SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
(Rule 13d-101)
INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO
RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO RULE 13(d)-2(a)
(Amendment No. )*
Fix-Corp International, Inc.
(Name of Issuer)
Common Stock, $.001 par value
(Title of Class of Securities)
33831C-10-9
(CUSIP Number)
Neil T. Chau
Encore Capital Management, L.L.C.
12007 Sunrise Valley Drive, Suite 460
Reston, VA 20191
Tel. No.: (703) 476-5898
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
July 24, 1998
(Date of Event Which Requires Filing of This Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(e), 13d-1(g), or 13d-1(g), check
the following box [ ]
Note. Schedules filed in paper format shall include a signed original and
five copies of the schedule, including all exhibits. See Rule 13d-7(b) for
other parties to whom copies are to be sent.
* The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which
would alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 (the "Exchange Act") or otherwise subject to the liabilities of
that section of the Exchange Act but shall be subject to all other provisions
of the Exchange Act (however, see the Notes).
Page 1 of 15 Pages
<PAGE>
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|CUSIP No. 33831C10-9| SCHEDULE 13D |Page 2 of 15 Pages|
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- ----------------------------------------------------------------------------
1 NAMES OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
JNC Opportunity Fund Ltd.
- ----------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X]
(b) [ ]
- ----------------------------------------------------------------------------
3 SEC USE ONLY
- ----------------------------------------------------------------------------
4 SOURCE OF FUNDS*
WC (See Item 3)
- ----------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEM 2(d) or 2(e) [ ]
- ----------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Cayman Islands
- ----------------------------------------------------------------------------
7 SOLE VOTING POWER
4,491,838 (See Item 5)
NUMBER OF --------------------------------------------------------------
SHARES 8 SHARED VOTING POWER
BENEFICIALLY
OWNED BY 0
EACH --------------------------------------------------------------
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON WITH
4,491,838 (See Item 5)
--------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- -----------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
4,491,838 (See Item 5)
- -----------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* [ ]
- -----------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
12.98% (See Item 5)
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14 TYPE OF REPORTING PERSON*
CO
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<PAGE>
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|CUSIP No. 33831C10-9| SCHEDULE 13D |Page 3 of 15 Pages|
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1 NAMES OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
JNC Strategic Fund Ltd.
- ----------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X]
(b) [ ]
- ----------------------------------------------------------------------------
3 SEC USE ONLY
- ----------------------------------------------------------------------------
4 SOURCE OF FUNDS*
WC (See Item 3)
- ----------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEM 2(d) or 2(e) [ ]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
Cayman Islands
- ----------------------------------------------------------------------------
7 SOLE VOTING POWER
1,668,557 (See Item 5)
NUMBER OF --------------------------------------------------------------
SHARES 8 SHARED VOTING POWER
BENEFICIALLY
OWNED BY 0
EACH --------------------------------------------------------------
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON WITH
1,668,557 (See Item 5)
--------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- -----------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,668,557 (See Item 5)
- -----------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* [ ]
- -----------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
5.25% (See Item 5)
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14 TYPE OF REPORTING PERSON*
CO
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|CUSIP No. 33831C10-9| SCHEDULE 13D |Page 4 of 15 Pages|
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1 NAMES OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Diversified Strategies Fund, L.P.
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X]
(b) [ ]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
WC (See Item 3)
- ----------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEM 2(d) or 2(e) [ ]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
Illinois
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7 SOLE VOTING POWER
0
NUMBER OF --------------------------------------------------------------
SHARES 8 SHARED VOTING POWER
BENEFICIALLY
OWNED BY 554,774 (See Item 5)
EACH --------------------------------------------------------------
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON WITH
0
--------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
554,774 (See Item 5)
- -----------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
554,774 (See Item 5)
- -----------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* [ ]
- -----------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
1.81% (See Item 5)
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14 TYPE OF REPORTING PERSON*
PN
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<PAGE>
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|CUSIP No. 33831C10-9| SCHEDULE 13D |Page 5 of 15 Pages|
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1 NAMES OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Encore Capital Management, L.L.C.
- ----------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X]
(b) [ ]
- ----------------------------------------------------------------------------
3 SEC USE ONLY
- ----------------------------------------------------------------------------
4 SOURCE OF FUNDS*
OO (See Item 3)
- ----------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEM 2(d) or 2(e) [ ]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- ----------------------------------------------------------------------------
7 SOLE VOTING POWER
0
NUMBER OF --------------------------------------------------------------
SHARES 8 SHARED VOTING POWER
BENEFICIALLY
OWNED BY 6,715,169 (See Item 5)
EACH --------------------------------------------------------------
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON WITH
0
--------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
6,715,169 (See Item 5)
- -----------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
6,715,169 (See Item 5)
- -----------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* [ ]
(See Item 5)
- -----------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
18.23% (See Item 5)
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14 TYPE OF REPORTING PERSON*
IA
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<PAGE>
Item 1. Security and Issuer.
This Schedule 13D is filed in connection with the shares of common
stock, par value $.001 per share (the "Shares") of Fix-Corp
International, Inc., a Delaware corporation (the "Company"), with its
principal executive offices at 3637 South Green Road, Suite 201,
Beachwood, OH 44122.
This Schedule 13D is filed to report that:
(a) On October 24, 1997, JNC Opportunity Fund Ltd., a Cayman Islands
corporation ("Opportunity"), and Diversified Strategies Fund, L.P, an
Illinois limited partnership ("DSF"), entered into a Convertible
Debenture Purchase Agreement (the "First Agreement") with the Company,
pursuant to which (i) Opportunity purchased an aggregate principal
amount of $4,000,000 of the Company's 6% Convertible Debentures, due
October 24, 2000 (the "First Debentures"), which are convertible into
Shares, and acquired a warrant to purchase up to 265,120 Shares (the
"First Opportunity Warrant"), and (ii) DSF purchased an aggregate
principal amount of $1,000,000 of First Debentures and acquired a
warrant to purchase up to 66,280 Shares (the "First DSF Warrant"), each
in accordance with the terms set forth in the First Agreement;
(b) On November 25, 1997, Opportunity and DSF, entered into an Amended
and Restated Convertible Debenture Purchase Agreement (the "Amended
Agreement") with the Company, pursuant to which (i) Opportunity
purchased an aggregate principal amount of $7,000,000 of the Company's
5% Convertible Debentures, due November 25, 2000, which are convertible
into Shares (the "Second Debentures") in exchange for its First
Debentures and an additional $3,000,000 and acquired an additional
warrant to purchase up to 198,840 Shares (the "Second Opportunity
Warrant"), and (ii) DSF exchanged its First Debentures for an aggregate
principal amount of $1,000,000 of Second Debentures, each in accordance
with the terms set forth in the Amended Agreement;
(c) On January 22, 1998, Opportunity and DSF, entered into a Convertible
Debenture Purchase Agreement (the "Second Agreement") with the Company,
pursuant to which (i) Opportunity purchased an aggregate principal
amount of $2,000,000 of the Company's 4% Convertible Debentures, due
January 22, 2001, which are convertible into Shares (the "Third
Debentures"), and acquired a warrant to purchase up to 158,730 Shares
(the "Third Opportunity Warrant"), and (ii) DSF purchased an aggregate
principal amount of $500,000 of Third Debentures and acquired a warrant
to purchase up to 39,683 Shares (the "Second DSF Warrant"), each in
accordance with the terms set forth in the Second Agreement;
(d) On March 11, 1998, JNC Strategic Fund Ltd., a Cayman Islands
corporation ("Strategic"), entered into a Convertible Debenture Purchase
Agreement (the "Third Agreement") with the Company, pursuant to which
Strategic purchased an aggregate principal amount of $1,500,000 of the
Company's 4% Convertible Debentures, due March 11, 2001, which are
convertible into Shares (the "Fourth Debentures"), and acquired
Page 6 of 15 pages
<PAGE>
a warrant (the "First Strategic Warrant") to purchase up to 126,268
Shares, in accordance with the terms set forth in the Fourth Agreement;
(e) On April 8, 1998, Strategic entered into a Convertible Debenture
Purchase Agreement (the "Fourth Agreement") with the Company, pursuant
to which Strategic purchased an aggregate principal amount of $3,000,000
of the Company's 4% Convertible Debentures, due April 8, 2001, which are
convertible into Shares (the "Fifth Debentures"), and acquired a warrant
to purchase up to 192,542 Shares (the "Second Strategic Warrant"), in
accordance with the terms set forth in the Fourth Agreement;
(f) On June 25, 1998, Strategic entered into a Convertible Debenture
Purchase Agreement (the "Fifth Agreement" and, together with the First
Agreement, Amended Agreement, Second Agreement, Third Agreement and
Fourth Agreement, the "Agreements") with the Company, pursuant to which
Strategic purchased an aggregate principal amount of $3,000,000 of the
Company's 4% Convertible Debentures, due June 25, 2001, which are
convertible into Shares (the "Sixth Debentures" and, together with the
First Debentures, the Second Debentures, Third Debentures, Fourth
Debentures and Fifth Debentures, the "Debentures"), and acquired a
warrant ("Third Strategic Warrant", and together with the First
Opportunity Warrant, the Second Opportunity Warrant, the Third
Opportunity Warrant, the First DSF Warrant, the Second DSF Warrant, the
First Strategic Warrant and the Second Strategic Warrant, the
"Warrants") to purchase up to 300,000 Shares, in accordance with the
terms set forth in the Fifth Agreement; and
(g) In March and June 1998, the Company issued an aggregate of 56,250
Shares to Opportunity (the "Opportunity Liquidated Damages Shares"),
8,750 Shares to DSF (the "DSF Liquidated Damages Shares") and 15,000
Shares to Strategic (the "Strategic Liquidated Damages Shares," together
with the Opportunity Liquidated Damages Shares and the DSF Liquidated
Damages Shares, the "Liquidated Damages Shares"), in lieu of payment of
certain cash liquidated damages for the Company's failure to timely
effect the registration of certain of the Shares referred to herein (See
Section 6 hereto).
This Schedule 13D summarizes the terms of the Agreements, including the
terms relating to the conversion of the Debentures into Shares.
The number of Shares reported in this Schedule 13D as beneficially owned
by the Reporting Persons is based in part on an assumed conversion of
the full principal amount of the Debentures on July 24, 1998. However,
it should be noted that, because the number of Shares that are issuable
upon conversion of Debentures is derived from a conversion formula set
forth in the Debentures which is based in part upon the market price of
the Shares prior to the conversion of Debentures, the actual number of
Shares that will be issued upon a conversion of the Debentures (and
therefore beneficially owned by the holder thereof) cannot be determined
at this time and will depend on marked prices at time of conversion.
Page 7 of 15 pages
<PAGE>
Item 2. Identity and Background.
(a) Opportunity and Strategic are Cayman Islands exempted companies.
DSF is an Illinois limited partnership. Encore Capital Management,
L.L.C. (the "Manager") is a Delaware limited liability company.
The Manager, Opportunity, Strategic and DSF are collectively
referred to in this Schedule 13D as the "Reporting Persons."
(b) The address for each of Opportunity and Strategic is:
Olympia Capital (Cayman) Ltd.
c/o Williams House, 20 Reid Street
Hamilton HM11, Bermuda
DSF's Address is:
Diversified Strategies Fund, L.P.
108 South Madison Avenue
Louisville, Kentucky 40243
The Manager's address is:
12007 Sunrise Valley Drive, Suite 460
Reston, VA 20191
The name, residence or business address, and the principal
occupation or employment and the name, principal business and
address of any corporation or other organization in which such
employment is conducted, of each executive officer and each
controlling person, if any, of the Reporting Persons, is set forth
in Schedule A hereto. To the best knowledge of each Reporting
Person, each person listed on Schedule A is a United States citizen
and, during the last five years, no person listed on Schedule A has
been convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors) or been a party to a civil
proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is subject
to a judgment, decree or final order enjoining future violations
of, or prohibiting or mandating activities subject to, federal or
state securities laws or finding any violation with respect to such
laws.
(c) The principal business of each of Opportunity and Strategic is
investing in securities and other intangible investment
instruments. It is the policy of Opportunity to invest primarily,
but not solely, in unregistered securities of publicly owned United
States issuers, and to obtain a commitment from such issuers to
register the securities within the agreed upon time periods. It is
the policy of Strategic to invest primarily, but not solely, in
non-public companies who plan to register their securities under
the
Page 8 of 15 pages
<PAGE>
Securities Act of 1933, as amended (the "Securities Act"), thereby
becoming publicly traded companies, within approximately twenty-
four (24) months from the time of Strategic's investment, and in
unregistered securities of publicly owned United States issuers,
and to obtain a commitment from such issuers to register the
securities within agreed time periods. James Q. Chau, Neil T.
Chau, Oskar Lewnowski and Thomas Davis are on the board of
directors of each of Opportunity and Strategic.
DSF is a private family investment fund whose principal business is
investing in securities and other intangible investment
instruments. The general partner of DSF is Neil P. Ramsey.
The Manager is a registered investment adviser under the Investment
Advisers Act of 1940 and acts as investment advisor to each of
Opportunity, Strategic and DSF. James Q. Chau and Neil T. Chau are
the principals of the Manager. The Manager and DSF are parties to
an Investment Advisory Agreement, attached hereto as Exhibit 2 and
incorporated herein by reference, pursuant to which, among other
things, the Manager has the right to make certain investment
decisions and exercise certain voting rights with respect to the
Shares beneficially owned by DSF.
(d) During the last five years, none of the persons listed in Item 2(a)
has been convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors) or been a party to a civil
proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is subject
to a judgment, decree or final order enjoining future violations
of, or prohibiting or mandating activities subject to, federal or
state securities laws or finding any violation with respect to such
laws.
(e) Opportunity and Strategic are each a Cayman Islands exempted
company. DSF is an Illinois limited partnership. The Manager is
a Delaware limited liability company.
Item 3. Source and Amount of Funds or Other Consideration.
All funds utilized by the Reporting Persons to acquire the Shares
pursuant to the Agreements were derived from investment capital of
Opportunity, Strategic and DSF and were payable in immediately available
funds.
Item 4. Purpose of Transaction.
The Reporting Persons acquired the Shares and intend to continue to
evaluate the performance of such Shares as an investment in the ordinary
course of business. In pursuing this investment objective, the
Reporting Persons analyze the operations, capital structure and markets
of the companies in which they invest, including the Company, on a
continuous basis through analysis of documentation and discussions with
knowledgeable industry and
Page 9 of 15 pages
<PAGE>
market observers and with representatives of such companies (often at
the invitation of management). Depending on such assessments, one or
more of the Reporting Persons may acquire additional Shares or may
determine to sell or otherwise dispose of all or some of the Shares
after a conversion of some or all of the Debentures. Whether any of the
Reporting Persons actually effects such sales will depend on its
continuing evaluation of the diversity of its investment portfolio, as
well as the price level and trading uncertainties of the Shares,
available opportunities to dispose of the Shares, conditions in the
securities markets and general economic and industry conditions. These
sales may take place in the open market, through privately negotiated
transactions with third parties, or through any other manner permitted
by applicable law.
The Reporting Persons have, as part of the Agreements, agreed with the
Company not to convert Debentures or exercise Warrants to the extent
such conversion or exercise would result in such Reporting Person
beneficially owning (as determined in accordance with Section 13(d) of
the Exchange Act and the rules thereunder) in excess of 4.999% of the
then issued and outstanding Shares, including Shares issuable upon
conversion of the Debentures held by such Reporting Person; provided,
that a Reporting Person may waive such restriction, as to itself, upon
75 days prior notice to the Company. Opportunity, Strategic and DSF
have each provided the Company with notice of their respective waivers
of the restrictions described above and are filing this Schedule 13D as
a result thereof. Other than as a result of the waiver of such
provision, the Reporting Persons are of the view that it would not be
necessary to file this Schedule 13D for the purpose of reporting the
Shares held by any reporting Person.
None of the Reporting Persons, or any executive officer or control
person thereof, has any current plans or proposals with respect to any
of the items described in (a) through (j) of Item 4.
Item 5. Interest in Securities of the Issuer
(a)(b) Based on its ownership of the Opportunity Liquidated Damages
Shares and an assumed conversion in full of the principal amount
of the Debentures and exercise of the Warrants held by
Opportunity on July 24, 1998, Opportunity would be deemed to be
the beneficial owner of 4,491,838 Shares, which is equal to
12.98% of the Shares issued and outstanding. In addition to the
Opportunity Liquidated Damages Shares, all of the Shares
reported in this Schedule 13D as being beneficially owned by
Opportunity are issuable upon assumed conversion and exercise
(as applicable) of such Debentures and Warrants. Opportunity
has sole voting and dispository power with respect to such
Shares.
Based on its ownership of the Strategic Liquidated Damages
Shares and an assumed conversion in full of the principal amount
of the Debentures and exercise of the Warrants held by Strategic
on July 24,1998, Strategic would be deemed to be the beneficial
owner of 1,668,557 Shares, which is equal to 5.25% of the Shares
issued
Page 10 of 15 pages
<PAGE>
and outstanding. In addition to the Strategic Liquidated
Damages Shares, all of the Shares reported in this Schedule 13D
as being beneficially owned by Strategic are issuable upon
assumed conversion and exercise (as applicable) of such
Debentures and Warrants. Strategic has sole voting and
dispository power with respect to such Shares.
Based on its ownership of the DSF Liquidated Damages Shares and
an assumed conversion in full of the principal amount of the
Debentures and exercise of the Warrants held by DSF on July
24,1998, DSF would be deemed to be the beneficial owner of
554,774 Shares, which is equal to 1.81% of the Shares issued and
outstanding. In addition to the DSF Liquidated Damages Shares,
all of the Shares reported in this Schedule 13D as being
beneficially owned by DSF are issuable upon conversion and
exercise (as applicable) of such Debentures and Warrants. DSF
shares voting and dispository powers with the Manager with
respect to such Shares.
The Manager has shared voting and dispository power with respect
to the 6,715,169 Shares reported in this Schedule 13D as being
owned beneficially by DSF. Therefore, the Manager may be deemed
to be, for purposes of Rule 13d-3 of the Exchange Act, a
beneficial owner of such Shares, representing 18.23% of the
Shares issued and outstanding as of July 24,1998.
(c) None of the Reporting Persons, or any of its executive
officers, directors or control persons, has effected any
transactions in the Shares during the past sixty days.
(d) Not applicable.
(e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or Relationships with
Respect to Securities of the Issuer
1. On October 24, 1997, Opportunity, DSF and the Company executed the First
Agreement, which provides for Opportunity and DSF to acquire from the
Company (i) an aggregate principal amount of $5,000,000 of the Company's
Debentures, due October 24, 2000, which are convertible into Shares, and
(ii) the First Opportunity Warrant and the First DSF Warrant entitling
the Reporting Persons to acquire an aggregate of 331,400 Shares within
three years from the date of issuance of the First Opportunity Warrant
and the First DSF Warrant.
In connection with the First Agreement, Opportunity, DSF and the Company
entered into a Registration Rights Agreement, (the "First Registration
rights Agreement"), pursuant to which the Company agreed to register
under the Securities Act, the Shares issuable under the First Debentures
and the First Warrants on the fifth day following the day the Commission
has approved the Company's Registration Statement on Form 10-SB filed
with the
Page 11 of 15 pages
<PAGE>
Commission and to use its best efforts to have the registration
statement declared effective within 105 days of the date of closing on
the First Agreement.
2. On November 25, 1997, Opportunity, DSF and the Company executed the
Amended Agreement, pursuant to which (i) Opportunity purchased an
aggregate principal amount of $7,000,000 of the Second Debentures, in
exchange for its First Debentures and $3,000,000, and acquired the
Second Opportunity Warrant, to purchase up to 198,840 Shares, and (ii)
DSF exchanged its First Debentures for an aggregate principal amount of
$1,000,000 of the Second Debentures.
In connection with the Amended Agreement, Opportunity, DSF and the
Company entered into an Amended and Restated Registration Rights
Agreement, (the "Second Registration Rights Agreement"), pursuant to
which the Company agreed to register under the Securities Act the Shares
issuable under the Second Debentures, the First Opportunity Warrant, the
Second Opportunity Warrant and the First DSF Warrant on the fifth day
following the day the Commission has approved the Company's Registration
Statement on Form 10-SB filed with the Commission and to use its best
efforts to have the registration statement declared effective within 105
days of the date of closing on the Amended Agreement.
3. On January 22, 1998, Opportunity, DSF and the Company executed the
Second Agreement, which provides for Opportunity and DSF to acquire from
the Company (i) an aggregate principal amount of $2,500,000 of the
Company's Debentures, due January 22, 2001, which are convertible into
Shares, and (ii) the Third Opportunity Warrant and the Second DSF
Warrant entitling Opportunity and DSF to acquire an aggregate of 198,413
Shares within three years from the date of issuance of the Third
Opportunity Warrant and the Second DSF Warrant.
In connection with the Second Agreement, Opportunity, DSF and the
Company entered into a Registration Rights Agreement, (the "Third
Registration Rights Agreement"), pursuant to which the Company agreed to
register under the Securities Act the Shares issuable under the Third
Debentures, the Third Opportunity Warrant and the Second DSF Warrant
within 20 days of the date of closing on the Second Agreement (the
"Second Agreement Closing Date") and to use its best efforts to have the
registration statement declared effective within 50 days of the Second
Agreement Closing Date.
4. On March 11, 1998, Strategic and the Company executed the Third
Agreement, which provides for Strategic to acquire from the Company (i)
an aggregate principal amount of $1,500,000 of the Company's Debentures,
due March 11, 2001, which are convertible into Shares, and (ii) the
First Strategic Warrant entitling Strategic to acquire an aggregate of
126,268 Shares within three years from the date of issuance of the First
Strategic Warrant.
In connection with the Third Agreement, Strategic and the Company
entered into a Registration Rights Agreement, (the "Fourth Registration
Rights Agreement"), pursuant to which the Company agreed to register
under the Securities Act the Shares issuable under
Page 12 of 15 pages
<PAGE>
the Fourth Debentures, the First Strategic Warrant within 20 days of
the date of closing on the Third Agreement (the "Third Agreement Closing
Date") and to use its best efforts to have the registration statement
declared effective within 50 days of the Third Agreement Closing Date.
5. On April 8, 1998, Strategic and the Company executed the Fourth
Agreement, which provides for Strategic to acquire from the Company (i)
an aggregate principal amount of $3,000,000 of the Company's Debentures,
due April 8, 2001, which are convertible into Shares, and (ii) the
Second Strategic Warrant entitling Strategic to acquire an aggregate of
192,942 Shares within three years from the date of issuance of the
Second Strategic Warrant.
In connection with the Fourth Agreement, Strategic and the Company
entered into a Registration Rights Agreement, (the "Fifth Registration
Rights Agreement"), pursuant to which the Company agreed to register
under the Securities Act the Shares issuable under the Fifth Debentures
and the Second Strategic Warrant within 20 days of the date of closing
on the Fourth Agreement (the "Fourth Agreement Closing Date") and to use
its best efforts to have the registration statement declared effective
within 50 days of the Fourth Agreement Closing Date.
6. On June 25, 1998, Opportunity and the Company executed the Fifth
Agreement, and incorporated herein by reference, which provides for
Opportunity to acquire from the Company (i) an aggregate principal
amount of $3,000,000 of the Company's Debentures, due June 25, 2001,
which are convertible into Shares, and (ii) the Third Opportunity
Warrant entitling Opportunity to acquire an aggregate of 300,000 Shares
within three years from the date of issuance of the Third Opportunity
Warrant.
In connection with the Fifth Agreement, Opportunity and the Company
entered into a Registration Rights Agreement, incorporated herein by
reference (the "Sixth Registration Rights Agreement"), pursuant to which
the Company agreed to register under the Securities Act certain
Liquidated Damages Shares, the Shares issuable under the Sixth
Debentures and the Third Opportunity Warrant within 20 days of the date
of closing on the Fifth Agreement (the "Fifth Agreement Closing Date")
and to use its best efforts to have the registration statement declared
effective within 50 days of the Fifth Agreement Closing Date.
Item 7. Material to be Filed as Exhibits
1. Joint Filing Agreement(4)
2. Investment Advisory Agreement(4)
3. The First Agreement(1)
4. The First Registration Rights Agreement(2)
5. The Amended Agreement(2)
6. The Second Registration Rights Agreement(2)
7. The Second Agreement(1)
8. The Third Registration Rights Agreement(1)
Page 13 of 15 pages
<PAGE>
9. The Third Agreement(3)
10. The Fourth Registration Rights Agreement(3)
11. The Fourth Agreement(3)
12. The Fifth Registration Rights Agreement(3)
13. The Fifth Agreement(1)
14. The Sixth Registration Rights Agreement(1)
15. Form of First Debenture(2)
16. Form of Second Debenture(2)
17. Form of Third Debenture(1)
18. Form of Fourth Debenture(3)
19. Form of Fifth Debenture(3)
20. Form of Sixth Debenture(1)
21. Form of Warrant(1)
(1) Filed with the Registration Statement on Form 10-SB, as amended on Form
10-SB/A by the Company on November 17, 1997, on December 22, 1997, on March
2, 1998, and on July 15, 1998, each with SEC File No. 000-23369, and
effective by lapse of time on January 12, 1998.
(2) Filed with the Registration Statement on Form SB-2 filed by the Company
on January 20, 1998, SEC File No. 333-44551.
(3) Filed with the Annual Report on Form 10-KSB filed by the Company on June
2, 1998, SEC File No. 333-23369.
(4) Filed herewith.
Page 14 of 15 pages
<PAGE>
Signatures
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete
and correct.
Dated: July 24, 1998
JNC OPPORTUNITY FUND LTD.
By:/s/ Neil T. Chau
----------------------------
Name: Neil T. Chau
Title: Director
JNC STRATEGIC FUND LTD.
By: /s/ Neil T. Chau
----------------------------
Name: Neil T. Chau
Title: Director
DIVERSIFIED STRATEGIES FUND, L.P.
By: /s/ Neil P. Ramsey
----------------------------
Name: Neil P. Ramsey
Title: President, Ramsey Financial, Inc., General Partner
ENCORE CAPITAL MANAGEMENT, L.L.C.
By: /s/ Neil T. Chau
----------------------------
Name: Neil T. Chau
Title: Director
Page 15 of 15 pages
<PAGE>
SCHEDULE A
EXECUTIVE OFFICERS, DIRECTORS AND CONTROL PERSONS
Name
Present Principal Occupation/Employment
Residence or Business Address
James Q. Chau
Director - Opportunity and Strategic
Managing Member and President - Manager
Manager
Neil T. Chau
Director - Opportunity and Strategic
Managing Member and Chief Investment Officer - Manager
Manager
Oskar Lewnowski
Director - Opportunity and Strategic
Opportunity
Thomas Davis
Director - Opportunity and Strategic
Opportunity
EXHIBIT 1
JOINT FILING AGREEMENT
In accordance with rule 13d-1(f) of the Securities Exchange Act of 1934,
as amended, the undersigned hereby agree to the joint filing with each other
of the attached statement on Schedule 13D, and all amendments thereto, and
that such statement, and all amendments thereto, is made on behalf of each of
them.
IN WITNESS WHEREOF, the undersigned hereby execute this agreement
on July 24, 1998.
JNC OPPORTUNITY FUND LTD.
By: /s/ Neil T. Chau
----------------------------
Name: Neil T. Chau
Title: Director
JNC STRATEGIC FUND LTD.
By: /s/ Neil T. Chau
----------------------------
Name: Neil T. Chau
Title: Director
DIVERSIFIED STRATEGIES FUND, L.P.
By: /s/ Neil P. Ramsey
----------------------------
Name: Neil P. Ramsey
Title: President, Ramsey Financial, Inc., General Partner
ENCORE CAPITAL MANAGEMENT, L.L.C.
By: /s/ Neil T. Chau
----------------------------
Name: Neil T. Chau
Title: Director
INVESTMENT ADVISORY AGREEMENT
This Investment Advisory Agreement (the "Agreement") is entered into
this 18th day of September, 1997, by and between Diversified Strategies Fund,
L.P. (the "Client"), Encore Capital Management, L.L.C. (the "Advisor").
WHEREAS, the Client wishes to selectively invest in private placement
offerings of publicly traded companies and options thereon pursuant to
Regulation D of the Securities Exchange Commission Act of 1933 (collectively,
"Investments"); and
WHEREAS, the Advisor has experience in making such Investments; and
WHEREAS, the Client wishes to retain the Advisor to manage a portion of
its assets in such manner; and
WHEREAS, the Advisor has agreed to provide such advisory services.
NOW THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereby agree as follows:
1. Appointment of Advisor. Client will establish an account (the
"Account") at Lehman Brothers, in an initial amount of $4,000,000.00 and
appoints the Advisor as its exclusive investment advisor for the Account.
2. Authority. Advisor will supervise and direct Investments for the
Account. Advisor will make investment decisions with respect to the
Investments and place transaction orders with brokers and dealers as
determined in good faith by Advisor.
3. Investment Objectives and Restrictions. The Account will be
managed by the Advisor in a manner substantially identical to that set forth
in the Private Placement Memorandum for Encore Opportunity Fund, L.L.C.,
dated February 19, 1997 ("Investment Objectives"). While the Investment
Objectives will be substantially identical, Client acknowledges that the
trading of the Account will not necessarily be identical to the trading of
Encore Opportunity Fund, L.L.C. in all respects, although it may be the same.
4. Prime Broker. Advisor will not take custody of any assets of the
Account, but will issue settlement instructions to the Prime Broker
designated by Client ("Prime Broker"). The initial Prime Broker shall be
Lehman Brothers. The Prime Broker may be changed from time to time upon the
written instructions of Client. All transactions authorized by this
Agreement shall be made by payment to or delivery by Prime Broker. Advisor
shall not act as Prime Broker or at any time have possession of cash or
securities of the Account with the exception where the Advisor would have
custody of the certificates of unregistered convertible securities in order
to effectively manage the conversion process.
5. Brokerage. In executing all transactions, the Advisor will select
a broker/dealer who will not charge a commission in excess of similar
customary institutional transactions. Brokerage commissions shall not exceed
$.06 (six cents) per share without prior authorization from the Client.
6. Account Information. Client will provide, or instruct Prime Broker
to provide, Advisor with information Advisor may request, including account
status on a daily basis.
7. Valuation. Any equity security listed on a national securities
exchange shall be valued at the last quoted bid price on the valuation date
on the principal exchange on which the security is traded. Any other
security or asset shall be valued in a manner determined in good faith by the
Advisor to reflect its fair market value. Notwithstanding the foregoing, the
Private Placement Memorandum for Encore Opportunity Fund, L.L.C. ("PPM")
shall govern the valuation methodology.
8. Compensation. The compensation of Advisor shall be calculated and
paid in accordance with the attached Schedule A.
9. Service to Other Clients. It is understood that Advisor and its
affiliates may give advice and take action for other clients which differs
from advice given or the timing or nature of action taken for the Account.
Advisor is not obligated to initiate transactions for the Account in any
security which Advisor, its principals, affiliates or employees may purchase
or sell for their own accounts or for other clients.
10. Confidential Relationship. Information furnished by either party
to the other, including their respective agents and employees, is
confidential and shall not be disclosed to third parties unless requested by
a regulatory authority or otherwise required by law.
11. Proxies. Client hereby agrees, until further notice, that Advisor
shall have the right to vote all proxies for securities held in the Account.
12. Expenses. The Advisor will render its management and advisory
services pursuant to this Agreement at its own expense. The Client will be
responsible for all other expenses relating to the Account, including, but
not limited to, brokerage commissions, interest on debit balances and taxes.
13. Liability for Losses. Advisor will not be liable for any loss
suffered by reason of any investment decision, recommendation or other action
taken or omitted in what Advisor in good faith believes to be the proper
performance of its duties hereunder. Advisor will be liable, however, for
any loss suffered due to material lack of conformance with the Investment
Objectives set forth in Section 3. Advisor will not, in any event, be liable
for any act or failure to act by any Prime Broker or broker with whom the
Client or Advisor may deal in connection with the subject matter of this
Agreement. Nothing contained herein, however, shall constitute a waiver of
any rights of Client under applicable Federal or State securities law.
14. Representations and Warranties of the Advisor. The Advisor hereby
represents and warrants to the Client that:
(a) It is a corporation duly organized and validly existing under
the laws of the State of Delaware and is qualified to do business and is in
good standing in each other jurisdiction in which the nature or conduct of
its business requires such qualification and in which the failure to so
qualify would materially adversely affect its ability to conduct its business
activities.
(b) It has full corporate power and authority to perform its
obligations under this Agreement.
(c) This Agreement has been duly and validly authorized, executed
and delivered on behalf of the Advisor and is a valid and binding agreement
of the Advisor enforceable in accordance with its terms.
(d) The execution and delivery of this Agreement, the incurring of
the obligations set forth in this Agreement and the performance of such
obligations will not violate, or constitute a breach of or default under the
Articles of Incorporation of the Advisor or any agreement or instrument by
which it is bound or, to the best of the Advisor's knowledge, any order,
rule, law or regulation applicable to the Advisor of any court or any
governmental body or administrative agency or self-regulatory authority
having jurisdiction over the Advisor.
(e) There is not pending or, to the best of the Advisor's
knowledge, threatened, any action, suit or proceeding before or by any court
or other governmental or self-regulatory authority to which the Advisor is a
party which might reasonably be expected to result in any material adverse
change in the financial condition or regulatory qualifications of the
Advisor.
(f) It will exercise good faith and due care and will, under no
circumstances, deliberately use any procedures in discharging its obligations
hereunder that it or any of its principals knows or has reason to believe is,
in view of the constraints imposed on the Advisor by the Client, materially
inferior to the procedures employed for any other account for which the
Advisor or any of its principals or affiliates discharges obligations (either
alone or in conjunction with others) similar to those undertaken by the
Advisor hereunder.
(g) It will promptly notify the Client of any material change in
any of the foregoing representations and warranties or of any material change
in the investment approaches or strategies to be utilized in connection with
this Agreement.
15. Representations and Warranties of the Client. The Client hereby
represents and warrants to, the Advisor that:
(a) It is a limited partnership duly organized and validly
existing under the laws of the State of Illinois and is qualified to do
business and is in good standing in each other jurisdiction in which the
nature or conduct of its business requires such qualification and in which
the failure to so qualify would materially adversely affect its ability to
conduct its business activities.
(b) It has full discretionary power and authority to perform its
obligations under this Agreement.
(c) This Agreement has been duly and validly authorized, executed
and delivered on behalf of the Client and is a valid and binding agreement of
the Client enforceable in accordance with its terms
(d) There is not pending or, to the best of the Client's
knowledge, threatened, any action, suit or proceeding before or by any court
or other governmental or self-regulatory authority to which the Client is a
party which might reasonably be expected to result in any material adverse
change in the financial condition or regulatory qualifications of the Client.
(e) It understands and acknowledges that (i) the trading of
securities is speculative and involves a high degree of risk (ii) there can
be no assurance that profits will be realized, or losses avoided or limited,
as a result of the investment activities by the Advisor hereunder, and (iii)
no "safe" investment system has ever been devised and that the Advisor cannot
guarantee profits or freedom from losses.
(f) It will promptly notify the Advisor of any material change in
any of the foregoing representations and warranties.
16. Termination: Assignment. This Agreement may be terminated by
either party at any time upon three (3) days prior written notice to the
other. In the event that this Agreement is terminated on a date which is not
the end of the fiscal year, the Incentive Fee compensation due to Advisor
pursuant to Schedule A shall be prorated to the date of termination and shall
be due and payable as though the termination date were the last day of the
fiscal year. No assignment of this Agreement by Advisor shall be effective
without the prior written consent of Client.
17. Indemnification.
(a) To induce Advisor to act under this Agreement, Client agrees
for itself and its successor or assigns, if any, that in the event of the
termination of the Agreement, it or its successor or assigns will indemnify
Advisor against and hold Advisor harmless from any loss suffered or liability
incurred as a result of any action taken by Advisor after such termination
except if such action was in direct violation of the Investment Objectives.
The foregoing obligation of Client to hold Advisor harmless and to indemnify
same shall include, without limitation, the reimbursement of all expenses and
damages incurred by Advisor including without limitation, reasonable
attorney's fee incurred at the trial and appellate levels. The term
"Advisor," as used in subparagraph (a) shall include the Advisor and any
officer, director or controlling shareholder of Advisor.
(b) Advisor shall indemnify and hold harmless Client and its
controlling persons from and against any and all losses, claims, damages,
liabilities, costs, and expenses, including any reasonable attorney's fees
related to, based upon or arising from the Advisor's acts or omissions
constituting (i) willful misconduct or gross negligence or a material breach
of any fiduciary obligation to Client or conduct not done in good faith or in
the reasonable belief that it was in, or not opposed to, the best interest of
Client, or (ii) a material breach of this Agreement on the part of Advisor.
18. Status of the Advisor. It is understood and agreed that the
Advisor shall be deemed to be an independent contractor of the Client and
that the Advisor shall not have authority to act for or represent the Client
in any way and shall not otherwise be deemed to be agent of the Client.
Nothing contained herein shall create or constitute the Advisor and the
Client as members of any partnership, joint venture, association, syndicate,
unincorporated business, or other separate entity, nor shall be deemed to
confer on any of them any express, implied, or apparent authority to incur
any obligation or Liability on behalf of any other such entity.
19. Notices. Notices under this Agreement shall be in writing and
shall be delivered at the addresses specified herein, or at such other
address as either party may specify by notice given in accordance herewith.
If to the Client, to:
Diversified Strategies Fund, L. P.
108 South Madison Avenue
Louisville, Kentucky 40243
Attn: Neil P. Ramspy
Facsimile Number: 502-245-6737
If to the Advisor, to:
Encore Capital Management, L.L.C.
12007 Sunrise Valley Drive, Suite 460
Reston, Virginia 20191
Attn: James Q. Chau
Facsimile Number: 703-476-7711
20. Governing Law. The validity of this Agreement and the rights and
liabilities of the parties hereunder shall be determined in accordance with
the laws of the State of Illinois, United States of America.
21. Entire Agreement; Counterparts. This Agreement sets forth the
entire agreement of the parties relating to the subject matter hereof, except
as otherwise set forth herein. This Agreement may be executed in one or more
counterparts, each of which shall, however, together constitute one and the
same document.
22. Severability. If any provision of this Agreement is held to be
invalid or unenforceable, the remaining provisions of this Agreement shall
continue in full force and effect. No failure or delay on the part of any
party hereto in exercising any right, power or remedy hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise or any such
right, power or remedy preclude any other or further exercise thereof or the
exercise of any other right, power or remedy. Any waiver granted hereunder
must be in writing and shall be valid only in the specific instance in which
given.
IN WITNESS WHEREOF, this Agreement has been executed for and on behalf
of the undersigned as of the day and year first above written.
DIVERSIFIED STRATEGIES FUND, L.P.
By: /s/ Neil P. Ramsey
--------------------------------
Neil P. Ramsey
President, Ramsey Financial, Inc.
General Partner
Diversified Strategies Fund, L.P.
ENCORE CAPITAL MANAGEMENT, L.L.C.
By: /s/ James Q. Chau
--------------------------------
James Q. Chau
Managing Member and President
<PAGE>
SCHEDULE A
COMPENSATION
As compensation for the management services to be provided hereunder, the
Client shall pay the Advisor the following compensation;
(a) A management fee, for each calendar quarter during which the
Advisor is engaged in the management of the Assets hereunder, in an amount
equal to 1/4 of 1-1/2% (1-1/2% per annum) of the Net Asset Value of the
Assets (as defined below) on the last business day of such quarter. The
management fee for any calendar quarter during which the Advisor is engaged
in the management of the Assets for less than a full quarter shall be
calculated on a pro rata basis. This management fee will be payable on the
following schedule if client increases their account size above the original
$4,000,000:
Annual Management
Assets Fee (Incremental Rate)
------ ----------------------
$0-$4MM 1.5%
$4-$6MM 1.0%
$6MM+ .5%
Eg. +$7MM Account Size
4,000,000 (1.5%) + 2,000,000 (1.0%) + 1,000,000 (0.5%) = $85,000
annually (prorated quarterly)
(b) A performance fee, for each calendar year during which the
Advisor is engaged in the management of the Assets hereunder, in an amount
equal to 20% of any Trading Profits (as defined herein) generated by the
Advisor in the Account during such year. For any calendar year during which
the Advisor is engaged in the management of Assets for less than a full year,
Client shall pay Advisor an asset based fee calculated at 20% of any Trading
Profits for such period.
(c) Any fees due to the Advisor hereunder shall be paid from the
Account, not later than the twentieth business day of the month immediately
following the conclusion of the respective payment period for which such fees
are due. The Advisor shall provide the Client with a statement reflecting
the amount of any fees due for a given period, by not less than the fifth
business day of the month immediately following the conclusion of such
payment period.
(d) For purposes of this Agreement, the Net Asset Value of the
Assets shall be defined as (i) the sum of (A) the value of all cash on
deposit in the Account(s), (B) the net unrealized profit or loss on all open
Investments held in the Accounts as of the end of the period for which the
calculation is made, based on the settlement price on the exchange on which
such positions were established on the last business day of such period (C)
the net unrealized profit or loss on all open Investments, based on
quotations furnished by dealers or pricing services selected by the Client
provided that, if no such quotations are available, such positions shall be
valued by the Client in its reasonable good faith judgment, (D) the purchase
price of any Treasury Bills held in the Account(s), and (E) the value of any
portion of the Assets held in the Custodial Account(s); less (ii) the sum of
(A) commissions paid on liquidated positions and accrued on open positions
during such period, and (B) management and performance fees paid or accrued
to the Advisor for such period. To the extent there is any inconsistency
with respect to the determination of the Net Asset Value, the methodology
stipulated in the PPM shall govern.
(e) "Trading Profits," for the purposes of this Agreement, shall be
defined as (i) the sum of: (A) the net of all realized profits and losses on
Account positions liquidated during the respective period, after subtraction
of brokerage commissions, and (B) the net of all unrealized profits and
losses on Account positions open as of the end of the calendar respective
period, including brokerage commissions which would be incurred in
liquidating the open positions; (ii) less: (C) the net of all unrealized
profits and losses on Account positions open at the end of the previous
calendar respective period, plus the accrued commissions on open positions
from the previous calendar respective period, (D) any expenses directly
related to trading (i.e. give up charges) incurred during the respective
period, and (E) any cumulative net realized trading losses (which shall not
include performance fee expenses) from the Advisor trading of the Account
carried forward from all previous periods since the last period for which a
performance fee was payable. Interest income shall not be included in the
calculation of Trading Profits.
(f) With regard to the carry-forward loss referred to above, it
the Client withdraws funds from the Account during a period when there is
such a carry-forward loss, the loss shall be reduced, at the time of the
withdrawal, by the percentage obtained by dividing the amount of the
withdrawal by the Net Asset Value of the Account immediately before the
withdrawal.
