's failure to exercise any right hereunder shall be
construed as a waiver of the right to exercise the same or any other right at
any other time and from time to time thereafter, and such rights shall be
cumulative and not exclusive.
(d) The knowledge by either party of any breach or other non-observance by
the other party of the terms of this Agreement shall not constitute a waiver
thereof or of any obligations to be performed by such party hereunder.
(e) Paragraph headings used herein are for convenience only, and shall not
affect the meaning of any provision of this Agreement.
(f) All notices or consents required under the terms and provisions of
this Agreement shall be in writing and sent to the following addresses:
If to Creditor: Gordon Brothers Capital Corporation
40 Broad Street
Boston, Massachusetts 02109
Attention: Warren Fater, President
With a copy to: Peter J. Antoszyk, Esq.
Strook & Strook & Lavan LLP
100 Federal Street
Boston, Massachusetts 02110
If to Nations: NationsCredit Commercial Corporation,
through its NationsCredit Commercial Funding
Division
1177 Avenue of the Americas, 36th Floor
New York, New York 10036
Attention: Nancy Kagan, Esq.
Notices shall be deemed to have been duly given (i) if delivered personally or
otherwise actually received, (ii) if sent by overnight delivery service, (iii)
if mailed by first class United States mail, postage prepaid, registered or
certified, with return receipt requested, or (iv) if sent by telex with telex
confirmation of receipt (with duplicate notice sent by United States mail as
provided above). Notice mailed as provided in clause (iii) above shall be
effective on the earlier of the date of actual receipt or three (3) business
days after its deposit. Notice given in any other manner described in this
paragraph shall be effective upon receipt by the addressee thereof, PROVIDED,
HOWEVER, that if any notice is tendered to an addressee and delivery thereof is
refused by such addressee, such notice shall be effective upon such tender.
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(g) This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, successors and permitted assigns. The
term "Obligor" shall include, without limitation, any successor or assign of
Obligor, including without limitation a receiver, trustee or debtor in
possession. This Agreement shall be a continuing agreement and shall remain in
full force and effect notwithstanding the insolvency, liquidation or dissolution
of any Obligor.
(h) Creditor hereby agrees that any party that refinances Nations' Debt
may rely on and enforce this Agreement as if it were Nations. Creditor further
hereby agrees that it will, at the request of Nations, enter into an agreement,
in the form of this Agreement, MUTATIS MUTANDIS, to subordinate any security
interests or liens it now or hereafter has in or upon the Nations Senior
Collateral, to the same extent as provided herein, to the party refinancing all
or a portion of Nations' Debt; provided that the failure of Creditor to execute
such an agreement shall not affect such party's right to rely on and enforce the
terms of this Agreement. Nations hereby agrees that any party that refinances
Creditor's Debt may rely on and enforce this Agreement as if it were Creditor.
Nations further hereby agrees that it will, at the request of Creditor, enter
into an agreement, in the form of this Agreement, MUTATIS MUTANDIS to
subordinate any security interests or liens it now or hereafter has in or upon
the Creditor Senior Collateral, to the same extent as provided herein, to the
party refinancing all or a portion of Creditor's Debt; provided that the failure
of Nations to execute such an agreement shall not affect such party's right to
rely on and enforce the terms of this Agreement.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of the
date first written above.
GORDON BROTHERS
CAPITAL CORPORATION
By
--------------------------------------
Its
-------------------------------------
NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING
DIVISION
By
--------------------------------------
Its
-------------------------------------
CONSENT
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The undersigned hereby consents to the terms of the foregoing Intercreditor
Agreement and agrees to be bound by the terms thereof.
PALLETECH INC.
By
--------------------------------------
Its
--------------------------------------
FIXCOR INDUSTRIES, INC.
By
--------------------------------------
Its
--------------------------------------
FIX-CORP INTERNATIONAL. INC.
By
--------------------------------------
Its
--------------------------------------
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EXHIBIT A
PALLET EQUIPMENT
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Exhibit 17
PATENT LICENSE AGREEMENT
License Number: 97-1022LFA
THIS AGREEMENT, made effective on the 25th day September of 1997, by and
between The Federal Manufacturing & Technologies business unit of AlliedSignal
Inc. (hereinafter "AlliedSignal"), a corporation organized and existing under
the laws of the State of Delaware and having a place of business at 2000 East
95th Street, P.O. Box 419159, Kansas City, Missouri 64141-6159, and FIXCOR
Industries, Inc., (hereinafter "Licensee"), a corporation organized and existing
under the laws of the State of Delaware and having a place of business at 1835
James Parkway, Heath, Ohio 43056.
WITNESSETH:
WHEREAS, AlliedSignal, pursuant to Contract No. DE-AC04-76DP00613
(hereinafter "Prime Contract") with the United States Government, as represented
by the Department of Energy (hereinafter "DOE") has developed and/or obtained
rights to the Proprietary Rights, subject to the DOE nonexclusive,
nontransferable, irrevocable, paid-up license for the United States Government
and certain march-in rights and any other conditions of waivers granted by the
DOE; and
WHEREAS, Licensee desires to obtain non-exclusive rights in a limited field
of use in the Proprietary Rights.
NOW THEREFORE, in consideration of the foregoing premises, covenants, and
agreements contained herein, AlliedSignal and Licensee (collectively the
"Parties") hereto agree to be bound as follows:
1. DEFINITIONS
1.1. "Proprietary Rights" shall mean the patents and patent applications
listed in Exhibit A, which is attached to and incorporated into this Agreement.
1.2. "Products" shall mean any and all products manufactured, used, sold or
transferred by Licensee covered by one or more claims of the Proprietary Rights.
1.3. "Services" shall mean any and all services provided which utilize the
methods encompassed in one or more of the claims of the Proprietary Rights.
1.4. "Gross Sales" shall mean the total amounts invoiced to purchasers during
the accounting period in question for Products and/or Services sold by Licensee.
Gross Sales in the case of Products used or transferred or Services performed
shall mean the total amounts invoiced for such Products or Services, but not
less than the fair market value of Products and/or Services as if they were sold
to an unrelated third party in similar quantities. Gross Sales shall exclude
sales tax or similar tax shown on the invoice to be paid by buyer to Licensee.
<PAGE>
2. GRANTS
2.1. Subject to the terms and conditions of this Agreement, AlliedSignal
hereby grants to Licensee a non-exclusive, nontransferable, worldwide license to
practice the methods and to make, use, and sell, the Products and/or Services
covered by the Proprietary Rights limited to the field of use of separating and
recovering motor oil from high-density polyethylene plastic (HDPE). No license,
either express or implied, is granted by AlliedSignal to Licensee hereunder with
respect to any patent or information except as specifically provided herein.
AlliedSignal agrees not to grant any third party company a license in the
Proprietary Rights during the first 24 months of this Agreement and thereafter
an additional 36 months provided the milestones setforth in Exhibit D, which is
attached to and incorporated into this Agreement, have been accomplished.
2.2. No license, either express or implied, is granted hereunder to use as a
trademark or otherwise the words "AlliedSignal" or any other trademark or
product name of AlliedSignal or any word or mark similar thereto unless
otherwise specified herein.
2.3. Licensee may indicate the Products are made under license from
AlliedSignal by suitable legend, if the form of such legend and the extent of
Licensee's use thereof have received prior written approval of AlliedSignal.
AlliedSignal may amend or revoke prior approvals to use such legends at any time
during the term of this agreement, and all rights to use such legends shall
terminate with this agreement.
2.4. No rights to sublicense are granted Licensee under this agreement.
2.5. Licensee agrees that manufacture of Products for sale in the United
States shall occur substantially in the United States.
2.6. Nothing in this Agreement shall constitute, or be construed to be, a
limitation or restriction upon any right otherwise possessed by Licensee to
export or sale for export any Product, or parts therefor, in any country and on
which royalties shall be paid as provided in Section 3 and Exhibits B and C of
this Agreement.
2.7. Licensee agrees to observe all applicable United States and foreign
laws, regulations, rules and decrees with respect to the transfer of the
Proprietary Rights and related technical data to foreign countries. FAILURE TO
CONFORM TO SUCH LAWS, REGULATIONS, RULES AND DECREES MAY RESULT IN CRIMINAL
LIABILITY UNDER U.S. LAWS.
2.8. The grant hereunder is subject to the DOE nonexclusive, nontransferable,
irrevocable, paid-up license for the United States Government and certain
march-in rights and any other conditions of waivers granted to the Proprietary
Rights.
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3. CONSIDERATION
3.1. In consideration of the rights and licenses granted in this Agreement,
Licensee agrees to the provisions of Exhibit B and Exhibit C attached to and
incorporated into this Agreement.
3.2. No royalties shall be owed to AlliedSignal on any Products sold to
AlliedSignal its parent company and to their subsidiaries or affiliates, but
only to the extent that Licensee can show that AlliedSignal Inc. received a
discount on Licensed Product sales which discount is equivalent to or greater
than the amount of any such royalty that would otherwise be due.
3.3. Upon termination of this Agreement for any reason whatsoever, any
royalties that remain unpaid shall be properly reported and paid to AlliedSignal
within thirty (30) days of any such termination.
3.4. Payment of royalties due shall be made during the month following the
calendar quarter covered thereby in U.S. Dollars, payable to the order of
AlliedSignal Inc., Federal Manufacturing & Technologies, pursuant to the report
to be transmitted in accordance with section 4 below. All amounts paid in USA
currency are to be calculated at the official rate of exchange on the last day
of the calendar quarter for which the payment is due, or if more than one rate
of exchange is available, then at the most favorable rate to AlliedSignal for
such day.
3.5. Should Licensee fail to make any payment to AlliedSignal within the time
period prescribed for such payment, then the unpaid amount shall bear interest
at the rate of one and one-half percent (1.5%) per month from the date when
payment was due until payment in full is made with interest. The payment of such
interest shall not replace any of AlliedSignal's other rights under this
agreement resulting from Licensee's default by failure to pay any amounts due
hereunder.
3.6. Licensee grants and agrees to grant to AlliedSignal a free, irrevocable,
non-exclusive, nontransferable, worldwide license to make, have made, use, sell
and/or practice the Proprietary Rights and related products or services, under
any improvement patent rights or technical information relating to Proprietary
Rights as to which Licensee has the right, during the life of this agreement, to
make the grants herein provided. Licensee shall (a) provide AlliedSignal with a
copy of each patent and patent application licensed hereunder within sixty (60)
days after this agreement is executed or after the filing or acquisition by
Licensee, and (b) at AlliedSignal's expense provide in complete detail the
technical information licensed hereunder, and (c) execute any documents and
agreements AlliedSignal deems necessary to perfect its rights under this
section.
4. RECORDS AND REPORTS
4.1. Licensee agrees to keep adequate and sufficiently detailed records of
utilization of the Proprietary Rights to enable royalties payable hereunder to
be determined and to make such records available for inspection by authorized
representatives of AlliedSignal at any time during the regular business hours of
Licensee. Licensee agrees that any additional records of Licensee,
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<PAGE>
as AlliedSignal may reasonably determine are necessary to verify the utilization
of Proprietary Rights, shall also be made available. All records required
pursuant to this Agreement shall be maintained during and for a minimum of three
(3) years following termination of this Agreement.
4.2. Within thirty (30) calendar days after the close of each calendar
quarter during the term of this Agreement, Licensee shall furnish AlliedSignal a
written report providing:
(a) a list of all separately identifiable types (i.e. by model
numbers or equivalent) of Products sold, leased or otherwise
utilized, or Services rendered,
(b) the quantity of each type of Product or Service,
(c) the Gross Sales for each type of Product or Service,
(d) sales to any governmental agency,
(e) a separate report shall be prepared for each country in which
Products or Services are sold, and
(f) amount of royalties due in U.S. Dollars for the preceding
calendar quarter pursuant to the provisions hereof.
5. TECHNICAL ASSISTANCE
5.1. AlliedSignal agrees, upon the written request of Licensee, to assist
Licensee in obtaining necessary approvals for technical assistance at
AlliedSignal's facilities under appropriate agreements. The cost of such
technical assistance shall be paid by the Licensee.
6. PATENT PROVISIONS
6.1. AlliedSignal agrees to incur the cost of filing the application for U.S.
Letters Patent, including expenses associated with prosecution.
6.2. Licensee agrees to pay domestic maintenance fees, including attorneys
fees, and any foreign application issuance and maintenance fees. AlliedSignal
agrees to file and prosecute patent applications in those foreign countries
mutually agreed upon by AlliedSignal and Licensee. Licensee shall bear all cost
and expenses assessable against or incurred by AlliedSignal in obtaining, owning
and maintaining patent protection in such designated countries; including
filing, prosecution, working and maintenance cost and taxes. Licensee shall pay
such costs and expenses within thirty (30) days after receiving an invoice
therefor from AlliedSignal.
6.3. Licensee shall place appropriate patent notices on Products which
incorporate any invention covered by any licensed Proprietary Rights.
6.4. Licensee shall give notice of any suspected or discovered third party
infringement to AlliedSignal. AlliedSignal may, in its sole discretion, take
appropriate action to stop or prevent such infringement, including the filing
and prosecution of patent litigation; and AlliedSignal shall have the right to
include Licensee as a party in such litigation where necessary for the conduct
thereof. If AlliedSignal and Licensee desire and agree to joint participation in
any
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<PAGE>
infringement suit or other enforcement action with respect to any of the
Products or Services, the respective responsibilities of the parties, and their
contributions to the costs and participation in recoveries, will be agreed upon
in writing prior to undertaking such joint enforcement action.
6.5. Licensee and AlliedSignal agree to cooperate in the prosecution of any
such legal actions or settlement actions undertaken under this section and each
will provide to the other all pertinent data in its possession which may be
helpful in the prosecution of such actions.
6.6. In the event of any actual or threatened infringement suit against
Licensee or its customers which would affect the manufacture, use, or sale of
Products or Services, Licensee shall promptly give written notice of such actual
or threatened suit to AlliedSignal and AlliedSignal will make available to
Licensee free of charge and information on in its possession on which
AlliedSignal believes will assist Licensee in defending or otherwise dealing
with such suit.
6.7. Licensee is aware that DOE concurrence may be required in certain
situations including those involving litigation and/or changes to patent rights.
7. REPRESENTATIONS AND WARRANTIES
7.1. AlliedSignal represents and warrants that Exhibit A contains a complete
and accurate listing of all the Proprietary Rights licensed pursuant to this
Agreement and that AlliedSignal has the right to grant the rights, licenses, and
privileges granted herein.
7.2. AlliedSignal represents and warrants that it has received no notice of
any claim of infringement made to date against AlliedSignal for practicing the
Proprietary Rights anywhere in the world. AlliedSignal makes no representation
to Licensee regarding the scope or enforceability of the Proprietary Rights and
does not warrant that any Products manufactured or sold or Services performed
pursuant to this agreement will not infringe patents of others.
7.3. Except as set forth above, AlliedSignal makes NO REPRESENTATIONS AND
WARRANTIES, express or implied, with regard to the infringement of Proprietary
Rights of any third party.
7.4. Licensee is hereby put on notice that export of any goods or technical
data from the United States may require some form of license from the U.S.
Government. Failure to obtain necessary export licenses may result in criminal
liability of Licensee under U.S. laws.
8. Disclaimers
8.1. Neither AlliedSignal, DOE, nor persons acting on their behalf will be
responsible for any injury to or death of persons or other living things or
damage to or destruction of property or for any other loss, damage, or injury of
any kind whatsoever resulting from Licensee's manufacture, use, or sale of
materials, information, or Proprietary Rights hereunder.
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8.2 EXCEPT AS SET FORTH ABOVE, NEITHER AlliedSignal, DOE, NOR PERSONS ACTING
ON THEIR BEHALF MAKE ANY WARRANTY, EXPRESS OR IMPLIED: (1) WITH RESPECT TO THE
MERCHANTABILITY, ACCURACY, COMPLETENESS, OR USEFULNESS OF ANY SERVICES,
MATERIALS, OR INFORMATION FURNISHED HEREUNDER; (2) THAT THE USE OF ANY SUCH
SERVICES, MATERIALS, OR INFORMATION MAY NOT INFRINGE PRIVATELY OWNED RIGHTS; (3)
THAT THE SERVICES, MATERIALS, OR INFORMATION FURNISHED HEREUNDER WILL NOT RESULT
IN INJURY OR DAMAGE WHEN USED FOR ANY PURPOSE; OR (4) THAT THE SERVICES,
MATERIALS, OR INFORMATION FURNISHED HEREUNDER WILL ACCOMPLISH THE INTENDED
RESULTS OR ARE SAFE FOR ANY PURPOSE, INCLUDING THE INTENDED OR PARTICULAR
PURPOSE. FURTHERMORE, AlliedSignal, AND DOE HEREBY SPECIFICALLY DISCLAIM ANY
AND ALL WARRANTIES, EXPRESS OR IMPLIED, FOR ANY PRODUCTS OR SERVICES
MANUFACTURED, USED, OR SOLD BY LICENSEE. NEITHER AlliedSignal, NOR THE DOE SHALL
BE LIABLE FOR CONSEQUENTIAL OR INCIDENTAL DAMAGE IN ANY EVENT.
8.3. Except for patent infringement actions, Licensee agrees to indemnity
AlliedSignal, the DOE, and persons acting on their behalf for all damages,
costs, and expenses, including attorney's fees, arising from, but not limited
to, Licensee's making, using, selling or exporting of any Products or performing
Services, in whatever form furnished. Licensee warrants that it has sufficient
insurance to cover its indemnification and hold harmless liabilities under this
provision including coverage that recognizes this contractual liability.
Licensee cannot, without 30 days prior notification to AlliedSignal Inc., as
listed in section 12.1, materially alter or change its coverage respecting its
liabilities under this section of the Agreement. AlliedSignal shall have the
option within such 30 days to terminate Licensee's rights under this Agreement
or seek an alternative mutually satisfactory to the parties.
8.4. AlliedSignal shall provide Licensee with accurate technical information,
but AlliedSignal does not make any warranty and shall have no liability with
respect to the technical information, Proprietary Rights or the use thereof; nor
does AlliedSignal assume any responsibility or make any warranty with respect to
Products or Services, manufactured, sold or used under or as a result of this
agreement.
9. TERM OF AGREEMENT AND EARLY TERMINATION
9.1. This Agreement shall be in effect for a period often (10) years from the
effective date of this Agreement and shall automatically renew for one year
periods unless written notice is given by either party to the other party of
termination of this Agreement on the expiration of its original period or any of
such additional yearly periods, such notice of termination by either party to be
given at least 90 days prior to the effective termination date.
9.2. If either party defaults for any reason in any of its obligations
hereunder, the other party will have the right to terminate this Agreement by
giving written notice of termination at least sixty (60) days prior to the
effective date of such termination, such notice specifying the default;
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however, that such notice will be of no effect and termination will not occur if
the specified default is remedied prior to said effective date of termination.
9.3. AlliedSignal may terminate this Agreement forthwith in the event of the
bankruptcy or insolvency of Licensee, an assignment for the benefit of creditors
of Licensee, the nationalization of the industry with encompasses any of the
Products and/or Services, any suspension of payments hereunder by governmental
regulation, Licensee's failure to commence the manufacture of Products in
production quantities within two (2) years from the effective date of the
Agreement, a substantial change in ownership of Licensee (whether resulting from
merger, acquisition, consolidation or otherwise), another company or person
acquiring control of Licensee, or the existence of a state of war between the
United States of America and any country where the Licensee has a License to
manufacture Products and/or Services. Such termination shall be without
prejudice to any other rights or claims AlliedSignal may have against Licensee.
9.4. At least 30 days prior to filing a petition in bankruptcy, either party
must inform the other of its intention to file the petition or of another's
intention to file an involuntary petition in bankruptcy. Further, failure to
conform to this requirement shall be deemed a material, pre-petition, incurable
breach.
9.5. If this Agreement is for any reason terminated before all of the
payments herein provided for have been made (including minimum royalties for the
year in which the agreement is terminated), Licensee shall immediately submit a
terminal report and pay to AlliedSignal any remaining unpaid balance even though
the due date as provided herein has not been reached.
9.6. This Agreement shall automatically terminate upon any attempt by
Licensee to transfer its interest in whole or in part in this Agreement to any
other party not expressly authorized in writing by AlliedSignal.
10. RIGHTS OF PARTIES AFTER TERMINATION
10.1. Neither party shall be relieved of any obligation or liability under
this Agreement arising from any act or omission committed prior to the effective
date of such termination which obligation or liability accrued as of the date of
such termination.
10.2. From and after any termination of this Agreement, Licensee shall have
the right to sell any Products that Licensee had already manufactured prior to
termination, provided that all royalties and reports required above shall be
submitted to AlliedSignal.
10.3. From and after any termination of this Agreement, Licensee shall not
manufacture nor have manufactured any Products pursuant to this Agreement.
10.4. The rights and remedies granted herein, and any other rights or remedies
which the parties may have, either at law or in equity, are cumulative and not
exclusive of others. On any termination, Licensee shall duly account to
AlliedSignal and transfer to it all rights to which
7
<PAGE>
AlliedSignal may be entitled under this Agreement under any valid U.S. Patent
resulting from Proprietary Rights as set forth in Exhibit A. Licensee's duty to
pay outstanding royalties includes, but is not limited to royalty payments from
Products or Services provided pursuant to paragraph 10.2 or 10.3.
11. FORCE MAJEURE
11.1. No failure or omission by AlliedSignal or by Licensee in the performance
of any obligation under this Agreement shall be deemed a breach of this
Agreement or create any liability if the same shall arise from acts of God; acts
or omissions of any government or agency thereof, compliance with rules,
regulations, or orders of any governmental authority; fire; storm; flood;
earthquake; accident; acts of the public enemy; war; rebellion; insurrection;
riot; sabotage; invasion; quarantine; restriction; or failures or delays in
transportation.
12. NOTICES
12.1. All notices and reports shall be addressed to the parties hereto as
follows:
If to AlliedSignal:
Attn: Licensing Manager, D/28 1, El H6 Telephotocopy No.
AlliedSignal Inc. (816) 997-4013
2000 East 95th Street
Kansas City, MO 64141-6159 Verify No.
(816) 997-4597
If to Licensee:
Gary DeLaurentiis Telephotocopy No.
FIXCOR Industries, Inc. (614) 928-8902
1835 James Parkway Verify No.
Heath, OH 43056 (614) 928-8999
12.2. All payments due AlliedSignal shall be identified with the words
"Royalty Payment" and the License Agreement number, 97-1022R, and should be made
payable to "AlliedSignal Inc.," and mailed to the following address:
AlliedSignal Inc.,
Federal Manufacturing & Technologies
Attn: Office of Industrial Partnerships, Royalty Payments, D/281, E1H6
2000 East 95th Street
Kansas City, Missouri 64141-6159
12.3. All notices provided herein shall be in writing and shall be deemed to
have been duly given when received, if delivered personally, sent by
telephotocopy, or sent by First Class U.S. Mail, postage prepaid, to the party
entitled thereto at its above address or at such other address as designated in
writing by the party in accordance with the provisions of this section.
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13. NON-ABATEMENT OF ROYALTIES
13.1. AlliedSignal and Licensee acknowledge that certain of the Proprietary
Rights may expire prior to the conclusion of the term of this Agreement;
however, AlliedSignal and Licensee agree that the royalty rates provided for
above shall be uniform and undiminished, except pursuant to this Agreement.
14. WAIVERS
14.1. The failure of AlliedSignal at any time to enforce any provision of this
Agreement or to exercise any right or remedy shall not be construed to be a
waiver of such provisions or of such rights or remedy or the right of
AlliedSignal thereafter to enforce each and every provision, right, or remedy.
15. MODIFICATIONS
15.1. It is expressly understood and agreed by the parties hereto that this
instrument contains the entire agreement between the parties with respect to the
subject matter hereof and that all prior representations, warranties, or
agreements relating hereto have been merged into this document and are thus
superseded in totality by this Agreement. This Agreement may be amended or
modified only by a written instrument signed by the duly authorized
representatives of both of the parties.
16. HEADINGS
16.1. The headings for the sections set forth in this Agreement are strictly
for the convenience of the parties and shall not be used in any way to restrict
the meaning or interpretation of the substantive language of this Agreement.
17. LAW
17.1. This Agreement shall be construed according to the laws of the State of
Missouri and the United States of America.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, in duplicate, in their respective names by their duly authorized
representatives.
ALLIEDSIGNAL INC., FEDERAL MANUFACTURING & TECHNOLOGIES
By:
----------------------------------------
Name: (typed)
------------------------------
Title:
-------------------------------------
Date:
--------------------------------------
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LICENSEE
By:
----------------------------------------
Name: (typed)
------------------------------
Title:
-------------------------------------
Date:
--------------------------------------
10
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Exhibt 18
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CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
Among
FIX-CORP INTERNATIONAL, INC.,
JNC OPPORTUNITY FUND LTD.
and
DIVERSIFIED STRATEGIES FUND, L.P.
--------------------------
October 24, 1997
--------------------------
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<PAGE>
Exhibt 18
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT, dated as of October 24, 1997
(this "AGREEMENT"), among Fix-Corp International, Inc., a Delaware corporation
(the "COMPANY"), JNC Opportunity Fund Ltd., a corporation organized under the
laws of the Cayman Islands ("JNC"), and Diversified Strategies Fund, L.P., an
Illinois limited partnership ("DSF"). Each of JNC and DSF is a "PURCHASER" and,
collectively JNC and DSF are the "PURCHASERS."
WHEREAS, subject to the terms and conditions set forth in this Agreement,
the Company desires to issue and sell to the Purchasers and the Purchasers
severally and not jointly desire to purchase an aggregate principal amount of
$5,000,000 of the Company's 6% Convertible Debentures, due October 24, 2000 (the
"DEBENTURES"), which are convertible into shares of the Company's common stock,
par value $.0001 per share (the "COMMON STOCK").
IN CONSIDERATION of the mutual covenants and agreements set forth herein
and for good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF DEBENTURES; CLOSING
1.1 THE CLOSING.
(a) THE CLOSING. (i) Subject to the terms and conditions set
forth in this Agreement, the Company shall issue and sell to the Purchasers
and the Purchasers shall purchase the Debentures for an aggregate purchase
price of $5,000,000. The closing of the purchase and sale of the Debentures
(the "CLOSING") shall take place at the offices of Robinson Silverman Pearce
Aronsohn & Berman LLP (the "ESCROW AGENT"), 1290 Avenue of the Americas, New
York, New York 10104, immediately following the execution hereof or such
later date as the parties shall agree. The date of the Closing is
hereinafter referred to as the "CLOSING DATE."
(ii) Prior to the Closing the parties shall deliver to the
Escrow Agent such items as are required to be delivered by them in accordance
with and subject to the terms and conditions of the Escrow Agreement, dated
as of the date hereof, by and among the Company, the Purchasers and the
Escrow Agent (the "ESCROW AGREEMENT"), including, the following: (i) the
Company shall deliver or cause to be delivered (A) Debentures in aggregate
principal amount equal to $1,000,000, registered in the name of DSF, (B)
Debentures in aggregate principal amount equal to $4,000,000, registered in
the name of JNC, (C) the Warrants (as defined in Section 3.16), and (D) the
legal opinions of Bricker & Eckler LLP substantially in the form of EXHIBIT C
("LEGAL OPINION")
<PAGE>
addressed to each Purchaser; (ii) DSF shall deliver or cause to be delivered
$1,000,000 in United States dollars; (iii) JNC shall deliver or cause to be
delivered $4,000,000 in United States dollars; and (iv) each party hereto
shall deliver or cause to be delivered all other executed instruments,
agreements and certificates as are required to be delivered by or on their
behalf at the Closing.
1.2 FORM OF DEBENTURES. The Debentures shall be in the form of
EXHIBIT A.
1.3 CERTAIN DEFINITIONS. For purposes of this Agreement, "CONVERSION
PRICE," "ORIGINAL ISSUE DATE," "CONVERSION DATE", "TRADING DAY", "BUSINESS
DAY " and "PER SHARE MARKET VALUE" shall have the meanings set forth in the
Debentures; and "MARKET PRICE" as at any date shall mean the average Per
Share Market Value for the five (5) Trading Days immediately preceding such
date.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The
Company hereby makes the following representations and warranties to the
Purchasers:
(a) ORGANIZATION AND QUALIFICATION. The Company is a
corporation, duly incorporated, validly existing and in good standing under
the laws of the jurisdiction of its incorporation, with the requisite
corporate power and authority to own and use its properties and assets and to
carry on its business as currently conducted. The Company has no subsidiaries
other than as set forth in SCHEDULE 2.1(a) attached hereto (collectively, the
"SUBSIDIARIES"). Each of the Subsidiaries is a corporation, duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, with the full corporate power and
authority to own and use its properties and assets and to carry on its
business as currently conducted. Each of the Company and the Subsidiaries is
duly qualified to do business and is in good standing as a foreign
corporation in each jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the case may be,
could not, individually or in the aggregate, (x) adversely affect the
legality, validity or enforceability of this Agreement, the Debentures, the
Escrow Agreement, the Warrants or the Registration Rights Agreement, dated
the date hereof, among the Company and the Purchasers (the "REGISTRATION
RIGHTS AGREEMENT" and, together with this Agreement, the Debentures and the
Warrants, the "TRANSACTION DOCUMENTS"), (y) have a material adverse effect on
the results of operations, assets, prospects, or condition (financial or
otherwise) of the Company and the Subsidiaries, taken as a whole, or (z)
adversely impair the Company's ability to perform fully on a timely basis its
obligations under any Transaction Document (any of the foregoing, a "MATERIAL
ADVERSE EFFECT").
(b) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power
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and authority to enter into and to consummate the transactions contemplated
by the Transaction Documents and otherwise to carry out its obligations
thereunder. The execution and delivery of each of the Transaction Documents
by the Company and the consummation by it of the transactions contemplated
thereby have been duly authorized by all necessary action on the part of the
Company. Each of the Transaction Documents has been duly executed by the
Company and when delivered in accordance with the terms hereof shall
constitute the legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application. Neither the Company nor
any Subsidiary is in violation of any of the provisions of its respective
certificate of incorporation, by-laws or other charter documents.
(c) CAPITALIZATION. The authorized, issued and outstanding
capital stock of the Company is set forth in SCHEDULE 2.1(c). No shares of
Common Stock are entitled to preemptive or similar rights, nor is any holder
of the Common Stock entitled to preemptive or similar rights arising out of
any agreement or understanding with the Company by virtue of any of the
Transaction Documents. Except as disclosed in SCHEDULE 2.1(c), there are no
outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or, except as a result
of the purchase and sale of the Debentures and Warrants hereunder,
securities, rights or obligations convertible into or exchangeable for, or
giving any person any right to subscribe for or acquire any shares of Common
Stock, or contracts, commitments, understandings, or arrangements by which
the Company or any Subsidiary is or may become bound to issue additional
shares of Common Stock, or securities or rights convertible or exchangeable
into shares of Common Stock. To the knowledge of the Company, except as
specifically disclosed in the Disclosure Materials (as defined below) or
SCHEDULE 2.1(c), no Person (as defined below) beneficially owns (as
determined pursuant to Rule 13d-3 promulgated under the Securities Exchange
Act of 1934, as amended (the "EXCHANGE ACT")) or has the right to acquire by
agreement with or by obligation binding upon the Company, beneficial
ownership of in excess of 5% of the Common Stock. A "PERSON" means an
individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any kind.
(d) ISSUANCE OF DEBENTURES AND WARRANTS. The Debentures and the
Warrants are duly authorized, and, when issued in accordance with the terms
hereof, shall be validly issued, fully paid and nonassessable, free and clear
of all liens, encumbrances and rights of first refusals of any kind
(collectively, "LIENS"). The Company has and at all times while the
Debentures and the Warrants are outstanding will maintain an adequate reserve
of duly authorized shares of Common Stock to enable it to perform its
conversion, exercise and other obligations under this Agreement, the Warrants
and the Debentures and in no circumstances shall such reserved and available
shares of Common Stock be less than the sum of (i) 200% of (A) the number of
shares of Common Stock as would be issuable upon conversion in full of the
Debentures, assuming such conversion were effected on the Original Issue Date
and (B) the number of shares of Common Stock as are issuable as payment of
interest on the
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Debentures, and (ii) the number of shares of Common Stock as are issuable
upon exercise in full of the Warrants (the "INITIAL RESERVE"). If at any
time the sum of the number of shares of Common Stock issuable (a) upon
conversion in full of the then outstanding Debentures, (b) as the payment of
interest on the Debentures (assuming all such interest is to be paid in
Common Stock) and (c) upon exercise in full of the Warrants exceeds 85% of
the Initial Reserve, the Company shall duly reserve 200% of the number of
shares of Common Stock equal to such excess to fulfill such obligations. The
obligation shall similarly apply to successive excesses. The shares of
Common Stock issuable upon conversion of the Debentures, as payment of
interest in respect thereof and upon exercise of the Warrants are sometimes
referred to herein as the "UNDERLYING SHARES," and the Debentures, Warrants
and Underlying Shares are, collectively, the "SECURITIES." When issued in
accordance with the terms of the Debentures and the Warrants, the Underlying
Shares will be duly authorized, validly issued, fully paid and nonassessable,
and free and clear of all Liens.
(e) NO CONFLICTS. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the Company
of the transactions contemplated thereby do not and will not (i) conflict
with or violate any provision of its certificate of incorporation, bylaws or
other charter documents (each as amended through the date hereof) or (ii)
subject to obtaining the consents referred to in Section 2.1(f), conflict
with, or constitute a default (or an event which with notice or lapse of time
or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument (evidencing a Company debt or otherwise) to which the
Company is a party or by which any property or asset of the Company is bound
or affected, or (iii) result in a violation of any law, rule, regulation,
order, judgment, injunction, decree or other restriction of any court or
governmental authority to which the Company is subject (including federal and
state securities laws and regulations), or by which any property or asset of
the Company is bound or affected, except in the case of each of clauses (ii)
and (iii), as could not, individually or in the aggregate, have or result in
a Material Adverse Effect. The business of the Company is not being
conducted in violation of any law, ordinance or regulation of any
governmental authority, except for violations which, individually and in the
aggregate, could not have or result in a Material Adverse Effect.
(f) CONSENTS AND APPROVALS. Except as specifically set forth in
SCHEDULE 2.1(f), neither the Company nor any Subsidiary is required to obtain
any consent, waiver, authorization or order of, or make any filing or
registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents other
than (i) the filing of a registration statement covering the resale of the
Underlying Shares by the Purchasers (the "UNDERLYING SECURITIES REGISTRATION
STATEMENT") with the Securities and Exchange Commission (the "COMMISSION"),
(ii) the application for the listing of the Underlying Shares on the OTC
Bulletin Board (and with any other national securities exchange, market or
trading facility on which the Common Stock is then listed), (iii) state blue
sky laws, and (iv) other than, in all other cases, where the failure to
obtain such consent, waiver, authorization or order, or to give or make such
notice or filing, could not have or result in, individually or in the
aggregate, a Material Adverse Effect (together with the consents, waivers,
authorizations,
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<PAGE>
orders, notices and filings referred to in SCHEDULE 2.1(f), the "REQUIRED
APPROVALS").
(g) LITIGATION; PROCEEDINGS. Except as specifically disclosed in
the Disclosure Materials (as hereinafter defined), there is no action, suit,
notice of violation, proceeding or investigation pending or, to the best
knowledge of the Company, threatened against or affecting the Company or any
of its Subsidiaries or any of their respective properties before or by any
court, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) which (i) adversely affects or
challenges the legality, validity or enforceability of any of the Transaction
Documents or the Securities or (ii) could, individually or in the aggregate,
have or result in a Material Adverse Effect.
(h) NO DEFAULT OR VIOLATION. Neither the Company nor any
Subsidiary (i) is in default under or in violation of (or has received notice
of a claim that it is in default under or that it is in violation of) any
indenture, promissory note, loan or credit agreement or any other agreement
or instrument to which it is a party or by which it or any of its properties
is bound, (ii) is in violation of any order of any court, arbitrator or
governmental body, or (iii) is in violation of any statute, rule or
regulation of any governmental authority, except as could not individually or
in the aggregate, have or result in, individually or in the aggregate, a
Material Adverse Effect.
(i) PRIVATE OFFERING. Subject in part to the truth and accuracy
of the Purchasers' representations set forth in Section 2.2, the offer, sale
and issuance of the Securities as contemplated by this Agreement are exempt
for the registration requirement of the Securities Act, and neither the
Company nor any Person acting on its behalf has taken or will take any action
which might subject the offering, issuance or sale of the Securities to the
registration requirements of Section 5 of the Securities Act.
(j) DISCLOSURE MATERIALS. The financial statements of the
Company dated December 31, 1996, July 31, 1997 and any other financial
statements delivered by the Company to the Purchasers (the "FINANCIAL
STATEMENTS" and, together with the Schedules to this Agreement and other
documents and information furnished by or on behalf of the Company at any
time prior to the Closing, the "DISCLOSURE MATERIALS") comply in all material
respects with applicable accounting requirements. Such Financial Statements
have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved, except
as may be otherwise specified in such Financial Statements or the notes
thereto, and fairly present in all material respects the financial position
of the Company as of and for the dates thereof and the results of operations
and cash flows for the periods then ended, subject, in the case of unaudited
statements, to normal year-end audit adjustments. There are no liabilities,
contingent or otherwise, of the Company involving material amounts not
disclosed in said Financial Statements. The Disclosure Materials do not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Since July 31, 1997, there has been no event, occurrence or
development that has had or that could have or result in a Material Adverse
Effect.
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<PAGE>
(k) INVESTMENT COMPANY. The Company is not, and is not an
"Affiliate person" of, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(l) CERTAIN FEES. Except for fees payable to CDC Consulting,
Inc., no fees or commissions will be payable by the Company to any broker,
financial advisor, finder, investment banker, placement agent, or bank with
respect to the transactions contemplated hereby. The Purchasers shall have
no obligation with respect to such fees or with respect to any claims made by
or on behalf of other Persons for fees of a type contemplated in this Section
that may be due in connection with the transactions contemplated hereby. The
Company shall indemnify and hold harmless each Purchaser, its respective
employees, officers, directors, agents, and partners, and their respective
Affiliates (as such term is defined under Rule 405 promulgated under the
Securities Act), from and against all claims, losses, damages, costs
(including the costs of preparation and attorney's fees) and expenses
suffered in respect of any such claimed or existing fees, as and when
incurred.
(m) SOLICITATION MATERIALS. The Company has not (i) distributed
any offering materials in connection with the offering and sale of the
Securities other than the Disclosure Materials and any amendments and
supplements thereto or (ii) solicited any offer to buy or sell the Securities
by means of any form of general solicitation or advertising.
(n) FORM SB-2 ELIGIBILITY. The Company is, and at the Closing
Date will be, eligible to register securities for resale with the Commission
under Form SB-2 promulgated under the Securities Act.
(o) EXCLUSIVITY. The Company shall not issue and sell
Debentures to any Person other than the Purchasers.
(p) LISTING AND MAINTENANCE REQUIREMENTS COMPLIANCE. The
Company has not in the two years preceding the date hereof received written
notice from any stock exchange, market or trading facility on which the
Common Stock is or has been listed (or on which it has been quoted) to the
effect that the Company is not in compliance with the listing or maintenance
requirements of such exchange, market or trading facility. The Company has
no reason to believe that it does not now or will not in the future meet any
such maintenance requirements.
(q) PATENTS AND TRADEMARKS. The Company has, or has rights to
use, all patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, licenses and rights which are
necessary for use in connection with its business and which the failure to so
have would have a Material Adverse Effect (collectively, the "INTELLECTUAL
PROPERTY RIGHTS"). To the best knowledge of the Company, there is no
existing infringement on any of the Intellectual Property Rights.
(r) DISCLOSURE. All information relating to or concerning the
Company set forth in
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<PAGE>
the Transaction Documents or provided to the Purchasers or their respective
representatives, agents and counsel in connection with the transactions
contemplated hereby is true and correct in all material respects and does not
fail to state any material fact necessary in order to make the statements
herein or therein, in light of the circumstances under which they were made,
not misleading. The Company confirms that it has not provided to any of the
Purchasers or any of their representatives or agents any information that
constitutes or might constitute material non-public information other than
information that has specifically been identified to the recipient as
material non-public information in writing. The Company understands and
confirms that the Purchasers shall be relying on the foregoing representation
in effecting transactions in securities of the Company.
(s) REGISTRATION RIGHTS. Except as provided in the Registration
Rights Agreement, the Company has not granted or agreed to grant any
registration rights, including piggy-back registration rights, to any Person.
2.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser
hereby, severally and not jointly, makes the following representations and
warranties to the Company.
(a) ORGANIZATION; AUTHORITY. Such Purchaser is an entity
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite power and authority to
enter into and to consummate the transactions contemplated by the Transaction
Documents and to carry out its obligations thereunder. The acquisition of
the Securities to be acquired hereunder by such Purchaser has been duly
authorized by all necessary action on the part of such Purchaser. Each of
this Agreement, the Registration Rights Agreement and the Escrow Agreement
has been duly executed by such Purchaser and, when delivered by such
Purchaser in accordance with the terms hereof and the Escrow Agreement
constitutes the valid and legally binding obligation of such Purchaser,
enforceable against it in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws
of general applicability relating to or affecting creditors' rights generally
and to general principles of equity.
(b) INVESTMENT INTENT. Such Purchaser is acquiring the
Securities to be acquired hereunder by such Purchaser for its own account for
investment purposes only and not with a view to or for distributing or
reselling such Securities or any part thereof or interest therein, without
prejudice, however, to such Purchaser's right, subject to the provisions of
this Agreement and the Registration Rights Agreement, at all times to sell or
otherwise dispose of all or any part of such Securities pursuant to an
effective registration statement under the Securities Act and in compliance
with applicable state securities laws or under an exemption from such
registration.
(c) PURCHASER STATUS. At the time such Purchaser was offered
the Securities to be acquired hereunder by such Purchaser, it was, at the
date hereof, it is, and at the Closing Date, it will be, an "accredited
investor" as defined in Rule 501(a) under the Securities Act.
(d) EXPERIENCE OF PURCHASER. Such Purchaser either alone or
together with its
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representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits
and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment.
(e) ABILITY OF PURCHASER TO BEAR RISK OF INVESTMENT. Such
Purchaser acknowledges that an investment in the Securities is speculative
and involves a high degree of risk. Such Purchaser is able to bear the
economic risk of an investment in the Securities to be acquired hereunder by
such Purchaser, and, at the present time, is able to afford a complete loss
of such investment.
(f) ACCESS TO INFORMATION. Such Purchaser acknowledges receipt
of the Disclosure Materials and further acknowledges that it has been
afforded (i) the opportunity to ask such questions as it has deemed necessary
of, and to receive answers from, representatives of the Company concerning
the terms and conditions of the offering of the Securities, and the merits
and risks of investing in the Securities, (ii) access to information about
the Company and the Company's financial condition, results of operations,
business, properties, management and prospects sufficient to enable it to
evaluate its investment and (iii) the opportunity to obtain such additional
information which the Company possesses or can acquire without unreasonable
effort or expense that is necessary to make an informed investment decision
with respect to the investment and to verify the accuracy and completeness of
the information contained in the Disclosure Materials. Neither such
inquiries nor any other investigation conducted by or on behalf of such
Purchaser or its representatives, agents or counsel shall modify, amend or
affect such Purchaser's right to rely on the truth, accuracy and completeness
of the Disclosure Materials and the Company's representations and warranties
contained in the Transaction Documents.
(g) RELIANCE. Such Purchaser understands and acknowledges that
(i) the Securities to be acquired by it hereunder are being offered and sold
to it without registration under the Securities Act in a private placement
that is exempt from the registration provisions of the Securities Act and
(ii) the availability of such exemption, depends in part on, and the Company
will rely upon the accuracy and truthfulness of, the foregoing
representations and such Purchaser hereby consents to such reliance.
The Company acknowledges and agrees that the Purchasers make no
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
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ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 TRANSFER RESTRICTIONS. (a) Securities may only be disposed of
pursuant to an effective registration statement under the Securities Act, to
the Company or pursuant to an available exemption from or in a transaction
not subject to the registration requirements thereof. In connection with any
transfer of any Securities other than pursuant to an effective registration
statement or to the Company, the Company may require the transferor thereof
to provide to the Company an opinion of counsel selected by the transferor,
the form and substance of which opinion shall be reasonably satisfactory to
the Company, to the effect that such transfer does not require registration
under the Securities Act. Notwithstanding the foregoing, the Company hereby
consents to and agrees to register on the books and records of the Company or
on the register of any transfer agent for the Securities (i) any transfer of
Securities by one Purchaser to another Purchaser, and agrees that no
documentation other than executed transfer documents shall be required for
any such transfer, and (ii) any transfer by any Purchaser to an Affiliate (as
such term is defined under Rule 405 promulgated under the Securities Act) of
such Purchaser or to an Affiliate of another Purchaser, or any transfers
among any such Affiliates provided the transferee certifies to the Company
that it is an "accredited investor" as defined in Rule 501(a) under the
Securities Act and makes the appropriate investment representations. Any
such Purchaser or Affiliate transferee shall have the rights of a Purchaser
under this Agreement and the Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is required
by this Section 3.1(b), of the following legend on the Securities:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] HAVE BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN
A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
[FOR DEBENTURES ONLY] THIS DEBENTURE IS SUBJECT TO CERTAIN RESTRICTIONS
ON CONVERSION SET FORTH IN SECTION 3.8 OF THE CONVERTIBLE DEBENTURE
PURCHASE AGREEMENT, DATED AS OF OCTOBER 24, 1997, AMONG FIX-CORP PURCHASE
PURCHASE "COMPANY") AND THE
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ORIGINAL HOLDER HEREOF. A COPY OF THAT AGREEMENT IS ON FILE AT THE
PRINCIPAL OFFICE OF THE COMPANY.
Underlying Shares shall not contain the legend set forth above if
the conversion of Debentures, exercise of Warrants or other issuances of
Underlying Shares, as the case may be, occurs at any time while an Underlying
Securities Registration Statement is effective under the Securities Act or,
in the event there is not an effective Underlying Securities Registration
Statement at such time, if in the opinion of counsel to the Company such
legend is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the staff of
the Commission). The Company agrees that it will provide each Purchaser,
upon request, with a certificate or certificates representing Underlying
Shares, free from such legend at such time as such legend is no longer
required hereunder. The Company may not make any notation on its records or
give instructions to any transfer agent of the Company which enlarge the
restrictions of transfer set forth in this Section 3.1(b).
3.2 ACKNOWLEDGEMENT OF DILUTION. The Company acknowledges that the
issuance of Underlying Shares upon (i) conversion of the Debentures and as
payment of interest thereon and (ii) exercise of the Warrants may result in
dilution of the outstanding shares of Common Stock, which dilution may be
substantial under certain market conditions. The Company further acknowledges
that its obligation to issue Underlying Shares in accordance with the
Debentures and the Warrants is unconditional and absolute regardless of the
effect of any such dilution.
3.3 FURNISHING OF INFORMATION. As long as the Purchasers own
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the Filing Date (as defined in the
Registration Rights Agreement) pursuant to Section 13(a) or 15(d) of the
Exchange Act. If at any time prior to the date on which the Purchasers may
resell all of their Underlying Shares without volume restrictions pursuant to
Rule 144(k) promulgated under the Securities Act (as determined by counsel to
the Company pursuant to a written opinion letter to such effect, addressed
and acceptable to the Company's transfer agent for the benefit of and
enforceable by the Purchasers) the Company is not required to file reports
pursuant to such sections, it will prepare and furnish to the Purchasers and
make publicly available in accordance with Rule 144(c) promulgated under the
Securities Act annual and quarterly financial statements, together with a
discussion and analysis of such financial statements in form and substance
substantially similar to those that would otherwise be required to be
included in reports required by Section 13(a) or 15(d) of the Exchange Act in
the time period that such filings would have been required to have been made
under the Exchange Act. The Company further covenants that it will take such
further action as any holder of Securities may reasonably request, all to the
extent required from time to time to enable such Person to sell Securities
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144 promulgated under the Securities Act,
including the legal opinion referenced above in this Section. Upon the
request of any such Person, the Company shall deliver to such Person a
written certification of a duly authorized officer as to whether it has
complied with such requirements.
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3.4 USE OF DISCLOSURE MATERIALS. The Company consents to the use of
the Disclosure Materials and any information provided by or on behalf of the
Company pursuant to Section 3.3, and any amendments and supplements thereto,
by the Purchasers in connection with resales of the Securities other than
pursuant to an effective registration statement; PROVIDED, THAT the Company
shall have a reasonable opportunity to update such information.
3.5 BLUE SKY LAWS. In accordance with the Registration Rights
Agreement, the Company shall qualify the Underlying Shares under the
securities or Blue Sky laws of such jurisdictions as the Purchasers may
request and shall continue such qualification at all times during the
Effectiveness Period (as defined in the Registration Rights Agreement);
PROVIDED, HOWEVER, that neither the Company nor its Subsidiaries shall be
required in connection therewith to qualify as a foreign corporation where
they are not now so qualified or to take any action that would subject the
Company to general service of process in any such jurisdiction where it is
not then so subject.
3.6 INTEGRATION. The Company shall not and shall use its best efforts
to ensure that no Affiliate shall sell, offer for sale or solicit offers to
buy or otherwise negotiate in respect of any security (as defined in Section
2 of the Securities Act) that would be integrated with the offer or sale of
the Securities in a manner that would require the registration under the
Securities Act of the issue or sale of the Securities to the Purchasers.
3.7 INCREASE IN AUTHORIZED SHARES. At such time as the Company would
be, if a notice of conversion or exercise (as the case may be) were to be
delivered on such date, precluded from (a) converting the full outstanding
principal amount of Debentures (and paying any accrued but unpaid interest in
respect thereof in shares of Common Stock) that remain unconverted at such
date or (b) honoring the exercise in full of the Warrants due to the
unavailability of a sufficient number of shares of authorized but unissued or
re-acquired Common Stock, the Board of Directors of the Company shall
promptly (and in any case within 30 Business Days from such date) prepare and
mail to the shareholders of the Company proxy materials requesting
authorization to amend the Company's restated certificate of incorporation to
increase the number of shares of Common Stock which the Company is authorized
to issue to at least a number of shares equal to the sum of (i) all shares of
Common Stock then outstanding, (ii) the number of shares of Common Stock
issuable on account of all outstanding warrants, options and convertible
securities (other than the Debentures and the Warrants) and on account of all
shares reserved under any stock option, stock purchase, warrant or similar
plan, (iii) 200% of the number of Underlying Shares as would then be issuable
upon a conversion in full of the then outstanding Debentures and as payment
of all future interest thereon in shares of common Stock in accordance with
the terms of this Agreement and the Debentures and (iv) such number of
Underlying Shares as would then be issuable upon the exercise in full of the
warrants. In connection therewith, the Board of Directors shall (x) adopt
proper resolutions authorizing such increase, (y) recommend to and otherwise
use its best efforts to promptly and duly obtain stockholder approval to
carry out such resolutions (and hold a special meeting of the shareholders no
later than the 60th day after delivery of the proxy materials relating to
such meeting) and (z) within 5 Business Days
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of obtaining such shareholder authorization, file an appropriate amendment to
the Company's certificate of incorporation to evidence such increase.
3.8 PURCHASER OWNERSHIP OF COMMON STOCK. In no event shall a
Purchaser be permitted to use its ability to convert Debentures or exercise
its Warrants to the extent that such conversion or exercise would result in
that Purchaser beneficially owning (for purposes of Rule 13d-3 under the
Exchange Act and the rules thereunder) in excess of 4.999% of the then issued
and outstanding shares of Common Stock, including shares issuable upon
conversion of the Debentures held by such Purchaser after application of this
Section. To the extent that the limitation contained in this Section applies,
the determination of whether Debentures are convertible (in relation to other
securities owned by a Purchaser) and of which Debentures are convertible
shall be in the sole discretion of such Purchaser, and the submission of
Debentures for conversion shall be deemed to be such Purchaser's
determination of whether such Debentures are convertible (in relation to
other securities owned by a Purchaser) and of which Debentures are
convertible, in each case subject to such aggregate percentage limitation,
and the Company shall have no obligation to verify or confirm the accuracy of
such determination. Nothing contained herein shall be deemed to restrict the
right of a Purchaser to convert Debentures at such time as such conversion
will not violate the provisions of this Section. Notwithstanding anything to
the contrary contained herein, if ten days have elapsed since a Purchaser has
declared an event of default under any Transaction Document and such event
shall not have been cured to such Purchaser's satisfaction prior to the
expiration of such ten-day period, the provisions of this Section 3.8 shall
be null and void AB INITIO.
3.9 LISTING OF UNDERLYING SHARES. (a) The Company shall (1) not later
than the fifth Business Day following the Closing Date prepare and file with
fthe OTC Bulletin Board (as well as any other national securities exchange,
market or trading facility on which the Common Stock is then listed) an
additional shares listing application covering at least the sum of (i) two
times the number of Underlying Shares as would be issuable upon a conversion
in full of (and as payment of interest in respect of) the Debentures,
assuming such conversion occurred on the Original Issue Date and (ii) the
Underlying Shares issuable upon exercise in full of the Warrants (2) take all
steps necessary to cause the such shares to be approved for listing on the
OTC Bulletin Board (as well as on any other national securities exchange or
market on which the Common Stock is then listed) as soon as possible
thereafter, and (3) provide to the Purchasers evidence of such listing, and
the Company shall maintain the listing of its Common Stock on such exchange
or market. In addition, if at any time the number of shares of Common Stock
issuable on conversion of all then outstanding Debentures, on account of
accrued and unpaid interest thereon and upon exercise in full of the Warrants
is greater than the number of shares of Common Stock theretofore listed with
the OTC Bulletin Board (and any such other national securities exchange,
market or trading facility), the Company shall promptly take such action
(including the actions described in the preceding sentence) to file an
additional shares listing application with the OTC Bulletin Board (and any
such other national securities exchange, market or trading facility) covering
at least a number of shares equal to the sum of (x) 200% of (A) the number of
Underlying Shares as would then be issuable upon a conversion in full of the
Debentures, and (B) the number of Underlying Shares as would be issuable as
payment of interest on the Debentures and (y) the
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number of Underlying Shares as would be issuable upon exercise in full of the
Warrants.
(b) The Company will use its commercially reasonable efforts to
list the Common Stock for trading on either the Nasdaq SmallCap Market or
Nasdaq National Market as soon as possible after the Closing Date and
immediately thereafter shall list the shares referenced in Section 3.9(a)
thereon, and maintain such listing thereafter as long as Underlying Shares
are outstanding.
3.10 CONVERSION PROCEDURES. EXHIBIT E sets forth the procedures with
respect to the conversion of the Debentures, including the form of legal
opinion, if necessary, that shall be rendered to the Company's transfer agent
and such other information and instructions as may be reasonably necessary to
enable the Purchasers to exercise its right of conversion smoothly and
expeditiously which are not set forth in the Debentures.
3.11 PURCHASERS' RIGHTS IF TRADING IN COMMON STOCK IS SUSPENDED OR
DELISTED. If at any time while any Purchaser (or any assignee thereof) owns
any Securities, trading in the shares of the Common Stock is suspended on or
delisted from the OTC Bulletin Board or any other principal market or
exchange for such shares (other than as a result of the suspension of trading
in securities on such market or exchange generally, or temporary suspensions
pending the release of material information) for more than three (3) Trading
Days, then, notwithstanding anything to the contrary contained in any
Transaction Document, at a Purchaser's option exercisable by ten Business
Days prior written notice to the Company, the Company shall, PROVIDED, THAT
trading has not been reinstated within such period, repay the entire
principal amount of then outstanding Debentures and redeem all then
outstanding Underlying Shares then held by such Purchaser, at an aggregate
purchase price equal to the sum of (I) the aggregate outstanding principal
amount of Debentures then held by such Purchaser divided by the Conversion
Price on (a) the day prior to the date of such suspension or delisting, (b)
the day of such notice or (c) the date of payment in full of the repurchase
price calculated under this Section, whichever is less, and multiplied by the
Market Price preceding (x) the day prior to the date of such suspension or
delisting, (y) the day of such notice and (z) the date of payment in full of
the repurchase price calculated under this Section, whichever is greater,
(II) the aggregate of all accrued but unpaid interest and other non-principal
amounts (including liquidated damages, if any) then payable in respect of all
Debentures to be repaid, (III) the number of Underlying Shares then held by
such Purchaser multiplied by the Market Price immediately preceding (x) the
day prior to the date of such suspension or delisting, (y) the date of the
notice or (z) the date of payment in full by the Company of the repurchase
price calculated under this Section, whichever is greater, and (IV) interest
on the amounts set forth in I - III above accruing from the 10th Business Day
after such notice until the repurchase price under this Section is paid in
full at the rate of 18% per annum. If after the Original Issue Date the
Common Stock shall be listed for trading or quoted on the Nasdaq SmallCap
Market, Nasdaq National Market or any other national securities exchange or
market, this provision shall similarly apply to any delistings or suspensions
therefrom.
3.12 USE OF PROCEEDS. The Company shall use all of the proceeds from
the sale of the Securities for working capital purposes and not for the
satisfaction of any portion of Company debt or
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to redeem Company equity or equity-equivalent securities. Pending application
of the proceeds of this placement in the manner permitted hereby the Company
will invest such proceeds in money market funds, interest bearing accounts
and/or short-term, investment grade interest bearing securities.
3.13 NOTICE OF BREACHES. Each of the Company and each Purchaser shall
give prompt written notice to the other of any breach by it of any
representation, warranty or other agreement contained in any Transaction
Document, as well as any events or occurrences arising after the date hereof,
which would reasonably be likely to cause any representation or warranty or
other agreement of such party, as the case may be, contained in the
Transaction Document to be incorrect or breached as of such Closing Date.
However, no disclosure by either party pursuant to this Section shall be
deemed to cure any breach of any representation, warranty or other agreement
contained in any Transaction Document.
Notwithstanding the generality of the foregoing, the Company shall
promptly notify the Purchasers of any notice or claim (written or oral) that
it receives from any lender of the Company to the effect that the
consummation of the transactions contemplated by the Transaction Documents
violates or would violate any written agreement or understanding between such
lender and the Company, and the Company shall promptly furnish by facsimile
to the holders of the Debentures a copy of any written statement in support
of or relating to such claim or notice.
3.14 CONVERSION OBLIGATIONS OF THE COMPANY. The Company shall honor
conversions of the Debentures and exercises of the Warrants and shall deliver
Underlying Shares in accordance with the respective terms and conditions and
time periods set forth in the Debentures and the Warrants.
3.15 RIGHT OF FIRST REFUSAL; SUBSEQUENT REGISTRATIONS; CERTAIN
CORPORATE ACTIONS. (seq level2 \*alphabetica) The Company shall not,
directly or indirectly, without the prior written consent of the Encore
Capital Management, L.L.C. ("Encore") on behalf of the Purchasers, offer,
sell, grant any option to purchase, or otherwise dispose (or announce any
offer, sale, grant or any option to purchase or other disposition) of any of
its or its Affiliates equity, equity-equivalent or derivative securities (a
"SUBSEQUENT FINANCING") for a period of 180 days after the Closing Date,
except (i) the granting of options or warrants to employees, officers and
directors, and the issuance of shares upon exercise of options granted, under
any stock option plan heretofore or hereinafter duly adopted by the Company,
(ii) shares issued upon exercise of any currently outstanding warrants and
upon conversion of any currently outstanding convertible preferred stock in
each case disclosed in SCHEDULE 3.1(C), and (iii) shares of Common Stock
issued upon conversion of the Debentures, as payment of interest thereon, or
upon exercise of the Warrants in accordance with their respective terms,
unless (A) the Company delivers to Encore a written notice (the "SUBSEQUENT
FINANCING NOTICE") of its intention to effect such Subsequent Financing,
which Subsequent Financing Notice shall describe in reasonable detail the
proposed terms of such Subsequent Financing, the amount of proceeds intended
to be raised thereunder, the Person with whom such Subsequent Financing shall
be affected, and a term sheet or similar document relating thereto shall be
attached to such Subsequent Financing Notice and (B) Encore shall not have
notified the Company by 5:00 p.m. (New York City Time) on the tenth (10th)
Trading Day after its receipt of
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the Subsequent Financing Notice of its willingness to cause either or both of
the Purchasers to provide (or to cause its sole designee to provide), subject
to completion of mutually acceptable documentation, financing to the Company
on substantially the terms set forth in the Subsequent Financing Notice. If
Encore shall fail to notify the Company of its intention to enter into such
negotiations within such time period, the Company may effect the Subsequent
Financing substantially upon the terms and to the Persons (or Affiliates of
such Persons) set forth in the Subsequent Financing Notice; PROVIDED, that
the Company shall provide Encore with a second Subsequent Financing Notice,
and Encore shall again have the right of first refusal set forth above in
this paragraph (a), if the Subsequent Financing subject to the initial
Subsequent Financing Notice shall not have been consummated for any reason on
the terms set forth in such Subsequent Financing Notice within thirty (30)
Trading Days after the date of the initial Subsequent Financing Notice with
the Person (or an Affiliate of such Person) identified in the Subsequent
Financing Notice.
(b) Except Underlying Shares and other "Registrable Securities"
(as such term is defined in the Registration Rights Agreement) to be
registered in accordance with the Registration Rights Agreement, securities
to be registered pursuant to Schedule 6(c) to the Registration Rights
Agreement, and other than Company securities to be registered for resale in
connection with financings permitted pursuant to paragraph (a)(i) through
(iii) of this Section, the Company shall not, without the prior written
consent of Encore, (i) issue or sell any of its or any of its Affiliates'
equity or equity-equivalent securities pursuant to Regulation S promulgated
under the Securities Act, or (ii) register for resale any securities of the
Company for a period of not less than 90 Trading Days after the date that the
Underlying Securities Registration Statement is declared effective by the
Commission. Any days that a Purchaser is not permitted to sell Underlying
Shares under the Underlying Securities Registration Statement shall be added
to such 90 Trading Day period for the purposes of (i) and (ii) above.
(c) As long as there are Debentures outstanding, the Company
shall not and shall cause the Subsidiaries not to, without the consent of the
holders of the Debentures, (i) amend its certificate of incorporation, bylaws
or other charter documents so as to adversely affect any rights of the
holders of Debentures; (ii) repay, repurchase or offer to repay, repurchase
or otherwise acquire shares of its Common Stock other than as to the
Underlying Shares; or (iii) enter into any agreement with respect to any of
the foregoing.
3.16 THE WARRANTS. Prior to the Closing, the Company shall issue and
deliver to the Escrow Agent for delivery at the closing (a) a Common Stock
purchase warrant, in the form of EXHIBIT D and registered in the name of JNC
(the "JNC WARRANT"), pursuant to which JNC shall have the right at any time
and from time to time thereafter through the third anniversary of the date of
issuance thereof, to acquire 265,120 shares of Common Stock at an exercise
price per share equal to $3.91 and (b) to DSF, a Common Stock purchase
warrant, in the form of EXHIBIT D and registered in the name of DSF (the "DSF
WARRANT," and, collectively with the JNC Warrant, the "WARRANTS"), pursuant
to which DSF shall have the right at any time and from time to time
thereafter through the third anniversary of the date of issuance thereof, to
acquire 66,280 shares of Common Stock at an exercise price per share equal to
$3.91.
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3.17 TRANSFER OF INTELLECTUAL PROPERTY RIGHTS. Except in connection
with the sale of all or substantially all of the assets of the Company, the
Company shall not transfer, sell or otherwise dispose of, any Intellectual
Property Rights, or allow the Intellectual Property Rights to become subject
to any Liens, or fail to renew such Intellectual Property Rights (if
renewable and would otherwise expire), without the prior written consent of
the Purchasers.
3.18 FORM 10-SB. The Company shall (a) not later than November 15,
1997, prepare and file with the Commission a Form 10-SB registration
statement pursuant to the Exchange Act, (b) take all commercially reasonable
steps necessary to cause such Form 10-SB registration statement to be
declared effective as soon as possible thereafter, and (c) provide to the
Purchasers evidence of such filing and effectiveness.
ARTICLE IV
MISCELLANEOUS
4.1 FEES AND EXPENSES. The Company shall pay at the Closing (i)
$15,000 to the Escrow Agent for the legal fees and disbursements incurred by
the Purchasers in connection with the preparation and negotiation of the
Transaction Documents and (ii) $3,000 to Encore for the due diligence
expenses and disbursements incurred in connection with the transactions
contemplated hereby. Other than the amounts contemplated by the immediately
preceding sentence, and except as set forth in the Registration Rights
Agreement, each party shall pay the fees and expenses of its advisers,
counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement. The Company shall pay all stamp
and other taxes and duties levied in connection with the issuance of the
Debentures pursuant hereto. The Purchasers shall be responsible for their
own respective tax liability that may arise as a result of the investment
hereunder or the transactions contemplated by this Agreement.
4.2 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, together with
the Exhibits and Schedules hereto, the Debentures and the Warrants contain
the entire understanding of the parties with respect to the subject matter
hereof and supersede all prior agreements and understandings, oral or
written, with respect to such matters.
4.3 NOTICES. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at
the facsimile telephone number specified in this Section prior to 7:00 p.m.
(New York City time) on a Business Day, (ii) the Business Day after the date
of transmission, if such notice or communication is delivered via facsimile
at the facsimile telephone number specified in the Purchase Agreement later
than 7:00 p.m. (New York City time) on any
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date and earlier than 11:59 p.m. (New York City time) on such date, (iii) the
Business Day following the date of mailing, if sent by nationally recognized
overnight courier service, or (iv) upon actual receipt by the party to whom
such notice is required to be given. The address for such notices and
communications shall be as follows:
If to the Company: Fix-Corp International, Inc.
27040 Cedar Rd. Suite 218
Beachwood, OH 44122
Facsimile No.: (216) 292-6187
Attn: Chief Financial Officer
With copies to: Bricker & Eckler LLP
100 South Third Street
Columbus, OH 43215
Facsimile No.: (614) 227-2390
Attn: Steven Kerber
If to JNC: JNC Opportunity Fund Ltd.
Olympia Capital (Cayman) Ltd.
c/o Olympia Capital (Bermuda) Ltd.
Williams House
20 Reid Street
Hamilton HM11
Bermuda
Facsimile No.: (441) 295-2305
Attn: Philip Pedro
If to DSF: Diversified Strategies Fund, L.P.
c/o Encore Capital Management, L.L.C.
12007 Sunrise Valley Drive
Suite 460
Reston, VA 20191
Facsimile No.: (703) 476-7711
Attn: Neil T. Chau
With copies to (for Encore Capital Management, L.L.C.
communications to 12007 Sunrise Valley Drive
either Purchaser): Suite 460
Reston, VA 20191
Facsimile No.: (703) 476-7711
Attn: Neil T. Chau
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-and-
Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Eric L. Cohen
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
4.4 AMENDMENTS; WAIVERS. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an
amendment, by both the Company and the Purchasers; or, in the case of a
waiver, by the party against whom enforcement of any such waiver is sought.
No waiver of any default with respect to any provision, condition or
requirement of this Agreement shall be deemed to be a continuing waiver in
the future or a waiver of any other provision, condition or requirement
hereof, nor shall any delay or omission of either party to exercise any right
hereunder in any manner impair the exercise of any such right accruing to it
thereafter.
4.5 HEADINGS. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
4.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted
assigns, including any Persons to whom any Purchaser transfers Debentures or
Warrants. The assignment by a party of this Agreement or any rights
hereunder shall not affect the obligations of such party under this Agreement.
4.7 NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and, other than with respect to permitted assignees under Section
4.6, is not for the benefit of, nor may any provision hereof be enforced by,
any other Person. The obligations of the Purchasers under this Agreement and
the other Transaction Documents are several and not joint and no Purchaser
shall be responsible for any obligations of any other Purchaser.
4.8 GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York
without regard to the principles of conflicts of law thereof.
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4.9 SURVIVAL. The representations, warranties, agreements and
covenants contained in this Agreement shall survive the Closing and the and
conversion of the Debentures and exercise of the Warrants.
4.10 EXECUTION. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and
the same agreement and shall become effective when counterparts have been
signed by each party and delivered to the other parties, it being understood
that all parties need not sign the same counterpart. In the event that any
signature is delivered by facsimile transmission, such signature shall create
a valid and binding obligation of the party executing (or on whose behalf
such signature is executed) the same with the same force and effect as if
such facsimile signature page were an original thereof.
4.11 PUBLICITY. The Company and the Purchasers shall consult with each
other in issuing any press releases or otherwise making public statements
with respect to the transactions contemplated hereby and no party shall issue
any such press release or otherwise make any such public statement without
the prior written consent of the other, which consent shall not be
unreasonably withheld or delayed, except that no prior consent shall be
required if such disclosure is required by law, in which such case the
disclosing party shall provide the other party with prior notice of such
public statement.
4.12 SEVERABILITY. In case any one or more of the provisions of this
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall
not in any way be affected or impaired thereby and the parties will attempt
to agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
4.13 REMEDIES. Each of the parties to this Agreement acknowledges and
agrees that the other parties would be damaged irreparably in the event any
of the provisions of this Agreement are not performed in accordance with
their specific terms or otherwise are breached. Accordingly, each of the
parties hereto agrees that the other parties shall be entitled to an
injunction or injunctions to prevent breaches of the provisions of this
Agreement and to enforce specifically this Agreement and the terms and
provisions of this Agreement in any action instituted in any court of the
United States of America or any state thereof having jurisdiction over the
parties to this Agreement and the matter, in addition to any other remedy to
which they may be entitled, at law or in equity.
4.14 LIQUIDATED DAMAGES. Each of the parties to this Agreement
acknowledges and agrees that the any and all liquidated damage provisions set
forth in the Transaction Documents express a reasonable pre-estimate of the
damages which would be incurred.
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Exhibt 18
IN WITNESS WHEREOF, the parties hereto have caused this Debenture
Purchase Agreement to be duly executed by their respective authorized persons
as of the date first indicated above.
FIX-CORP INTERNATIONAL, INC.
By:
----------------------------
Name:
Title:
JNC OPPORTUNITY FUND LTD.
By:
-----------------------------
Name:
Title:
DIVERSIFIED STRATEGIES FUND, L.P.
By: Encore Capital Management, L.L.C.
By:
--------------------------
Name: Neil T. Chau
Title: Director
<PAGE>
Exhibit 19
SAMPLE
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE
IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS.
THIS DEBENTURE IS SUBJECT TO CERTAIN RESTRICTIONS ON CONVERSION SET
FORTH IN SECTION 3.8 OF A CONVERTIBLE DEBENTURE PURCHASE AGREEMENT, DATED AS
OF OCTOBER 24, 1997, AMONG FIX-CORP INTERNATIONAL, INC. (THE "COMPANY") AND
THE ORIGINAL HOLDER HEREOF. A COPY OF THAT AGREEMENT IS ON FILE AT THE
PRINCIPAL OFFICE OF THE COMPANY.
THIS DEBENTURE IS SUBJECT TO CERTAIN RESTRICTIONS AS SET FORTH IN A
SUBORDINATION AGREEMENT, DATED AS OF OCTOBER 24, 1997. A COPY OF THAT
AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY.
No. A-1 U.S. $500,000
FIX-CORP INTERNATIONAL, INC.
6% CONVERTIBLE DEBENTURE DUE OCTOBER 24, 2000
THIS DEBENTURE is one of a series of duly authorized issued
debentures of Fix-Corp International, Inc., a Delaware corporation having a
principal place of business at 27040 Cedar Rd. Suite 218, Beachwood, OH 44122
(the "COMPANY"), designated as its 6% Convertible Debentures, due October 24,
2000 (the "DEBENTURES"), in an aggregate principal amount of $5,000,000.
FOR VALUE RECEIVED, the Company promises to pay to JNC Opportunity
Fund Ltd., or registered assigns (the "HOLDER"), the principal sum of Five
Hundred Thousand Dollars ($500,000), on or prior to October 24, 2000 or such
earlier date as the Debentures are required to be repaid as provided
hereunder (the "MATURITY DATE") and to pay interest to the Holder on the
principal sum at the rate of 6% per annum, payable quarterly in arrears on
March 31, June 30, September 30 and December 31 of each year, commencing
December 31, 1997, and on each Conversion Date (as defined in Section
4(a)(i)). Interest shall accrue daily commencing on the Original Issue Date
(as defined in Section 6) until payment in full of the principal sum,
together with all accrued and unpaid interest and other
<PAGE>
amounts which may become due hereunder, has been made. Interest shall be
calculated on the basis of a 360-day year and for the actual number of days
elapsed. Interest hereunder will be paid to the Person (as defined in
Section 6) in whose name this Debenture is registered on the records of the
Company regarding registration and transfers of the Debentures (the
"DEBENTURE REGISTER"). All overdue, accrued and unpaid interest and other
amounts due hereunder shall bear interest at the rate of 18% per annum and
accrue daily from the date such interest is due hereunder through and
including the date of payment. The principal of, and interest on, this
Debenture are payable in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts, at the address of the Holder last appearing on the Debenture
Register, except that interest due on the principal amount (but not overdue
interest) may, at the Company's option, be paid in shares of Common Stock (as
defined in Section 6) calculated based upon the Conversion Price (as defined
below) at the time such interest becomes due. All amounts due hereunder
other than interest shall be paid in cash. Notwithstanding anything to the
contrary contained herein, the Company may not issue shares of the Common
Stock in payment of interest on the principal amount if: (i) the number of
shares of Common Stock at the time authorized, unissued and unreserved for
all purposes, or held as treasury stock, is insufficient to pay interest
hereunder in shares of Common Stock; (ii) such shares are not either
registered for resale pursuant to an Underlying Securities Registration
Statement (as defined in Section 6) or freely transferable without volume
restrictions pursuant to Rule 144(k) promulgated under the Securities Act of
1933, as amended (the "SECURITIES ACT"), as determined by counsel to the
Company pursuant to a written opinion letter, addressed to and in form and
substance acceptable to the Company's transfer agent or other person or
entity performing similar functions thereto; (iii) such shares are not listed
on the OTC Bulletin Board (or the American Stock Exchange, Nasdaq National
Market, Nasdaq SmallCap Market or The New York Stock Exchange) and any other
exchange, market and trading facility on which the Common Stock is then
listed for trading; or (iv) the issuance of such shares would result in the
recipient thereof beneficially owning more than 4.999% of the issued and
outstanding shares of Common Stock as determined in accordance with Rule
13d-3 under the Securities Exchange Act of 1934, as amended. Payment of
interest on the principal amount in shares of Common Stock is further subject
to the provisions of Section 4(a)(ii).
This Debenture is subject to the following additional provisions:
SECTION 1. This Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holder surrendering the same but shall not be issuable in
denominations of less than integral multiplies of Fifty Thousand Dollars
($50,000) unless such amount represents the full principal balance of
Debentures outstanding to such Holder. No service charge will be made for
such registration of transfer or exchange.
SECTION 2. This Debenture has been issued subject to certain
investment representations of the original Holder set forth in the Purchase
Agreement and may be transferred or exchanged only in compliance with the
Purchase Agreement. Prior to due presentment to the Company for transfer of
this Debenture, the Company and any agent of the Company may treat the person
in whose name this Debenture is duly registered on the Debenture Register as
the owner hereof for the purpose of receiving payment as herein provided and
for all other purposes, whether or not this Debenture is overdue, and neither
the Company nor any such agent shall be affected by notice to the
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contrary.
SECTION 3. EVENTS OF DEFAULT.
(a) "EVENT OF DEFAULT", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment,
decree or order of any court, or any order, rule or regulation of any
administrative or governmental body):
(i) any default in the payment of the principal of, interest on
or liquidated damages in respect of, this Debenture, free of any claim of
subordination, as and when the same shall become due and payable (whether
on the applicable quarterly interest payment date, the Conversion Date or
the Maturity Date or by acceleration or otherwise);
(ii) the Company shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit any
breach of, this Debenture, the Purchase Agreement or the Registration
Rights Agreement, and such failure or breach shall not have been remedied
within 10 days after the date on which written notice of such failure or
breach shall have been given;
(iii) the Company or any of its subsidiaries shall commence, or
there shall be commenced against the Company or any such subsidiary a
case under any applicable bankruptcy or insolvency laws as now or
hereafter in effect or any successor thereto, or the Company commences
any other proceeding under any reorganization, arrangement, adjustment of
debt, relief of debtors, dissolution, insolvency or liquidation or
similar law of any jurisdiction whether now or hereafter in effect
relating to the Company or any subsidiary thereof or there is commenced
against the Company or any subsidiary thereof any such bankruptcy,
insolvency or other proceeding which remains undismissed for a period of
60 days; or the Company or any subsidiary thereof is adjudicated
insolvent or bankrupt; or any order of relief or other order approving
any such case or proceeding is entered; or the Company or any subsidiary
thereof suffers any appointment of any custodian or the like for it or
any substantial part of its property which continues undischarged or
unstayed for a period of 60 days; or the Company or any subsidiary
thereof makes a general assignment for the benefit of creditors; or the
Company shall fail to pay, or shall state that it is unable to pay, or
shall be unable to pay, its debts generally as they become due; or the
Company or any subsidiary thereof shall call a meeting of its creditors
with a view to arranging a composition or adjustment of its debts; or the
Company or any subsidiary thereof shall by any act or failure to act
indicate its consent to, approval of or acquiescence in any of the
foregoing; or any corporate or other action is taken by the Company or
any subsidiary thereof for the purpose of effecting any of the foregoing;
(iv) the Company shall default in any of its obligations or an
event shall occur, or shall fail to occur, which gives (or would give
after the passage of time or giving of notice or both) the payee of any
such obligation the right to accelerate the payment thereof under any
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<PAGE>
mortgage, credit agreement or other facility, indenture agreement,
promissory note or other instrument under which there may be issued, or
by which there may be secured or evidenced any indebtedness of the
Company in an amount exceeding one hundred thousand dollars ($100,000),
whether such indebtedness now exists or shall hereafter be created and
such default shall result in such indebtedness becoming or being declared
due and payable prior to the date on which it would otherwise become due
and payable;
(v) the Common Stock shall be delisted from the OTC Bulletin
Board or any other national securities exchange or market on which such
Common Stock is then listed for trading or suspended from trading thereon
without being relisted or having such suspension lifted, as the case may
be, within three (3) Trading Days (if after the Original Issue Date the
Common Stock shall be listed for trading or quoted on the Nasdaq SmallCap
Market, Nasdaq National Market or any other national securities exchange
or market, this provision shall apply to any delistings or suspensions
therefrom);
(vi) the Company shall be a party to any merger or consolidation
pursuant to which the Company shall not be the surviving entity or shall
sell, transfer or otherwise dispose of all or substantially all of it
assets in one or more transactions, or shall redeem more than a de
minimis number of shares of Common Stock (other than redemptions of
Underlying Shares);
(vi) an Underlying Securities Registration Statement shall not
have been declared effective by the Securities and Exchange Commission
(the "COMMISSION") on or prior to the 210th day after the Original Issue
Date; or
(vi) an Event (as hereinafter defined) shall not have been cured
to the satisfaction of the Holder prior to the expiration of thirty (30)
days from the Event Date (as hereinafter defined) relating thereto (other
than an Event resulting from a failure of an Underlying Securities
Registration Statement to be declared effective by the Commission on or
prior to the 105th day after the Original Issue Date).
(b) If any Event of Default occurs and is continuing, the Holder
may, by notice to the Company, declare the full principal amount of this
Debenture (and, at such Holder's option, all other Debentures then held by
such Holder), together with interest and other amounts owing in respect
thereof, to the date of acceleration, to be, whereupon the same shall become,
immediately due and payable in cash. The aggregate amount payable in respect
of the Debentures shall be equal to the sum of (i) the Mandatory Repayment
Amount plus (ii) the product of (A) the number of Underlying Shares issued in
respect of conversions hereunder and then held by the demanding Holder and
(B) the Per Share Market Value on the date prepayment is demanded or the date
the full prepayment price is paid, whichever is greater. The demanding
Holder need not provide and the Company hereby waives any presentment,
demand, protest or other notice of any kind, and the Holder may immediately
and without expiration of any grace period enforce any and all of its rights
and remedies hereunder and all other remedies available to it under
applicable law. Such declaration may be rescinded and annulled by Holder at
any time prior to payment hereunder. No such rescission or annulment shall
affect any subsequent Event of Default or impair any right consequent
thereon.
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<PAGE>
SECTION 4. CONVERSION.
(a)(i) This Debenture shall be convertible into shares of Common Stock
at the option of the Holder in whole or in part at any time and from time to
time after the Original Issue Date and prior to the close of business on the
Maturity Date. The number of shares of Common Stock as shall be issuable
upon a conversion hereunder shall be determined by dividing the outstanding
principal amount of this Debenture to be converted, plus all accrued but
unpaid interest thereon (which the Company does not elect to pay in cash), by
the Conversion Price (as defined below), each as subject to adjustment as
provided hereunder. The Holder shall effect conversions by surrendering the
Debentures (or such portions thereof) to be converted, together with the form
of conversion notice attached hereto as EXHIBIT A (the "CONVERSION NOTICE")
to the Company. Each Conversion Notice shall specify the principal amount of
Debentures to be converted and the date on which such conversion is to be
effected, which date may not be prior to the date such Conversion Notice is
deemed to have been delivered hereunder (the "CONVERSION DATE"). If no
Conversion Date is specified in a Conversion Notice, the Conversion Date
shall be the date that the Conversion Notice is deemed delivered hereunder.
Subject to Sections 4(a)(ii) and 4(b) hereof and Section 3.8 of the Purchase
Agreement, each Conversion Notice, once given, shall be irrevocable. If the
Holder is converting less than all of the principal amount represented by the
Debenture(s) tendered by the Holder with the Conversion Notice, or if a
conversion hereunder cannot be effected in full for any reason, the Company
shall honor such conversion to the extent permissible hereunder and shall
promptly deliver to such Holder (in the manner and within the time set forth
in Section 5(b)) a new Debenture for such principal amount as has not been
converted.
(ii) CERTAIN REGULATORY APPROVAL. If on any Conversion Date (A)
the Common Stock is listed for trading on the Nasdaq National Market, Nasdaq
SmallCap Market, New York Stock Exchange ("NYSE") or American Stock Exchange
("AMEX"), (B) the Conversion Price then in effect is such that the aggregate
number of shares of the Common Stock that would then be issuable upon
conversion of the entire outstanding principal amount of Debentures, together
with any shares of the Common Stock previously issued upon conversion of
Debentures and as payment of interest thereunder would equal or exceed 20% of
the number of shares of the Common Stock outstanding on the Original Issue
Date (such number of shares as would not equal or exceed such 20% limit, the
"ISSUABLE MAXIMUM"), and (C) the Company has not previously obtained the vote
of shareholders, if any, as may be required by the rules and regulations of
The Nasdaq Stock Market, the NYSE or the AMEX (as applicable) applicable to
approve the issuance of Common Stock in excess of the Issuable Maximum in a
private placement for less than the greater of book or fair market value of
the Common Stock, then the Company shall issue to any Holder so requesting
conversion of Debentures its pro rata portion of the Issuable Maximum in the
same ratio that the aggregate principal amount of Debentures then outstanding
and held by such Holder bears to the aggregate principal amount of Debentures
then outstanding and, with respect to the remainder of the aggregate
principal amount of Debentures then held by such Holder for which a
conversion in accordance with the Conversion Price would result in an
issuance of Common Stock in excess of such Holder's pro rata portion of the
Issuable Maximum, the Holder shall have the option to require the Company to
either
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<PAGE>
(1) prepay the balance of the aggregate principal amount of the Debentures
then outstanding and held by such Holder at a price equal to the sum of the
Mandatory Prepayment Amount or (2)(i) issue and deliver to such Holder a
number of shares of Common Stock as equals (x) the principal amount of
Debentures (or such portions thereof) tendered for conversion in respect of
the Conversion Notice at issue but for which a conversion in accordance with
the other terms hereof would result in an issuance of Common Stock in excess
of such Holder's pro rata portion of the Issuable Maximum divided by (y) the
Average Price, and (ii) cash in an amount equal to the product of (x) the Per
Share Market Value on the Conversion Date and (y) the number of shares of
Common Stock in excess of such Holder's pro rata portion of the Issuable
Maximum that would have otherwise been issuable to the Holder in respect of
such conversion but for the provisions of this Section (such amount of cash
being hereinafter referred to as the "DISCOUNT EQUIVALENT"). Any failure by
the Company to pay the full Discount Equivalent or prepayment price for the
Dentures, as the case may be, pursuant to this Section within seven days
after the date payable, the Company will pay interest thereon at a rate of
18% per annum, which will accrue daily, to the converting Holder, accruing
from the Conversion Date until such amount, plus all such interest thereon,
is paid in full. Any failure to pay the prepayment price or Discount
Equivalent under this Section prior to the date that interest thereon
commences shall constitute a default under Section 3(a)(i). The entire
prepayment price or Equivalent Price, as the case may be, including interest
thereon, shall be paid in cash.
(b) Not later than three Trading Days after the Conversion Date,
the Company will deliver to the Holder (i) a certificate or certificates
which shall be free of restrictive legends and trading restrictions (other
than those required by Section 3.1(b) of the Purchase Agreement) representing
the number of shares of the Common Stock being acquired upon the conversion
of Debentures (subject to reduction pursuant to Section 4(a)(ii) hereof and
Section 3.8 of the Purchase Agreement), (ii) Debentures in a principal amount
equal to the principal amount of Debentures not converted; (iii) a bank check
in the amount of all accrued and unpaid interest (if the Company has elected
to pay accrued interest in cash), together with all other amounts then due
and payable in accordance with the terms hereof, in respect of Debentures
tendered for conversion and (iv) if the Company has elected to pay accrued
interest in shares of the Common Stock, certificates, which shall be free of
restrictive legends and trading restrictions (other than those required by
Section 3.1(b) of the Purchase Agreement), representing such number of shares
of the Common Stock as equals such interest divided by the Conversion Price
calculated on the Conversion Date; PROVIDED, HOWEVER, that the Company shall
not be obligated to issue certificates evidencing the shares of the Common
Stock issuable upon conversion of the principal amount of Debentures until
Debentures are delivered for conversion to the Company or the Holder notifies
the Company that such Debenture has been mutilated, lost, stolen or destroyed
and complies with Section 9 hereof. The Company shall, upon request of the
Holder, use its best efforts to deliver any certificate or certificates
required to be delivered by the Company under this Section electronically
through the Depository Trust Corporation or another established clearing
corporation performing similar functions. If in the case of any Conversion
Notice such certificate or certificates, including for purposes hereof, any
shares of the Common Stock to be issued on the Conversion Date on account of
accrued but unpaid interest hereunder, are not delivered to or as directed by
the applicable Holder by the third Trading Day after the Conversion Date, the
Holder shall be entitled by written notice to the Company at any time on or
before its receipt of such certificate or certificates thereafter, to rescind
such conversion, in which event the Company shall immediately return the
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Debentures tendered for conversion. If the Company fails to deliver to the
Holder such certificate or certificates pursuant to this Section, including
for purposes hereof, any shares of the Common Stock to be issued on the
Conversion Date on account of accrued but unpaid interest hereunder, prior to
the third Trading Day after the Conversion Date, the Company shall pay to
such Holder, in cash, as liquidated damages and not as a penalty, $1,500 for
each day thereafter until the Company delivers such certificates. If the
Company fails to deliver to the Holder such certificate or certificates
pursuant to this Section prior to the 20th day after the Conversion Date, the
Company shall, at the Holder's option (i) prepay, from funds legally
available therefor at the time of such prepayment, the aggregate of the
principal amount of Debentures then held by such Holder, as requested by such
Holder, and (ii) pay all accrued but unpaid interest on account of the
Debentures for which the Company shall have failed to issue the Common Stock
certificates hereunder, in cash. The prepayment price shall equal the
Mandatory Prepayment Amount for the Debentures to be prepaid. If the Holder
has required the Company to prepay Debentures pursuant to this Section and
the Company fails for any reason to pay the prepayment price within seven
days after such notice is deemed delivered hereunder, the Company will pay
interest on the prepayment price at a rate of 18% per annum (to accrue
daily), in cash to such Holder, accruing from such seventh day until the
prepayment price and any accrued interest thereon is paid in full.
(c) (i) The conversion price (the "CONVERSION PRICE") in effect
on any Conversion Date shall be the lesser of (A) $3.91 (the "INITIAL
CONVERSION PRICE") and (B) 85% multiplied by the average of the five lowest
Per Share Market Values during the ten (10) Trading Days immediately
preceding the Conversion Date; PROVIDED THAT, (a) if an Underlying Securities
Registration Statement is not filed on or prior to the Filing Date (as such
term is defined in the Registration Rights Agreement), or (b) if the Company
fails to file with the Commission a request for acceleration in accordance
with Rule 12d1-2 promulgated under the Securities Exchange Act of 1934, as
amended, within five (5) days of the date that the Company is notified
(orally or in writing, whichever is earlier) by the Commission that an
Underlying Securities Registration Statement will not be "reviewed" or is not
subject to further review or comment by the Commission, or (c) if the
Underlying Securities Registration Statement is not declared effective by the
Commission on or prior to the 105th day after the Original Issue Date, or (d)
if such Underlying Securities Registration Statement is filed with and
declared effective by the Commission but thereafter ceases to be effective as
to all Registrable Securities (as such term is defined in the Registration
Rights Agreement) at any time prior to the expiration of the "Effectiveness
Period" (as such term as defined in the Registration Rights Agreement),
without being succeeded by a subsequent Underlying Securities Registration
Statement filed with and declared effective by the Commission within ten (10)
days, or (e) if trading in the Common Stock shall be suspended, or if the
Common Stock shall be delisted from trading, on the OTC Bulletin Board or any
other national securities market or exchange on which the Common Stock is
then listed or quoted for trading for any reason for more than three (3)
Trading Days, or (f) if the conversion rights of the Holders of Debentures
are suspended for any reason or if the Holder is not permitted to resell
Registrable Securities under the Underlying Securities Registration
Statement, or (g) if an amendment to the Underlying Securities Registration
Statement is not filed by the Company with the Commission within ten (10)
days of the Commission's notifying the Company that such amendment is
required in order for the Underlying Securities Registration Statement to be
declared effective (any such failure being referred to as an "EVENT," and for
purposes of clauses (a), (c) and (f) the date on
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which such Event occurs, or for purposes of clause (b) the date on which such
five (5) days period is exceeded, or for purposes of clauses (d) and (g) the
date which such ten (10) day period is exceeded, or for purposes of clause
(e) the date on which such three (3) Trading Day period is exceeded, being
referred to as "EVENT DATE"), the Conversion Price shall be decreased by 2.5%
each month (i.e., the Conversion Price would decrease by 2.5% as of the Event
Date and additional 2.5% as of each monthly anniversary of the Event Date)
until the earlier to occur of the second month anniversary after the Event
Date and such time as the applicable Event is cured. Commencing the second
month anniversary after the Event Date, the Company shall pay to the holders
of the Debentures 2.5% of the aggregate principal amount of Debentures then
outstanding (each holder being entitled to receive such portion of such
amount as equals its pro rata portion of the Debentures then outstanding) in
cash as liquidated damages, and not as a penalty on the first day of each
monthly anniversary of the Event Date until such time as the applicable
Event, is cured. Any decrease in the Conversion Price pursuant to this
Section shall continue notwithstanding the fact that the Event causing such
decrease has been subsequently cured. The provisions of this Section are not
exclusive and shall in no way limit the Company's obligations under the
Registration Rights Agreement.
(ii) If the Company, at any time while any Debentures are
outstanding, (a) shall pay a stock dividend or otherwise make a distribution
or distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of the Common Stock, (b) subdivide
outstanding shares of the Common Stock into a larger number of shares, (c)
combine outstanding shares of the Common Stock into a smaller number of
shares, or (d) issue by reclassification of shares of the Common Stock any
shares of capital stock of the Company, the Initial Conversion Price shall be
multiplied by a fraction of which the numerator shall be the number of shares
of the Common Stock (excluding treasury shares, if any) outstanding before
such event and of which the denominator shall be the number of shares of the
Common Stock outstanding after such event. Any adjustment made pursuant to
this Section shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective date
in the case of a subdivision, combination or re-classification.
(iii) If the Company, at any time while any Debentures are
outstanding, shall issue rights or warrants to all holders of the Common
Stock (and not to Holders of Debentures) entitling them to subscribe for or
purchase shares of the Common Stock at a price per share less than the Per
Share Market Value of the Common Stock at the record date mentioned below,
the Initial Conversion Price shall be multiplied by a fraction, of which the
denominator shall be the number of shares of the Common Stock (excluding
treasury shares, if any) outstanding on the date of issuance of such rights
or warrants plus the number of additional shares of the Common Stock offered
for subscription or purchase, and of which the numerator shall be the number
of shares of the Common Stock (excluding treasury shares, if any) 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 Per Share Market Value. Such adjustment shall be made
whenever such rights or warrants are issued, and shall become effective
immediately after the record date for the determination of stockholders
entitled to receive such rights or warrants. However, upon the expiration of
any right or warrant to purchase shares of the Common Stock the issuance of
which
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resulted in an adjustment in the Initial Conversion Price pursuant to this
Section, if any such right or warrant shall expire and shall not have been
exercised, the Initial Conversion Price shall immediately upon such
expiration be recomputed and effective immediately upon such expiration be
increased to the price which it would have been (but reflecting any other
adjustments in the Initial Conversion Price made pursuant to the provisions
of this Section 4 after the issuance of such rights or warrants) had the
adjustment of the Initial Conversion Price made upon the issuance of such
rights or warrants been made on the basis of offering for subscription or
purchase only that number of shares of the Common Stock actually purchased
upon the exercise of such rights or warrants actually exercised.
(iv) If the Company, at any time while Debentures are outstanding,
shall distribute to all holders of the Common Stock (and not to Holders of
Debentures) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security, then in each such case the Initial
Conversion Price at which Debentures shall thereafter be convertible shall be
determined by multiplying the Initial Conversion Price in effect immediately
prior to the record date fixed for determination of stockholders entitled to
receive such distribution by a fraction of which the denominator shall be the
Per Share Market Value of the Common Stock determined as of the record date
mentioned above, and of which the numerator shall be such Per Share Market
Value of the Common Stock on such record date less the then fair market value
at such record date of the portion of such assets or evidence of indebtedness
so distributed applicable to one outstanding share of the Common Stock as
determined by the Board of Directors in good faith; PROVIDED, HOWEVER, that
in the event of a distribution exceeding ten percent (10%) of the net assets
of the Company, such fair market value shall be determined by a nationally
recognized or major regional investment banking firm or firm of independent
certified public accountants of recognized standing (which may be the firm
that regularly examines the financial statements of the Company) (an
"APPRAISER") selected in good faith by the holders of a majority in interest
of Debentures then outstanding; and PROVIDED, FURTHER, that the Company,
after receipt of the determination by such Appraiser shall have the right to
select an additional Appraiser, in good faith, in which case the fair market
value shall be equal to the average of the determinations by each such
Appraiser. In either case the adjustments shall be described in a statement
provided to the holders of Debentures of the portion of assets or evidences
of indebtedness so distributed or such subscription rights applicable to one
share of the Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date mentioned above.
(v) In case of any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property, the Holder of this Debenture shall
have the right thereafter to, at its option, (A) convert the then outstanding
principal amount, together with all accrued but unpaid interest and any other
amounts then owing hereunder in respect of this Debenture only into the
shares of stock and other securities, cash and property receivable upon or
deemed to be held by holders of the Common Stock following such
reclassification or share exchange, and the Holders of the Debentures shall
be entitled upon such event to receive such amount of securities, cash or
property as the shares of the Common Stock of the Company into which the then
outstanding principal amount, together with all accrued but unpaid interest
and any other amounts then owing hereunder in respect of this Debenture could
have been converted immediately prior to such reclassification or share
exchange would have been entitled or (B)
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require the Company to prepay, from funds legally available therefor at the
time of such prepayment, the aggregate of its outstanding principal amount of
Debentures, plus all interest and other amounts due and payable thereon, at a
price determined in accordance with Section 3(b). The entire prepayment
price shall be paid in cash. This provision shall similarly apply to
successive reclassifications or share exchanges.
(vi) All calculations under this Section 4 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case
may be.
(vii) Whenever the Initial Conversion Price is adjusted pursuant to
any of Section 4(c)(ii) - (v), the Company shall promptly mail
to each Holder of Debentures a notice setting forth the
Initial Conversion Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment.
(viii) If:
A. the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
B. the Company shall declare a special nonrecurring cash
dividend on or a redemption of its Common Stock; or
C. the Company shall authorize the granting to all holders
of the Common Stock rights or warrants to subscribe for
or purchase any shares of capital stock of any class or
of any rights; or
D. the approval of any stockholders of the Company shall be
required in connection with any reclassification of the
Common Stock of the Company, any consolidation or merger
to which the Company is a party, any sale or transfer of
all or substantially all of the assets of the Company, of
any compulsory share of exchange whereby the Common Stock
is converted into other securities, cash or property; or
E. the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of
the Company;
then the Company shall cause to be filed at each office or agency maintained
for the purpose of conversion of the Debentures, and shall cause to be mailed
to the Holders of Debentures at their last addresses as they shall appear
upon the stock books of the Company, at least 30 calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating
(x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not
to be taken, the date as of which the holders of the Common Stock of record
to be
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entitled to such dividend, distributions, redemption, rights or warrants are
to be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer or share exchange is expected to become
effective or close, and the date as of which it is expected that holders of
the Common Stock of record shall be entitled to exchange their shares of the
Common Stock for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer or share exchange;
PROVIDED, HOWEVER, that the failure to mail such notice or any defect therein
or in the mailing thereof shall not affect the validity of the corporate
action required to be specified in such notice. Holders are entitled to
convert Debentures during the 30-day period commencing the date of such
notice to the effective date of the event triggering such notice.
(d) The Company covenants that it will at all times reserve and
keep available out of its authorized and unissued shares of the Common Stock
solely for the purpose of issuance upon conversion of the Debentures and
payment of interest on the Debentures, each as herein provided, free from
preemptive rights or any other actual contingent purchase rights of persons
other than the Holders, not less than such number of shares of the Common
Stock as shall be required by the Purchase Agreement (taking into account the
adjustments and restrictions of Section 4(c).
(e) Upon a conversion hereunder the Company shall not be required
to issue stock certificates representing fractions of shares of the Common
Stock, but may if otherwise permitted, make a cash payment in respect of any
final fraction of a share based on the Per Share Market Value at such time.
If the Company elects not, or is unable, to make such a cash payment, the
holder shall be entitled to receive, in lieu of the final fraction of a
share, one whole share of Common Stock.
(f) The issuance of certificates for shares of the Common Stock on
conversion of the Debentures shall be made without charge to the Holders
thereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided that the
Company shall not be required to pay any tax that may be payable in respect
of any transfer involved in the issuance and delivery of any such certificate
upon conversion in a name other than that of the Holder of such Debentures so
converted and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
(g) Any and all notices or other communications or deliveries to
be provided by the Holders of the Debentures hereunder, including, without
limitation, any Conversion Notice, shall be in writing and delivered
personally, by facsimile, sent by a nationally recognized overnight courier
service or sent by certified or registered mail, postage prepaid, addressed
to the Company, at 27040 Cedar Rd. Suite 218, Beachwood, OH 44122 (facsimile
number (216) 292-6187), attention Chief Financial Officer, or such other
address or facsimile number as the Company may specify for such purposes by
notice to the Holders delivered in accordance with this Section. Any and all
notices or other communications or deliveries to be provided by the Company
hereunder shall be in writing and delivered personally, by facsimile, sent by
a nationally recognized overnight courier service or sent by certified or
registered mail, postage prepaid, addressed to each Holder of the Debentures
at the facsimile telephone number or address of such Holder appearing on the
books of the Company, or if no
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<PAGE>
such facsimile telephone number or address appears, at the principal place of
business of the holder. Any notice or other communication or deliveries
hereunder shall be deemed given and effective on the earliest of (i) the date
of transmission, if such notice or communication is delivered via facsimile
at the facsimile telephone number specified in this Section prior to 7:00
p.m. (New York City time), (ii) the date after the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section later than 7:00 p.m. (New York
City time) on any date and earlier than 11:59 p.m. (New York City time) on
such date, (iii) four days after deposit in the United States mail, (iv) the
Business Day following the date of mailing, if send by nationally recognized
overnight courier service, or (v) upon actual receipt by the party to whom
such notice is required to be given. For purposes of Section 4(c)(i), if a
Conversion Notice is delivered by facsimile prior to 7:00 p.m. (New York City
time) on any date, then the day prior to such date shall be the last Trading
Day calculated to determine the Conversion Price applicable to such
Conversion Notice, and the date of such delivery shall commence the counting
of days for purposes of Section 4(b).
SECTION 5. OPTIONAL PREPAYMENT.
(a) The Company shall have the right, exercisable at any time upon
twenty (20) Trading Days prior written notice to the Holders of the
Debentures to be prepaid (the "OPTIONAL PREPAYMENT NOTICE"), to prepay, from
funds legally available therefor at the time of such prepayment, all or any
portion of the outstanding principal amount of the Debentures which have not
previously been repaid or for which Conversion Notices have not previously
been delivered hereunder, at a price equal to the Optional Prepayment Price
(as defined below). Any such prepayment by the Company shall be in cash and
shall be free of any claim of subordination. The Holders shall have the
right to tender, and the Company shall honor, Conversion Notices delivered
prior to the expiration of the twentieth (20th) Trading Day after receipt by
the Holders of an Optional Prepayment Notice for such Debentures (such date,
the "OPTIONAL PREPAYMENT DATE").
(b) If any portion of the Optional Prepayment Price shall not be
paid by the Company by the Optional Prepayment Date, the Optional Prepayment
Price shall be increased by 18% per annum (to accrue daily) until paid (which
amount shall be paid as liquidated damages and not as a penalty). In
addition, if any portion of the optional Prepayment Price remains unpaid
through the expiration of the Optional Prepayment Date, the Holder subject to
such prepayment may elect by written notice to the Company to either (i)
demand conversion in accordance with the formula and the time period therefor
set forth in Section 4 of any portion of the principal amount of Debentures
for which the Optional Prepayment Price, plus accrued liquidated damages
thereof, has not been paid in full (the "UNPAID PREPAYMENT PRINCIPAL
AMOUNT"), in which event the applicable Per Share Market Value shall be the
lower of the Per Share Market Value calculated on the Optional Prepayment
Date and the Per Share Market Value as of the Holder's written demand for
conversion, or (ii) invalidate AB INITIO such optional redemption,
notwithstanding anything herein contained to the contrary. If the Holder
elects option (i) above, the Company shall within three (3) Trading Days such
election is deemed delivered hereunder to the Holder the shares of Common
Stock issuable upon conversion of the Unpaid Prepayment Amount subject to
such conversion demand and otherwise perform its obligations hereunder with
respect thereto; or, if the Holder elects option (ii) above, the Company
shall promptly, and in any event not later than three Trading Days from
receipt of notice of such election, return to the
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Holder new Debentures for the full Unpaid Prepayment Principal Amount. If,
upon an election under option (i) above, the Company fails to deliver the
shares of Common Stock issuable upon conversion of the Unpaid Prepayment
Principal Amount within the time period set forth in this Section, the
Company shall pay to the Holder in cash, as liquidated damages and not as a
penalty, $1,500 per day until the Company delivers such Common Stock to the
Holder.
(c) The "OPTIONAL PREPAYMENT PRICE" for any Debentures shall equal
the sum of (i) the principal amount of Debentures to be prepaid, plus all
accrued and unpaid interest thereon, divided by the Conversion Price on (x)
the Optional Prepayment Date or (y) the date the Optional Prepayment Price is
paid in full, whichever is less, multiplied by the Average Price on (x) the
Optional Prepayment Date or (y) the date the Optional Prepayment Price is
paid in full, whichever is greater, and (ii) all other amounts and liquidated
damages due in respect of such principal amount.
SECTION 6. DEFINITIONS. For the purposes hereof, the following
terms shall have the following meanings:
"AVERAGE PRICE" on any date means the average Per Share Market
Value for the five (5) Trading Days immediately preceding such date.
"BUSINESS DAY" means any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government
action to close.
"COMMON STOCK" means the Company's common stock, $.0001 par value
per share, of the Company and stock of any other class into which such shares
may hereafter have been reclassified or changed.
"MANDATORY REPAYMENT AMOUNT" for any Debentures shall equal the sum
of (i) the principal amount of Debentures to be prepaid, plus all accrued and
unpaid interest thereon, divided by the Conversion Price on (x) the date the
Mandatory Prepayment Amount is demanded or (y) the date the Mandatory
Prepayment Amount is paid in full, whichever is less, multiplied by the Per
Share Market Value on (x) the date the Mandatory Prepayment Amount is
demanded or (y) the date the Mandatory Prepayment Amount is paid in full,
whichever is greater, and (ii) all other amounts, costs, expenses and
liquidated damages due in respect of such Debentures.
"ORIGINAL ISSUE DATE" shall mean the date of the first issuance of
any Debentures regardless of the number of transfers of any Debenture and
regardless of the number of instruments which may be issued to evidence such
Debenture.
"PER SHARE MARKET VALUE" on any particular date means (a) the
closing bid price per share of the Common Stock on such date on the Nasdaq
SmallCap Market or other stock exchange or quotation system on which the
Common Stock is listed for trading, or (b) if the Common Stock is not listed
on the Nasdaq SmallCap Market or any other stock exchange or market, the
closing bid price per share of the Common Stock on such date on the
over-the-counter market, as reported by the OTC
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<PAGE>
Bulletin Board, or (c) if the Common Stock is not quoted on the OTC Bulletin
Board, the closing bid price per share of Common Stock on such date on the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions
of reporting prices), or (d) if the Common Stock is no longer traded on the
over-the-counter market and reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions
of reporting prices), such closing bid price shall be determined by reference
to "Pink Sheet" quotes for the relevant conversion period as determined in
good faith by the Holder or (c) if the Common Stock is not then publicly
traded, the fair market value of a share of Common Stock as determined by an
appraiser selected in good faith by the Holders of a majority in interest of
the Debentures (the Company, after receipt of the determination by such
appraiser, shall have the right to select an additional appraiser, in which
case, the fair market value shall be equal to the average of the
determinations by each such appraiser).
"PERSON" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
"PURCHASE AGREEMENT" means the Convertible Debenture Purchase
Agreement, dated as of the Original Issue Date, among the Company and the
original Holders of Debentures, as amended, modified or supplemented from
time to time in accordance with its terms.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of the Original Issue Date, among the Company and the
original Holders of Debentures, as amended, modified or supplemented from
time to time in accordance with its terms.
"TRADING DAY" means (a) a day on which the Common Stock is traded
on the Nasdaq Stock Market or other stock exchange or market on which the
Common Stock has been listed, or (b) if the Common Stock is not then listed
on the Nasdaq Stock Market or any stock exchange or market, a day on which
the Common Stock is traded on the over-the-counter market, as reported by the
OTC Bulletin Board, or (c) if the Common Stock is not quoted on the OTC
Bulletin Board, a day on which the Common Stock is quoted on the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions
of reporting prices).
"UNDERLYING SHARES" means the shares of Common Stock into which the
Debentures, and interest thereon, are convertible in accordance with the
terms hereof and the Purchase Agreement.
"UNDERLYING SECURITIES REGISTRATION STATEMENT" means a registration
statement meeting the requirements set forth in the Registration Rights
Agreement, covering among other things the resale of the Underlying Shares
and naming the Holders as a "selling stockholders" thereunder.
SECTION 7. Except as expressly provided herein, no provision of
this Debenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of, interest and liquidated
damages (if any) on, this Debenture at the time, place, and rate, and in the
coin or currency, herein prescribed. This Debenture is a direct obligation
of the Company. This
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<PAGE>
Debenture ranks PARI PASSU with all other Debentures now or hereafter issued
under the terms set forth herein. The Company may only voluntarily prepay
the outstanding principal amount on the Debentures in accordance with Section
5 hereof.
SECTION 8. This Debenture shall not entitle the Holder to any of
the rights of a stockholder of the Company, including without limitation, the
right to vote, to receive dividends and other distributions, or to receive
any notice of, or to attend, meetings of stockholders or any other
proceedings of the Company, unless and to the extent converted into shares of
Common Stock in accordance with the terms hereof.
SECTION 9. If this Debenture shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and
substitution for and upon cancellation of a mutilated Debenture, or in lieu
of or in substitution for a lost, stolen or destroyed debenture, a new
Debenture for the principal amount of this Debenture so mutilated, lost,
stolen or destroyed but only upon receipt of evidence of such loss, theft or
destruction of such Debenture, and of the ownership hereof, and indemnity, if
requested, all reasonably satisfactory to the Company.
SECTION 10. This Debenture shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
conflicts of laws thereof. The Company hereby irrevocably submits to the
non-exclusive jurisdiction of the state and federal courts sitting in the
City of New York, borough of Manhattan, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein, and hereby irrevocably waives, and agrees not to
assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, or that such suit, action or
proceeding is improper. The Company hereby irrevocably waives personal
service of process and consents to process being served in any such suit,
action or proceeding by receiving a copy thereof sent to the Company at the
address in effect for notices to it under this instrument and agrees that
such service shall constitute good and sufficient service of process and
notice thereof. Nothing contained herein shall be deemed to limit in any way
any right to serve process in any manner permitted by law.
SECTION 11. Any waiver by the Company or the Holder of a breach of
any provision of this Debenture shall not operate as or be construed to be a
waiver of any other breach of such provision or of any breach of any other
provision of this Debenture. The failure of the Company or the Holder to
insist upon strict adherence to any term of this Debenture on one or more
occasions shall not be considered a waiver or deprive that party of the right
thereafter to insist upon strict adherence to that term or any other term of
this Debenture. Any waiver must be in writing.
SECTION 12. If any provision of this Debenture is invalid, illegal
or unenforceable, the balance of this Debenture shall remain in effect, and
if any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances.
SECTION 13. Whenever any payment or other obligation hereunder
shall be due on a day other than a Business Day, such payment shall be made
on the next succeeding Business Day (or, if such next succeeding Business Day
falls in the next calendar month, the preceding Business Day in the
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appropriate calendar month).
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Exhibit 19
SAMPLE
IN WITNESS WHEREOF, the Company has caused this Debenture to be
duly executed by a duly authorized officer as of the date first above
indicated.
FIX-CORP INTERNATIONAL, INC.
By:
--------------------------------
Name:
Title:
Attest:
By:
---------------------------
Name:
Title:
<PAGE>
Exhibit 19
SAMPLE
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby elects to convert Debenture No. A-1 into shares of
Common Stock, $.0001 par value per share (the "Common Stock"), of Fix-Corp
International, Inc. (the "Company") according to the conditions hereof, as of
the date written below. If shares are to be issued in the name of a person
other than undersigned, the undersigned will pay all transfer taxes payable
with respect thereto and is delivering herewith such certificates and
opinions as reasonably requested by the Company in accordance therewith. No
fee will be charged to the holder for any conversion, except for such
transfer taxes, if any.
Conversion calculations: ----------------------------------------------
Date to Effect Conversion
----------------------------------------------
Principal Amount of Debentures to be Converted
----------------------------------------------
Number of shares of Common Stock to be Issued
----------------------------------------------
Applicable Conversion Price
----------------------------------------------
Signature
----------------------------------------------
Name
----------------------------------------------
Address
<PAGE>
Exhibit 20
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "AGREEMENT") is made and
entered into as of October 24, 1997, by and among Fix-Corp International,
Inc. a Delaware corporation (the "COMPANY"), JNC Opportunity Fund Ltd., a
corporation organized under the laws of the Cayman Islands ("JNC"), and
Diversified Strategies Fund, L.P., an Illinois limited partnership ("DSF").
JNC and DSF are each a "PURCHASER" and are, collectively the "PURCHASERS."
This Agreement is made pursuant to the Convertible Debenture Purchase
Agreement, dated as of the date hereof among the Company and the Purchasers
(the "PURCHASE AGREEMENT").
The Company and the Purchasers hereby agree as follows:
1. DEFINITIONS
Capitalized terms used and not otherwise defined herein that are
defined in the Purchase Agreement shall have the meanings given such terms in
the Purchase Agreement. As used in this Agreement, the following terms shall
have the following meanings:
"ADVICE" shall have meaning set forth in Section 3(o).
"AFFILIATE" means, with respect to any Person, any other Person that
directly or indirectly controls or is controlled by or under common control
with such Person. For the purposes of this definition, "CONTROL," when used
with respect to any Person, means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms of "AFFILIATED," "CONTROLLING" and "CONTROLLED" have
meanings correlative to the foregoing.
"BUSINESS DAY" means any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government
actions to close.
"COMMISSION" means the Securities and Exchange Commission.
<PAGE>
"COMMON STOCK" means the Company's Common Stock, par value $.0001
per share.
"DEBENTURES" means Company's 6% Convertible Debentures due October
24, 2000 issued to the Purchasers pursuant to the Purchase Agreement.
"EFFECTIVENESS DATE" means the 105th day following the Closing Date.
"EFFECTIVENESS PERIOD" shall have the meaning set forth in Section
2(a).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FILING DATE" means the fifth day following the day the Commission has
approved the Company's Registration Statement on Form 10-SB filed with the
Commission.
"HOLDER" or "HOLDERS" means the holder or holders, as the case may be,
from time to time of Registrable Securities.
"INDEMNIFIED PARTY" shall have the meaning set forth in Section 5(c).
"INDEMNIFYING PARTY" shall have the meaning set forth in Section 5(c).
"LOSSES" shall have the meaning set forth in Section 5(a).
"NEW YORK COURTS" shall have the meaning set forth in Section 7(j).
"PERSON" means a corporation, an association, a partnership,
organization, government , a business, an individual, a political subdivision
thereof or a governmental agency.
"PROCEEDING" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"PROSPECTUS" means the prospectus included in the Registration
Statement (including, without limitation, a 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), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.
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"REGISTRABLE SECURITIES" means the shares of Common Stock issuable
upon (a) conversion in full of the Debentures, (b) exercise in full of the
Warrants and (c) payment of interest in respect of the Debentures; PROVIDED,
HOWEVER that in order to account for the fact that the number of shares of
Common Stock that are issuable upon conversion of Debentures is determined in
part upon the market price of the Common Stock at the time of conversion,
Registrable Securities contemplated by clause (a) of this definition shall be
deemed to include not less than 200% of the number of shares of Common Stock
into which the Debentures are convertible, assuming such conversion occurred on
the Closing Date or the Filing Date (whichever date yields a lower Conversion
Price, as such term is defined in the Debentures). The initial Registration
Statement shall cover at least such number of shares of Common Stock as equals
the sum of (x) 200% of the number of shares of Common Stock into which the
Debentures are convertible, assuming such conversion occurred on the Closing
Date or the Filing Date (whichever date yields a lower Conversion Price), (y)
interest thereon and (z) 331,400 shares of Common Stock in respect of the
Warrants. The Company shall be required to file additional Registration
Statements to the extent the actual number of shares of Common Stock into which
Debentures are convertible (together with interest thereon) and Warrants are
exercisable exceeds the number of shares of Common Stock initially registered in
accordance with the immediately prior sentence (the Company shall have 10
Business Days to file such additional Registration Statement after notice of the
requirement thereof, which the Holders may give at such time when the number of
shares of Common Stock as are issuable upon conversion of Debentures exceeds
185% of the number of shares of Common Stock into which Debentures are
convertible, assuming such conversion occurred on the Closing Date or the Filing
Date (whichever yields a lower Conversion Price.)
"REGISTRATION STATEMENT" means the registration statement contemplated
by Section 2(a) (covering such number of Registrable Securities and any
additional Registration Statements contemplated in the definition of Registrable
Securities), including (in each case) the Prospectus, amendments and supplements
to such registration statement or Prospectus, including pre- and post-effective
amendments, all exhibits thereto, and all material incorporated by reference or
deemed to be incorporated by reference in such registration statement.
"RULE 158" means Rule 158 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"RULE 415" means Rule 415 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SPECIAL COUNSEL" means one law firm acting as counsel to the Holders,
for which the Holders will be reimbursed by the Company pursuant to Section 4.
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"UNDERWRITTEN REGISTRATION OR UNDERWRITTEN OFFERING" means a
registration in connection with which securities of the Company are sold to
an underwriter for reoffering to the public pursuant to an effective
registration statement.
"WARRANTS" means the Common Stock purchase warrants issued to the
Purchasers on the Closing Date.
2. SHELF REGISTRATION
(a) On or prior to the Filing Date the Company shall prepare and
file with the Commission a "Shelf" Registration Statement covering all
Registrable Securities for an offering to be made on a continuous basis
pursuant to Rule 415. The Registration Statement shall be on Form SB-2 (or,
if the Company is not permitted to register the resale of the Registrable
Securities on Form SB-2, the Registration Statement shall be on such other
appropriate form in accordance herewith as the Holders of a majority in
interest of the Registrable Securities may consent). The Company shall use
its best efforts to cause the Registration Statement to be declared effective
under the Securities Act as promptly as possible after the filing thereof,
but in any event prior to the Effectiveness Date, and shall use its best
efforts to keep such Registration Statement continuously effective under the
Securities Act until the date which is three years after the date that such
Registration Statement is declared effective by the Commission or such
earlier date when all Registrable Securities covered by such Registration
Statement have been sold or may be sold without volume restrictions pursuant
to Rule 144(k) promulgated under the Securities Act, as determined by the
counsel to the Company pursuant to a written opinion letter to such effect,
addressed and acceptable to the Company's transfer agent (the "EFFECTIVENESS
PERIOD"); PROVIDED, HOWEVER, that the Company shall not be deemed to have
used its best efforts to keep the Registration Statement effective during the
Effectiveness Period if it voluntarily takes any action that would result in
the Holders not being able to sell the Registrable Securities covered by such
Registration Statement during the Effectiveness Period, unless such action is
required under applicable law or the Company has filed a post-effective
amendment to the Registration Statement and the Commission has not declared
it effective.
(b) If the Holders of a majority of the Registrable Securities so
elect, an offering of Registrable Securities pursuant to the Registration
Statement may be effected in the form of an Underwritten Offering. In such
event, and if the managing underwriters advise the Company and such Holders in
writing that in their opinion the amount of Registrable Securities proposed to
be sold in such Underwritten Offering exceeds the amount of Registrable
Securities which can be sold in such Underwritten Offering, there shall be
included in such Underwritten Offering the amount of such Registrable Securities
which in the opinion of such managing underwriters can be sold, and such amount
shall be allocated PRO RATA among the Holders proposing to sell Registrable
Securities in such Underwritten Offering.
(c) If any of the Registrable Securities are to be sold in an
Underwritten
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Offering, the investment banker in interest that will administer the offering
will be selected by the Holders of a majority of the Registrable Securities
included in such offering upon consultation with the Company. No Holder may
participate in any Underwritten Offering hereunder unless such Person (i)
agrees to sell its Registrable Securities on the basis provided in any
underwriting agreements approved by the Persons entitled hereunder to approve
such arrangements and (ii) completes and executes all questionnaires, powers
of attorney, indemnities, underwriting agreements and other documents
required under the terms of such arrangements.
3. REGISTRATION PROCEDURES
In connection with the Company's registration obligations hereunder,
the Company shall:
(a) Prepare and file with the Commission on or prior to the Filing
Date, a Registration Statement (and any additional Registration Statements as
may be required) in accordance with Section 2(a), and cause the Registration
Statement to become effective and remain effective as provided herein; PROVIDED,
HOWEVER, that not less than five (5) Business Days prior to the filing of the
Registration Statement or any related Prospectus or any amendment or supplement
thereto (including any document that would be incorporated or deemed to be
incorporated therein by reference), the Company shall (i) furnish to the
Holders, their Special Counsel and any managing underwriters, copies of all such
documents proposed to be filed, which documents (other than those incorporated
or deemed to be incorporated by reference) will be subject to the review of such
Holders, their Special Counsel and such managing underwriters, and (ii) cause
its officers and directors, counsel and independent certified public accountants
to respond to such inquiries as shall be necessary, in the opinion of respective
counsel to such Holders and such underwriters, to conduct a reasonable
investigation within the meaning of the Securities Act. The Company shall not
file the Registration Statement or any such Prospectus or any amendments or
supplements thereto to which the Holders of a majority of the Registrable
Securities, their Special Counsel, or any managing underwriters, shall
reasonably object on a timely basis.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement as may be
necessary to keep the Registration Statement continuously effective as to the
applicable Registrable Securities for the Effectiveness Period and prepare and
file with the Commission such additional Registration Statements in order to
register for resale under the Securities Act all of the Registrable Securities;
(ii) cause the related Prospectus to be amended or supplemented by any required
Prospectus supplement, and as so supplemented or amended to be filed pursuant to
Rule 424 (or any similar provisions then in force) promulgated under the
Securities Act; (iii) respond as promptly as practicable to any comments
received from the Commission with respect to the Registration Statement or any
amendment thereto and promptly provide the Holders true and complete copies of
all correspondence from and to the Commission relating to the Registration
Statement; and (iv) comply with the provisions of the Securities Act and the
Exchange Act with respect to the
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<PAGE>
disposition of all Registrable Securities covered by the Registration
Statement during the applicable period in accordance with the intended
methods of disposition by the Holders thereof set forth in the Registration
Statement as so amended or in such Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities to be sold, their
Special Counsel and any managing underwriters immediately (and, in the case of
(i)(A) below, not less than five (5) days prior to such filing) and (if
requested by any such Person) confirm such notice in writing no later than one
(1) Business Day following the day (i)(A) when a Prospectus or any Prospectus
supplement or post-effective amendment to the Registration Statement is proposed
to be filed; (B) when the Commission notifies the Company whether there will be
a "review" of such Registration Statement and whenever the Commission comments
in writing on such Registration Statement (the Company shall provide true and
complete copies thereof and all written responses thereto to each of the
Holders) and (C) with respect to the Registration Statement or any
post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other Federal or state governmental authority
for amendments or supplements to the Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) if at any time any of the representations and warranties of the
Company contained in any agreement (including any underwriting agreement)
contemplated hereby ceases to be true and correct in all material respects; (v)
of the receipt by the Company of any notification with respect to the suspension
of the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of any
Proceeding for such purpose; and (vi) of the occurrence of any event that makes
any statement made in the Registration Statement or Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in any
material respect or that requires any revisions to the Registration Statement,
Prospectus or other documents so that, in the case of the Registration Statement
or the Prospectus, as the case may be, it will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) Use its best efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of (i) any order suspending the effectiveness of the
Registration Statement or (ii) any suspension of the qualification (or exemption
from qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment.
(e) If requested by any managing underwriter or the Holders of a
majority in interest of the Registrable Securities to be sold in connection with
an Underwritten Offering, (i) promptly incorporate in a Prospectus supplement or
post-effective amendment to the Registration Statement such information as such
managing underwriters and such Holders reasonably agree should be included
therein and (ii) make all required filings of such Prospectus supplement or such
post-effective amendment as soon as practicable after the Company has received
notification of the matters to be incorporated in such Prospectus supplement or
post-effective amendment;
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PROVIDED, HOWEVER, that the Company shall not be required to take any action
pursuant to this Section 3(e) that would, in the opinion of counsel for the
Company, violate applicable law or be materially detrimental to the business
prospects of the Company.
(f) Furnish to each Holder, their Special Counsel and any managing
underwriters, without charge, at least one conformed copy of each Registration
Statement and each amendment thereto, including financial statements and
schedules, all documents incorporated or deemed to be incorporated therein by
reference, and all exhibits to the extent reasonably requested by such Person
(including those previously furnished or incorporated by reference) promptly
after the filing of such documents with the Commission.
(g) Promptly deliver to each Holder, their Special Counsel, and any
underwriters, without charge, as many copies of the Prospectus or Prospectuses
(including each form of prospectus) and each amendment or supplement thereto as
such Persons may reasonably request; and the Company hereby consents to the use
of such Prospectus and each amendment or supplement thereto by each of the
selling Holders and any underwriters in connection with the offering and sale of
the Registrable Securities covered by such Prospectus and any amendment or
supplement thereto.
(h) Prior to any public offering of Registrable Securities, use its
best efforts to register or qualify or cooperate with the selling Holders, any
underwriters and their Special Counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of such
Registrable Securities for offer and sale under the securities or Blue Sky laws
of such jurisdictions as any Holder or underwriter requests in writing, to keep
each such registration or qualification (or exemption therefrom) effective
during the Effectiveness Period and to do any and all other acts or things
necessary or advisable to enable the disposition in such jurisdictions of the
Registrable Securities covered by a Registration Statement; PROVIDED, HOWEVER,
that the Company shall not be required to qualify generally to do business in
any jurisdiction where it is not then so qualified or to take any action that
would subject it to general service of process in any such jurisdiction where it
is not then so subject or subject the Company to any material tax in any such
jurisdiction where it is not then so subject.
(i) Cooperate with the Holders and any managing underwriters to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold pursuant to a Registration Statement, which
certificates shall be free of all restrictive legends, and to enable such
Registrable Securities to be in such denominations and registered in such names
as any such managing underwriters or Holders may request at least three Business
Days prior to any sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section
3(c)(vi), as promptly as practicable, prepare a supplement or amendment,
including a post-effective amendment, to the Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, and file any other
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required document so that, as thereafter delivered, neither the Registration
Statement nor such Prospectus will contain 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 light of the circumstances under
which they were made, not misleading.
(k) Use its best efforts to cause all Registrable Securities relating
to such Registration Statement to be listed on the OTC Bulletin Board and any
other securities exchange, quotation system, market or over-the-counter bulletin
board, if any, on which similar securities issued by the Company are then listed
as and when required pursuant to the Purchase Agreement.
(l) In the case of an Underwritten Offering, enter into such
agreements (including an underwriting agreement in form, scope and substance as
is customary in Underwritten Offerings) and take all such other actions in
connection therewith (including those reasonably requested by any managing
underwriters and the Holders of a majority of the Registrable Securities being
sold) in order to expedite or facilitate the disposition of such Registrable
Securities, and whether or not an underwriting agreement is entered into, (i)
make such representations and warranties to such Holders and such underwriters
as are customarily made by issuers to underwriters in underwritten public
offerings, and confirm the same if and when requested; (ii) obtain and deliver
copies thereof to each Holder and the managing underwriters, if any, of opinions
of counsel to the Company and updates thereof addressed to each selling Holder
and each such underwriter, in form, scope and substance reasonably satisfactory
to any such managing underwriters and Special Counsel to the selling Holders
covering the matters customarily covered in opinions requested in Underwritten
Offerings and such other matters as may be reasonably requested by such Special
Counsel and underwriters; (iii) immediately prior to the effectiveness of the
Registration Statement or at the time of delivery of any Registrable Securities
sold pursuant thereto (at the option of the underwriters), obtain and deliver
copies to the Holders and the managing underwriters, if any, of "cold comfort"
letters and updates thereof from the independent certified public accountants of
the Company (and, if necessary, any other independent certified public
accountants of any subsidiary of the Company or of any business acquired by the
Company for which financial statements and financial data is, or is required to
be, included in the Registration Statement), addressed to each Person and in
such form and substance as are customary in connection with Underwritten
Offerings; (iv) if an underwriting agreement is entered into, the same shall
contain indemnification provisions and procedures no less favorable to the
selling Holders and the underwriters, if any, than those set forth in Section 7
(or such other provisions and procedures acceptable to the managing
underwriters, if any, and holders of a majority of Registrable Securities
participating in such Underwritten Offering; and (v) deliver such documents and
certificates as may be reasonably requested by the Holders of a majority of the
Registrable Securities being sold, their Special Counsel and any managing
underwriters to evidence the continued validity of the representations and
warranties made pursuant to clause 3(l)(i) above and to evidence compliance with
any customary conditions contained in the underwriting agreement or other
agreement entered into by the Company.
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<PAGE>
(m) Make available for inspection by the selling Holders, a
representative of such Holders, an underwriter participating in any
disposition of Registrable Securities, and an attorney or accountant retained
by such selling Holders or underwriters, at the offices where normally kept,
during reasonable business hours, all financial and other records, pertinent
corporate documents and properties of the Company and its subsidiaries, and
cause the officers, directors, agents and employees of the Company and its
subsidiaries to supply all information in each case requested by any such
Holder, representative, underwriter, attorney or accountant in connection
with the Registration Statement; PROVIDED, HOWEVER, that any information that
is determined in good faith by the Company in writing to be of a confidential
nature at the time of delivery of such information shall be kept confidential
by such Persons, unless (i) disclosure of such information is required by
court or administrative order or is necessary to respond to inquiries of
regulatory authorities; (ii) disclosure of such information, in the opinion
of counsel to such Person, is required by law; (iii) such information becomes
generally available to the public other than as a result of a disclosure or
failure to safeguard by such Person; or (iv) such information becomes
available to such Person from a source other than the Company and such source
is not known by such Person to be bound by a confidentiality agreement with
the Company.
(n) Comply with all applicable rules and regulations of the
Commission and make generally available to its security holders earning
statements satisfying the provisions of Section 11(a) of the Securities Act and
Rule 158 not later than 45 days after the end of any 12-month period (or 90 days
after the end of any 12-month period if such period is a fiscal year) (i)
commencing at the end of any fiscal quarter in which Registrable Securities are
sold to underwriters in a firm commitment or best efforts Underwritten Offering
and (ii) if not sold to underwriters in such an offering, commencing on the
first day of the first fiscal quarter of the Company after the effective date of
the Registration Statement, which statement shall cover said 12-month period, or
end shorter periods as is consistent with the requirements of Rule 158.
(o) The Company may require each selling Holder to furnish to the
Company such information regarding the distribution of such Registrable
Securities and the beneficial ownership of Common Stock held by such selling
Holder as is required by law to be disclosed in the Registration Statement and
the Company may exclude from such registration the Registrable Securities of any
such Holder who unreasonably fails to furnish such information within a
reasonable time after receiving such request.
If the Registration Statement 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 (if such reference to such Holder by name or otherwise
is not required by the Securities Act or any similar Federal statute then in
force) the deletion of the reference to such Holder in any amendment or
supplement to the Registration Statement filed or prepared subsequent to the
time that such reference ceases to be required.
Each Holder agrees by its acquisition of such Registrable Securities
that (i) it will
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not offer or sell any Registrable Securities under the Registration Statement
until it has received copies of the Prospectus as then amended or
supplemented as contemplated in Section 3(g) and notice from the Company that
such Registration Statement and any post-effective amendments thereto have
become effective as contemplated by Section 3(c) and (ii) it will comply with
the prospectus delivery requirements of the Securities Act as applicable to
it in connection with sales of Registrable Securities pursuant to the
Registration Statement.
Each Holder agrees by its acquisition of such Registrable Securities
that, upon receipt of a notice from the Company of the occurrence of any
event of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v)
or 3(c)(vi), such Holder will forthwith discontinue disposition of such
Registrable Securities until such Holder's receipt of the copies of the
supplemented Prospectus and/or amended Registration Statement contemplated by
Section 3(j), or until it is advised in writing (the "ADVICE") by the Company
that the use of the applicable Prospectus may be resumed, and, in either
case, has received copies of any additional or supplemental filings that are
incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement.
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Exhibit 21
EXHIBIT E
ESCROW AGREEMENT
ESCROW AGREEMENT (this "AGREEMENT"), dated as of October 24, 1997,
by and among Fix-Corp International, Inc. (the "COMPANY"), JNC Opportunity
Fund Ltd. ("JNC"), Diversified Strategies Fund, L.P. ("DSF"), and Robinson
Silverman Pearce Aronsohn & Berman LLP (the "ESCROW AGENT"). DSF and JNC are
each sometimes hereinafter referred to as a "PURCHASER" and collectively as
the "PURCHASERS."
RECITALS
A. Simultaneously with the execution of this Agreement, the
Company and the Purchasers have entered into a Convertible Debenture Purchase
Agreement, dated as of the date hereof (the "PURCHASE AGREEMENT"), pursuant
to which the Company is selling to the Purchasers certain of its 6%
Convertible Debentures Due October 24, 2000 (the "DEBENTURES") and certain
common stock purchase warrants (the "WARRANTS"). Capitalized terms that are
used but not defined in this Agreement that are defined in the Purchase
Agreement shall have the meanings set forth in the Purchase Agreement.
B. The Escrow Agent is willing to act as escrow agent pursuant to
the terms of this Agreement with respect to the receipt and then delivery of
the aggregate purchase price (as described in Section 1.1(a) of the Purchase
Agreement) to be paid by the Purchasers for the Debentures and the Warrants
(the "PURCHASE PRICE") and the receipt and then delivery of the Debentures
and the Warrants, together with the Ancillary Closing Documents (as defined
below) and the Purchase Price, the "CONSIDERATION").
C. Upon the closing of the transaction contemplated by the
Purchase Agreement (the "CLOSING") and the occurrence of an event described
in Section 2 below, the Escrow Agent shall cause the distribution of the
Consideration in accordance with the terms of this Agreement.
NOW, THEREFORE, IT IS AGREED:
1. DEPOSIT OF CONSIDERATION.
a. Concurrently with the execution hereof, each Purchaser shall
deposit
<PAGE>
with the Escrow Agent the portion of the Purchase Price due for the
Debentures and Warrant to be purchased by it at the Closing in accordance
with Section 1.1(a)(ii) of the Purchase Agreement, and the Company shall
deliver to the Escrow Agent the Debentures and the Warrants in accordance
with Section 1.1(a)(ii) of the Purchase Agreement, and wiring instructions
for the transfer of amounts to be paid to the Company in accordance with
Section 2(b). In addition, the Purchasers and the Company shall each deposit
with the Escrow Agent all other certificates and other documents required
under the Purchase Agreement to be delivered by them at the Closing (such
certificates and other documents being hereinafter referred to as the
"ANCILLARY CLOSING DOCUMENTS").
(i) The Purchase Price shall be delivered by the Purchasers
to the Escrow Agent by wire transfer to the following account:
Citibank, N.A.
153 East 53rd Street
New York, NY 10043
ABA No.: 021-000-089
For the Account of
Robinson Silverman Pearce Aronsohn
& Berman LLP
Attorney Business Account
Account No.: 37-204-162
Attention: Alexis Laurenceau
Reference: Fix-Corp International (10849-10)
(ii) The Debentures, Warrants and the Ancillary Documents
shall be delivered to the Escrow Agent at its address for notice indicated in
Section 5(a).
b. Until termination of this Agreement as set forth in Section
2, all additional Consideration paid by or which becomes payable between the
Company and the Purchasers shall be deposited with the Escrow Agent.
c. The Purchasers and the Company understand that all
Consideration delivered to the Escrow Agent pursuant to Section 1(a) shall be
held in escrow in the Escrow Agent's interest bearing business account until
the Closing. After the Purchase Price has been received by the Escrow Agent
and all other conditions of Closing are met, the parties hereto hereby
authorize and instruct the Escrow Agent to promptly effect the Closing.
d. At the Closing, the Escrow Agent is authorized and directed
to deduct from the Purchase Price (i) $15,000 which will be retained by the
Escrow Agent pursuant to Section 5.1 of the Purchase Agreement, (ii) $3,000,
which will be remitted to or as directed by Encore pursuant to Section 5.1 of
the Purchase Agreement and (iii) $500,000, which will be paid to CDC Consulting,
Inc. ("CDC") in accordance with the engagement letter between the
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Company and CDC relating to the transactions contemplated by the Purchase
Agreement (the "ENGAGEMENT LETTER"). In addition, the portion of the
Purchase Price released to the Company hereunder shall be reduced by all wire
transfer fees incurred thereupon.
2. TERMS OF ESCROW.
a. The Escrow Agent shall hold the Consideration in escrow
until the earlier to occur of (i) the receipt by the Escrow Agent of the
Purchase Price, the Debentures, the Warrants and the Ancillary Closing
Documents and a writing instructing the Closing and (ii) the receipt by the
Escrow Agent of a written notice, executed by the Company or the Purchasers,
stating that the Purchase Agreement has been terminated in accordance with
its terms and instructing the Escrow Agent with respect to the Purchase
Price, the Debentures, the Warrants and the Ancillary Closing Documents.
b. If the Escrow Agent receives the items referenced in clause
(i) of Section 2(a) prior to its receipt of the notice referenced in clause
(ii) of Section 2(a), then, promptly thereafter, the Escrow Agent shall
deliver (i) to JNC (A) Debentures in aggregate principal amount of
$4,000,000, (B) the JNC Warrant and (C) any interest earned on account of the
portion of the Purchase Price paid by JNC that shall have accrued through the
Closing; (ii) to DSF (A) Debentures in aggregate principal amount of
$1,000,000, (B) the DSF Warrant and (C) any interest earned on account of the
portion of the Purchase Price paid by DSF that shall have accrued through the
Closing; (iii) to the Company the Purchase Price (net of amounts described
under Section 1(d)) to the Company; (iv) to or as directed by Encore, $3,000
in accordance with Section 1(d); (iv) to or as directed by CDC, $500,000 in
accordance with the Engagement Letter; and (v) to the appropriate party, the
Ancillary Closing Documents. In addition, the Escrow Agent shall retain
$15,000 of the Purchase Price on account of its fees pursuant to the Purchase
Agreement and Section 1(d).
c. If the Escrow Agent receives the notice referenced in clause
(ii) of Section 2(a) prior to its receipt of the items referenced in clause (i)
of Section 2(a), then the Escrow Agent shall promptly upon receipt of such
notice return (i) the Purchase Price (together with any interest earned thereon
through such date) to the Purchasers in such amounts as shall have been
delivered to and received by prior thereto, (ii) the Debentures and Warrants to
the Company and (iii) the Ancillary Closing Documents to the party that
delivered the same.
d. If the Escrow Agent, prior to delivering or causing to be
delivered the Consideration in accordance herewith, receives notice of
objection, dispute, or other assertion in accordance with any of the provisions
of this Agreement, the Escrow Agent shall continue to hold the Consideration
until such time as the Escrow Agent shall receive (i) written instructions
jointly executed by the Purchasers and the Company, directing distribution of
such Consideration, or (ii) a certified copy of a judgment, order or decree of a
court of competent jurisdiction, final beyond the right of appeal, directing the
Escrow Agent to distribute said Consideration to any party hereto or as such
judgment, order or decree shall otherwise specify (including any such
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order directing the Escrow Agent to deposit the Consideration into the court
rendering such order, pending determination of any dispute between any of the
parties). In addition, the Escrow Agent shall have the right to deposit any
of the Consideration with a court of competent jurisdiction pursuant to
Section 1006 of the New York Civil Practice Law and Rules without liability
to any party if said dispute is not resolved within 30 days of receipt of any
such notice of objection, dispute or otherwise.
3. DUTIES AND OBLIGATIONS OF THE ESCROW AGENT.
a. The parties hereto agree that the duties and obligations of
the Escrow Agent are only such as are herein specifically provided and no
other. The Escrow Agent's duties are as a depositary only, and the Escrow
Agent shall incur no liability whatsoever, except as a direct result of its
willful misconduct.
b. The Escrow Agent may consult with counsel of its choice,
and shall not be liable for any action taken, suffered or omitted by it in
accordance with the advice of such counsel.
c. The Escrow Agent shall not be bound in any way by the terms
of any other agreement to which the Purchasers and the Company are parties,
whether or not it has knowledge thereof, and the Escrow Agent shall not in
any way be required to determine whether or not any other agreement has been
complied with by the Purchasers and the Company, or any other party thereto.
The Escrow Agent shall not be bound by any modification, amendment,
termination, cancellation, rescission or supersession of this Agreement
unless the same shall be in writing and signed by each of the Purchasers and
the Company, and agreed to in writing by the Escrow Agent.
d. In the event that the Escrow Agent shall be uncertain as to
its duties or rights hereunder or shall receive instructions, claims or
demands which, in its opinion, are in conflict with any of the provisions of
this Agreement, it shall be entitled to refrain from taking any action, other
than to keep safely, all Considerations held in escrow until it shall jointly
be directed otherwise in writing by the Purchasers and the Company or by a
final judgment of a court of competent jurisdiction.
e. The Escrow Agent shall be fully protected in relying upon
any written notice, demand, certificate or document which it, in good faith,
believes to be genuine. The Escrow Agent shall not be responsible for the
sufficiency or accuracy of the form, execution, validity or genuineness of
documents or securities now or hereafter deposited hereunder, or of any
endorsement thereon, or for any lack of endorsement thereon, or for any
description therein; nor shall the Escrow Agent be responsible or liable in
any respect on account of the identity, authority or rights of the persons
executing or delivering or purporting to execute or deliver any such
document, security or endorsement.
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<PAGE>
f. The Escrow Agent shall not be required to institute legal
proceedings of any kind and shall not be required to defend any legal
proceedings which may be instituted against it or in respect of the
Consideration.
g. If the Escrow Agent at any time, in its sole discretion,
deems it necessary or advisable to relinquish custody of the Consideration,
it may do so by giving five (5) days written notice to the parties of its
intention and thereafter delivering the consideration to any other escrow
agent mutually agreeable to the Purchasers and the Company and, if no such
escrow agent shall be selected within three days of the Escrow Agent's
notification to the Purchasers and the Company of its desire to so relinquish
custody of the Consideration, then the Escrow Agent may do so by delivering
the Consideration (a) to any bank or trust company in the Borough of
Manhattan, City and State of New York, which is willing to act as escrow
agent thereunder in place and instead of the Escrow Agent, or (b) to the
clerk or other proper officer of a court of competent jurisdiction as may be
permitted by law within the State, County and City of New York. The fee of
any such bank or trust company or court officer shall be borne one-half by
the Purchasers and one-half by the Company. Upon such delivery, the Escrow
Agent shall be discharged from any and all responsibility or liability with
respect to the Consideration and the Company and the Purchasers shall
promptly pay to the Escrow Agent all monies which may be owed it for its
services hereunder, including, but not limited to, reimbursement of its
out-of-pocket expenses pursuant to paragraph (i) below.
h. This Agreement shall not create any fiduciary duty on the
Escrow Agent's part to the Purchasers or the Company, nor disqualify the
Escrow Agent from representing either party hereto in any dispute with the
other, including any dispute with respect to the Consideration. The Company
understands that the Escrow Agent has acted and will continue to act as
counsel to the Purchasers.
i. The reasonable out-of-pocket expenses paid or incurred by
the Escrow Agent in the administration of its duties hereunder, including,
but not limited to, all counsel and advisors' and agents' fees and all taxes
or other governmental charges, if any, shall be paid by one-half by the
Purchasers and one-half by the Company.
4. INDEMNIFICATION. The Purchasers and the Company, jointly and
severally, hereby indemnify and hold the Escrow Agent harmless from and
against any and all losses, damages, taxes, liabilities and expenses that may
be incurred, directly or indirectly, by the Escrow Agent, arising out of or
in connection with its acceptance of appointment as the Escrow Agent
hereunder and/or the performance of its duties pursuant to this Agreement,
including, but not limited to, all legal costs and expenses of the Escrow
Agent incurred defending itself against any claim or liability in connection
with its performance hereunder and the costs of recovery of amounts pursuant
to this Section 4.
5. MISCELLANEOUS.
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a. All notices, requests, demands and other communications
hereunder shall be in writing, with copies to all the other parties hereto,
and shall be deemed to have been duly given when (i) if delivered by hand,
upon receipt, (ii) if sent by facsimile, upon receipt of proof of sending
thereof, (iii) if sent by nationally recognized overnight delivery service
(receipt requested), the next business day or (iv) if mailed by first-class
registered or certified mail, return receipt requested, postage prepaid, four
days after posting in the U.S. mails, in each case if delivered to the
following addresses:
If to the Company: Fix-Corp International, Inc.
27040 Cedar Rd. Suite 212
Beachwood, OH 44122
Facsimile No.: (216) 292-6187
Attn: Chief Financial Officer
With copies to: Bricker & Eckler, LLP
100 South Third Street
Columbus, OH 43215
Facsimile No.: (614) 227-2390
Attn: Steven Kerber
If to JNC: JNC Opportunity Fund Ltd.
Olympia Capital (Cayman) Ltd.
c/o Olympia Capital (Bermuda) Ltd.
Williams House
20 Reid Street
Hamilton HM11
Bermuda
Facsimile No.: (441) 295-2305
Attn: Philip C. Pedro
If to DSF: Diversified Strategies Fund, L.P.
c/o Encore Capital Management, L.L.C.
12007 Sunrise Valley Drive
Suite 460
Reston, VA 20191
Facsimile No.: (703) 476-7711
Attn: Neil T. Chau
With copies to (for Encore Capital Management, L.L.C.
communications to 12007 Sunrise Valley Drive
either Purchaser): Suite 460
Reston, VA 20191
Facsimile No.: (703) 476-7711
Attn: Neil T. Chau
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If to the Escrow Agent Robinson Silverman Pearce Aronsohn &
(the Escrow Agent shall Berman LLP
receive copies of all 1290 Avenue of the Americas
communications under New York, NY 10104
this Agreement) Facsimile No.: (212) 541-4630
Attn: Eric L. Cohen, Esq.
or at such other address as any of the parties to this Agreement may hereafter
designate in the manner set forth above to the others.
(b) This Agreement shall be construed and enforced in
accordance with the law of the State of New York applicable to contracts
entered into and performed entirely within New York.
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Exhibit 21
IN WITNESS WHEREOF, the parties hereto have caused this Escrow
Agreement to be signed the day and year first above written.
FIX-CORP INTERNATIONAL, INC.
By: ___________________________
Name:
Title:
JNC OPPORTUNITY FUND LTD.
By: ___________________________
Name:
Title:
DIVERSIFIED STRATEGIES FUND, L.P.
By: Encore Capital Management, L.L.C.
By:___________________________
Name: Neil T. Chau
Title: Director
ROBINSON SILVERMAN PEARCE
ARONSOHN & BERMAN LLP
By: ___________________________
A Member of the Firm
<PAGE>
Exhibit 22
SAMPLE
NEITHER THIS WARRANT NOR THE SECURITIES INTO WHICH THIS WARRANT IS
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION
OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
FIX-CORP INTERNATIONAL, INC.
WARRANT
Warrant No. 001 Dated October 24, 1997
FIX-CORP INTERNATIONAL, INC., a Delaware corporation (the "Company"),
hereby certifies that, for value received, JNC Opportunity Fund Ltd., or its
registered assigns ("Holder"), is entitled, subject to the terms set forth
below, to purchase from the Company up to a total of 265,120 shares of Common
Stock, $.0001 par value per share (the "Common Stock"), of the Company (each
such share, a "Warrant Share" and all such shares, the "Warrant Shares") at
an exercise price equal to $3.91 per share (as adjusted from time to time as
provided in Section 8, the "Exercise Price"), at any time and from time to
time from and after the date hereof and through and including October 24,
2000 (the "Expiration Date"), and subject to the following terms and
conditions:
1. REGISTRATION OF WARRANT. The Company shall register this
Warrant, upon records to be maintained by the Company for that purpose (the
"Warrant Register"), in the name of the record Holder hereof from time to
time. The Company may deem and treat the registered Holder of this Warrant as
the absolute owner hereof for the purpose of any exercise hereof or any
distribution to the Holder, and for all other purposes, and the Company shall
not be affected by notice to the contrary.
<PAGE>
2. REGISTRATION OF TRANSFERS AND EXCHANGES.
(a) The Company shall register the transfer of any
portion of this Warrant in the Warrant Register, upon surrender of this
Warrant, with the Form of Assignment attached hereto duly completed and
signed, to the Company at the office specified in or pursuant to Section
3(b). Upon any such registration or transfer, a new warrant to purchase
Common Stock, in substantially the form of this Warrant (any such new
warrant, a "New Warrant"), evidencing the portion of this Warrant so
transferred shall be issued to the transferee and a New Warrant evidencing
the remaining portion of this Warrant not so transferred, if any, shall be
issued to the transferring Holder. The acceptance of the New Warrant by the
transferee thereof shall be deemed the acceptance of such transferee of all
of the rights and obligations of a holder of a Warrant.
(b) This Warrant is exchangeable, upon the surrender
hereof by the Holder to the office of the Company specified in or pursuant to
Section 3(b) for one or more New Warrants, evidencing in the aggregate the
right to purchase the number of Warrant Shares which may then be purchased
hereunder. Any such New Warrant will be dated the date of such exchange.
3. DURATION AND EXERCISE OF WARRANTS.
(a) This Warrant shall be exercisable by the registered
Holder on any business day before 5:30 P.M., New York City time, at any time
and from time to time on or after the date hereof to and including the
Expiration Date. At 5:30 P.M., New York City time on the Expiration Date, the
portion of this Warrant not exercised prior thereto shall be and become void
and of no value. This Warrant may not be redeemed by the Company.
(b) Subject to Sections 2(b), 6 and 11, upon surrender of
this Warrant, with the Form of Election to Purchase attached hereto duly
completed and signed, to the Company at its address for notice set forth in
Section 11 and upon payment of the Exercise Price multiplied by the number of
Warrant Shares that the Holder intends to purchase hereunder, in lawful money
of the United States of America, in cash or by certified or official bank
check or checks, all as specified by the Holder in the Form of Election to
Purchase, the Company shall promptly (but in no event later than 3 business
days after the Date of Exercise (as defined herein)) issue or cause to be
issued and cause to be delivered to or upon the written order of the Holder
and in such name or names as the Holder may designate, a certificate for the
Warrant Shares issuable upon such exercise, free of restrictive legends other
than as required by the Purchase Agreement of even date herewith between the
Holder and the Company. Any person so designated by the Holder to receive
Warrant Shares shall be deemed to have become holder of record of such
Warrant Shares as of the Date of Exercise of this Warrant.
A "Date of Exercise" means the date on which the Company
shall have received (i) this Warrant (or any New Warrant, as applicable),
with the Form of Election to
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<PAGE>
Purchase attached hereto (or attached to such New Warrant) appropriately
completed and duly signed, and (ii) payment of the Exercise Price for the
number of Warrant Shares so indicated by the holder hereof to be purchased.
(c) This Warrant shall be exercisable, either in its
entirety or, from time to time, for a portion of the number of Warrant
Shares. If less than all of the Warrant Shares which may be purchased under
this Warrant are exercised at any time, the Company shall issue or cause to
be issued, at its expense, a New Warrant evidencing the right to purchase the
remaining number of Warrant Shares for which no exercise has been evidenced
by this Warrant.
4. PIGGYBACK REGISTRATION RIGHTS. During the term of this
Warrant, the Company may not file any registration statement with the
Securities and Exchange Commission (other than registration statements of the
Company filed on Form S-8 or Form S-4, each as promulgated under the
Securities Act of 1933, as amended, pursuant to which the Company is
registering securities pursuant to a Company employee benefit plan or
pursuant to a merger, acquisition or similar transaction including
supplements thereto, but not additionally filed registration statements in
respect of such securities) at any time when there is not an effective
registration statement covering the resale of the Warrant Shares and naming
the Holder as a selling stockholder thereunder, unless the Company provides
the Holder with not less than 20 days notice to each of the Holder and
Robinson Silverman Peace Aronsohn & Berman LLP, attention Eric L. Cohen,
notice of its intention to file such registration statement and provides the
Holder the option to include any or all of the applicable Warrant Shares
therein. The piggyback registration rights granted to the Holder pursuant to
this Section shall continue until all of the Holder's Warrant Shares have
been sold in accordance with an effective registration statement or upon the
Expiration Date. The Company will pay all registration expenses in
connection therewith.
5. PAYMENT OF TAXES. The Company will pay all documentary
stamp taxes attributable to the issuance of Warrant Shares upon the exercise
of this Warrant; provided, however, that the Company shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
registration of any certificates for Warrant Shares or Warrants in a name
other than that of the Holder, and the Company shall not be required to issue
or cause to be issued or deliver or cause to be delivered the certificates
for Warrant Shares unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or
shall have established to the satisfaction of the Company that such tax has
been paid. The Holder shall be responsible for all other tax liability that
may arise as a result of holding or transferring this Warrant or receiving
Warrant Shares upon exercise hereof.
6. REPLACEMENT OF WARRANT. If this Warrant is mutilated,
lost, stolen or destroyed, the Company shall issue or cause to be issued in
exchange and substitution for and upon cancellation hereof, or in lieu of and
substitution for this Warrant, a New Warrant, but only upon receipt of
evidence reasonably satisfactory to the Company of such loss, theft or
destruction and indemnity, if reasonably satisfactory to it. Applicants for
a New Warrant under such
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<PAGE>
circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.
7. RESERVATION OF WARRANT SHARES. The Company covenants that
it will at all times reserve and keep available out of the aggregate of its
authorized but unissued Common Stock, solely for the purpose of enabling it
to issue Warrant Shares upon exercise of this Warrant as herein provided, the
number of Warrant Shares which are then issuable and deliverable upon the
exercise of this entire Warrant, free from preemptive rights or any other
actual contingent purchase rights of persons other than the Holders (taking
into account the adjustments and restrictions of Section 8). The Company
covenants that all Warrant Shares that shall be so issuable and deliverable
shall, upon issuance and the payment of the applicable Exercise Price in
accordance with the terms hereof, be duly and validly authorized, issued and
fully paid and nonassessable.
8. CERTAIN ADJUSTMENTS. The Exercise Price and number of
Warrant Shares issuable upon exercise of this Warrant are subject to
adjustment from time to time as set forth in this Section 8. Upon each such
adjustment of the Exercise Price pursuant to this Section 8, the Holder shall
thereafter prior to the Expiration Date be entitled to purchase, at the
Exercise Price resulting from such adjustment, the number of Warrant Shares
obtained by multiplying the Exercise Price in effect immediately prior to
such adjustment by the number of Warrant Shares issuable upon exercise of
this Warrant immediately prior to such adjustment and dividing the product
thereof by the Exercise Price resulting from such adjustment.
(a) If the Company, at any time while this Warrant is
outstanding, (i) shall pay a stock dividend or otherwise make a distribution
or distributions on shares of its Common Stock (as defined below) or on any
other class of capital stock (and not the Common Stock) payable in shares of
Common Stock, (ii) subdivide outstanding shares of Common Stock into a larger
number of shares, or (iii) combine outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding before such event and of
which the denominator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding after such event. Any
adjustment made pursuant to this Section shall become effective immediately
after the record date for the determination of stockholders entitled to
receive such dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision or combination, and
shall apply to successive subdivisions and combinations.
(b) In case of any reclassification of the Common Stock,
any consolidation or merger of the Company with or into another person, the
sale or transfer of all or substantially all of the assets of the Company in
which the consideration therefor is equity or equity equivalent securities or
any compulsory share exchange pursuant to which the Common Stock is converted
into other securities or property, then the Holder shall have the right
thereafter to exercise this Warrant only into the shares of stock and other
securities and property receivable
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<PAGE>
upon or deemed to be held by holders of Common Stock following such
reclassification, consolidation, merger, sale, transfer or share exchange,
and the Holder shall be entitled upon such event to receive such amount of
securities or property of the Company's business combination partner equal to
the amount of Warrant Shares such Holder would have been entitled to had such
Holder exercised this Warrant immediately prior to such reclassification,
consolidation, merger, sale, transfer or share exchange. The terms of any
such consolidation, merger, sale, transfer or share exchange shall include
such terms so as to continue to give to the Holder the right to receive the
securities or property set forth in this Section 8(b) upon any exercise
following any such reclassification, consolidation, merger, sale, transfer or
share exchange.
(c) If the Company, at any time while this Warrant is
outstanding, shall distribute to all holders of Common Stock (and not to
holders of this Warrant) evidences of its indebtedness or assets or rights or
warrants to subscribe for or purchase any security (excluding those referred
to in Sections 8(a), (b) and (d)), then in each such case the Exercise Price
shall be determined by multiplying the Exercise Price in effect immediately
prior to the record date fixed for determination of stockholders entitled to
receive such distribution by a fraction of which the denominator shall be the
Exercise Price determined as of the record date mentioned above, and of which
the numerator shall be such Exercise Price on such record date less the then
fair market value at such record date of the portion of such assets or
evidence of indebtedness so distributed applicable to one outstanding share
of Common Stock as determined by a nationally recognized or major regional
investment banking firm or firm of independent certified public accountants
of recognized standing (which may be the firm that regularly examines the
financial statements of the Company) (an "Appraiser") mutually selected in
good faith by the holders of a majority in interest of the Warrants then
outstanding and the Company. Any determination made by the Appraiser shall
be final.
(d) If, at any time while this Warrant is outstanding,
the Company shall issue or cause to be issued rights or warrants to acquire
or otherwise sell or distribute shares of Common Stock to all holders of
Common Stock for a consideration per share less than the Exercise Price then
in effect, then, forthwith upon such issue or sale, the Exercise Price shall
be reduced to the price (calculated to the nearest cent) determined by
dividing (i) an amount equal to the sum of (A) the number of shares of Common
Stock outstanding immediately prior to such issue or sale multiplied by the
Exercise Price, and (B) the consideration, if any, received or receivable by
the Company upon such issue or sale by (ii) the total number of shares of
Common Stock outstanding immediately after such issue or sale.
(e) For the purposes of this Section 8, the following
clauses shall also be applicable:
(i) RECORD DATE. In case the Company shall take a
record of the holders of its Common Stock for the purpose of entitling them
(A) to receive a dividend or other distribution payable in Common Stock or in
securities convertible or exchangeable into shares of Common Stock, or (B) to
subscribe for or purchase Common Stock or securities convertible or
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<PAGE>
exchangeable into shares of Common Stock, then such record date shall be
deemed to be the date of the issue or sale of the shares of Common Stock
deemed to have been issued or sold upon the declaration of such dividend or
the making of such other distribution or the date of the granting of such
right of subscription or purchase, as the case may be.
(ii) TREASURY SHARES. The number of shares of
Common Stock outstanding at any given time shall not include shares owned or
held by or for the account of the Company, and the disposition of any such
shares shall be considered an issue or sale of Common Stock.
(f) All calculations under this Section 8 shall be made
to the nearest cent or the nearest 1/100th of a share, as the case may be.
(g) If:
(i) the Company shall declare a dividend
(or any other distribution) on its
Common Stock; or
(ii) the Company shall declare a special
nonrecurring cash dividend on or a
redemption of its Common Stock; or
(iii) the Company shall authorize the granting
to all holders of the Common Stock rights
or warrants to subscribe for or purchase
any shares of capital stock of any class
or of any rights; or
(iv) the approval of any stockholders of the
Company shall be required in connection
with any reclassification of the Common
Stock of the Company, any consolidation
or merger to which the Company is a
party, any sale or transfer of all or
substantially all of the assets of the
Company, or any compulsory share exchange
whereby the Common Stock is converted
into other securities, cash or property;
or
(v) the Company shall authorize the voluntary
dissolution, liquidation or winding up
of the affairs of the Company,
then the Company shall cause to be mailed to each Holder at their last
addresses as they shall appear upon the Warrant Register, at least 30
calendar days prior to the applicable record or
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