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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.)
3637 SOUTH GREEN ROAD / SUITE 201
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") was organized under the laws of
the state of Delaware on October 27, 1995. A predecessor of the Company was
initially incorporated on August 11, 1995 under the laws of the state of Utah
and under the name Lifechoice, Inc. The acquisition by the Company of a
company organized by Mark Fixler, the Company's Chief Executive Officer and
Chairman of its Board of Directors, involved several events in or about
October, 1995, including the following: (i) the Company changed its name
from Lifechoice, Inc. to Fix-Corp International, Inc.; (ii) Mr. Fixler
assumed control of the Company with 90% of its then-outstanding common stock;
(iii) the Company was redomiciled from being a corporation organized under
Utah law to one organized in Delaware; and (iv) the Company was transformed,
from being a public shell (under its prior name) with shareholders but no
operations or assets, to a corporation with the operations described below.
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 incorporated on December 17, 1996. During January, 1998 the
Company commenced the manufacturing of plastic pallets from recycled resin
through its wholly-owned subsidiary, Pallet Technology, Inc. ("Pallet
Technology"), a Delaware corporation incorporated on July 7, 1997. Pallet
Technology was originally incorporated under the name Palletech, Inc. but
amended its certificate of incorporation on December 15, 1997 to change its
name to Pallet Technologies, Inc. and again amended its certificate of
incorporation on April 9, 1998 to change its name to Pallet Technology, Inc.
During February, 1998, the Company acquired, through its wholly-owned
subsidiary, Poly Style Industries, Inc. ("Poly Style"), a Delaware
corporation incorporated on February 18, 1998, substantially all of the
assets of a business that manufactures window blinds from recycled polyvinyl
chloride (or "PVC"). During June, 1998, in connection with the acquisition of
the assets of a Canadian oil container recycling company, the Company formed
two additional subsidiaries, the Company's wholly-owned subsidiary Fixcor
Recovery System, Inc. ("FRS-Delaware"), a Delaware corporation incorporated
on June 11, 1998, and FRS-Delaware's wholly-owned subsidiary Fixcor Recovery
Systems Ltd. ("FRS-Alberta"), an Alberta, Canada corporation incorporated on
June 15, 1998.
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 fiscal year 1997,
however, revenues from these businesses constituted less than 7% of the
Company's total revenues, with more than 93% 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.")
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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"). Quantum was not and is not
affiliated with the Company or Mr. Fixler. 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 Pallet Technology
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 Pallet Technology 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.
RECENT DEVELOPMENTS
The equipment ordered for Pallet Technology's initial operations at the Facility
was delivered in December, 1997 and installation commenced within the first week
after delivery. Installation was complete and limited production began during
January, 1998. Production was at full capacity by the end of February, 1998,
with the date of first revenue occurring in March, 1998. As of February 10,
1998, Pallet Technology had approximately $5,000,000 in advance orders. As of
May 1, 1998, Pallet Technology had approximately $10,000,000 in orders. Instead
of purchasing the recycled plastic resin pellets from Fixcor as previously
contemplated and disclosed, Pallet Technology, from the commencement of its
operations, has been purchasing resin pellets from unaffiliated third parties at
market rates. These resin pellets are currently readily available and Pallet
Technology believes that they will continue to be readily available for the
foreseeable future.
The Company's corporate awards jewelry marketing business activity is still
continuing on a limited basis. Revenues from corporate awards jewelry marketing
business for fiscal year 1997 were approximately 3.9% of the Company's revenue.
The purchase order financing business is being phased out. As of September 30,
1997 the aggregate principal of the purchase order financing contracts was
approximately $800,000, and as of May 31, 1998 this amount was reduced to
approximately $30,000, and the Company is not entering and does not intend to
enter into any additional purchase order financing arrangements. Revenues from
purchase order financing business for fiscal year 1997 were approximately 2.2%
of the Company's revenue.
The Company has no current plans to spin-off the Facility's operations in an
initial public offering. Discussion of a spin-off in the notes to the Financial
Statements for fiscal year 1996 was based on long-range options considered by
the Company. (See note 8 to those financial statements.) Management views a
spin-off as an alternative for future consideration, but has no present plan to
pursue that alternative.
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There has been a material change in the cost of raw material since December 31,
1997. As occurred during the fourth quarter of fiscal year 1997, the per pound
cost of raw material has decreased for both mixed and natural raw material. For
mixed raw material, the decrease has been from a range of $0.23 to $0.32 during
fiscal year 1997 to a range of $0.23 to $0.28 during the first three months of
fiscal year 1998. For natural raw material, the decrease has been from a range
of $0.30 to $0.42 during 1997 to a range of $0.30 to $0.35 during the first
three months of 1998. Management believes that this change is attributable to a
decline in demand. (Fixcor's resin prices have declined correspondingly, so that
its margins have remained relatively consistent.)
In February, 1998, the Company entered into an agreement (the "UV Agreement")
with Universal Vinyl Corp. ("UV"), a Florida corporation, as seller, and Yoram
Aisenberg and Avraham Weinstein, each a principal of both Nitro and UV, jointly
and severally as guarantors of UV's obligations. Under the UV Agreement, once
certain conditions were satisfied, on February 28, 1998, the Company acquired
substantially all of the assets of UV, whose operations were located at a plant
in Medley, Florida, a suburb of Miami. The purchase price of these assets was
$1.04 million. The source of funds for this acquisition is cash on hand,
arising from the various capital raising activities of the Company.
The Company intends to utilize the assets acquired under the UV Agreement
through its wholly-owned subsidiary, Poly Style. Poly Style operates those
assets at UV's location (the "UV Plant"), and will continue to do so until it
moves those operations to other space (the "Florida Plant") leased in North
Miami Beach, Florida. The lease of the Florida Plant was executed in April,
1998. Pallet Technology equipment has been delivered to the Florida Plant and
is expected to be operational during the third quarter of fiscal year 1998.
Poly Style's operations are expected to continue at the UV Plant for several
months, but are expected to be moved to the Florida Plant before the end of
fiscal year 1998.
The operations, as to which the assets acquired from UV relate, consist of the
manufacturing of plastic vertical blinds from extruded PVC. PVC is purchased
from third party suppliers at market rates, averaging approximately $0.80 per
pound, a price that has not recently materially fluctuated. The Company
believes that this raw material is readily available. Poly Style's customers
are expected to be wholesale fabricators. Its competition consists primarily of
Hunter-Douglas Corp., Laserlight Inc. and Graber Inc. The Company does not
believe that the UV Plant was, or the Florida Plant is, subject to any
environmental regulations the annual cost of compliance with which was or would
be material. Mr. Aisenberg was named President of Poly Style.
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In addition to being the President of UV and Poly Style, Mr. Aisenberg is a
director of Nitro Plastic Technologies of Israel ("Nitro"). Nitro owns the
proprietary injection molding process licensed to and used by Pallet Technology
in manufacturing pallets. In February, 1998, Nitro, Mr. Aisenberg and Pallet
Technology entered into the First Amended Licensing and Marketing Agreement
under which the royalty rate of $2.50 per pallet sold under Pallet Technology's
original agreement with Nitro is reduced to $0.50 during the first five years
and $0.25 during the next five years. Pallet Technology, in addition to
continuing its operations at the Facility, has ordered and, during approximately
the third quarter of fiscal 1998 expects to install at the Florida Plant
equipment, and to commence the production of pallets. See PART I, ITEM 1,
"DESCRIPTION OF BUSINESS--PATENTS, TRADEMARKS AND LICENSES" and PART I, ITEM 2,
"MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION--PHASE 3."
In June, 1998, the following management changes occurred. Mr. Fixler
resigned from his position as President of the Company, but retained his
positions as Chief Executive Officer and Chairman of the Board. Gary M.
DeLaurentiis was promoted to President of the Company. Andrew I. Press
resigned from his position as Chief Financial Officer of the Company, but
retained his positions as Treasurer and Director and as a member of
committees of the Board of Directors of the Company. Roger A. Kittelson
joined the Company as Chief Financial Officer.
In June, 1998, all credit facilities being provided by Gordon Brothers
Capital, LLC were refinanced through a credit facility with Coast Business
Credit, a division of Southern Pacific Bank, a commercial lender with an
office located in Los Angeles, California. This financing was in the amount
of $20,000,000 and was secured by a security interest in all of the
Company's, Fixcor's, Pallet Technology's and Poly Style's receivables,
inventory, equipment, investment property and general intangibles. Each of
the Company, Fixcor and Pallet Technology also provided cross guarantees
under this financing agreement. This financing arrangement included a
$10,000,000 term loan, a $5,000,000 line of credit for accounts receivables
and a $5,000,000 credit facility for new equipment purchases. (Copies of the
principal documents evidencing this financing and guarantee are exhibits to
this Registration Statement.)
In June, 1998, the Company, through its wholly-owned subsidiary FRS-Delaware
and FRS-Delaware's wholly-owned subsidiary FRS-Alberta, acquired the assets
of a Canadian oil container recycling company, Plastic Recovery Systems for
cash and stock. These operations are intended to compliment the
oil-container recycling business that Fixcor is developing in the United
States. See PART I, ITEM 1, "DESCRIPTION OF BUSINESS--CALIFORNIA GRANT AND
ALLIED SIGNAL AGREEMENT."
SPECIAL NOTE--FORWARD-LOOKING STATEMENTS
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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 four wholly-owned subsidiaries, Fixcor, Pallet Technology, Poly
Style and FRS-Delaware. FRS-Delaware, in turn, has one wholly-owned subsidiary,
FRS-Alberta. Fixcor owns and operates the Facility, located in the Mid-Ohio
Industrial Park at 1835 James Parkway in Heath, Ohio 43056. The Company leases
the UV Plant, located at 9200 N.W. 102nd Street in Medley, Florida 33170, on a
month to month basis, from an unrelated third party. The Company leases the
Florida Plant, located at 120 Northeast 179th Street, North Miami Beach, Florida
from B-K-N Corporation, an Ohio corporation, in which S. Darwin Noll, a director
of the Company, owns a controlling interest. Pallet Technology's operations take
place at the Facility, and are also expected to take place at the Florida Plant.
Poly Style's operations take place at the UV Plant, but are expected to be moved
to the Florida Plant before the end of fiscal year 1998. The closest major
metropolitan area to the Facility is Columbus, Ohio, about 30 miles away. The
closest major metropolitan area to the Florida Plant is Miami, Florida, of which
North Miami Beach is a suburb. 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 recycled plastic resin pellets and
fabricate a value-added plastic end product. Management has contemplated from
time to time a spin-off of certain of its operations. However, the Company has
taken no material action to pursue a spin-off, does not currently contemplate a
spin-off, and no assurances can be made
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that a spin-off or similar transaction will occur. (See note 8 to the
Financial Statements for fiscal year 1996.)
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"). 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 Corporation, 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 a non-written option to purchase the Facility. He waived his
option to purchase and this waiver 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 6,063,036 shares of common stock of
the Company (the "Common Stock"), valued at $3,638,000, or $0.60 per share, all
of which were restricted shares. Mr. Fixler was principally responsible for
representing the Company in these transactions. Since Mr. Fixler was also a
principal shareholder of the Company, the value of the shares issued to him in
connection with this transaction has been charged to expense for the year ended
December 31, 1996.
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 was the
guarantor of this facility in an amount up to $750,000 plus expenses.
OPERATIONS AT THE FACILITY
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The Facility produces post-consumer high density polyethylene (HDPE) plastic
resin pellets. The Facility has three recycling lines to clean and wash the raw
material and five extrusion lines that 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
for the foreseeable future at approximately the current levels, resulting in
annual gross sales of approximately $20,000,000 to $25,000,000 per year with all
processing lines operating.
The manufacturing process is substantially automated and is generally capable
of running 24 hours per day, permitting Fixcor to utilize three shifts.
Fixcor's current production (i.e., output that it expects to produce through
approximately the end of the second quarter of fiscal year 1998) is sold out.
With the third line operating since 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, and while it has no
current plans to do so, the Company believes that it may be advantageous in
the future to expand by opening plants in other regions of the United States
to be closer to suppliers and customers. The Company expects, and has made
plans, to expand the Facility during fiscal year 1998. Fixcor currently has
no material sales directly or indirectly 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.
PALLET TECHNOLOGY
Pallet Technology, a subsidiary formed in July, 1997, specializes in the
production of plastic pallets. Pallet Technology has installed in the Facility
a specialized, state-of-the-art injection molding machine which transforms resin
pellets into plastic
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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
obtained from third parties at market rates or from Fixcor. Pallet Technology
completed engineering work, ordered, received, and installed equipment at the
Facility, and operations commenced in February, 1998. Pallet Technology also
has ordered comparable equipment for installation at the Florida Plant. See
PART I, ITEM 1, "DESCRIPTION OF BUSINESS--RECENT DEVELOPMENTS" for more
information regarding Pallet Technology. 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 over, can itself be recycled.
In July, 1997, the Company, Fixcor and Pallet Technology, as borrowers, secured
financing from Gordon Brothers Capital Corporation, in the form of a $3,500,000
line of credit, intended to finance the acquisition of equipment for use in the
operations of Pallet Technology. This credit facility is secured by
substantially all of the assets of the Company and its subsidiaries. Mr. Fixler
is the guarantor of this line of credit in an amount up to $1,000,000. All
financing from NationsCredit Commercial Corporation was refinanced through
Gordon Brothers Capital, LLC (successor to Gordon Brothers Capital Corporation)
in December, 1997. This resulted in the Company, Fixcor and Pallet Technology
being the borrowers on a revolving credit facility in the principal amount of
$7,000,000, $3,500,000 of which principal matures in October, 1998. In June,
1998, all financing through Gordon Brothers Capital, LLC was refinanced through
Coast by a credit facility in the amount of $20,000,000. Coast did not require
that Mr. Fixler provide a guarantee in connection with this credit facility, but
each of the borrowers cross-guaranteed the obligations of the others.
LEVERAGE
As discussed above, the Company is significantly leveraged. It has entered into
security agreements which encumber substantially 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
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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.
CUSTOMERS
Fixcor ships the resin it produces to its customers by rail and truck. During
1998, the Company has paid approximately $23,000 per month under a railcar lease
agreement for rail shipments. During 1997, these monthly payments averaged
approximately $2,700. 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 receivable, as well as its accounts payable, are generally due
within 30 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 40% or more of Fixcor's production. The one customer that
approaches purchasing 40% of the production is a wholesale distributor, to whom
Fixcor sells resin for further distribution. No other customer purchases more
than 10% of Fixcor's production.
Pallet Technology's operations commenced during January, 1998, and its revenues
commenced during the first quarter of fiscal year 1998. No customer of Pallet
Technology purchases more than 10% of Pallet Technology's production, except
that Pallet Technology has committed to deliver to Nitro for Nitro to distribute
225,000 pallets during 1998. Pallet Technology also entered into a distribution
agreement with Advanced Environmental Products, LLC for that company to purchase
and distribute 350,000 pallets during 1998, and 500,000 during each of the
following two years. Each of those 1998 commitments may exceed 10% of Pallet
Technology's 1998 production, depending on actual production levels. Otherwise,
the Company generally sells its production through purchase orders. These
purchase orders are solicited or received from interested parties by
representatives of the Company's subsidiaries making direct and indirect contact
with potential consumers of resin and pallet products.
Customers of Pallet Technology are, and management expects that those customers
will continue to 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. No customer purchases, or
has placed a purchase order in a quantity that would make that customer a
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purchaser of 10% or more of Pallet Technology's production. Pallet Technology
received advance purchase orders for pallets produced by Pallet Technology in
amounts in excess of $5,000,000. As of June 1, Pallet Technology had
approximately $10,000,000 in orders. The Company expects to ship Pallet
Technology'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. PVC, the raw material used by Poly Style, is readily available
and the price does not materially fluctuate. 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 1998.
Since Fixcor had no operations during 1996, it has no direct information with
respect to the price of raw materials during that year. Based on discussions
with current suppliers, it appears that the cost of raw materials was
approximately the same as the cost that the Company incurred during 1997, and
the first quarter of 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. See PART I, ITEM 1, "DESCRIPTION
OF BUSINESS--RECENT DEVELOPMENTS."
PATENTS, TRADEMARKS AND LICENSES
Pallet Technology has entered into a Licensing and Marketing Agreement with
Nitro. Under that agreement, Pallet Technology 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. Pallet Technology uses the trademark "POWER-PAL 2000"
with respect to its pallets, but has not registered or applied for registration
of that trademark.
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
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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 (as to which United States letters patent were issued after the
date of the agreement) and Fixcor pays a license fee and ongoing royalties
based principally on products sold arising out of use of the licensed
technology. The Company expects that a prototype of equipment using this
technology will be available for limited use by the end of the third quarter
of fiscal year 1998.
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 . Gary M. DeLaurentiis
has entered into an employment agreement with the Company with a term of five
years commencing January 1, 1997. Mr. Aisenberg has entered into a written
employment agreement with the Company with a term of five years commencing
March 5, 1998. The Company expects to enter into an employment agreement with
Mr. Kittelson during July, 1998. 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.
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.
12
<PAGE>
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. Management believes that the Company and its subsidiaries
are in compliance with all applicable environmental laws and regulations, and no
change with respect to this compliance has occurred since December 31, 1997. 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 its operations at the
Facility, and Pallet Technology expects to make none in connection with its
operations at the Facility or the Florida Plant, and Poly Style expects to make
none in connection with its operations at the Florida Plant.
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.
13
<PAGE>
EMPLOYEES
As of June 26, 1998, the Company and its subsidiaries had a total of
approximately 169 employees, all of whom were full-time employees. Of these,
Fixcor had approximately 128 production personnel and a support staff of 10,
and Pallet Technology had 12 production personnel, at the Facility. The
Company had another four employees at its headquarters office in Beachwood.
Poly Style has approximately 15 employees at the UV Plant. 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 five
phases based upon the services performed, the products produced, and the
products and services to be performed and produced.
Note 2(C.) to the December 31, 1996 audited financial statements indicates that
for the year ended December 31, 1995, the Company incurred a bad debt of
$962,471. This charge to earnings related to the Company's Purchase Order
Financing business. As a result of an uncollectible financing, the Company
incurred this expense. After incurring this loss, the Company changed the
procedures it utilized to secure its interest in these transactions to preclude
any future losses. In fact, no losses have been incurred in these transactions
since 1995.
For the years 1996 and 1997, no bad debt provision was deemed necessary
since, in the opinion of management, all trade receivables are collectible .
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.
14
<PAGE>
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 now contains three
operating lines for cleaning and washing the raw material and five extrusion
lines for producing post-consumer plastic resin. 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 $2,500,000 from Gordon Brothers Capital Corporation and $900,000 in cash.
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. All
financing from NationsCredit Commercial Corporation was refinanced through
Gordon Brothers Capital, LLC (successor to Gordon Brothers Capital
Corporation) in December, 1997. This resulted in the Company, Fixcor and
Pallet Technology being the borrowers on a revolving credit facility in the
principal amount of $7,000,000, $3,500,000 of which principal matures in
October, 1998. All financing with Gordon Brothers Capital, LLC was
refinanced through Coast in June, 1998. See PART I, ITEM 1, "DESCRIPTION OF
BUSINESS, --RECENT DEVELOPMENT, --THE COMPANY, --ACQUISITION OF THE FACILITY
and --PALLET TECHNOLOGY."
PHASE 3
On July 7, 1997, the Company formed another wholly-owned subsidiary, Pallet
Technology. The purpose of this subsidiary is to specialize in the
production of plastic pallets. Pallet Technology has ordered a specialized,
state-of-the-art, injection molding machine which transforms resin pellets,
produced by Fixcor, into plastic pallets. Installation of this equipment was
completed during January, 1998 and it was operating at substantially full
capacity by the end of the first quarter of fiscal year 1998. The approximate
cost of the equipment, molds, transportation and installation of the
equipment for Pallet Technology's operation at the Facility was $4,000,000.
The approximate cost of equipment, transportation and installation at the
Florida Plant is expected to be approximately $3,000,000. The total cost of
molds, which has not yet been determined, is not included in this amount. The
cost of the standard pallet mold is approximately $700,000, and additional
molds are on order. Not taking into consideration Pallet Technology's
operations at the Florida Plant, which the Company expects to commence during
the third quarter of fiscal year 1998, the Company conservatively estimates
that Pallet Technology revenues for 1998 will be $10.0 to 13.0 million.
15
<PAGE>
With Pallet Technology operations running at the Florida Plant, the Company
estimates that total 1998 revenues from pallet sales will be $15.0 to 20.0
million. Permanent financing for the Pallet Technology equipment for
installation at the Facility was secured from Gordon Brothers Capital
Corporation. All financing with Gordon Brother Capital, LLC was refinanced
through Coast in June, 1998. See PART I, ITEM 1, "DESCRIPTION OF BUSINESS,
- --RECENT DEVELOPMENT, --THE COMPANY, --ACQUISITION OF THE FACILITY and
- --PALLET TECHNOLOGY."
PHASE 4
During September, 1997, the Company's wholly-owned subsidiary, Fixcor, entered
into an agreement with AlliedSignal. Under this 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.
PHASE 5
During February, 1998, the Company's wholly-owned subsidiary, Poly Style entered
into the UV Agreement, under which Poly Style acquired substantially all of the
assets of UV for a purchase price of approximately $1.04 million. Poly Style
manufactures plastic vertical window blinds from extruded PVC. Poly Style's
operations commenced shortly after the acquisition at the UV Plant and have been
moved to the Florida Plant. See PART I, ITEM 1, DESCRIPTION OF BUSINESS--RECENT
DEVELOPMENTS.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996, AS COMPARED TO THE
YEAR ENDED DECEMBER 31, 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, Pallet Technology or Poly Style
operations.
Revenues for the twelve months in fiscal year 1996 from the purchase order
financing were $510,779 versus $191,795 for the twelve months in fiscal year
1997, a decrease of approximately 60 percent. The reduction in revenues
reflects a change in the orientation of the Company from financing and sales to
manufacturing resin and resin products. During the fourth quarter of 1997,
financing of purchase orders declined to the point that only one receivable was
outstanding related to this activity at December 31, 1997, and the balance of
that receivable was only $30,000.
16
<PAGE>
Revenues from merchandise sales for the year ended December 31, 1996, were
$232,824. These revenues for the year ended December 31, 1997 were $346,326
resulting in an annualized increase in sales of 49%. This increased volume of
sales is expected to continue during 1998. Although the Company is expending
limited time and resources in this operation, as a result of contacts developed
in prior years, the revenues from these sales continue to have limited growth.
For the year ended December 31, 1997, the revenues of Fixcor were $7,708,051.
Cost of goods sold on these sales was $4,428,519 resulting in a gross margin of
42%. This operation was the primary focus of the Company for fiscal year 1997
and the first quarter of 1998. With the addition of another resin processing
line during October, 1997, and future expansion plans, it is expected that
revenues in 1998 will be substantially higher than those in 1997.
General and administrative expenses for the year ended December 31, 1996, were
$491,383 compared with $2,045,767 for the year ended December 31, 1997. This
increase is a result of gearing up the Fixcor operations. It includes salaries
and direct compensation related to the production and operation of the Facility,
fees and expenses incurred related to third party borrowings and the sale of
equity shares in the Company, and the professional fees necessary to meet
regulatory commitments.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 1997, AS COMPARED TO THE
QUARTER ENDED MARCH 31, 1998
A review of the first quarter of fiscal year 1998 as compared to the results of
operations from the same period in 1997 indicates that the Company has continued
to grow and improved its profitability. Gross margins for the first quarter of
1998 were $2,358,234 versus $530,586 for the prior year.
This growth is a result of increased resin sales from expanded capacity and
operations at the Facility, the startup and sales of plastic pallets by Pallet
Technology during the latter part of the first quarter of 1998, and the
profitability of the Poly Style operations. Gross margins for these entities
are summarized below:
<TABLE>
<CAPTION>
COST OF GROSS
SALES GOODS MARGIN
SOLD
<S> <C> <C> <C>
17
<PAGE>
COMPANY 100,340 42,190 58,150
FIXCOR 3,486,573 1,549,771 1,936,802
POLY STYLE 72,026 28,810 43,216
PALLET TECHNOLOGY 518,068 198,002 320,066
</TABLE>
Another source of income for the period related from the increased value of
funds invested in marketable securities. As a result of these gains, the
Company recognized $600,000 of income from this source.
During the quarter, additional long-term financing was obtained in two forms.
First, the Company borrowed an additional $2,000,000 on its facility with the
Gordon Brothers Capital Corporation. These monies were used to fund the
Company's growing working capital needs. These needs are a result of increased
production and sales with their impact of requiring the Company to incur
increasing receivable and inventory balances.
Another source of financing was the receipt of $4,000,000 in the form of
subordinated convertible debentures. These debentures bring the total amount of
this form of debt to $12,000,000. (An additional $3,000,000 in debentures were
sold in April, 1998, and an additional $3,000,000 in debentures were sold in
June, 1998.) These monies are used to fund the long-term growth needs of the
Company. These needs include additional equipment and building expansions to
accommodate the growth of the Company.
LIQUIDITY AND CAPITAL RESOURCES AS OF DECEMBER 31, 1997
The Company's cash balance increased by $6,671,080 to $6,895,619 from December
31, 1996 to December 31, 1997 and working capital increased by $7,068,275 to
$14,302,066 from December 31, 1996 to December 31, 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. The third source of funds was from the issuance
of convertible debentures. These monies were used to acquire additional
equipment and fund working capital needs in Fixcor's operations.
As of March 31, 1998, other than ordering and installing equipment for use by
Pallet Technology at the Florida Plant in capital expenditures and commitments
therefor were minimal. As of that date Pallet Technologies had ordered its
equipment, making a commitment of approximately $3,700,000. This additional
18
<PAGE>
equipment for Pallet Technology's operations at the Florida Plant is expected to
be installed during the second and third quarters of fiscal year 1998.
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 Pallet Technology operations in connection with their commencement
during the second and third quarters of fiscal year 1998, and in connection with
the commencement of PolyStyles operations during that period. 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 PART I, ITEM 1, DESCRIPTION OF BUSINESS--RECENT DEVELOPMENTS, and
the discussion of the "CONVERTIBLE DEBENTURES" below.
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 Debentures bearing
interest at the rate of 6% per annum, payable quarterly in arrears, and due
October 24, 2000 (the "October Debentures"). On November 25, 1997, pursuant
to an Amended and Restated Convertible Debenture Purchase Agreement and
collateral documents, the interest rate to the October Debentures was reduced
to 5% (retaining the original October 24, 1997 effective date of the October
Debentures), and the Company issued new Debentures in the principal amount of
$3,000,000 to one of the October, 1997 investors, bearing a rate of 5% per
annum, payable quarterly in arrears, and due November 25, 2000. The Company
expects to use the net proceeds of the transactions primarily for the
acquisition of equipment for the start-up and expansion of Pallet Technology
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) 84% (previously 85% under the October documents) 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.
19
<PAGE>
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. One of the purchasers received
additional warrants to purchase an aggregate 198,840 shares of Common Stock at
that same price, exercisable at any time through November 25, 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 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.
In January, 1998, the Company issued to the same two purchasers $2,500,000
aggregate principal amount of three-year, 4% convertible debentures due January
22, 2001, convertible (together with interest thereon) at any time into shares
of Common Stock at a conversion price equal to the lesser of (i) $3.34, or (ii)
83% of the average of the 5 lowest closing bid prices for the 10 trading days
preceding conversion. The purchasers also received warrants to purchase an
aggregate 198,413 shares of Common Stock at an exercise price equal to $3.34 per
share. The warrants are exercisable at any time through January 22, 2001. The
Company is required to amend the Registration Statement on Form SB-2 to include
resale by the holders of shares issuable upon conversion of such debentures and
exercise of such warrants.
In March, 1998, the Company issued to JNC Strategic Fund Ltd. $1,500,000
aggregate principal amount of three-year, 4% convertible debentures due March
11, 2001, convertible (together with interest thereon) at any time into shares
of Common Stock at a conversion price equal to the lesser of (i) $3.31, or (ii)
83% of the average of the 5 lowest closing bid prices for the 10 trading days
preceding conversion. The purchasers also received warrants to purchase an
aggregate 126,268 shares of Common Stock at an exercise price equal to $3.31 per
share. The warrants are exercisable at any time through March 11, 2001. The
Company is required to amend the Registration Statement on Form SB-2 to include
resale by the holders of shares issuable upon conversion of such debentures and
exercise of such warrants.
In April, 1998, the Company issued to JNC Strategic Fund Ltd. $3,000,000
aggregate principal amount of three-year, 4% convertible debentures due April 8,
2001, convertible (together with interest thereon) at any time into shares of
Common Stock at a conversion price equal to the lesser of (i) $4.22, or (ii) 83%
of the average of the 5 lowest closing bid
20
<PAGE>
prices for the 10 trading days preceding conversion. The purchasers also
received warrants to purchase an aggregate 192,542 shares of Common Stock at
an exercise price equal to $4.22 per share. The warrants are exercisable at
any time through April 8, 2001. The Company is required to amend the
Registration Statement on Form SB-2 to include resale by the holders of
shares issuable upon conversion of such debentures and exercise of such
warrants.
In June, 1998, the Company issued to JNC Opportunity Fund Ltd. $3,000,000
aggregate principal amount of three-year, 4% convertible debentures due June 25,
2001, convertible (together with interest thereon) at any time into shares of
Common Stock at a conversion price equal to the lesser of (i) $4.00, or (ii) 83%
of the average of the 5 lowest closing bid prices for the 10 trading days
preceding conversion. The purchasers also received warrants to purchase an
aggregate 300,000 shares of Common Stock at an exercise price equal to $4.00 per
share. The warrants are exercisable at any time through June 25, 2001. The
Company is required to amend the Registration Statement on Form SB-2 to include
resale by the holders of shares issuable upon conversion of such debentures and
exercise of such warrants.
The debenture transaction documents include additional representations,
warranties, covenants and default provisions often customary for such
financings.
YEAR 2000 COMPLIANCE
Many computer systems currently record years in a two-digit format. Such
systems, if not modified, will be unable to recognize and properly process
information with dates beyond the year 1999. The potential problems arising out
of this inability are commonly referred to as the "Year 2000 Issue" and will
affect virtually all companies, government agencies and other organizations.
During 1997, the Company performed an assessment of its computer systems to
determine whether or not they were in compliance with Year 2000 requirements. As
of December 31, 1997, the Company does not believe that any operations include
systems that do not comply with Year 2000 requirements in any material respect,
and that any costs to bring such non-complying systems into compliance will be
immaterial to the Company's business, operations and financial condition. The
Company expects to incur and expense such costs, if any, to general and
administrative during 1998.
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
21
<PAGE>
north which has been zoned for additional industrial buildings. The site is
approximately 10 acres.
The Facility was constructed in 1991 and includes approximately 48,000 square
feet of space for manufacturing and an additional 1,643 square feet for a
finished office area. 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.
The book value of the Facility represented more than 10% of the total assets
of the Company as of the end of fiscal year 1997. Currently, the only
planned material renovation, improvement or further development of the
Facility is an expansion of the Facility as to which the Company is in the
planning stages. The estimated cost of the Pallet Technology improvements was
approximately $4,000,000, financed by cash on hand, primarily 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.
<TABLE>
<CAPTION>
BASIS LIFE CLAIMED METHOD
----- ------------ ------
<S> <C> <C> <C>
Building $1,000,000 39 years Straight-line
Equipment $11,600,000 10 years Straight-line
</TABLE>
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 1,147 sq. ft. of office space at 3637 South Green Road,
Suite 201, Beachwood, Ohio 44122 at a lease rate of $1,383 per month. The
lease has a term of three years commencing November 15, 1997. Beachwood is a
suburb of Cleveland, Ohio.
The Company leases the UV Plant in Medley, Florida on a month to month basis,
and, by the end of fiscal year 1998 plans to move into the Florida Plant.
The Florida Plant, located at 120 Northeast 179th Street, North Miami Beach,
22
<PAGE>
Florida, consists of approximately 65,000 sq. ft. of space. This lease
commenced April 17, 1998, has a term of 10 years, and the lease rate is
$24,375 per month. The lease also grants the Company an option to buy the
Florida Plant during the first five years of the term. The UV Plant is
located in Medley, Florida, and the Florida Plant is located in North Miami
Beach, Florida. North Miami Beach is a suburb of Miami, Florida.
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 June 26, 1998.
COMMON STOCK
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of Beneficial
Beneficial Owner Ownership Percent of Class
<S> <C> <C>
Mark Fixler 4,644,392 15.4%
3637 South Green Road
Suite 201
Beachwood, Ohio 44122
Gordon Brothers Capital, 2,390,300* 8.0%*
LLC*
126 East 56th Street
New York, New York 10022
</TABLE>
*As a member of a group consisting of Gordon Brothers Capital, LLC and
affiliated individuals. Information based solely on Schedule 13G filed on May
11, 1998, SEC File Number 005-53999.
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.
23
<PAGE>
COMMON STOCK
<TABLE>
Name and Address Amount and Nature
of Beneficial Owner of Beneficial Ownership Percent of Class
<S> <C> <C>
Mark Fixler 4,644,392 15.4%
3637 South Green Road
Suite 201
Beachwood, Ohio 44122
All Directors and Officers 6,490,892* 21.67%*
as a Group
</TABLE>
* Includes 200,000 shares which are subject to options granted by the Company
to Mr. Aisenberg, 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, 42, is the Company's Chief Executive Officer 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 President of the Village
Counsel of his home community, Mayfield Village, Ohio. See PART I, ITEM 6,
EXECUTIVE COMPENSATION.
GARY M. DELAURENTIIS, 53, is the President of the Company and President of
Fixcor. 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.
ROGER A. KITTELSON, 53, is Chief Financial Officer of the Company, a position
to which he was appointed as of June 15, 1998. From 1992 to 1998, Mr.
Kittelson was Vice President of Finance, Chief Financial Officer and
Secretary of The Garber Company and Special Packaging Inc., each a Delaware
corporation with its principal office located in
24
<PAGE>
Ashland, Ohio, and previously subsidiaries of GAR Holding Corp. and now
subsidiaries of Caraustar Industries, Inc., a company headquartered in
Austell, Georgia. The Garber Company manufactures printed folding cartons,
and Special Packaging Inc. performs custom manufacturing and special custom
packaging Mr. Kittelson is a certified public accountant. Prior to joining
those companies, Mr. Kittelson owned and operated plastics companies.
Previously he was a partner with Arthur Andersen, an international public
accounting and management consulting firm.
ANDREW I. PRESS, 49, is Treasurer and Director of the Company. He was Chief
Financial Officer of the Company from August 6, 1997 through June 16, 1998.
Mr. Press is a certified public accountant, and for the past ten years has
been affiliated with Bick-Fredman & Co. CPA's. He also has served as officer
and director of a Ohio-based venture capital company. He is a member of the
American Institute of C.P.A.'s ("AICPA") and the Ohio Society of C.P.A.'s
("OSCPA") and serves on AICPA's Small Business Taxation Committee and OSCPA's
State Taxation Committee. In addition to being a public speaker in the areas
of financial and tax planing, Mr. Press is presently a member of the Board of
Trustees and Treasurer for the Multiple Sclerosis Society of N.E. Ohio.
BOARD OF DIRECTORS
The Board of Directors is composed of six individuals, Mr. Fixler, Mr.
DeLaurentiis, Mr. Press, Michael DiSanto, Mr. Noll and Lawrence C. Schmelzer.
A brief biography of Messrs. DiSanto, Noll and Schmelzer follows. Messrs.
Press, DiSanto and Noll are serving their first term, having been elected at
the annual meeting of the Company's stockholders on April 22, 1998. Messrs.
Fixler, DeLaurentiis and Schmelzer were re-elected at that meeting. Each of
the directors is serving a one-year term expiring at the annual meeting of
the Company's stockholders in 1999.
MICHAEL DISANTO, 52, is owner and President of DiSanto Enterprises Inc., a
land development company established in 1994. From 1978 to 1994, Mr. DiSanto
was president of Transco Construction Co. Inc., a building and development
company which specialized in custom home construction and developing
communities. Mr. DiSanto received a Bachelor of Business Administration from
Ohio University in 1969. He is a member of the Builder Industry Association
of Cleveland and sits on the Committee for Land Developers. Mr. DiSanto has
also applied his business expertise to the ownership of several restaurants
in the Cleveland and Atlanta areas.
S. DARWIN NOLL, 77, is Chairman and Chief Executive Officer of Cardinal
American Corporation, with which he has been affiliated for over 50 years.
During his work career, he served in executive capacities at 17 manufacturing
plants world wide. He has also served on the boards of Vocational Guidance
Services, Youth Opportunities Unlimited at the Cleveland Health Museum, The
Achievement Center for Children, St. Vincent Charity Hospital, The Jewish
Community Federation and the Cleveland 500 Foundation. Mr. Noll was recently
appointed to the Board of the Palm Beach Fellowship of Christians & Jews,
25
<PAGE>
Inc. In May 1994, Mr. Noll was granted an Honorary Doctor of Laws Degree from
John Carroll University.
LAWRENCE C. SCHMELZER, 61, is the retired Chairman of 1st Cleveland
Securities, Inc., a full service brokerage firm in Cleveland, Ohio, and held
that position from 1991 to 1998. 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. Directors are reimbursed for their reasonable
out-of-pocket expenses in connection with attending meetings of the Board and
its committees.
The Board of Directors has two committees comprised of members thereof.
Following the April 22, 1998 annual meeting of the stockholders, the Board
created two standing committees, a Compensation Committee and an Audit
Committee.
COMPENSATION COMMITTEE. The Compensation Committee makes recommendations to
the Board of Directors concerning compensation, including incentive
arrangements, of the Company's officers and key employees and others. The
members of the Compensation Committee are Messrs. DeLaurentiis, Press and
Schmelzer.
AUDIT COMMITTEE. The Audit Committee (i) reviews the accounting and
financial reporting practices of the Company and the adequacy of its system
of internal controls, (ii) reviews the scope and results of any outside audit
of the Company and the fees therefor, and (iii) makes recommendations to the
Board of Directors or management concerning auditing and accounting matters
and the selection of outside auditors. The members of the Audit Committee
are Messrs. Noll, Press and DiSanto.
SIGNIFICANT EMPLOYEES
The only person who is not an executive officer but who is expected by the
Company to make a significant contribution to the business of the Company is
Mr. Aisenberg. He is party to a five year employment contract with the
Company dated March 5, 1998, pursuant to which he serves as Vice president of
Development of the Company and President of Poly Style. Mr. Aisenberg has
been a Director of Nitro since 1995 and has been President of UV since 1987.
In these capacities, he has extensive experience in the fields of engineering
and plastics.
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
Chief Executive Officer
26
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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 was also
granted an option to purchase 4,000,000 shares of common stock of the Company
at a fixed price of $.50 per share. This option was exercisable at any time
during the employment period. Finally, in the event of a consolidation with,
or purchase of assets by, 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. In April, 1998, Mr. Fixler surrendered, relinquished and waived any and
all rights to the option to purchase 4,000,000 shares of common stock of the
Company under his employment agreement, and the Board of Directors of the
Company accepted that surrender, and cancelled that option.
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 $150,000 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 the Company and President of Fixcor.
He was not employed by the Company or Fixcor during fiscal year 1996.
Mr. Aisenberg is party to a five year employment contract with the Company
dated March 5, 1998, pursuant to which Mr. Aisenberg serves as Vice President
of Development of the Company and President of Poly Style, at an annual
salary of $150,000. Under that agreement, Mr. Aisenberg was granted an
option to purchase 200,000 shares of common stock of the Company at a price
of $3.05 per share, exercisable at any time during the employment period. Mr.
Aisenberg is also entitled to expense reimbursement and other benefits
customarily given to executive officers, and to a $150,000 severance benefit
if the employment agreement is terminated prematurely.
The Company currently has no stock appreciation rights, long-term incentive,
stock option plans or similar benefit plans for its executives or other
employees.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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During 1996, the Company loaned $26,000 to Fix-Sports, Inc., a company
partially owned by Mr. Fixler . 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 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 a non-written option to purchase the Facility. He
waived his option to purchase and this waiver 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 6,063,036 shares
of Common Stock (valued at $3,638,000 or $0.60 per share), all of which were
restricted shares. Since Mr. Fixler was also a principal shareholder of the
Company, the value of the shares issued to him in connection with this
transaction has been charged to expense for the year ended December 31, 1996.
Mr. Fixler also guaranteed up to $1,000,000 of the July, 1997 financing from
Gordon Brothers Capital Corporation.
In April, 1998 the Company entered into a lease with B-K-N Corporation, an
Ohio corporation, in which Mr. Noll, a Director of the Company, holds a
controlling interest, for the Florida Plant. The lease commenced April 17,
1998, is for a term of 10 years with a monthly rent payment of $24,375 and
includes an option to purchase during the first five years of the term. The
security deposit was made in the form of a demand note for $48,750. The
Company believes that the terms of that lease are at least as favorable to
the Company as the terms that would be agreed to by an unrelated party for
comparable property.
Gordon Brothers Capital, LLC, reported to be part of a group holding more
than five percent of the outstanding shares of Common Stock, has entered into
various lending and related relationships with the Company. Gordon Brothers
Capital, LLC has loaned funds or provided credit facilities to the Company.
In April, 1997, Gordon Brothers Capital, LLC's predecessor, Gordon Brothers
Capital Corporation provided bridge financing in connection with the
acquisition of the Facility in the amount of $2,500,000. In July, 1997,
Gordon Brothers Capital Corporation provided a $3,500,000 secured line of
credit, intended to finance the acquisition of equipment for use in the
operations of Pallet Technology. In addition, all financing from
NationsCredit Commercial Corporation (originally incurred by in May, 1997)
was refinanced through Gordon Brothers Capital, LLC in December, 1997. This
resulted in the Company, Fixcor and Pallet Technology being the borrowers on
a revolving credit facility in the principal amount of $7,000,000, $3,500,000
of which principal was to mature in October, 1998. In June, 1998, all
financing by Gordon Brothers Capital, LLC was refinanced through Coast. In
December, 1996 and July, 1997 in connection with debt financings from Gordon
Brothers Capital Corporation,
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<PAGE>
the Company granted to Gordon Brothers Capital Corporation warrants for the
purchase of an aggregate of 1,000,000 shares of Common Stock at an exercise
price of $0.125 per share, which warrants were exercised in November, 1997.
Certain "piggyback" and other registration rights with respect to the warrant
shares were also granted to Gordon Brothers Capital Corporation. During 1997,
Gordon Brother Capital Corporation exercised rights to convert $350,000 of
the bridge notes, including certain interest accruals, into, and the Company
issued, a total of 783,000 shares of Common Stock. Finally, during the first
quarter of 1998, the Company borrowed an additional $2,000,000 on its
facility with Gordon Brothers Capital, LLC. See PART I, ITEM 1, DESCRIPTION
OF BUSINESS, --ACQUISITION OF THE FACILITY, --PALLET TECHNOLOGY; PART II,
ITEM 5, MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS, --RECENT
SALES OF UNREGISTERED SECURITIES; PART II, ITEM 6, MANAGEMENT'S DISCUSSION
AND ANALYSIS OR PLAN OF OPERATION, --PHASE 2, --PHASE 3, --RESULTS OF
OPERATIONS FOR THE QUARTER ENDED MARCH 31, 1997 AS COMPARED TO THE QUARTER
ENDED MARCH 31, 1998.
In February, 1998, the Company entered into the UV Agreement with UV and
Messrs. Aisenberg and Weinstein, jointly and severally as guarantors of UV's
obligations. Mr. Aisenberg is President of Poly Style and Vice President of
Development of the Company. Mr. Aisenberg continues to be the President of
UV, and a director of Nitro. Nitro owns the proprietary injection molding
process licensed to and used by Pallet Technology in manufacturing pallets.
In February, 1998, Nitro, Mr. Aisenberg and Pallet Technology also entered
into the First Amended Licensing and Marketing Agreement under which the
royalty rate of $2.50 per pallet sold under Pallet Technology's original
agreement with Nitro is reduced to $0.50 during the first five years and
$0.25 during the next five years. See PART I, ITEM 1, DESCRIPTION OF
BUSINESS--RECENT DEVELOPMENTS.
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
30,218,269 shares of Common Stock were issued and outstanding as of June 30,
1998.
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
<PAGE>
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 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 and, in such
event, the holders of the remaining shares will not be able to elect any
person to the Board of Directors. At the Company's annual meeting held in
May, 1997, 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. No shares of Preferred
Stock have been issued since the third quarter of fiscal year 1997.
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 June 30, 1998, 30,218,269 shares of Common Stock were issued and
outstanding, and there were approximately 525 holders of record of Common
Stock. As of that date, no shares of Preferred Stock were issued and
outstanding.
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<PAGE>
Mr. Aisenberg holds an option to purchase 200,000 shares of Common Stock
under his employment agreement with the Company. The option to purchase
4,000,000 shares of Common Stock previously held by Mr. Fixler were cancelled
in April, 1998. 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 fiscal years 1996
and 1997, and the first and second quarters of fiscal year 1998.
<TABLE>
<CAPTION>
QUARTER ENDING HIGH LOW
<S> <C> <C>
6/30/98 6-1/2 3-3/8
3/31/98 4-5/16 2-11/16
12/31/97 4-5/8 2-11/16
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
</TABLE>
The source of this information is America Online quotation services and
broker-dealers making a market in the Company's Common Stock. These prices
reflect inter-dealer prices, without retail markup, mark-down or commission
and may not represent actual transactions.
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<PAGE>
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
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 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 has been 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
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<PAGE>
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. The Company believes that there are numerous
market makers for the Common Stock, including Nash-Weiss, Troster Singer,
Sharp, Fahenstock, Wein, Paragon, Olie, National Financial, Sherwood, Herzog,
Hill, Financial American, Mager Schweitzer, G.V.R. Trading, North American
Investment, Wall Street Equities, M.H. Meyerson, Mercer-Bokert, Comprehensive
Capital, and William Frankel. The source of this list of market makers is a
broker-dealer familiar with trading of the Common Stock. Based on
discussions with that broker-dealer, the Company considers Nash-Weiss,
Troster Singer, Sharp, Fahenstock, Wein, Paragon, Herzog, Financial American,
Mager Schweitzer and M.H. Meyerson to be the principal market makers for the
Common Stock.
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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<PAGE>
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
proceeding began on approximately July 9, 1997 when the Company was served with
a third party complaint filed by 3DM, Limited Liability Co. ("3DM") on May 12,
1997. This case arises out of the relationship between the Company and 3DM,
which the Company believes has been terminated and settled, and the relationship
between 3DM and Quantum in connection with the acquisition of the Facility. See
PART I, ITEM 1, "DESCRIPTION OF BUSINESS," and "DESCRIPTION OF BUSINESS,
ACQUISITION OF THE FACILITY". The latter relationship was the subject of prior
litigation in which the Company was also joined as a party defendant with 3DM.
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 and its principals on the matter of its breach
of its agreement with Quantum. In its claim against the Company, 3DM seeks
compensatory damages in excess of $25,000 and attorney fees in each of Counts I
through VII of the third party complaint and punitive damages in excess of
$25,000 and attorney fees in Count VIII although 3DM has served an amended
demand increasing its damage demand to $1,000,000. On February 2, 1998 the
Company filed a motion to dismiss the third party complaint filed against the
Company for failure to state a claim and for the reason that the Company is not
a proper subject of a third party complaint under the applicable rules of civil
procedure. The motion to dismiss was overruled by the court without any further
decision. However, the Company and Mr. Fixler were granted the right to file a
counterclaim against 3DM and its principals, and that counterclaim was filed on
April 9, 1998. 3DM and its principals have filed an answer. The Company does
not believe that the pending litigation involving 3DM will have a material
adverse effect on the Company or its operations. The Court has referred this
case to non-binding mediation, scheduled for late July, 1998. Depositions have
been given and some settlement discussions have taken place.
34
<PAGE>
In March and April, 1996, a person purporting to represent an entity known as
AMR Group ("AMR") approached the Company and represented that AMR could assist
the Company with private placements of its securities. As a result, certain
non-exclusive memorandum-type agreements were entered into by and between the
Company and AMR, one being an Investor Agreement (the "Investor Agreement") and
the other being a Consulting Agreement (the "Consulting Agreement"). The terms
of the Investor Agreement are vague. The understanding of the Company was that
AMR would provide assistance in financial structuring, debt and/or equity
funding, private and public placements and negotiation strategies, in
consideration of which AMR was to be granted warrants for 2,000,000 shares
(500,000 shares at each of the following exercise prices: $0.05, $1.00; $3.00;
and $5.00). Under the Consulting Agreement, AMR was to receive a fee based on
financing from a source originated by AMR. AMR did not provide any of the
services for which the Company contracted and the agreements were deemed to be
terminated by the Company. After virtually no contact in two years, in January
and February, 1998, AMR contacted the Company and asserted a right to exercise
certain warrants. The Company maintained its position that any agreements with
AMR had terminated due to non-performance. In addition, a check of the records
of the Ohio Secretary of State's indicates that no entity, trade name or
fictitious name has ever been registered under the name "AMR Group". AMR filed
an action against the Company and Mr. Fixler in the Common Pleas Court of
Cuyahoga County, Ohio alleging damages and requesting specific performance as to
certain alleged warrants and/or stock options. Based on the Company's position
that the alleged agreement contained an arbitration clause, AMR dismissed its
complaint and indicated that it would commence, and did commence, an arbitration
proceeding with respect to this matter. Prior to commencement of the litigation,
AMR through its attorney forwarded a letter which contained statements which the
Company and Mr. Fixler deemed to be improper and actionable. In relation to this
matter, the Company filed an answer and counterclaim and a cross claim naming
additional parties, whom the Company believes were partners or joint venturers
of AMR at the time of its initial dealings with the Company and Mr. Fixler. This
matter is pending as an arbitration before the American Arbitration Association.
Due to the need to name additional parties, a declaratory judgment action is
required to be filed in a Common Pleas Court of competent jurisdiction in order
to determine additional parties who will be subject to the arbitration.
As of July 1, 1998 and for approximately eight months, the Company had been in
discussions with Paul Parshall, an affiliate and consultant of the Company's
predecessor, in connection with infirmities in the organization, corporate
structure and share issuances of that predecessor. No complaint has been filed
in this matter. However, the parties have been involved in ongoing
conversations. The Company has provided settlement documents for review by Mr.
Parshall's attorney. The Company was led to believe that Mr. Parshall was
considering settling the case, but he has since abandoned those efforts. The
Company is conferring with counsel regarding further action on this matter. The
201,020 shares issued (upon the Company's Delaware incorporation) to Mr.
Parshall and a company affiliated with him have been noted on the Company's
records as being subject to cancellation and are not included in the number of
shares indicated in this Registration
35
<PAGE>
Statement as outstanding as of June 30,
1998. The Company has notified its transfer agent accordingly.
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, 201,020 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.
During the period November, 1995 through August, 1996, pursuant to Rule 504 of
Regulation D, the Company offered and sold to approximately 160 purchasers
2,000,000 shares of Common Stock at $.50 per share.
During the period November, 1996 through May, 1997, the Company issued
approximately 4,000,000 additional shares of Common Stock for various purposes
and consideration. The Company treated all such issuances as exempt from
registration under Rule 504 of Regulation D, and the transactions reflected
therein included the following:
- 750,000 shares sold at $.50 per share.
- 125,000 shares (valued at $.42 per share) issued in consideration of
services provided by a non-affiliated party.
- 655,000 shares sold to approximately 30 purchasers at $.60 to $.65 per
share.
- 1,000,000 shares issued to secure certain bridge financing in the amount
of $200,000 from Generation Capital Associates (such debt was
subsequently converted into 550,000 of such shares, with the balance
returned to the Company).
- 1,363,000 shares issued to BLB Financing Co. to secure financing in the
amount of $485,000 (such financing was subsequently converted into shares
at $.355 per share)
36
<PAGE>
The Company has been advised that it apparently did not satisfy all requirements
of the Rule 504 exemption from registration with respect to the share issuances
described above. Specifically, as the result of application of "integration"
principles or otherwise the Company exceeded the aggregate dollar limitation for
the Rule 504 exemption. The Company does not believe that any shareholders have
been harmed by reason of any such deficiencies, in that the prices at which the
shares were issued are substantially below the current market value of such
shares. Accordingly, the Company has not extended offers of recision to persons
who acquired shares in such transactions. However, the Company has taken steps,
including retention of new legal counsel, to ensure that any future offerings
made pursuant to Rule 504 will be in full compliance with the requirements of
the exemption.
In January, 1996, 350,000 shares of Common Stock were issued to Mr. Fixler
pursuant to Section 4(2) of the Securities Act, at a value of $.50 per share,
upon conversion of certain indebtedness of the Company to Mr. Fixler.
During the period July, 1996 through September, 1997, pursuant to Section 4(2)
of the Securities Act, the Company issued approximately 2,400,000 shares of
Common Stock to various consulting firms (and individuals affiliated therewith)
in consideration of consulting services. The valuation of the shares varied
principally with market values at the times of the transactions, with discounts
due to the restricted nature of the shares.
In September, 1996, pursuant to Section 4(2) of the Securities Act, the Company
sold to six purchasers 575,000 shares of Common Stock at a purchase price of
$.50 per share.
In December, 1996 in connection with certain bridge financing in the amount of
$200,000, 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, and which were
eventually exercised at that price.
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 $0.125 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. During 1997, Gordon Brother Capital
Corporation exercised rights to convert $350,000 of the bridge notes, including
certain interest accruals, into, and the Company issued in a transaction exempt
from registration under Section 4(2) of the Securities Act, a total of 783,000
shares of Common Stock.
In April, 1997, pursuant to the Acquisition Agreement, the Company issued to Mr.
Fixler 6,063,036 shares of Common Stock (at a value of $0.60 per share) in a
transaction exempt from registration under Section 4(2) of the Securities Act.
From June, 1997 through September, 1997, pursuant to an offering under Section
4(2) of the Securities Act, the Company sold 1,925,000 shares of Preferred Stock
at
37
<PAGE>
$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 August, 1997, pursuant to Section 4(2) of the Securities Act the Company
issued 471,000 shares of Common Stock (at a value of $1.24 per share) in
consideration of an equipment purchase from a commercial enterprise.
In July through September, 1997, pursuant to various private placement
transactions under Section 4(2) of the Securities Act, the Company sold
approximately 2,000,000 shares of Common Stock to 33 purchasers at prices
ranging from $.35 to $1.30 per share.
In March, 1998, in a transaction exempt from registration under Section 4(2) of
the Securities Act, the Company offered and sold to one purchaser 100,000 shares
of Common Stock at $3.00 per share.
In April and May, 1998, pursuant to Rule 506 of Regulation D, the Company sold
138,000 shares of Common Stock to 15 purchasers at a price of $3.625 per share.
In June, 1998, the Company issued to three purchasers 50,000 shares of Common
Stock in connection with the purchase of the assets of Plastic Recovery Systems
of Alberta, Canada, in a transaction exempt from registration under Section 4(2)
of the Securities Act.
All of the share transactions summarized above were made directly by the Company
without use of an underwriter or placement agent and without payment of
commissions or other remuneration. In each case the aggregate sales proceeds,
after payment of offering expenses in immaterial amounts, were applied to the
working capital of the Company or to specific equipment purchases.
With respect to the exemption from registration of issuance of securities
claimed under Section 4(2) of the Securities Act, neither the Company nor any
person acting on its behalf offered or sold the securities by means of any form
of general solicitation or advertising. Prior to making any offer or sale, the
Company had reasonable grounds to believe and believed that each prospective
investor was capable of evaluating the merits and risks of the investment and
was able to bear the economic risk of the investment. Each purchaser represented
in writing that he was acquiring the securities for investment for his own
account, and agreed that the securities would not be sold without registration
under the Securities Act or exemption therefrom. Except for securities issued
under Rule 504, the certificates of which bear no restrictive legend, a legend
was placed on each certificate stating that the securities have not been
registered under the Securities Act and setting forth the restrictions on their
transferability.
In November, 1997, pursuant to Rule 506 of Regulation D, the Company issued to
two institutional investors $8,000,000 aggregate principal amount of three-year
5% convertible
38
<PAGE>
debentures. The transaction reflected a reissuance of $5,000,000
convertible debentures in exchange for similar debentures issued to the same
purchasers in October, 1997, and a new issuance of $3,000,000 convertible
debentures to one of such purchasers. 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) 84% 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 530,240 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 (as to 331,400 shares) and November 25, 2000 (as
to 198,840 shares). Pursuant to the terms of the debentures and warrants, the
Company has filed with the SEC a Registration Statement on Form SB-2 with
respect to resale by the holders of shares of Common Stock issuable upon
conversion of the debentures and exercise of the warrants.
In January, 1998, pursuant to Rule 506 of Regulation D, the Company issued to
the same two purchasers $2,500,000 aggregate principal amount of three-year, 4%
convertible debentures, convertible (together with interest thereon) at any time
into shares of Common Stock at a conversion price equal to the lesser of (i)
$3.34, or (ii) 83% of the average of the 5 lowest closing bid prices for the 10
trading days preceding conversion. The purchasers also received warrants to
purchase an aggregate 198,413 shares of Common Stock at an exercise price equal
to $3.34 per share. The warrants are exercisable at any time through January 22,
2001. The Company is required to amend the Registration Statement on Form SB-2
to include resale by the holders of shares issuable upon conversion of such
debentures and exercise of such warrants.
In March, 1998, the Company issued to JNC Strategic Fund Ltd. $1,500,000
aggregate principal amount of three-year, 4% convertible debentures, convertible
(together with interest thereon) at any time into shares of Common Stock at a
conversion price equal to the lesser of (i) $3.31, or (ii) 83% of the average of
the 5 lowest closing bid prices for the 10 trading days preceding conversion.
The purchaser also received warrants to purchase an aggregate 126,268 shares of
Common Stock at an exercise price equal to $3.31 per share. The warrants are
exercisable at any time through March 11, 2001. The Company is required to
amend the Registration Statement on Form SB-2 to include resale by the holders
of shares issuable upon conversion of such debentures and exercise of such
warrants.
In April, 1998, the Company issued to JNC Strategic Fund Ltd. $3,000,000
aggregate principal amount of three-year, 4% convertible debentures, convertible
(together with interest thereon) at any time into shares of Common Stock at a
conversion price equal to the lesser of (i) $4.22, or (ii) 83% of the average of
the 5 lowest closing bid prices for the 10 trading days preceding conversion.
The purchaser also received warrants to purchase an aggregate 192,542 shares of
Common Stock at an exercise price equal to $4.22 per share. The warrants are
exercisable at any time through April 8, 2001. The Company is required to amend
the Registration Statement on Form SB-2 to include resale by the holders of
shares issuable upon conversion of such debentures and exercise of such
warrants.
39
<PAGE>
In June, 1998, the Company issued to JNC Opportunity Fund Ltd. $3,000,000
aggregate principal amount of three-year, 4% convertible debentures, convertible
(together with interest thereon) at any time into shares of Common Stock at a
conversion price equal to the lesser of (i) $4.00, or (ii) 83% of the average of
the 5 lowest closing bid prices for the 10 trading days preceding conversion.
The purchaser also received warrants to purchase an aggregate 300,000 shares of
Common Stock at an exercise price equal to $4.00 per share. The warrants are
exercisable at any time through June 25, 2001. The Company is required to amend
the Registration Statement on Form SB-2 to include resale by the holders of
shares issuable upon conversion of such debentures and exercise of such
warrants.
Each of the debenture transactions requires that the Registration Statement on
Form SB-2, or amendments to it, be effective within a designated time after the
dates of issuance of the debentures and warrants. Under the terms of the
applicable convertible debenture purchase agreement, certain interest and
conversion rate liquidated damages accrue each month that effectiveness is
delayed. In March, 1998 with respect to the debentures issued in November, 1997
the Company agreed to issue 10,000 shares of the Company's Common Stock, and in
April, 1998 with respect to those debentures, the Company agreed to issue 20,000
shares of the Company's Common Stock, to the debenture holders in lieu of those
liquidated damages, in a transaction exempt from registration under Section 4(2)
of the Securities Act. These 30,000 shares were issued during the second
quarter of fiscal year 1998. In connection with the June, 1998 debentures and
in lieu of certain penalties for failure to timely effect the Registration
Statement on Form SB-2 and the required amendment thereto required by the
debenture agreements dated November, 1997 and January, March, April and June,
1998, the Company issued, on a pro-rata basis, to the debenture purchasers
50,000 shares of Common Stock, in a transaction exempt from registration under
Section 4(2) of the Securities Act.
The Company is subject to an administrative 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. The Company was
ordered to "cease and desist" from acts and practices found to violate Section
1707.44(C)(1), Ohio Revised Code (sales of securities not registered or exempt
from registration), and Section 1707.44(B)(1) (false representations in a
registration application). There were no further restrictions imposed pursuant
to the Order. 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
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
40
<PAGE>
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 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
41
<PAGE>
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 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.
42
<PAGE>
(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).
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,
43
<PAGE>
Chairman and Chief Executive Officer
Date: July 15, 1998
44
<PAGE>
PART F/S
The Company's Financial Statements and Independent Auditor's Report for the
fiscal years ending December 31, 1997 and December 31, 1996 are included.
45
<PAGE>
----------------------------------
Fix-Corp International, Inc.
and Subsidiaries
Consolidated Financial Statements
&
Independent Auditor's Report
December 31, 1996 & 1997
----------------------------------
----------------------------------
Harmon & Company, CPA, Inc.
Columbus, Ohio
----------------------------------
<PAGE>
----------------------------------
Fix-Corp International, Inc.
and Subsidiaries
----------------------------------
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Balance Sheets. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations. . . . . . . . . . . . . . . . . . . . . . . .4
Consolidated Statement of Changes in Stockholders' Equity. . . . . . . . . . . . . .5
Consolidated Statements of Cash Flows. . . . . . . . . . . . . . . . . . . . . . . .6
Notes to the Consolidated 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 Consolidated Balance Sheets of Fix-Corp
International, Inc. and subsidiaries as of December 31, 1997 and 1996 and the
related consolidated statements of operations, cash flow, and stockholders'
equity for the years then ended, all as restated, see Note 4. 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 1997 financial statements referred to above
present fairly, in all material respects, the financial position of Fix-Corp
International, Inc. and subsidiaries as of December 31, 1997 and 1996 and the
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ Harmon & Company, CPA, Inc.
- ----------------------------
Harmon & Company, CPA, Inc.
March 26, 1998
Except as for Note 4, as to which the date is July 10, 1998
-2-
<PAGE>
FIX-CORP INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
(As Restated, See Note 4)
<TABLE>
<CAPTION>
12/31/96 12/31/97
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $224,539 $6,895,619
Investment in Marketable Securities 130,692 108,287
Trade Accounts Receivable, net 88,763 1,309,503
Other Receivables - 0 - 334,000
Purchase Order Financing Contracts 221,672 30,000
Inventory 96,002 2,910,220
Prepaid Expenses - 0 - 45,285
---------- -----------
Total Current Assets 761,668 11,632,914
---------- -----------
PROPERTY, PLANT & EQUIPMENT
Land & Land Held for Development 100,000 100,000
Buildings 1,000,000 1,000,000
Plant Equipment 2,392,000 13,350,841
Office Furniture & Fixtures 22,500 37,655
---------- -----------
3,514,500 14,488,496
Less Accumulated Depreciation and Amortization (6,428) (680,310)
---------- -----------
Total Property, Plant & Equipment 3,508,072 13,808,186
---------- -----------
DEFERRED INCOME TAXES 412,150 820,050
---------- -----------
OTHER ASSETS & DEFERRED CHARGES 692,226 1,228,948
---------- -----------
Total Assets $5,374,116 $27,490,098
---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-Term Borrowings $3,548,000 $320,000
Equipment Purchase Contracts - 0 - 1,875,000
Accounts Payable 68,008 2,064,137
Accrued Expenses 44,317 148,406
Current Portion of Long-Term Debt - 0 - 3,500,000
---------- -----------
Total Current Liabilities 3,660,325 7,907,543
---------- -----------
LONG-TERM DEBT
4% Convertible Debentures - 0 - 8,000,000
$7,000,000 Revolving Term Note - 0 - 6,780,489
---------- -----------
- 0 - 14,780,489
Less Current Portion of Long-Term Debt - 0 - (3,500,000)
---------- -----------
Total Long-Term Debt - 0 - 11,280,489
---------- -----------
STOCKHOLDERS' EQUITY
Preferred Stock, $.001 par value,
2,000,000 shares authorized, (0- shares
issued and outstanding) - 0 - - 0 -
Common Stock, par value $.001 per share,
100,000,000 shares authorized,
20,974,024 and 30,058,289 issued and
outstanding in 1996 and 1997 20,974 30,058
Additional Paid in Capital 6,345,529 13,904,304
Unrealized Holding Loss on Investments (68,673) (21,173)
Retained Earnings (Deficit) (4,584,039) (5,611,123)
---------- -----------
Total Stockholders' Equity 1,713,791 8,302,066
---------- -----------
Total Liabilities and Stockholders' Equity $5,374,116 $27,490,098
---------- -----------
</TABLE>
The accompanying notes are an integral part
of these financial statements.
- 3 -
<PAGE>
FIX-CORP INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
(As Restated, See Note 4)
<TABLE>
<CAPTION>
12/31/96 12/31/97
-------- --------
<S> <C> <C>
REVENUE
Sales, net $232,824 $8,020,304
Fees on Purchase Order Contract Financing 408,337 191,795
Commission & Shared Finance Fees 102,442 157,711
----------- -----------
Total Revenue 743,603 8,369,810
----------- -----------
COST OF SALES AND CONTRACT FINANCING OPERATIONS
Cost of Sales & Plant Operating Costs 89,403 6,799,548
Consulting Fees & Shared Commissions 42,939 37,181
Interest Expense, Contract Financing 250,822 156,100
----------- -----------
Cost of Sales and Contract Financing Operations 383,164 6,992,829
----------- -----------
Gross Profit 360,439 1,376,981
----------- -----------
OPERATING EXPENSES
Administrative Salaries, Wages and Related Costs 277,317 436,372
Value of Shares Issued to a Related Party 3,638,000 - 0 -
Depreciation & Amortization 19,514 728,044
Legal & Professional, including Consulting Fees 98,513 309,453
Other General & Administrative 96,039 571,898
----------- -----------
Total Expenses 4,129,383 2,045,767
----------- -----------
Operating Income (Loss) (3,768,944) (668,786)
----------- -----------
OTHER INCOME (EXPENSE)
Interest Income - 0 - 85,498
Interest Expense and Financing Costs, Other (32,730) (820,707)
Other Expense - 0 - (30,989)
----------- -----------
(32,730) (766,198)
----------- -----------
Net (Loss) Before Income Taxes (3,801,674) (1,434,984)
----------- -----------
LESS PROVISION FOR DEFERRED INCOME TAXES
Federal (43,000) (332,000)
State (9,850) (75,900)
----------- -----------
Total Deferred Income Taxes (52,850) (407,900)
----------- -----------
Net Loss ($3,748,824) ($1,027,084)
----------- -----------
NET LOSS PER COMMON SHARE
Basic (0.267) (0.039)
----------- -----------
Diluted (0.208) (0.034)
----------- -----------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic 14,040,040 26,139,451
----------- -----------
Diluted 18,040,040 30,139,451
----------- -----------
</TABLE>
The accompanying notes are an integral part
of these financial statements.
- 4 -
<PAGE>
FIX-CORP INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
(As Restated, See Note 4)
<TABLE>
<CAPTION>
Common Stock Additional Retained Total
------------ Paid-In Earnings Stockholders'
Shares Amount Capital (Deficit) Equity
------ ------ ------- --------- ------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1995 7,106,056 $711 $641,230 ($835,215) ($193,274)
Issuance of shares to a related party in connection
with the acquisition of Ohio Resources Recovery
Plant 6,063,036 606 3,637,394 3,638,000
Private Placement of Common Stock, net of
related issuance cost 6,204,932 620 1,605,782 1,606,402
Issuance of shares to secure bridge financing and
held in escrow subject to loan agreements 1,600,000 160 480,000 480,160
Net loss for the period (3,748,824) (3,748,824)
-----------------------------------------------------------------------
Balances at December 31, 1996 20,974,024 $2,097 $6,364,406 ($4,584,039) $1,782,464
Adjustment to reflect change in par value - 0 - 18,877 (18,877) - 0 - - 0 -
-----------------------------------------------------------------------
Balances at December 31, 1996 as restated 20,974,024 $20,974 $6,345,529 ($4,584,039) 1,782,464
-----------------------------------------------------------------------
Unrealized Holding Loss on Investments (68,673)
------------
$1,713,791
------------
Preferred Stock Private Placement Proceeds:
Issuance of Common Stock upon conversion 1,925,000 1,925 1,923,075 1,925,000
Proceeds from excercise of related warranrts 1,925,000 1,925 1,923,075 1,925,000
Proceeds from various Private Placement
Offerings including shares issued for services
and financing costs 3,980,265 3,980 2,396,814 2,400,794
Proceeds from exercise of warrants 500,000 500 62,000 62,500
Cancellation and reissuance of common shares issued
in 1996 to secure bridge financing 183,000 183 546,342 546,525
Acquistion of Equipment 571,000 571 707,469 708,040
Net loss for the period (1,027,084) (1,027,084)
-----------------------------------------------------------------------
30,058,289 $30,058 $13,904,304 ($5,611,123) $8,323,239
---------------------------------------------------------
Unrealized Holding Loss on Investments (21,173)
------------
$8,302,066
------------
</TABLE>
The accompanying notes are an integral part
of these financial statements.
-5-
<PAGE>
FIX-CORP INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
(As Restated, See Note 4)
<TABLE>
<CAPTION>
12/31/96 12/31/97
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) ($3,748,824) ($1,027,084)
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES
Depreciation & Amortization Expense 19,514 728,044
Value of Shares Issued to a Related Party 3,638,000 - 0 -
Investment in Marketable Securities (199,365) 22,405
(Increase) Decrease in Trade Accounts Receivables (29,327) (1,220,740)
(Increase) Decrease in Other Receivables - 0 - (334,000)
(Increase) Decrease in Purchase Order Financing
Contracts (148,872) 191,672
(Increase) in Inventory (96,002) (2,814,218)
(Increase) in Prepaid Expenses - 0 - (45,285)
(Increase) in Deferred Tax Asset (52,850) (407,900)
Increase in Equipment Purchase Contracts - 0 - 1,875,000
Increase (Decrease) in Accounts Payable (45,176) 1,996,130
Increase in Accrued Expenses 3,718 104,089
----- -------
Net Cash Provided (Used) by
Operating Activities (659,184) (931,887)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Land & Land Held for Development (100,000) - 0 -
Purchase of Buildings (1,000,000) - 0 -
Purchase of Plant Equipment (2,392,000) (10,250,801)
Purchase of Office Furniture & Fixtures - 0 - (15,156)
Additions to Other Assets (632,700) (471,859)
-------- -------
Net Cash Provided (Used) by
Investing Activities (4,124,700) (10,737,816)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Sale of Stock 1,606,402 6,438,294
Proceeds (Payments) on Short-Term Borrowings 3,330,000 (2,398,000)
Proceeds from Convertible Debentures - 0 - 8,000,000
Proceeds from Gordon Brothers Financings 198,161 6,780,489
Payments on Long-Term Debt (160,000) - 0 -
-------- -----
Net Cash Provided (Used) by
Financing Activities 4,974,563 18,340,783
--------- -----------
Net Income Increase (Decrease) in Cash $190,679 6,671,080
-------- ---------
Cash at Beginning of Period $33,860 $224,539
------ -------
Cash at End of Period $224,539 $6,895,619
-------- ----------
SUPPLEMENTAL DISCLOSURES
INTEREST PAID, EXCLUDING PURCHASE ORDER
CONTRACT FINANCING $32,730 $368,832
------- -------
ISSUANCE OF COMMON STOCK FOR:
Equipment - 0 - 708,040
Conversion of Notes Payable - 0 - 350,000
Interest Expense - 0 - 73,125
</TABLE>
The accompanying notes are an integral part
of these financial statements.
-6-
<PAGE>
Fix-Corp International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1997 & 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND DESCRIPTION OF THE BUSINESS - Fix-Corp International,
Inc. ("Fix-Corp") was organized under the laws of the state of Delaware on
October 27, 1995. A predecessor of the Company was initially incorporated on
August 11,1995 under the laws of the state of Utah and under the name
Lifechoice, Inc. The acquisition by the Company of a company organized by
Mark Fixler, the Company's Chief Executive Officer, President and Chairman of
its Board of Directors, involved several events in or about October, 1995,
including the following: (i) the Company changed its name from Lifechoice,
Inc. to Fix-Corp International, Inc.; (ii) Mr. Fixler assumed control of the
Company with 90% of its then-outstanding common stock; (iii) the Company was
redomiciled from being a corporation organized under Utah law to one
organized in Delaware; and (iv) the Company was transformed, from being a
public shell (under its prior name) with shareholders but no operations or
assets, to a corporation with the operations described below.
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 incorporated on December 17, 1996. During January, 1998 the
Company commenced the manufacturing of plastic pallets from recycled resin
through its wholly-owned subsidiary, Pallet Technologies, Inc., a Delaware
corporation, incorporated on July 7, 1997. Pallet Technologies was
originally incorporated under the name Palletech, Inc. but amended its
certificate of incorporation on December 15, 1997 to change its name.
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 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.
In December, 1996, the Company acquired a recycling plant in Heath,
Ohio, also known as the Heath Resource Recovery Plant, from Quantum Chemical
Corporation. 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 Pallet Technologies 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 Pallet Technologies
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.
The following is a summary of significant accounting policies followed
in the preparation of these consolidated 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.
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.
-7-
<PAGE>
PRINCIPLES OF CONSOLIDATION - The financial statements include the
accounts of Fix-Corp International, Inc. and its wholly-owned subsidiaries
Fixcor Industries, Inc. and Pallet Technologies, Inc.. All significant
intercompany balances and transactions have been eliminated.
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.
CASH AND CASH EQUIVALENTS - Cash includes cash equivalents. The Company
considers all highly liquid with an original maturity of three months or less
to be cash equivalents.
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.
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.
PROPERTY, PLANT 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 were changed subsequent to the issuance of
this report. The dollar effect of the change is minor in nature, as
substantially all assets affected were acquired in late December, 1996, not
placed in service during the year and therefor no depreciation expense was
recorded. The following is a summary of applicable lives:
<TABLE>
<CAPTION>
Life in Years Life in Years
Description As Previously As Changed
Reported
- -----------------------------------------------------------------------------------
<S> <C> <C>
Buildings 10-25 years 39 years
Plant Machinery and Equipment 5-10 years 10 years
Office Furniture and Fixtures 5-7 years 10 years
</TABLE>
Depreciation charged against operations for the years ended December 31,
1996 and 1997 were $3,214 and $675,382, respectively.
ORGANIZATIONAL COSTS - Organizational costs are being amortized over a
period of 60 months and is presented net of accumulated amortization of $32,600
and $48,900 in 1996 and 1997, respectively. Amortization expense charged against
operations for the years ended December 31, 1996 and 1997 $16,300 and $16,300,
respectively.
-8-
<PAGE>
DEFERRED TAXES AND INCOME TAXES - During 1995, the Company adopted
Financial Accounting Standards No. 109, "Accounting for Income Taxes" and all
years presented reflect the adoption of this method, the total effect of which
was the recording of a deferred tax asset of $412,150 and $820,050 in 1996 and
1997, respectively, net of a valuation allowances of $137,500 and $137,500 in
1996 and 1997, respectively, which arises solely from the estimated future
benefit of the net operating loss carry-forward of approximately $2,233,300.
REVENUE RECOGNITION - Revenue from 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.
LOSS PER COMMON SHARE - As of December 31, 1996 and 1997, 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 2 - INVESTMENT IN MARKETABLE SECURITIES
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. The unrealized holding loss on
investments of $68,673 and $21,173 was recognized directly to capital in 1996
and 1997, respectively.
NOTE 3 - 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. Inventories at December 31, by major classification, were as follows:
<TABLE>
<CAPTION>
1996 1997
- ----------------------------------------------------------------------------------
<S> <C> <C>
Raw Materials $96,002 $2,457,209
Work in Process - 0 - 86,210
Finished Goods - 0 - 303,990
Supplies & Chemicals - 0 - 62,811
------- ----------
Total Inventory $96,002 $2,910,220
------- ----------
</TABLE>
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
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.
-9-
<PAGE>
In connection with the Company's initial registration of its securities it
has restated the financial statements for the years ended December 31, 1996 and
1997, to reflect the value of shares issued to a "related party" (a principal
shareholder) as an expense in the period ended December 31, 1996; previously
this had been included as part of the capitalized cost of the Resource Recovery
plant. The restated purchase price of $3,400,000 has been reallocated on the
same basis as the components of the appraised fair market values of the property
at the time of the purchase.
<TABLE>
<CAPTION>
The allocation of the revised capitalized are as follows: Amount
- --------------------------------------------------------------------------------
<S> <C>
Land & Land held for Development $100,000
Buildings 1,000,000
Plant Equipment 2,300,000
---------
Total $3,400,000
----------
</TABLE>
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.
<TABLE>
<CAPTION>
The purchase was financed as follows Amount
- -------------------------------------------------------------------------------
<S> <C>
Cash $900,000
Secured Equipment Loan 2,500,000
---------
Total Payments $3,400,000
----------
</TABLE>
At closing, the Company received a general warranty deed 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.
In August, 1997, the Company issued 471,000 shares of Common Stock (at a
value of $1.24 per share) in consideration of an equipment purchase from a
commercial enterprise.
Pallet Technologies has ordered a specialized, state-of-the-art,
injection molding machine which transforms resin pellets, produced by Fixcor,
into plastic pellets. Installation of this equipment was completed during
January, 1998 and management expects to have it operating at full capacity by
the end of the first quarter of fiscal year 1998. The approximate cost of
the equipment, molds, transportation and installation of the equipment for
Pallet Technologies' operation at the Facility is $4,000,000, and the
approximate cost of equipment, transportation and installation at the Florida
Plant, more fully described in Note 13, is expected to be $3,000,000, in
addition to approximately $1,000,000, for the cost of molds. Permanent
financing for the Pallet Technologies equipment for installation at the
Facility was secured from Gordon Brothers Capital Corp.
-10-
<PAGE>
NOTE 5 - OTHER ASSETS AND DEFERRED CHARGES
<TABLE>
<CAPTION>
Other Assets and Deferred Charges consist of the 1996 1997
following:
- -------------------------------------------------------------------------------
<S> <C> <C>
Unamortized Debt Issue Costs (net of accumulated
amortization of $-0- and $532,593 in 1996 and 1997, $480,000 $894,082
respectively)
Deferred Preoperating Plant Startup Costs (net of
accumulated amortization of $-0- and $36,362 in 36,750 145,060
1996 and 1997, respectively
Disputed Finance Deposit Claim, net of valuation
allowance of $30,000 in 1997 90,000 60,000
License Agreement -0- 30,000
Note Receivable from Affiliated Company 26,000 26,000
Organizational Costs (net of accumulated
amortization of $32,600 and $48,900 in 1996 and 48,900 32,600
1997, respectively)
Deposits 900 31,530
Other Assets 9,676 9,676
----- -----
Total Other Assets and Deferred Charges $692,226 $1,228,948
-------- ----------
</TABLE>
UNAMORTIZED DEBT ISSUE COSTS - Unamortized Debt Issue Costs consists of
legal and accounting fees, printing costs and other expenses associated with
issuance of debt and financing instruments, including the Convertible
Debentures. The costs are being amortized over the life of the related financing
instrument. Amortization expense charged to operations was $-0- and $36,362 in
1996 and 1997, respectively
NOTE RECEIVABLE FROM AFFILIATED COMPANY - 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.
DISPUTED FINANCE DEPOSIT CLAIM - 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 - 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 period starting on the date that the plant became fully
operational in February, 1997.
PATENTS, TRADEMARKS AND LICENSES - Pallet Technologies has entered
into a Licensing and Marketing Agreement with Nitro Plastics Technologies.
Under that agreement, Pallet Technologies is the sub-licensee of certain
proprietary injection molding technology for the manufacturing of plastic
pallets and other products from recycled plastic. Pallet Technologies uses the
trademark POWER-PAL 2000U with respect to its pallets, but has not registered
or applied for registration of that trademark.
In February, 1998, Nitro, Mr. Aisenberg and Pallet Technologies entered
into the First Amended Licensing and Marketing Agreement under which the royalty
rate of $2.50 per pallet sold under Pallet Technologies' original agreement with
Nitro is reduced to $0.50 during the first five years and $0.25 during the next
five years.
-11-
<PAGE>
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. 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.
NOTE 6 - DEFERRED TAXES AND INCOME TAXES
As more fully described in Note 1, the Company adopted Financial Accounting
Standards No. 109, "Accounting for Income Taxes" and all years presented
reflect the adoption of this method. The deferred tax asset of $820,050, net of
a valuation allowance of $137,500, which arises solely from the estimated future
benefit of the net operating loss carry-forward of approximately $6,351,300.
<TABLE>
<CAPTION>
The components of the deferred tax asset are as 1996 1997
follows:
- ---------------------------------------------------------------------------------
<S> <C> <C>
Tax asset arising form net operating loss
carryforward:
Federal $447,375 $779,375
State 102,275 178,175
------- -------
Total Deferred Tax Asset 549,650 957,550
Less valuation for deferred tax assets (137,500) (137,500)
--------- ---------
Deferred Taxes - net $412,150 $820,050
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
The components of the provision for taxes were as 1996 1997
follows:
- ---------------------------------------------------------------------------------
<S> <C> <C>
Provision for Deferred Taxes:
Federal $57,250 $332,000
State 13,100 75,900
Valuation allowance (17,500) - 0 -
-------- -----
Total $52,850 $407,900
------- --------
------- --------
</TABLE>
The amounts and expiration dates of the net operating loss carryforward
available to the Company at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Amount Expiration
Date
- --------------------------------------------------------------------------------
<S> <C> <C>
Loss for the year ended December 31, 1995 $1,114,642 2010
Loss for the year ended December 31, 1996 3,801,674 2011
Loss for the year ended December 31, 1997 1,434,984 2012
---------
Total Net Operating Loss Carryforward $6,351,300
----------
</TABLE>
<PAGE>
NOTE 7 - SHORT-TERM BORROWINGS
Short-Term Borrowings at December 31 consisted of the following:
<TABLE>
<CAPTION>
1996 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Secured Equipment Note Payable $2,500,000 $- 0 -
Convertible Bridge Financing Notes Payable 250,000 - 0 -
6.07% Convertible Bridge Financing Notes Payable 200,000 - 0 -
Notes Payable to Shareholders 418,000 180,000
12% Note Payable 80,000 80,000
Notes Payable to Others 100,000 60,000
------- --------
$3,548,000 $320,000
---------- --------
</TABLE>
SECURED EQUIPMENT LOAN PAYABLE - At December 31, 1996 the Company was 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 was for $2,500,000 bearing interest at 12 1/2% and was
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.
As part of that agreement, Gordon Brothers was entitled to purchase from
the Company after December 16, 1997 but before December 16, 1999, five hundred
thousand (500,000) shares of the Company's $.001 value common stock at a price
of twenty-five cents ($0.25) per share. Such shares under option are
restricted shares. Gordon Brothers Capital Corporation exercised their option
during 1997.
In addition to this Open-End Mortgage, Gordon Brothers was 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 was defined 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 loan contract contained 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 the borrower was 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.
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. Certain
proceeds of this loan were used to retire the previously described Secured
Equipment Loan Payable Gordon Brothers.
- 13-
<PAGE>
BRIDGE FINANCING NOTES PAYABLE - During 1996 and subject to a certain
"Confidential Private Placement Memorandum", more fully described in Note 10,
the Company sold $250,000 in Bridge Notes to qualified accredited investors.
The proceeds of the Bridge Notes were 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 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.
On December 11, 1996, for value received, the Company promised to pay to
the order of Generation Capital Associates, a non affiliated New York limited
partnership or its assigns, the principal amount of two hundred thousand
dollars ($200,000). The principal thereof and any unpaid accrued interest
thereon became due and payable on June 31, 1997. The note bears interest at the
rate of 6.07% percent per annum on the outstanding principal balance, payable
quarterly commencing January 1, 1997.
During 1997, $350,000 of the bridge notes, including certain interest
accruals were converted into a total of 783,000 shares of common stock. In
addition, certain warrants related to these debt instruments were exercised
resulting in the issuance of 1,000,000 shares of common stock for $125,000.
NOTES PAYABLE - 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 1% per month. All notes are
current.
NOTE 8 - LONG-TERM DEBT
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
Debentures bearing interest at the rate of 6% per annum, payable quarterly in
arrears, and due October 24, 2000.
On November 25, 1997, pursuant to an Amended and Restated Convertible
Debenture Purchase Agreement and collateral documents, the interest rate to the
October Debentures was reduced to 5% (retaining the original October 24, 1997
effective date of the October Debentures), and the Company issued new Debentures
in the principal amount of $3,000,000 to one of the October, 1997 investors,
bearing a rate of 5% per annum, payable quarterly in arrears, and due November
25, 2000.
The Company expects to use the net proceeds of the transactions primarily
for the acquisition of equipment for the start-up and expansion of Pallet
Technologies 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
(1) $3.91 (110% of the average closing bid price for the 5 trading days
preceding closing), or (2) 84% (previously 85% under the October documents) 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. One of the
purchasers also received warrants to purchase an aggregate 198,840 shares of
Common Stock at that same price, exercisable at any time through November 25,
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
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.
-14-
<PAGE>
In January, 1998, the Company issued to the same two purchasers $2,500,000
aggregate principal amount of three-year, 4% convertible debentures, convertible
(together with interest thereon) at any time into shares of Common Stock at a
conversion price equal to the lesser of (1) $3.34, or (2) 83% of the average of
the 5 lowest closing bid prices for 'the 10 trading days preceding conversion.
The purchasers also received warrants to purchase an aggregate 198,413 shares of
Common Stock at an exercise price equal to $3.34 per share. The warrants are
exercisable at any time through January 22, 2001. The Company is required to
amend the Registration Statement on Form SB-2 to include resale by the holders
of shares issuable upon conversion of such debentures and exercise of such
warrants.
Under generally the same terms and conditions in March, 1998, the Company
issued to the same two purchasers $1,500,000 aggregate principal amount of
three-year, 4% convertible debentures, convertible (together with interest
thereon) at any time into shares of Common Stock at a conversion price as
previously defined. The Company is required to amend the Registration Statement
on Form SB-2 to include resale by the holders of shares issuable upon conversion
of such debentures and exercise of such warrants.
The debenture transaction documents include additional representations,
warranties, covenants and default provisions not atypical for such financings.
$7,000,000 REVOLVING-TERM NOTE - In July, 1997, the Company, Fixcor and
Pallet Technologies, as borrowers, secured financing from Gordon Brothers
Capital Corp., in the form of a $3,500,000 line of credit, bearing interest at
12%, the proceeds of which are intended to finance the acquisition of equipment
for use in the operations of Pallet Technologies. In addition, the lenders also
received warrants to purchase 500,000 shares of Common Stock at an exercise
price equal to $.125 per share. This facility is secured by substantially all
of the assets of the Company and its subsidiaries. Mr. Fixler is the guarantor
of this line of credit in an amount up to $1,000,000.
All financing from NationsCredit Commercial Corporation was refinanced
through Gordon Brothers Capital, LLC (successor to Gordon Brothers Capital
Corp.) in December, 1997. This resulted in the Company, Fixcor and Pallet
Technologies being the borrowers on a revolving credit facility in the principal
amount of $7,000,000, $3,500,000 of which principal matures in October, 1998.
NOTE 9 - LEASE COMMITMENTS
On October 17, 1997, the Company entered into a three (3) year 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 for the year ended December 31, 1996. Monthly rentals
through December 31, 1997 are $1,393 per month.
During 1997, the Company entered into a "Federal Railcar Master Car Leasing
Agreement and Service Contract" to facilitate shipments to customers. The
various rental agreements are for up to twenty (20) cars and are generally for a
term of one (1) year and renewable at the option of the Company. Rent expense
under the various contracts amounted to $20,411 for the year ended December 31,
1997. Monthly rentals through December 31, 1997 were approximately $2,700 per
month. Subsequent to December 31, 1997, the Company accepted additional cars
and rentals under the master agreement which increased to approximately $23,000
per month.
Pursuant to a 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.
-15-
<PAGE>
On August 5, 1997, to facilitate a planned increase in inventory, the
Company entered into a one (1) year lease for 73,000 square feet of warehouse
space at a monthly rental of $15,330. Rental expense for the year ended December
31, 1997 amounted to $76,650.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AGREEMENTS - 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 $200,000 in 1997.
Mr. DeLaurentiis, President of Fix-Cor Industries, 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 also a Vice President
of the Company. He was not employed by the Company or Fixcor during fiscal year
1996.
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 subject to an administrative order issued in August, 1997 by
the Ohio Division of Securities, and relating to certain matters deemed to
constitute violations of Ohio securities laws. The Company was ordered to
'cease and desist' from acts and practices found to violate the Ohio Revised
Code as to the sales of securities. There were no further restrictions imposed
pursuant to the Order. 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.
NOTE 11 - STOCKHOLDERS' EQUITY
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. 30,053,289 shares of Common Stock were issued and outstanding as of
December 31, 1997..
PREFERRED STOCK - No shares of preferred stock of the Company (the
"Preferred Stock") were issued and outstanding as of December 31, 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.
RECENT SALES OF UNREGISTERED SECURITIES - During the period November,
1995 through August, 1996, pursuant to Rule 504 of Regulation D, the Company
offered and sold to approximately 160 purchasers 2,000,000 shares of Common
Stock at $.50 per share.
-16-
<PAGE>
During the period November, 1996 through May, 1997, the Company issued
approximately 4,000,000 additional shares of Common Stock for various purposes
and consideration. The Company treated all such issuances as exempt from
registration under Rule 504 of Regulation D, and the major transactions
reflected therein included the following:
(1.) In 1997, the Company sold 3,980,265 shares sold for approximately
$2,400,000 or $.60 per share.
(2.) 550,000 shares issued to secure certain bridge financing from
Generation Capital Associates..
(3.) In September, 1996, pursuant to Section 4(2) of the Securities Act the
Company sold to six purchasers 575,000 shares of Common Stock at a
purchase price of $.50 per share.
(4.) In December, 1996 in connection with certain bridge financing in the
amount of $200,000, 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, which were eventually exercised at that price.
(5.) In December, 1996 and July, 1997 in connection with debt financing
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 $.125 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.
(6.) In 1996 pursuant to the Acquisition Agreement, the Company issued to
Mr. Fixler 6,063,036 shares of Common Stock (at a value of $.60 per
share) in a transaction exempt from registration under Section 4(2) of
the Securities Act.
(7.) From June, 1997 to October 1, 1997, pursuant to an offering under
Section 4(2) of the Securities Act, 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 1,925,000 shares of Common Stock were issued pursuant
to exercise of such rights.
(8.) In August, 1997, pursuant to Section 4(2) of the Securities Act the
Company issued 571,000 shares of Common Stock (at a value of $1.24 per
share) in consideration of an equipment purchase from a commercial
enterprise.
(9.) In November, 1997, pursuant to Rule 506 of Regulation D, the Company
issued to two institutional investors $8,000,000 aggregate principal
amount of three-year 5% convertible debentures. The transaction
reflected a reissuance of $5,000,000 convertible debentures in
exchange for similar debentures issued to the same purchasers in
October, 1997, and a new issuance of $3,000,000 convertible debentures
to one of such purchasers. 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) 84% of the average of the
slowest closing bid prices during the 10 trading days preceding
conversion. The purchasers also received warrants to purchase an
aggregate 530,240 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 (as to 331,400 shares) and November 25,2000 (as to
198,840 shares). Pursuant to the terms of the debentures and
warrants, the Company has filed with the SEC a Registration Statement
on Form SB-2 with respect to resale
-17-
<PAGE>
by the holders of shares of Common Stock issuable upon
conversion of the debentures and exercise of the warrants.
(10.) In January, 1998, pursuant to Rule 506 of Regulation D, the
Company issued to the same two purchasers $2,500,000 aggregate
principal amount of three-year, 4% convertible debentures,
convertible (together with interest thereon) at any time into
shares of Common Stock at a conversion price equal to the lesser
of (i) $3.34, or (ii) 83% of the average of the 5 lowest closing
bid prices for the 10 trading days preceding conversion. The
purchasers also received warrants to purchase an aggregate
198,413 shares of Common Stock at an exercise price equal to
$3.34 per share. The warrants are exercisable at any time
through January 22, 2001. The Company is required to amend the
Registration Statement on Form SB-2 to include resale by the
holders of shares issuable upon conversion of such debentures and
exercise of such warrants.
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 12 - SEGMENT INFORMATION
The Company's corporate awards jewelry marketing business activity is still
continuing on a limited basis. Revenues from corporate awards jewelry marketing
business for fiscal year 1997 were approximately 2.3% of the Company's revenue.
The purchase order financing business is being phased out. As of December 31,
1997 the aggregate principal of the purchase order financing contracts was
reduced to approximately $30,000, and the Company is not entering and does not
intend to enter into any additional purchase order financing arrangements.
Revenues from the purchase order financing business for fiscal year 1997 were
approximately 4% of the Company's revenue.
NOTE 13 - SUBSEQUENT EVENTS
POLY STYLE INDUSTRIES, INC - In February, 1998, the Company entered into
an agreement on February 3, 1998 with Universal Vinyl Corp. ("UV"), a Florida
corporation, as seller, and Yoram Aisenberg and Avraham Weinstein, jointly and
severally as guarantors of UV's obligations. Under the UV Agreement, certain
conditions having been satisfied, on February 28, 1998, the Company acquired the
assets of UV, whose operations are located at a plant in Medley, Florida, a
suburb of Miami. The purchase price of these assets is $1.04 million. The
source of funds for this acquisition is cash on hand, arising from the various
capital raising activities of the Company.
The Company intends to utilize the assets acquired under the UV Agreement
through its wholly-owned subsidiary, Poly Style Industries, Inc. ("Poly Style"),
incorporated under Delaware law on February 18, 1998. The Company intends that
Poly Style will move and operate those assets to and at space to be identified
and to be leased in Medley, Florida. The lease and relocation is not expected to
be finalized until approximately the end of April, 1998.
In addition to being the President of UV, Mr. Aisenberg is a director of
Nitro Plastic Technologies of Israel ("Nitro"). Nitro owns the proprietary
injection molding process licensed to and used by Pallet Technologies in
manufacturing pallets. In February, 1998, Nitro, Mr. Aisenberg and Pallet
Technologies entered into the First Amended Licensing and Marketing Agreement
under which the the royalty rate of $2.50 per pallet sold under Pallet
Technologies' original agreement with Nitro is reduced to $0.50 during the first
five years and $0.25 during the next five years. Pallet Technologies, in
addition to continuing its operations at the Facility, has ordered (at an
aggregate installed cost of approximately $4.0 million) and, during
approximately the third quarter of fiscal 1998 expects to install equipment at
the Florida Plant, and to commence the production of pallets from plastic resin
pellets acquired from third party suppliers.
-18-
<PAGE>
PALLET TECHNOLOGIES, INC - During January, 1998 the Company commenced the
manufacturing of plastic pallets from recycled resin through its wholly-owned
subsidiary, Pallet Technologies, Inc., a Delaware corporation, incorporated on
July 7, 1997. Pallet Technologies was originally incorporated under the name
Palletech, Inc. but amended its certificate of incorporation on December 15,
1997 to change its name.
CONVERTIBLE DEBENTURES - In January, 1998, the Company issued to the
same two purchasers $2,500,000 aggregate principal amount of three-year, 4%
convertible debentures, convertible (together with interest thereon) at any time
into shares of Common Stock at a conversion price equal to the lesser of (1)
$3.34, or (2) 83% of the average of the 5 lowest closing bid prices for 'the 10
trading days preceding conversion. The purchasers also received warrants to
purchase an aggregate 198,413 shares of Common Stock at an exercise price equal
to $3.34 per share. The warrants are exercisable at any time through January
22, 2001. The Company is required to amend the Registration Statement on Form
SB-2 to include resale by the holders of shares issuable upon conversion of such
debentures and exercise of such warrants.
Under generally the same terms and conditions in March, 1998, the Company
issued to the same two purchasers $1,500,000 aggregate principal amount of
three-year, 4% convertible debentures, convertible (together with interest
thereon) at any time into shares of Common Stock at a conversion price as
previously defined. The Company is required to amend the Registration Statement
on Form SB-2 to include resale by the holders of shares issuable upon conversion
of such debentures and exercise of such warrants.
-19-
<PAGE>
PART III - INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Names of Date of
No. Name of Document Parties to Document Document
<S> <C> <C> <C>
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
Exhibit Names of Date of
No. Name of Document Parties to Document Document
<S> <C> <C> <C>
2.1 (1) Acquisition Agreement Fix-Corp, Inc. and 10/95
Lifechoice,
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
Exhibit Names of Date of
No. Name of Document Parties to Document Document
<S> <C> <C> <C>
2.2 (1) Purchase and Sale Agreement Quantum Chemical 08/14/96
Corporation and Fix-Corp
International, Inc.
2.3 (1) Amendment No. 1 to Purchase Quantum Chemical 10/29/96
and Sale Agreement Corporation and Fix-Corp
International, Inc.
2.4 (1) Acquisition Agreement Fix-Corp International, 04/16/97
Inc., Fixcor Industries,
Inc. and Mark Fixler
3.1 (1) Amended and Restated Fix-Corp International, 05/27/97
Articles of Incorporation Inc.
3.2 (1) Bylaws Fix-Corp International, 11/14/95
Inc.
3.3 (1) Original Certificate of Fix-Corp International, 10/24/95
Incorporation of the Inc.
Company
10.1 (1) Employment Contract Fix-Corp International, 01/01/97
Inc. and Mark Fixler
10.2 (1) Employment Agreement Fix-Corp International, 01/01/97
Inc. and Gary DeLaurentiis
10.3 (1) Loan and Security Agreement NationsCredit Commercial 05/14/97
Corporation through its
NationsCredit Commercial
Funding Division, Lender
and Fixcor Industries,
Inc., Borrower
10.4 (1) Guaranty NationsCredit Commercial 05/14/97
Corporation through its
NationsCredit Commercial
Funding Division, Lender
and Fixcor Industries,
Inc., Borrower, and Mark
Fixler, Guarantor
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
Exhibit Names of Date of
No. Name of Document Parties to Document Document
<S> <C> <C> <C>
10.5 (1) 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
10.6 (1) Term Note Palletech Inc., Fixcor 07/09/97
Industries, Inc. and Fix-
Corp International, Inc.,
Borrowers and Gordon
Brothers Capital
Corporation, Lender
10.7 (1) Loan and Security Agreement Palletech Inc., Fixcor 07/09/97
Industries, Inc. and Fix-
Corp International, Inc.,
Borrowers and Gordon
Brothers Capital
Corporation, Lender
10.8 (1) Purchase Warrant and Fix-Corp International, 07/09/97
Agreement Inc. and Gordon Brothers
Capital Corporation
10.9 (1) Intercreditor Agreement Gordon Brothers Capital 07/09/97
Corporation and
NationsCredit Commercial
Corporation, through its
NationsCredit Commercial
Funding Division
10.10(1) License and Marketing Nitro Plastics Technologies 07/07/97
Agreement of Israel and Palletech
Inc.
10.11(1) Patent License Agreement Fixcor Industries, Inc. and 09/25/97
AlliedSignal, Inc.
10.12(1) Convertible Debenture Fix-Corp International, 10/24/97
Purchase Agreement Inc., JNC Opportunity Fund
Ltd. and Diversified
Strategies Fund, L.P.
10.13(2) 6% Convertible Debenture Fix-Corp International, 10/24/97
Due October 24, 2000 Inc. and Holder
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
Exhibit Names of Date of
No. Name of Document Parties to Document Document
<S> <C> <C> <C>
10.14(2) Registration Rights Fix-Corp International, 10/24/97
Agreement Inc., JNC Opportunity fund
Ltd., and Diversified
Strategies Fund, L.P.
10.15(2) Escrow Agreement Fix-Corp International, 10/24/97
Inc., JNC Opportunity Fund
Ltd., Diversified
Strategies Fund, L.P. and
Robinson Silverman Pearce
Aronsohn & Berman LLP
10.16(2) Warrant Fix-Corp International, 10/24/97
Inc. and Holder
10.17(1) Loan and Security Agreement Gordon Brothers Capital 12/16/96
Corporation and, Fix-Corp
International, Inc.
10.18(2) Amended and Restated Fix-Corp International, 11/25/97
Convertible Debenture Inc., JNC Opportunity Fund
Purchase Agreement Ltd. and Diversified
Strategies Fund, L.P.
10.19(2) Amended and Restated Fix-Corp International, 11/25/97
Registration Rights Inc., JNC Opportunity Fund
Agreement Ltd. and Diversified
Strategies Fund, L.P.
10.20(2) Escrow Agreement Fix-Corp International, 11/25/97
Inc., JNC Opportunity Fund
Ltd., Diversified
Strategies Fund, L.P. and
Robinson, Silverman,
Pearce, Aronsohn & Berman
LLP
10.21(1) Convertible Debenture Fix-Corp International, 1/22/98
Purchase Agreement Inc., JNC Opportunity Fund
Ltd. and Diversified
Strategies Fund, L.P.
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
Exhibit Names of Date of
No. Name of Document Parties to Document Document
<S> <C> <C> <C>
10.22(1) $2,000,000 4% Convertible Fix-Corp International, 1/22/98
Debenture Due January 22, Inc. and JNC Opportunity
2001 Fund Ltd.
10.23(1) $500,000 4% Convertible Fix-Corp International, 1/22/98
Debenture Due January 22, Inc. and Diversified
2001 Strategies Fund, L.P.
10.24(1) Registration Rights Fix-Corp International, 1/22/98
Agreement Inc., JNC Opportunity Fund
Ltd. and Diversified
Strategies Fund, L.P.
10.25(1) Warrant Fix-Corp International, 1/22/98
Inc. and JNC Opportunity
Fund Ltd.
10.26(1) Warrant Fix-Corp International, 1/22/98
Inc. and Diversified
Strategies Fund, L.P.
10.27(1) Escrow Agreement Fix-Corp International, 1/22/98
Inc., JNC Opportunity Fund
Ltd., Diversified
Strategies Fund, L.P. and
Robinson, Silverman,
Pearce, Aronsohn & Berman
LLP
10.28(1) Agreement for Sale of Universal Vinyl Corp., 2/3/98
Business Assets Yoram Aisenberg, Avraham
Weinstein and Fix-Corp
International, Inc.
10.29(1) First Amended Licensing and Nitro Plastics Technologies 2/98
Marketing Agreement of Israel, Yoram Aisenberg
and Pallet Technology, Inc.
10.30(3) Employment Contract Yoram Aisenberg and Fix- 3/5/98
Corp International, Inc.
10.31(3) Convertible Debenture Fix-Corp International, 3/11/98
Purchase Agreement Inc. and JNC Strategic Fund
Ltd.
10.32(3) 4% Convertible Debenture Fix-Corp International, 3/11/98
Due March 11, 2001 Inc. and JNC Strategic Fund
Ltd.
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
Exhibit Names of Date of
No. Name of Document Parties to Document Document
<S> <C> <C> <C>
10.33(3) Registration Rights Fix-Corp International, 3/11/98
Agreement Inc. and JNC Strategic Fund
Ltd.
10.34(3) Warrant Fix-Corp International, 3/11/98
Inc. and JNC Strategic Fund
Ltd.
10.35(3) Escrow Agreement Fix-Corp International, 3/11/98
Inc., JNC Strategic Fund
Ltd., and Robinson,
Silverman, Pearce, Aronsohn
& Berman LLP
10.36(3) Convertible Debenture Fix-Corp International, 4/8/98
Purchase Agreement Inc. and JNC Strategic Fund
Ltd.
10.37(3) 4% Convertible Debenture Fix-Corp International, 4/8/98
Due April 8, 2001 Inc. and JNC Strategic Fund
Ltd.
10.38(3) Registration Rights Fix-Corp International, 4/8/98
Agreement Inc. and JNC Strategic Fund
Ltd.
10.39(3) Warrant Fix-Corp International, 4/8/98
Inc. and JNC Strategic Fund
Ltd.
10.40(3) Escrow Agreement Fix-Corp International, 4/8/98
Inc., JNC Strategic Fund
Ltd., and Robinson,
Silverman, Pearce, Aronsohn
& Berman LLP
10.41(3) Standard Industrial Lease B-K-N Corporation and Fix- 4/17/98
Corp International, Inc.
10.42(4) Loan and Security Agreement Fix-Corp International, 6/8/98
Inc., Fixcor Industries,
Inc., Pallet Technology,
Inc. and Poly Style
Industries, Inc. as
Borrower, and Coast
Business Credit, a division
of Southern Pacific Bank
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
Exhibit Names of Date of
No. Name of Document Parties to Document Document
<S> <C> <C> <C>
10.43(4) Continuing Guaranty Fix-Corp International, 6/8/98
Inc., as Guarantor, and
Fixcor Industries, Inc.,
Pallet Technology, Inc. and
Poly Style Industries,
Inc., as Borrower, and
Coast Business credit, a
division of Southern
Pacific Bank
10.44(4) Continuing Guaranty Fixcor Industries, Inc., as 6/898
Guarantor, and Pallet
Technology, Inc. and Poly
Style Industries, Inc. as
Borrower, and Coast
Business Credit, a division
of Southern Pacific Bank
10.45(4) Continuing Guaranty Pallet Technology, Inc., as 6/8/98
Guarantor, and Fixcor
Industries, Inc. and Poly
Style, Inc., as Borrower,
and Coast Business Credit,
a division of Southern
Pacific Bank
10.46(4) Continuing Guaranty Poly Style Industries, 6/8/98
Inc., as Guarantor, and
Fixcor Industries, Inc. and
Pallet Technology, Inc., as
Borrower, and Coast
Business Credit, a division
of Southern Pacific Bank
10.47(4) Convertible Debenture Fix-Corp International, 6/25/98
Purchase Agreement Inc. and JNC Opportunity
Fund Ltd.
10.48(4) 4% Convertible Debenture Fix-Corp International, 6/25/98
Due June 25, 2001 Inc. and JNC Opportunity
Fund Ltd.
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
Exhibit Names of Date of
No. Name of Document Parties to Document Document
<S> <C> <C> <C>
10.49(4) Registration Rights Fix-Corp International, 6/25/98
Agreement Inc. and JNC Opportunity
Fund Ltd.
10.50(4) Warrant Fix-Corp International, 6/25/98
Inc. and JNC Opportunity
Fund Ltd.
10.51(4) Letter Agreement Fix-Corp International, 6/25/98
Inc., JNC Opportunity Fund
Ltd., JNC Strategic Fund
Ltd. Diversified Strategies
Fund, L.P.
11 (4) Statement re: Computation
of Per Share Earnings
23.1(4) Independent Auditor's Consent
27 (4) Financial Data Schedule
</TABLE>
(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, and on
March 2, 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.
54
<PAGE>
- --------------------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT
by and among
FIX-CORP INTERNATIONAL, INC., A DELAWARE CORPORATION,
FIXCOR INDUSTRIES, INC., A DELAWARE CORPORATION,
PALLET TECHNOLOGY, INC., A DELAWARE CORPORATION, AND
POLY STYLE INDUSTRIES, INC., A DELAWARE CORPORATION
and
COAST BUSINESS CREDIT,
a division of Southern Pacific Bank
Dated as of June 8, 1998
- --------------------------------------------------------------------------------
<PAGE>
COAST
LOAN AND SECURITY AGREEMENT
BORROWER: FIX-CORP INTERNATIONAL, INC.
3637 S. GREEN RD., SUITE 201
BEACHWOOD, OHIO 44122
CO-BORROWERS:
FIXCOR INDUSTRIES, INC.| POLY STYLE INDUSTRIES, INC.
1835 JAMES PARKWAY 120 N.E. 179TH STREET.
HEATH, OHIO 43056 N. MIAMI BEACH, FLORIDA 33179
PALLET TECHNOLOGY, INC.
1835 JAMES PARKWAY
HEATH, OHIO 43056
DATE: JUNE 8, 1998
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date among COAST
BUSINESS CREDIT, a division of Southern Pacific Bank ("Coast"), a California
corporation, with offices at 12121 Wilshire Boulevard, Suite 1111, Los Angeles,
California 90025, and the borrower and co-borrowers named above, (the
"Borrower"), whose chief executive offices are located at the above addresses
set forth below each respective Borrower (collectively, "Borrower's Address").
The Schedule to this Agreement (the "Schedule") shall for all purposes be deemed
to be a part of this Agreement, and the same is an integral part of this
Agreement. (Definitions of certain terms used in this Agreement are set forth
in Section 1 below.) Upon Coast confirming by of record searches that it has a
first priority security interest in the Collateral or at such time that Coast
waives such condition in its discretion, this Agreement will amend and replace
that certain loan agreement among one or more Borrowers and Gordon Brothers
Capital Corp., as amended and assigned to Coast.
1. DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:
"ACCOUNT DEBTOR" means the obligor on a Receivable or General Intangible.
"AFFILIATE" means, with respect to any Person, a relative, partner,
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.
"AUDIT" means to inspect, audit and copy Borrower's books and records and
the Collateral.
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"BORROWER" has the meaning set forth in the introduction to this Agreement.
"BORROWER'S ADDRESS" has the meaning set forth in the introduction to this
Agreement.
"BUSINESS DAY" means a day on which Coast is open for business.
"CHANGE OF CONTROL" shall be deemed to have occurred at such time as a
"person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934) (other than the current holders of the
ownership interests in any Borrower) becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934), directly or
indirectly, as a result of any single transaction, of more than twenty percent
(20%) of the total voting power of all classes of stock or other ownership
interests then outstanding of any Borrower normally entitled to vote in the
election of directors or analogous governing body.
"CLOSING DATE" date of the initial funding under this Agreement.
"COAST" has the meaning set forth in the introduction to this Agreement.
"CODE" means the Uniform Commercial Code as adopted and in effect in the
State of California from time to time.
"COLLATERAL" has the meaning set forth in Section 4 hereof.
"CREDIT LIMIT" means the maximum amount of Loans that Coast may make to
Borrower pursuant to the amounts and percentages shown on the Schedule.
"DEFAULT" means any event which with notice or passage of time or both,
would constitute an Event of Default.
"DEPOSIT ACCOUNT" has the meaning set forth in Section 9105 of the Code.
"DILUTION PERCENTAGE" means the gross amount of all returns, allowances,
discounts, credits, write-offs and similar items relating to Borrower's
Receivables computed as a percentage of Borrower's gross sales, calculated on a
ninety (90) day rolling average.
"DOLLARS OR $" means United States dollars.
"EARLY TERMINATION FEE" means the amount set forth on the Schedule that
Borrower must pay Coast if this Agreement is terminated by Borrower or Coast
pursuant to Section 9.2 hereof.
"ELIGIBLE FOREIGN RECEIVABLES" means Receivables arising from Borrower's
customers located outside the United States which Coast otherwise approves for
borrowing in its sole and absolute discretion. Without limiting Coast's
discretion in determining the eligibility of any given Receivable, an Eligible
Foreign Receivable shall satisfy one or more of the following criteria: (i) the
Receivable is supported by an irrevocable letter of credit satisfactory to Coast
(as to form, substance, and issuer or domestic confirming bank), (ii) the
Receivable is covered by credit insurance assigned to Coast in form and amount,
and by an insurer, satisfactory to Coast, (iii) the customer of Borrower is a
large or rated company having a verifiable credit history, (iv) the customer of
Borrower is a foreign subsidiary of a customer of Borrower that is a company
that was formed and has its primary place of business within the United States
and has a verifiable credit history of at least one (1) year, (v) the customer
of Borrower is a large foreign corporation, or (vi) the customer of Borrower is
a foreign company with a Dun & Bradstreet rating acceptable to Coast, in its
sole discretion. Notwithstanding the foregoing, Receivables owing from Nitro
Plastics will not be eligible unless supported by an irrevocable letter of
credit.
"ELIGIBLE INVENTORY" means Inventory which Coast, in its sole judgment,
deems eligible for borrowing, based on such considerations as Coast may from
time to time deem appropriate. Without limiting Coast's discretion in
determining the eligibility of any given Inventory, Inventory which does not
meet the following requirements will not be deemed to be Eligible Inventory:
Inventory which (i) consists of finished goods, in good, new and salable
condition, or raw materials acceptable to Coast, all of which is not
perishable, not obsolete or unmerchantable, and is not comprised of work in
process, packaging materials or supplies; (ii) meets all applicable governmental
standards; (iii) has been manufactured in compliance with the Fair Labor
Standards Act; (iv) conforms in all respects to the warranties and
representations set forth in this Agreement; (v) is at all times subject to
Coast's duly perfected, first priority security interest; and (vi) is
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situated at a one of the locations set forth on the Schedule. Without limiting
the foregoing, the parties hereto understand that (a) FIXCOR Industries, Inc.
recycles High-Density Polyethylene Resin into post-consumer resin from pigmented
and unpigmented blow mold bottles, such as milk bottles, plastic oil bottles,
etc., (b) Pallet Technology, Inc. takes resin pellets recycled by FIXCOR
Industries, Inc. and turns them into plastic pallets for industrial use, (c) and
Poly Style Industries, Inc. manufactures plastic mini-blinds from PVC it
purchases in the marketplace.
"ELIGIBLE RECEIVABLES" means Receivables and Eligible Foreign Receivables
arising in the ordinary course of Borrower's business from the sale of goods or
rendition of services, which Coast, in its sole judgment, shall deem eligible
for borrowing, based on such considerations as Coast may from time to time deem
appropriate. Eligible Receivables shall not include the following:
(a) Receivables that the Account Debtor has failed to pay within 90
days of invoice date (120 days in the case of Eligible Foreign Receivables) or
Accounts with selling terms of more than 30 days;
(b) Receivables owed by an Account Debtor or its Affiliates where
twenty five percent (25%) or more of all Receivables owed by that Account Debtor
(or its Affiliates) are deemed ineligible under clause (a) above;
(c) Receivables with respect to which the Account Debtor is an
employee, Affiliate, or agent of Borrower;
(d) Receivables with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, bill and hold,
or other terms by reason of which the payment by the Account Debtor may be
conditional;
(e) Receivables, that are not payable in Dollars or with respect to
which the Account Debtor: (i) does not maintain its chief executive office in
the United States, or (ii) is not organized under the laws of the United States
or any State thereof, or (iii) is the government of any foreign country or
sovereign state, or of any state, province, municipality, or other political
subdivision thereof, or of any department, agency, public corporation, or other
instrumentality thereof, unless the Receivable is an Eligible Foreign
Receivable;
(f) Receivables with respect to which the Account Debtor is either
(i) the United States or any department, agency, or instrumentality of the
United States (exclusive, however, of Accounts with respect to which Borrower
has complied, to the satisfaction of Coast, with the Assignment of Claims Act,
31 U.S.C. Section 3727), or (ii) any State of the United States (exclusive,
however, of Receivables owed by any State that does not have a statutory
counterpart to the Assignment of Claims Act);
(g) Receivables with respect to which the Account Debtor is a
creditor of Borrower, has or has asserted a right of setoff, has disputed its
liability, or has made any claim with respect to the Receivables;
(h) Receivables with respect to an Account Debtor whose total
obligations owing to Borrower exceed twenty five percent (25%) of all Eligible
Receivables, to the extent of the obligations owing by such Account Debtor in
excess of such percentage; provided that Receivables owing from H Muehlstein
(subject to receipt of a bill and hold letter) shall be up to 40% and all other
possible changes in this subparagraph (h) shall be determined in Coast's
discretion on a case by case basis;
(i) Receivables with respect to which the Account Debtor is subject
to any reorganization, bankruptcy, insolvency, arrangement, readjustment of
debt, dissolution or liquidation proceeding, or becomes insolvent, or goes out
of business;
(j) Receivables the collection of which Coast, in its reasonable
credit judgment, believes to be doubtful by reason of the Account Debtor's
financial condition;
(k) Receivables with respect to which the goods giving rise to such
Receivable have not been shipped and billed to the Account Debtor, the services
giving rise to such Receivable have not been performed and accepted by the
Account Debtor, or the Receivable otherwise does not represent a final sale;
(l) Receivables with respect to which the Account Debtor is located
in the states
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of New Jersey, Minnesota, Indiana, or West Virginia (or any other state that
requires a creditor to file a Business Activity Report or similar document in
order to bring suit or otherwise enforce its remedies against such Account
Debtor in the courts or through any judicial process of such state), unless
Borrower has qualified to do business in New Jersey, Minnesota, Indiana, West
Virginia, or such other states, or has filed a Notice of Business Activities
Report with the applicable division of taxation, the department of revenue, or
with such other state offices, as appropriate, for the then-current year, or is
exempt from such filing requirement; and
(m) Receivables that represent progress payments or other advance
billings that are due prior to the completion of performance by Borrower of the
subject contract for goods or services.
"EQUIPMENT" means all of Borrower's present and hereafter acquired
machinery, molds, machine tools, motors, furniture, equipment, furnishings,
fixtures, trade fixtures, motor vehicles, tools, parts, dies, jigs, goods and
other goods (other than Inventory) of every kind and description used in
Borrower's operations or owned by Borrower and any interest in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions or improvements to any of the foregoing, wherever
located.
"EQUIPMENT ACQUISITION LOANS" means the Loans described in Section 2(d) of
the Schedule.
"EVENT OF DEFAULT" means any of the events set forth in Section 10.1 of
this Agreement.
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States, consistently applied.
"GENERAL INTANGIBLES" means all general intangibles of Borrower, whether
now owned or hereafter created or acquired by Borrower, including, without
limitation, all choses in action, causes of action, corporate or other business
records, Deposit Accounts, investment property, inventions, designs, drawings,
blueprints, patents, patent applications, trademarks and the goodwill of the
business symbolized thereby, names, trade names, trade secrets, goodwill,
copyrights, registrations, licenses, franchises, customer lists, security and
other deposits, 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, all claims of Borrower against Coast, rights to
purchase or sell real or personal property, rights as a licensor or licensee of
any kind, royalties, telephone numbers, proprietary information, purchase
orders, and all insurance policies and claims (including without limitation life
insurance, key man insurance, credit insurance, liability insurance, property
insurance and other insurance), tax refunds and claims, computer programs,
discs, tapes and tape files, 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 (other than Receivables).
"INVENTORY" means all of Borrower's now owned and hereafter acquired goods,
merchandise or other personal property, wherever located, to be furnished under
any contract of service or held for sale or lease (including without limitation
all raw materials, work in process, finished goods and goods in transit, and
including without limitation all farm products), and all materials and supplies
of every kind, nature and description which are or might be used or consumed in
Borrower's business or used in connection with the manufacture, packing,
shipping, advertising, selling or finishing of such goods, merchandise or other
personal property, and all warehouse receipts, documents of title and other
documents representing any of the foregoing.
"INVESTMENT PROPERTY" has the meaning set forth in Section 9115 of the Code
as in effect as of the date hereof.
"LOAN DOCUMENTS" means this Agreement, the agreements and documents listed
on Section 5 of the Schedule, and any other agreement, instrument or document
executed in connection herewith or therewith.
"LOANS" has the meaning set forth in Section 2.1 hereof.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (i) the
business, assets, condition (financial or otherwise) or results of operations of
Borrower or any subsidiary of Borrower or any guarantor of any of the
Obligations, (ii) the ability of Borrower or any guarantor of any of the
Obligations to perform its obligations under this Agreement (including, without
limitation, repayment of the
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Obligations as they come due) or (iii) the validity or enforceability of this
Agreement or any other agreement or document entered into by any party in
connection herewith, or the rights or remedies of Coast hereunder or thereunder.
"MATURITY DATE" means the date that this Agreement shall cease to be
effective, as set forth on the Schedule, subject to the provisions of Section
9.1 and 9.2 hereof.
"MAXIMUM DOLLAR AMOUNT" has the meaning set forth in Section 2 of the
Schedule.
"MINIMUM MONTHLY INTEREST" has the meaning set forth in Section 3 of the
Schedule.
"NET WORTH" means shareholder's equity prepared 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 Coast, whether evidenced by this Agreement or any note
or other instrument or document, whether arising from an extension of credit,
opening of a letter of credit, banker's acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including, without
limitation, those acquired by assignment and any participation by Coast in
Borrower's debts owing to others), absolute or contingent, due or to become due,
including, without limitation, all interest, charges, expenses, fees, attorneys'
fees (including attorneys' fees and expenses incurred in bankruptcy), expert
witness fees, audit fees, letter of credit fees, collateral monitoring fees,
closing fees, facility fees, termination fees, minimum interest charges and any
other sums chargeable to Borrower under this Agreement or under any other
present or future instrument or agreement between Borrower and Coast.
"PERMITTED LIENS" means the following:
(n) purchase money security interests in specific items of Equipment;
(o) leases of specific items of Equipment;
(p) liens for taxes not yet payable;
(q) additional security interests and liens consented to in writing
by Coast, which consent shall not be unreasonably withheld;
(r) security interests being terminated substantially concurrently
with this Agreement;
(s) liens of materialmen, mechanics, warehousemen, carriers, or other
similar liens arising in the ordinary course of business and securing
obligations which are not delinquent;
(t) liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by liens of the type described above in
clauses (a) or (b) 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; or
(u) liens in favor of customs and revenue authorities which secure
payment of customs duties in connection with the importation of goods.
Coast will have the right to require, as a condition to its consent under
subparagraph (d) above, that the holder of the additional security interest or
lien sign an intercreditor agreement on Coast's then standard form, acknowledge
that the security interest is subordinate to the security interest in favor of
Coast, and agree not to take any action to enforce its subordinate security
interest so long as any Obligations remain outstanding, and that Borrower agree
that any uncured default in any obligation secured by the subordinate security
interest shall also constitute an Event of Default under this Agreement.
"PERSON" means any individual, sole proprietorship, general partnership,
limited partnership, limited liability partnership, limited liability company,
joint venture, trust, unincorporated organization, association, corporation,
government, or any agency or political division thereof, or any other entity.
"PRIME RATE" means the actual "Reference Rate" or the substitute therefor
of the Bank of America NT & SA whether or not that rate is the lowest interest
rate charged by said bank. If the
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Prime Rate, as defined, is unavailable, "Prime Rate" shall mean the highest of
the prime rates published in the Wall Street Journal on the first business day
of the applicable month, as the base rate on corporate loans at large U.S. money
center commercial banks.
"REAL ESTATE" means the real property at 1835 James Parkway, Heath, Ohio
43056.
"RECEIVABLE LOANS" means the Loans described in Section 2(a) of the
Schedule.
"RECEIVABLES" means all of Borrower's now owned and hereafter acquired
accounts (whether or not earned by performance), letters of credit, contract
rights, chattel paper, instruments, securities, documents, securities accounts,
security entitlements, commodity contracts, commodity accounts, investment
property and all other forms of obligations at any time owing to Borrower, all
guaranties and other security therefor, all merchandise returned to or
repossessed by Borrower, and all rights of stoppage in transit and all other
rights or remedies of an unpaid vendor, lienor or secured party.
"RENEWAL DATE" shall mean the Maturity Date if this Agreement is renewed
pursuant to Section 9.1 hereof, and each anniversary thereafter that this
Agreement is renewed pursuant to Section 9.1 hereof.
"RENEWAL FEE" means the fee that Borrower must pay Coast upon renewal of
this Agreement pursuant to Section 9.1 hereof, in the amount set forth on the
Schedule.
"SOLVENT" means, with respect to any Person on a particular date, that on
such date (a) at fair valuations, all of the properties and assets of such
Person are greater than the sum of the debts, including contingent liabilities,
of such Person, (b) the present fair salable value of the properties and assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person is able to realize upon its properties and assets and
pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (d) such Person
does not intend to, and does not believe that it will, incur debts beyond such
Person's ability to pay as such debts mature, and (e) such Person is not engaged
in business or a transaction, and is not about to engage in business or a
transaction, for which such Person's properties and assets would constitute
unreasonably small capital after giving due consideration to the prevailing
practices in the industry in which such Person is engaged. In computing the
amount of contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount that, in light of all the facts and
circumstances existing at such time, represents the amount that reasonably can
be expected to become an actual or matured liability.
"TERM LOAN" means the Loans described in Section 2(c) of the Schedule.
"OTHER TERMS." 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 Code, to the extent such
terms are defined therein.
2. CREDIT FACILITIES.
2.1 LOANS. Coast will make loans to Borrower (the "Loans"), in amounts
and in percentages to be determined by Coast in its good faith discretion, up to
the Credit Limit, provided no Default or Event of Default has occurred and is
continuing. In addition, Coast may create reserves against or reduce its
advance rates based upon Eligible Receivables or Eligible Inventory without
declaring a Default or an Event of Default if it determines that there has
occurred a Material Adverse Effect.
3. INTEREST AND FEES.
3.1 INTEREST. All Loans and all other monetary Obligations shall bear
interest at the rate shown on the Schedule, except where expressly set forth to
the contrary in this Agreement. Interest shall be payable monthly, on the last
day of the month. Interest may, in Coast's discretion, be charged to Borrower's
loan account, and the same shall thereafter bear interest at the same rate as
the other Loans. Regardless of the amount of Obligations that may be
outstanding from time to time, Borrower shall pay Coast Minimum Monthly Interest
during the term of this Agreement with
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respect to the Receivable Loans and the Inventory Loans in the amount set forth
on the Schedule.
3.2 FEES. Borrower shall pay Coast the fee(s) shown on the Schedule,
which are in addition to all interest and other sums payable to Coast and are
deemed fully earned and are nonrefundable.
4. SECURITY INTEREST.
To secure the payment and performance of all of the Obligations when due,
Borrower hereby grants to Coast a security interest in all of Borrower's
interest in the following, whether now owned or hereafter acquired, and wherever
located: All Receivables, Inventory, Equipment, Investment Property, and
General Intangibles, including, without limitation, all of Borrower's Deposit
Accounts, and all money, and all property now or at any time in the future in
Coast's possession (including claims and credit balances), and all proceeds of
any of the foregoing (including proceeds of any insurance policies, proceeds of
proceeds, and claims against third parties), all products of any of the
foregoing, and all books and records related to any of the foregoing (all of the
foregoing, together with all other property in which Coast may now or in the
future be granted a lien or security interest, is referred to herein,
collectively, as the "Collateral")
5. CONDITIONS PRECEDENT.
The obligation of Coast to make the Loans is subject to the satisfaction,
in the sole discretion of Coast, at or prior to the first advance of funds
hereunder, of each, every and all of the following conditions:
5.1 STATUS OF ACCOUNTS AT CLOSING. No accounts payable shall be due and
unpaid one hundred and twenty (120) days past its invoice date except for such
accounts payable being contested in good faith in appropriate proceedings and
for which adequate reserves have been provided.
5.2 MINIMUM AVAILABILITY. Borrower shall have minimum availability
immediately following the initial funding in the amount set forth on the
Schedule.
5.3 LANDLORD WAIVER. Coast shall have received duly executed
(a) landlord waivers and access agreements in form and substance
satisfactory to Coast, in Coast's sole and absolute discretion, and, when deemed
appropriate by Coast, in form for recording in the appropriate recording office,
with respect to all leased locations where Borrower maintains any inventory or
equipment.
5.4 EXECUTED AGREEMENT. Coast shall have received this Agreement duly
executed and in form and substance satisfactory to Coast in its sole and
absolute discretion.
5.5 OPINION OF BORROWER'S COUNSEL. Coast shall have received an opinion
of Borrower's counsel, in form and substance satisfactory to Coast in its sole
and absolute discretion.
5.6 PRIORITY OF COAST'S LIENS. Coast shall have received the results of
"of record" searches satisfactory to Coast in its sole and absolute discretion,
reflecting its Uniform Commercial Code filings against Borrower indicating that
Coast has a perfected, first priority lien in and upon all of the Collateral,
subject only to Permitted Liens.
5.7 INSURANCE. Coast shall have received copies of the insurance binders
or certificates evidencing Borrower's compliance with Section 8.2 hereof,
including lender's loss payee endorsements.
5.8 BORROWER'S EXISTENCE. Coast shall have received copies of Borrower's
articles or certificate of incorporation and all amendments thereto, and a
Certificate of Good Standing, each certified by the Secretary of State of the
state of Borrower's organization, and dated a recent date prior to the Closing
Date, and Coast shall have
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received Certificates of Foreign Qualification for Borrower from the Secretary
of State of each state wherein the failure to be so qualified could have a
Material Adverse Effect.
5.9 ORGANIZATIONAL DOCUMENTS. Coast shall have received copies of
Borrower's By-laws and all amendments thereto, and Coast shall have received
copies of the resolutions of the board of directors of Borrower, authorizing the
execution and delivery of this Agreement and the other documents contemplated
hereby, and authorizing the transactions contemplated hereunder and thereunder,
and authorizing specific officers of Borrower to execute the same on behalf of
Borrower, in each case certified by the Secretary or other acceptable officer of
Borrower as of the Closing Date.
5.10 TAXES. Coast shall have received evidence from Borrower that
Borrower has complied with all tax withholding and Internal Revenue Service
regulations, in form and substance satisfactory to Coast in its sole and
absolute discretion.
5.11 DUE DILIGENCE. Coast shall have completed its due diligence with
respect to Borrower.
5.12 YEAR 2000 PROBLEM ASSESSMENT CERTIFICATE. Coast shall have received
a certificate from the relevant officer of Borrower to the effect that, as the
result of a comprehensive assessment undertaken by Borrower of Borrower's
computer systems, software and applications and after due inquiry made to
Borrower's material suppliers, vendors and customers, Borrower knows of no facts
that would cause Borrower to reasonably believe that the Year 2000 Problem will
cause a Material Adverse Effect.
5.13 OTHER DOCUMENTS AND AGREEMENTS. Coast shall have received such other
agreements, instruments and documents as Coast may require in connection with
the transactions contemplated hereby, all in form and substance satisfactory to
Coast in Coast's sole and absolute discretion, and in form for filing in the
appropriate filing office, including, but not limited to, those documents listed
in Section 5 of the Schedule.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
In order to induce Coast to enter into this Agreement and to make Loans,
Borrower represents and warrants to Coast as follows, and Borrower covenants
that the following representations will continue to be true, and that Borrower
will at all times comply with all of the following covenants:
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6.1 EXISTENCE AND AUTHORITY. Borrower is and will continue to be, duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization. Borrower is and will continue to be qualified
and licensed to do business in all jurisdictions in which any failure to do so
would have a Material Adverse Effect. The execution, delivery and performance
by Borrower of this Agreement, and all other documents contemplated hereby (a)
have been duly and validly authorized, (b) are enforceable against Borrower in
accordance with their terms (except as enforcement may be limited by equitable
principles and by bankruptcy, insolvency, reorganization, moratorium or similar
laws relating to creditors' rights generally), and (c) do not violate Borrower's
articles or certificate of incorporation, or Borrower's by-laws, or any law or
any material agreement or instrument which is binding upon Borrower or its
property, and (d) do not constitute grounds for acceleration of any material
indebtedness or obligation under any material agreement or instrument which is
binding upon Borrower or its property.
6.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in the
heading to this Agreement is its correct name. Listed on the Schedule are all
prior names of Borrower and all of Borrower's present and prior trade names.
Borrower shall give Coast thirty (30) days' prior written notice before changing
its name or doing business under any other name. Borrower has complied, and
will in the future comply, with all laws relating to the conduct of business
under a fictitious business name.
6.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth in
the heading to this Agreement is Borrower's chief executive office. In
addition, Borrower has places of business and Collateral is located only at the
locations set forth on the Schedule. Borrower will give Coast at least thirty
(30) days' prior written notice before opening any additional place of business,
changing its chief executive office, or moving any of the Collateral to a
location other than Borrower's Address or one of the locations set forth on the
Schedule.
6.4 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower is now, and will at
all times in the future be, the sole owner of all the Collateral, except for
items of Equipment which are leased by Borrower. 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. Coast 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 Coast and the Collateral against all claims of
others. None of the Collateral now is or will be affixed to any real property
in such a manner, or with such intent, as to become a fixture. Borrower is not
and will not become a lessee under any real property lease pursuant to which the
lessor may obtain any rights in any of the Collateral and no such lease now
prohibits, restrains, impairs or will prohibit, restrain or impair Borrower's
right to remove any Collateral from the leased 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 Coast, use its best efforts to
cause such third party to execute and deliver to Coast, in form acceptable to
Coast, such waivers and subordinations as Coast shall specify, so as to ensure
that Coast'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.
6.5 MAINTENANCE OF COLLATERAL. Borrower will maintain the Collateral in
good working condition, and Borrower will not use the Collateral for any
unlawful purpose. Borrower will immediately advise Coast in writing of any
material loss or damage to the Collateral.
6.6 BOOKS AND RECORDS. Borrower has maintained and will maintain at
Borrower's Address complete and accurate books and records, comprising an
accounting system in accordance with GAAP.
6.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial
statements now or in the future delivered to Coast have been, and will be,
prepared in conformity with GAAP (except, in the case of unaudited financial
statements, for the absence of footnotes and subject to normal year-end
adjustments) and now and in the future will fairly reflect the financial
condition of Borrower, at the times and for the periods therein stated. Between
the last date covered by any such statement provided to Coast and the date
hereof, there has been no
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Material Adverse Effect. Borrower is now and will continue to be Solvent.
6.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has timely
filed, and will timely file, all tax returns and reports required by foreign,
federal, state and local law, and Borrower has timely paid, and will timely pay,
all foreign, federal, state and local taxes, assessments, deposits and
contributions now or in the future owed by Borrower. Borrower may, however,
defer payment of any contested taxes, provided that Borrower (i) in good faith
contests Borrower's obligation to pay the taxes by appropriate proceedings
promptly and diligently instituted and conducted, (ii) notifies Coast in writing
of the commencement of, and any material development in, the proceedings, and
(iii) posts bonds or takes any other steps required to keep the contested taxes
from becoming a lien upon any of the Collateral. As of the date hereof,
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 and will not withdraw
from participation in, permit partial or complete termination of, or permit 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 its successors or any other governmental agency.
Borrower shall, at all times, utilize the services of an outside payroll service
providing for the automatic deposit of all payroll taxes payable by Borrower.
6.9 COMPLIANCE WITH LAW. Borrower has complied, and will comply, in all
material respects, with all provisions of all material foreign, federal, state
and local laws and regulations relating to Borrower, including, but not limited
to, the Fair Labor Standards Act, and those relating to Borrower's ownership of
real or personal property, the conduct and licensing of Borrower's business, and
environmental matters.
6.10 LITIGATION. Except as disclosed in the Schedule, there is no claim,
suit, litigation, proceeding or investigation pending or (to 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 a Material Adverse Effect.
Borrower will promptly inform Coast in writing of any claim, proceeding,
litigation or investigation in the future threatened or instituted by or against
Borrower involving an amount set forth on the Schedule.
6.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely for
lawful business purposes. Borrower is not purchasing or carrying any "margin
stock" (as defined in Regulation G of the Board of Governors of the Federal
Reserve System) and no part of the proceeds of any Loan will be used to purchase
or carry any "margin stock" or to extend credit to others for the purpose of
purchasing or carrying any "margin stock."
6.12 YEAR 2000 COMPLIANCE. AS THE RESULT OF A COMPREHENSIVE REVIEW AND
ASSESSMENT UNDERTAKEN BY BORROWER OF BORROWER'S COMPUTER SYSTEMS, SOFTWARE AND
APPLICATIONS AND AFTER DUE INQUIRY MADE OF BORROWER'S MATERIAL SUPPLIERS,
VENDORS AND CUSTOMERS, BORROWER REPRESENTS AND WARRANTS THAT THE YEAR 2000
PROBLEM WILL NOT RESULT IN A MATERIAL ADVERSE EFFECT.
7. RECEIVABLES.
7.1 REPRESENTATIONS RELATING TO RECEIVABLES. Borrower represents and
warrants to Coast as follows: Each Receivable with respect to which Loans are
requested by Borrower shall, on the date each Loan is requested and made,
represent an undisputed bona fide existing unconditional obligation of the
Account Debtor created by the sale, delivery and acceptance of goods or the
rendition of services in the ordinary course of Borrower's business.
7.2 REPRESENTATIONS RELATING TO DOCUMENTS AND LEGAL COMPLIANCE. Borrower
represents and warrants to Coast as follows: All statements made and all unpaid
balances appearing in all invoices, instruments and other documents evidencing
the Receivables are and shall be true and correct and all such invoices,
instruments and other documents and all of Borrower's books and records are and
shall be genuine and in all respects what
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they purport to be. All sales and other transactions underlying or giving rise
to each Receivable shall fully comply with all applicable laws and governmental
rules and regulations. All signatures and indorsements on all documents,
instruments, and agreements relating to all Receivables are and shall be
genuine, and all such documents, instruments and agreements are and shall be
legally enforceable in accordance with their terms.
7.3 SCHEDULES AND DOCUMENTS RELATING TO RECEIVABLES. Borrower shall
deliver to Coast via facsimile, unless otherwise directed by Coast, at such
locations and at such intervals as Coast may request, transaction reports and
loan requests, schedules of Receivables, and schedules of collections, all on
Coast's standard forms; PROVIDED, HOWEVER, that Borrower's failure to execute
and deliver the same shall not affect or limit Coast's security interest and
other rights in all of Borrower's Receivables, nor shall Coast's failure to
advance or lend against a specific Receivable affect or limit Coast's security
interest and other rights therein. Loan requests received after 10:30 A.M. Los
Angeles, California time, will not be considered by Coast until the next
Business Day. Together with each such schedule, or later if requested by Coast,
Borrower shall furnish Coast with copies (or, at Coast'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
Receivables, and Borrower warrants the genuineness of all of the foregoing.
Borrower shall also furnish to Coast an aged accounts receivable trial balance
in such form and at such intervals as Coast shall request. In addition,
Borrower shall deliver to Coast the originals of all instruments, chattel paper,
security agreements, guarantees and other documents and property evidencing or
securing any Receivables, upon receipt thereof and in the same form as received,
with all necessary indorsements, all of which shall be with recourse. Borrower
shall also provide Coast with copies of all credit memos as and when requested
by Coast.
7.4 COLLECTION OF RECEIVABLES. Borrower shall have the right to collect
all Receivables, unless and until an Event of Default has occurred. Borrower
shall hold all payments on, and proceeds of, Receivables in trust for Coast, and
Borrower shall deliver all such payments and proceeds to Coast within one (1)
Business Day after receipt by Borrower, in their original form, duly endorsed to
Coast, to be applied to the Obligations in such order as Coast shall determine.
Coast may, in its discretion, require that all proceeds of Collateral be
deposited by Borrower into a lockbox account, or such other "blocked account" as
Coast may specify, pursuant to a blocked account agreement in such form as Coast
may specify. Coast or its designee may, at any time, notify Account Debtors
that Coast has been granted a security interest in the Receivables.
7.5 REMITTANCE OF PROCEEDS. All proceeds arising from the disposition of
any Collateral shall be delivered to Coast within one (1) Business Day after
receipt by Borrower, in their original form, duly endorsed to Coast, to be
applied to the Obligations in such order as Coast shall determine. Borrower
agrees that it will not commingle proceeds of Collateral with any of Borrower's
other funds or property, but will hold such proceeds separate and apart from
such other funds and property and in an express trust for Coast. Nothing in
this Section limits the restrictions on disposition of Collateral set forth
elsewhere in this Agreement.
7.6 DISPUTES. Borrower shall notify Coast promptly of all disputes or
claims relating to Receivables. Borrower shall not forgive (completely or
partially), compromise or settle any Receivable for less than payment in full,
or agree to do any of the foregoing, except that Borrower may do so, provided
that: (a) Borrower does so in good faith, in a commercially reasonable manner,
in the ordinary course of business, and in arm's length transactions, which are
reported to Coast on the regular reports provided to Coast; (b) no Default or
Event of Default has occurred and is continuing; and (c) taking into account all
such discounts settlements and forgiveness, the total outstanding Loans will not
exceed the Credit Limit. Coast may, at any time after the occurrence of an
Event of Default, settle or adjust disputes or claims directly with Account
Debtors for amounts and upon terms which Coast considers advisable in its
reasonable credit judgment and, in all cases, Coast shall credit Borrower's Loan
account with only the net amounts received by Coast in payment of any
Receivables.
7.7 RETURNS. Provided 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 shall
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promptly determine the reason for such return and promptly issue a credit
memorandum to the Account Debtor in the appropriate amount. In the event any
attempted return occurs after the occurrence of any Event of Default, Borrower
shall (a) hold the returned Inventory in trust for Coast, (b) segregate all
returned Inventory from all of Borrower's other property, (c) conspicuously
label the returned Inventory as subject to Coast's security interest, and (d)
immediately notify Coast of the return of any Inventory, specifying the reason
for such return, the location and condition of the returned Inventory, and on
Coast's request deliver such returned Inventory to Coast.
7.8 VERIFICATION. Coast may, from time to time, verify directly with the
respective Account Debtors the validity, amount and other matters relating to
the Receivables, by means of mail, telephone or otherwise, either in the name of
Borrower or Coast or such other name as Coast may choose.
7.9 NO LIABILITY. Coast shall not under any circumstances be responsible
or liable for any shortage or discrepancy in, damage to, or loss or destruction
of, any goods, the sale or other disposition of which gives rise to a
Receivable, or for any error, act, omission or delay of any kind occurring in
the settlement, failure to settle, collection or failure to collect any
Receivable, or for settling any Receivable in good faith for less than the full
amount thereof, nor shall Coast be deemed to be responsible for any of
Borrower's obligations under any contract or agreement giving rise to a
Receivable. Nothing herein shall, however, relieve Coast from liability for its
own gross negligence or willful misconduct.
8. ADDITIONAL DUTIES OF THE BORROWER.
8.1 FINANCIAL AND OTHER COVENANTS. Borrower shall at all times comply
with the financial and other covenants set forth in the Schedule.
8.2 INSURANCE. Borrower shall, at all times insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to Coast, in such form and amounts as Coast may
reasonably require, and Borrower shall provide evidence of such insurance to
Coast, so that Coast is satisfied that such insurance is, at all times, in full
force and effect. All liability insurance policies of Borrower shall name Coast
as an additional insured, and all property casualty and related insurance
policies of Borrower shall name Coast as a loss payee thereon and Borrower shall
cause a lender's loss payee endorsement in form reasonably acceptable to Coast.
Upon receipt of the proceeds of any such insurance, Coast shall apply such
proceeds in reduction of the Obligations as Coast shall determine in its sole
discretion, except that, provided no Default or Event of Default has occurred
and is continuing, Coast shall release to Borrower insurance proceeds with
respect to Equipment totaling less than the amount set forth in Section 8 of the
Schedule, which shall be utilized by Borrower for the replacement of the
Equipment with respect to which the insurance proceeds were paid. Coast may
require reasonable assurance that the insurance proceeds so released will be so
used. If Borrower fails to provide or pay for any insurance, Coast may, but is
not obligated to, obtain the same at Borrower's expense. Borrower shall
promptly deliver to Coast copies of all reports made to insurance companies.
8.3 REPORTS. Borrower, at its expense, shall provide Coast with the
written reports set forth in Section 8 of the Schedule, and such other written
reports with respect to Borrower (including budgets, sales projections,
operating plans and other financial documentation), as Coast shall from time to
time reasonably specify.
8.4 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times but not
less frequently than quarterly and on one (1) Business Day's notice, Coast, or
its agents, shall have the right to perform Audits. Coast shall take reasonable
steps to keep confidential all confidential information obtained in any Audit,
but Coast shall have the right to disclose any such information to its auditors,
regulatory agencies, and attorneys, and pursuant to any subpoena or other legal
process. The Audits shall be at Borrower's expense and the charge for the
Audits shall be Seven Hundred Fifty Dollars ($750) per person per day (or such
higher amount as shall represent Coast's then current standard charge for the
same), plus reasonable out-of-pocket expenses. 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 notifying Coast of the same and obtaining the written agreement
from such accounting firm, service bureau or other third party to give Coast the
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same rights with respect to access to books and records and related rights as
Coast has under this Loan Agreement. Borrower shall also take all necessary
steps to assure that this material accounting and software, systems and
applications, and those of its accounting firm, service bureau or any other
third party vendor or supplier, will on a timely basis, adequately and
completely address the Year 2000 Problem in all material aspects.
8.5 NEGATIVE COVENANTS. Borrower shall not, without Coast's prior
written consent, do any of the following:
(a) merge or consolidate with another entity, except in a transaction
in which (i) the owners of the Borrower hold at least fifty percent (50%) of the
ownership interest in the surviving entity immediately after such merger or
consolidation, and (ii) the Borrower is the surviving entity;
(b) acquire any assets, except (i) in the ordinary course of
business, or (ii) in a transaction or a series of transactions not involving the
payment of an aggregate amount in excess of the amount set forth in Section 8 of
the Schedule, which consent shall not be unreasonably withheld;
(c) enter into any other transaction outside the ordinary course of
business;
(d) sell or transfer any Collateral, except for the sale of finished
Inventory in the ordinary course of Borrower's business, and except for the sale
of obsolete or unneeded Equipment in the ordinary course of business;
(e) store any Inventory or other Collateral with any warehouseman or
other third party;
(f) sell any Inventory on a sale-or-return, guaranteed sale,
consignment, or other contingent basis;
(g) make any loans of any money or other assets, except (i) advances
to customers or suppliers in the ordinary course of business, (ii) travel
advances, employee relocation loans and other employee loans and advances in the
ordinary course of business, and (iii) loans to employees, officers and
directors for the purpose of purchasing equity securities of the Borrower;
(h) incur any debts, outside the ordinary course of business, which
would have a Material Adverse Effect;
(i) guarantee or otherwise become liable with respect to the
obligations of another party or entity;
(j) pay or declare any dividends or distributions on the ownership
interests in Borrower (except for dividends or distributions payable solely in
stock form of ownership interests in Borrower);
(k) make any change in Borrower's capital structure which would have
a Material Adverse Effect; or
(l) dissolve or elect to dissolve.
Transactions permitted by the foregoing provisions of this Section are only
permitted if no Default or Event of Default is continuing or would occur as a
result of such transaction.
8.6 LITIGATION COOPERATION. Should any third-party suit or proceeding be
instituted by or against Coast with respect to any Collateral or relating to
Borrower, Borrower shall, without expense to Coast, make available Borrower and
its officers, employees and agents and Borrower's books and records, to the
extent that Coast may deem them reasonably necessary in order to prosecute or
defend any such suit or proceeding.
8.7 FURTHER ASSURANCES. Borrower agrees, at its expense, on request by
Coast, to execute all documents and take all actions, as Coast, may deem
reasonably necessary or useful in order to perfect and maintain Coast's
perfected security interest in the Collateral, and in order to fully consummate
the transactions contemplated by this Agreement.
9. TERM.
9.1 MATURITY DATE. This Agreement shall continue in effect until the
Maturity Date; provided that the Maturity Date shall automatically be extended,
and this Agreement shall automatically and continuously renew, for successive
additional terms of one year each, unless one party gives written notice to the
other, not less than one hundred
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and twenty (120) days prior to the Maturity Date or the next Renewal Date, that
such party elects to terminate this Agreement effective on the Maturity Date or
such next Renewal Date. If this Agreement is renewed under this Section 9.1,
Borrower shall pay to Coast a Renewal Fee in the amount shown in Section 3 of
the Schedule. The Renewal Fee shall be due and payable on the Renewal Date and
thereafter shall bear interest at a rate equal to the rate applicable to the
Receivable Loans.
9.2 EARLY TERMINATION. This Agreement may be terminated prior to the
Maturity Date as follows: (a) by Borrower, effective three (3) Business Days
after written notice of termination is given to Coast; or (b) by Coast at any
time after the occurrence of an Event of Default, without notice, effective
immediately. If this Agreement is terminated by Borrower or by Coast under this
Section 9.2, Borrower shall pay to Coast an Early Termination Fee in the amount
shown in Section 3 of the Schedule. The Early Termination Fee shall be due and
payable on the effective date of termination and thereafter shall bear interest
at a rate equal to the rate applicable to the Receivable Loans.
9.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay and perform in full all
Obligations, whether evidenced by installment notes or otherwise, and whether or
not all or any part of such Obligations are otherwise then due and payable.
Without limiting the generality of the foregoing, if on the Maturity Date, the
Renewal Date, or on any earlier effective date of termination, there are any
outstanding Letters of Credit issued by Coast or issued by another institution
based upon an application, guarantee, indemnity or similar agreement on the part
of Coast, then on such date Borrower shall provide to Coast cash collateral in
an amount equal to the face amount of all such Letters of Credit plus all
interest, fees and costs due or to become due in connection therewith, to secure
all of the Obligations relating to said Letters of Credit, pursuant to Coast's
then standard form cash pledge agreement. Notwithstanding any termination of
this Agreement, all of Coast's security interests in all of the Collateral and
all of the terms and provisions of this Agreement shall continue in full force
and effect until all Obligations have been paid and performed in full; provided
that, without limiting the fact that Loans are subject to the discretion of
Coast, Coast may, in its sole discretion, refuse to make any further Loans after
termination. No termination shall in any way affect or impair any right or
remedy of Coast, nor shall any such termination relieve Borrower of any
Obligation to Coast, until all of the Obligations have been paid and performed
in full. Upon payment and performance in full of all the Obligations and
termination of this Agreement, Coast shall promptly deliver to Borrower
termination statements, requests for reconveyances and such other documents as
may be required to fully terminate Coast's security interests.
10. EVENTS OF DEFAULT AND REMEDIES.
10.1 EVENTS OF DEFAULT. The occurrence of any of the following events
shall constitute an "Event of Default" under this Agreement, and Borrower shall
give Coast immediate written notice thereof:
(a) Any warranty, representation, statement, report or certificate
made or delivered to Coast by Borrower or any of Borrower's officers, employees
or agents, now or in the future, shall be untrue or misleading and results in a
Material Adverse Effect; or
(b) Borrower shall fail to pay when due any Loan or any interest
thereon or any other monetary Obligation; or
(c) the total Loans and other Obligations outstanding at any time
shall exceed the Credit Limit; or
(d) Borrower shall fail to deliver the proceeds of Collateral to
Coast as provided in Section 7.5 above, or shall fail to give Coast access to
its books and records or Collateral as provided in Section 8.4 above, or shall
breach any negative covenant set forth in Section 8.5 above; or
(e) Borrower shall fail to comply with the financial covenants (if
any) set forth in the Schedule or shall fail to perform any other non-monetary
Obligation which by its nature cannot be cured; or
(f) Borrower shall fail to perform any other non-monetary Obligation,
which failure is not cured within five (5) Business Days after the date due; or
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(g) Any levy, assessment, attachment, seizure, lien or encumbrance
(other than a Permitted Lien) is made on all or any part of the Collateral which
is not cured within fifteen (15) days after the occurrence of the same; or
(h) any default or event of default occurs under any obligation
secured by a Permitted Lien, which is not cured within any applicable cure
period or waived in writing by the holder of the Permitted Lien; or
(i) Borrower breaches any material contract or obligation, which has
or may reasonably be expected to have a Material Adverse Effect; or
(j) Dissolution, termination of existence, insolvency or business
failure of Borrower or any guarantor of any of the Obligations; or appointment
of a receiver, trustee or custodian, for all or any part of the property of,
assignment for the benefit of creditors by, or the commencement of any
proceeding by Borrower or any guarantor of any of the Obligations 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
(k) the commencement of any proceeding against Borrower or any
guarantor of any of the Obligations 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, which is (i) not
timely controverted, or (ii) not cured by the dismissal thereof within thirty
(30) days after the date commenced; or
(l) revocation or termination of, or limitation or denial of
liability upon, any guaranty of the Obligations or any attempt to do any of the
foregoing, or commencement of proceedings by any guarantor of any of the
Obligations under any bankruptcy or insolvency law; or
(m) revocation or termination of, or limitation or denial of
liability upon, any pledge of any certificate of deposit, securities or other
property or asset of any kind pledged by any third party to secure any or all of
the Obligations, or any attempt to do any of the foregoing, or commencement of
proceedings by or against any such third party under any bankruptcy or
insolvency law; or
(n) Borrower or any guarantor of any of the Obligations 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 terminates or in any way limits his subordination agreement; or
(o) Except as permitted under Section 8.5(a), Borrower shall suffer
or experience any Change of Control without Coast's prior written consent, which
consent shall be in the discretion of Coast in the exercise of its reasonable
business judgment; or
(p) Borrower shall generally not pay its debts as they become due, or
Borrower shall conceal, remove or transfer any part of its property, with intent
to hinder, delay or defraud its creditors, or make or suffer any transfer of any
of its property which may be fraudulent under any bankruptcy, fraudulent
conveyance or similar law; or
(q) there shall be any Material Adverse Effect.
Coast may cease making any Loans or extending any credit hereunder during any of
the above cure periods.
10.2 REMEDIES. Upon the occurrence, and during the continuance, of any
Event of Default, Coast, 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:
(a) Cease making Loans or otherwise extending credit to Borrower
under this Agreement or any other document or agreement;
(b) 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
Obligation;
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(c) Take possession of any or all of the Collateral wherever it may
be found, and for that purpose Borrower hereby authorizes Coast 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
on the premises or cause a custodian to remain on the premises in exclusive
control thereof, without charge for so long as Coast deems it reasonably
necessary in order to complete the enforcement of its rights under this
Agreement or any other agreement; PROVIDED, HOWEVER, that should Coast seek to
take possession of any of the Collateral by Court process, Borrower hereby
irrevocably waives:
(i) any bond and any surety or security relating thereto
required by any statute, court rule or otherwise as an incident to such
possession;
(ii) `any demand for possession prior to the commencement of any
suit or action to recover possession thereof; and
(iii) any requirement that Coast retain possession of, and not
dispose of, any such Collateral until after trial or final judgment;
(d) Require Borrower to assemble any or all of the Collateral and
make it available to Coast at places designated by Coast which are reasonably
convenient to Coast and Borrower, and to remove the Collateral to such locations
as Coast may deem advisable;
(e) Complete the processing, manufacturing or repair of any
Collateral prior to a disposition thereof and, for such purpose and for the
purpose of removal, Coast shall have the right to use Borrower's premises,
vehicles, hoists, lifts, cranes, equipment and all other property without
charge. Coast is hereby granted a license or other right to use, without
charge, Borrower's labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks, service marks, and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and Borrower's
rights under all licenses and all franchise agreements shall inure to Coast's
benefit;
(f) Sell, lease or otherwise dispose of any of the Collateral, in its
condition at the time Coast obtains possession of it or after further
manufacturing, processing or repair, at one or more public and/or private sales,
in lots or in bulk, for cash, exchange or other property, or on credit, and to
adjourn any such sale from time to time without notice other than oral
announcement at the time scheduled for sale. Coast shall have the right to
conduct such disposition on Borrower's premises without charge, for such time or
times as Coast deems reasonable, or on Coast's premises, or elsewhere and the
Collateral need not be located at the place of disposition. Coast may directly
or through any affiliated company purchase or lease any Collateral at any such
public disposition, and if permissible under applicable law, at any private
disposition. Any sale or other disposition of Collateral shall not relieve
Borrower of any liability Borrower may have if any Collateral is defective as to
title or physical condition or otherwise at the time of sale;
(g) Demand payment of, and collect any Receivables and General
Intangibles comprising Collateral and, in connection therewith, Borrower
irrevocably authorizes Coast 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 the Collateral or proceeds thereof, and, in Coast's sole
discretion, to grant extensions of time to pay, compromise claims and settle
Receivables and the like for less than face value; and
(h) 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 referring thereto.
All attorneys' fees, expenses, costs, liabilities and obligations incurred
by Coast (including attorneys' fees and expenses incurred in connection with
bankruptcy) with respect to the foregoing shall be due from the Borrower to
Coast on demand. Coast may charge the same to Borrower's loan account, and the
same shall thereafter bear interest at the same rate as is applicable to the
Receivable Loans. Without limiting any of Coast's rights and remedies, from and
after the occurrence of any Event of Default, the
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interest rate applicable to the Obligations shall be increased by an additional
three percent per annum.
10.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower and
Coast agree that a sale or other disposition (collectively, "sale") of any
Collateral which complies with the following standards will conclusively be
deemed to be commercially reasonable:
(a) Notice of the sale is given to Borrower at least five (5) days
prior to the sale, and, in the case of a public sale, notice of the sale is
published at least five (5) days before the sale in a newspaper of general
circulation in the county where the sale is to be conducted;
(b) Notice of the sale describes the collateral in general,
non-specific terms;
(c) The sale is conducted at a place designated by Coast, with or
without the Collateral being present;
(d) The sale commences at any time between 8:00 a.m. and 6:00 p.m.
Los Angeles, California time;
(e) Payment of the purchase price in cash or by cashier's check or
wire transfer is required; and
(f) With respect to any sale of any of the Collateral, Coast may (but
is not obligated to) direct any prospective purchaser to ascertain directly from
Borrower any and all information concerning the same.
Coast shall be free to employ other methods of noticing and selling the
Collateral, in its discretion, if they are commercially reasonable.
10.4 POWER OF ATTORNEY. Borrower grants to Coast an irrevocable power of
attorney coupled with an interest, authorizing and permitting Coast (acting
through any of its employees, attorneys or agents) at any time, at its 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, but
Coast agrees to exercise the following powers in a commercially reasonable
manner:
(a) Execute on behalf of Borrower any documents that Coast may, in
its sole discretion, deem advisable in order to perfect and maintain Coast's
security interest in the Collateral, or in order to exercise a right of Borrower
or Coast, or in order to fully consummate all the transactions contemplated
under this Agreement, and all other present and future agreements;
(b) Execute on behalf of Borrower any document exercising,
transferring or assigning any option to purchase, sell or otherwise dispose of
or to lease (as lessor or lessee) any real or personal property which is part of
Coast's Collateral or in which Coast has an interest;
(c) Execute on behalf of Borrower, any invoices relating to any
Receivable, any draft against any Account Debtor and any notice to any Account
Debtor, any proof of claim in bankruptcy, any Notice of Lien, claim of
mechanic's, materialman's or other lien, or assignment or satisfaction of
mechanic's, materialman's or other lien;
(d) Take control in any manner of any cash or non-cash items of
payment or proceeds of Collateral; endorse the name of Borrower upon any
instruments, or documents, evidence of payment or Collateral that may come into
Coast's possession;
(e) Endorse all checks and other forms of remittances received by
Coast;
(f) Pay, contest or settle any lien, charge, encumbrance, security
interest and adverse claim in or to any of the Collateral, or any judgment based
thereon, or otherwise take any action to terminate or discharge the same;
(g) Grant extensions of time to pay, compromise claims and settle
Receivables
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and General Intangibles for less than face value and execute all releases and
other documents in connection therewith;
(h) Pay any sums required on account of Borrower's taxes or to secure
the release of any liens therefor, or both;
(i) Settle and adjust, and give releases of, any insurance claim that
relates to any of the Collateral and obtain payment therefor;
(j) Instruct any third party having custody or control of any books
or records belonging to, or relating to, Borrower to give Coast the same rights
of access and other rights with respect thereto as Coast has under this
Agreement; and
(k) Take any action or pay any sum required of Borrower pursuant to
this Agreement and any other present or future agreements.
Any and all sums paid and any and all costs, expenses, liabilities,
obligations and attorneys' fees incurred by Coast (including attorneys' fees and
expenses incurred pursuant to bankruptcy) with respect to the foregoing shall be
added to and become part of the Obligations, and shall be payable on demand.
Coast may charge the foregoing to Borrower's loan account and the foregoing
shall thereafter bear interest at the same rate applicable to the Receivable
Loans. In no event shall Coast's rights under the foregoing power of attorney
or any of Coast's other rights under this Agreement be deemed to indicate that
Coast is in control of the business, management or properties of Borrower.
Borrower shall pay, indemnify, defend, and hold Coast and each of its officers,
directors, employees, counsel, agents, and attorneys-in-fact (each, an
"Indemnified Person") harmless (to the fullest extent permitted by law) from and
against any and all claims, demands, suits, actions, investigations,
proceedings, and damages, and all attorneys fees and disbursements and other
costs and expenses actually incurred in connection therewith (as and when they
are incurred and irrespective of whether suit is brought), at any time asserted
against, imposed upon, or incurred by any of them in connection with or as a
result of or related to the execution, delivery, enforcement, performance, and
administration of this Agreement and any other Loan Documents or the
transactions contemplated herein, and with respect to any investigation,
litigation, or proceeding related to this Agreement, any other Loan Document, or
the use of the proceeds of the credit provided hereunder (irrespective of
whether any Indemnified Person is a party thereto), or any act, omission, event
or circumstance in any manner related thereto (all the foregoing, collectively,
the "Indemnified Liabilities"). Borrower shall have no obligation to any
Indemnified Person hereunder with respect to any Indemnified Liability that a
court of competent jurisdiction finally determines to have resulted from the
gross negligence or willful misconduct of such Indemnified Person. This
provision shall survive the termination of this Agreement and the repayment of
the Obligations.
10.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of any
sale of the Collateral shall be applied by Coast first to the costs, expenses,
liabilities, obligations and attorneys' fees incurred by Coast in the exercise
of its rights under this Agreement, second to the interest due upon any of the
Obligations, and third to the principal of the Obligations, in such order as
Coast shall determine in its sole discretion. Any surplus shall be paid to
Borrower or other persons legally entitled thereto; Borrower shall remain liable
to Coast for any deficiency. If, Coast, in its sole discretion, directly or
indirectly enters into a deferred payment or other credit transaction with any
purchaser at any sale of Collateral, Coast shall have the option, exercisable at
any time, in its sole discretion, of either reducing the Obligations by the
principal amount of purchase price or deferring the reduction of the Obligations
until the actual receipt by Coast of the cash therefor.
10.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set
forth in this Agreement, Coast shall have all the other rights and remedies
accorded a secured party in equity, under the Code, and under all other
applicable laws, and under any other instrument or agreement now or in the
future entered into between Coast and Borrower, and all of such rights and
remedies are cumulative and none is exclusive. Exercise or partial exercise by
Coast of one or more of its rights or remedies shall not be deemed an election,
nor bar Coast from subsequent exercise or partial exercise of any other rights
or remedies. The failure or delay of Coast 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
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Obligations have been indefeasibly paid and performed.
11. GENERAL PROVISIONS.
11.1 INTEREST COMPUTATION. In computing interest on the Obligations, all
checks, and other items of payment received by Coast (including proceeds of
Receivables and payment of the Obligations in full) shall be deemed applied by
Coast on account of the Obligations three (3) Business Days after receipt by
Coast of immediately available funds, and, for purposes of the foregoing, any
such funds received after 10:30 AM Los Angeles, California time, on any day
shall be deemed received on the next Business Day; provided that with respect to
wire transfer payments received by Coast, such payments shall be deemed applied
by Coast on account of the Obligations one (1) Business Day after receipt by
Coast of immediately available funds, subject to the timing set forth in the
foregoing. Coast shall be entitled to charge Borrower's account for such three
(3) Business Days or one (1) Business Day, as applicable, of "clearance" or
"float" at the rate(s) set forth in Section 3 of the Schedule on all checks,
wire transfers and other items received by Coast, regardless of whether such
three (3) Business Days or one (1) Business Day, as applicable, of "clearance"
or "float" actually occur, and shall be deemed to be the equivalent of charging
three (3) Business Days or one (1) Business Day, as applicable, of interest on
such collections. This across-the-board three (3) Business Day clearance or
float charge (except with respect to wire transfer payments, for which there
shall be a one (1) Business Day clearance or float charge) on all collections is
acknowledged by the parties to constitute an integral aspect of the pricing of
Coast's financing of Borrower. Coast shall not, however, be required to credit
Borrower's account for the amount of any item of payment which is unsatisfactory
to Coast in its sole discretion, and Coast may charge Borrower's loan account
for the amount of any item of payment which is returned to Coast unpaid.
11.2 APPLICATION OF PAYMENTS. Subject to Section 7.5 hereof, all payments
with respect to the Obligations may be applied, and in Coast's sole discretion
reversed and re-applied, to the Obligations, in such order and manner as Coast
shall determine in its sole discretion.
11.3 CHARGES TO ACCOUNTS. Coast may, in its discretion, require that
Borrower pay monetary Obligations in cash to Coast, or charge them to Borrower's
Loan account, in which event they will bear interest from the date due to the
date paid at the same rate applicable to the Loans.
11.4 MONTHLY ACCOUNTINGS. Coast shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account 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 Coast), unless Borrower
notifies Coast in writing to the contrary within thirty (30) days after each
account is rendered, describing the nature of any alleged errors or omissions.
11.5 NOTICES. All notices to be given under this Agreement shall be in
writing and shall be given either personally or by reputable private delivery
service or by regular first-class mail, facsimile or certified mail return
receipt requested, addressed to Coast or Borrower at the addresses shown in the
heading to this Agreement, or at any other address designated in writing by one
party to the other party. Notices to Coast shall be directed to the Commercial
Finance Division, to the attention of the Division Manager or the Division
Credit Manager. All notices shall be deemed to have been given upon delivery in
the case of notices personally delivered, faxed (at time of confirmation of
transmission), or at the expiration of one (1) Business Day following delivery
to the private delivery service, or two (2) Business Days following the deposit
thereof in the United States mail, with postage prepaid.
11.6 SEVERABILITY. Should any provision of this Agreement be held by any
court of competent jurisdiction to be void or unenforceable, such defect shall
not affect the remainder of this Agreement, which shall continue in full force
and effect.
11.7 INTEGRATION. This Agreement and such other written agreements,
documents and instruments as may be executed in connection herewith are the
final, entire and complete agreement between Borrower and Coast and supersede
all prior and contemporaneous negotiations and oral representations and
agreements, all of which are merged and integrated in this Agreement. THERE ARE
NO ORAL
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UNDERSTANDINGS, REPRESENTATIONS OR AGREEMENTS BETWEEN THE PARTIES WHICH ARE NOT
SET FORTH IN THIS AGREEMENT OR IN OTHER WRITTEN AGREEMENTS SIGNED BY THE PARTIES
IN CONNECTION HEREWITH.
11.8 WAIVERS. The failure of Coast at any time or times to require
Borrower to strictly comply with any of the provisions of this Agreement or any
other present or future agreement between Borrower and Coast shall not waive or
diminish any right of Coast 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 agreement now or in the future
executed by Borrower and delivered to Coast shall be deemed to have been waived
by any act or knowledge of Coast or its agents or employees, but only by a
specific written waiver signed by an authorized officer of Coast 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 or guaranty at any time held by Coast on which
Borrower is or may in any way be liable, and notice of any action taken by
Coast, unless expressly required by this Agreement.
11.9 NO LIABILITY FOR ORDINARY NEGLIGENCE. Neither Coast, nor any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Coast shall be liable for any claims, demands, losses or
damages, of any kind whatsoever, made, claimed, incurred or suffered by Borrower
or any other party through the ordinary negligence of Coast, or any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Coast, but nothing herein shall relieve Coast from
liability for its own gross negligence or willful misconduct.
11.10 AMENDMENT. The terms and provisions of this Agreement may not be
waived or amended, except in a writing executed by Borrower and a duly
authorized officer of Coast.
11.11 TIME OF ESSENCE. Time is of the essence in the performance by
Borrower of each and every obligation under this Agreement.
11.12 ATTORNEYS FEES, COSTS AND CHARGES. Borrower shall reimburse Coast
for all attorneys' fees (including attorneys' fees and expenses incurred
pursuant to bankruptcy) and all filing, recording, search, title insurance,
appraisal, audit, and other costs incurred by Coast, pursuant to, or in
connection with, or relating to this Agreement (whether or not a lawsuit is
filed), including, but not limited to, any attorneys' fees and costs (including
attorneys' fees and expenses incurred pursuant to bankruptcy) Coast incurs in
order to do the following: prepare and negotiate this Agreement and the
documents relating to this Agreement; obtain legal advice in connection with
this Agreement or Borrower; enforce, or seek to enforce, any of its rights;
prosecute actions against, or defend actions by, Account Debtors; commence,
intervene in, or defend any action or proceeding; initiate any complaint to be
relieved of the automatic stay in bankruptcy; file or prosecute any probate
claim, bankruptcy claim, third-party claim, or other claim; examine, audit,
copy, and inspect any of the Collateral or any of Borrower's books and records;
protect, obtain possession of, lease, dispose of, or otherwise enforce Coast's
security interest in, the Collateral; and otherwise represent Coast in any
litigation relating to Borrower. If either Coast 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 costs and attorneys' fees
(including attorneys' fees and expenses incurred pursuant to bankruptcy),
including (but not limited to) attorneys' fees and costs incurred in the
enforcement of, execution upon or defense of any order, decree, award or
judgment. Borrower shall also pay Coast's standard charges for returned checks
and for wire transfers, in effect from time to time. All attorneys' fees, costs
and charges (including attorneys' fees and expenses incurred pursuant to
bankruptcy) and other fees, costs and charges to which Coast may be entitled
pursuant to this Agreement may be charged by Coast to Borrower's loan account
and shall thereafter bear interest at the same rate as the Receivable Loans.
11.13 BENEFIT OF AGREEMENT. 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 Coast; PROVIDED,
HOWEVER, that Borrower may not assign or transfer any of its rights under this
Agreement without the prior written consent of Coast, and any prohibited
assignment
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shall be void. No consent by Coast to any assignment shall release Borrower
from its liability for the Obligations. Coast may assign its rights and
delegate its duties hereunder by the sale of assignment or participation
interests, all without the consent of Borrower. Coast reserves the right to
syndicate all or a portion of the transaction created herein or sell, assign,
transfer, negotiate, or grant participations in all or any part of, or any
interest in Coast's rights and benefits hereunder. In connection with any such
syndication, assignment or participation, Coast may disclose all documents and
information which Coast now or hereafter may disclose all documents and
information which Coast now or hereafter may have relating to Borrower or
Borrower's business. To the extent that Coast assigns its rights and
obligations hereunder to a third person, Coast thereafter shall be released from
such assigned obligations to Borrower.
11.14 PUBLICITY. Coast is hereby authorized, at its expense, to issue
appropriate press releases and to cause a tombstone to be published announcing
the consummation of this transaction and the aggregate amount thereof.
11.15 PARAGRAPH HEADINGS; CONSTRUCTION. Paragraph headings are only used
in this Agreement for convenience. Borrower and Coast acknowledge that the
headings may not describe completely the subject matter of the applicable
paragraph, and the headings shall not be used in any manner to construe, limit,
define or interpret any term or provision of this Agreement. The term
"including", whenever used in this Agreement, shall mean "including (but not
limited to)". 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 Coast or Borrower under any rule
of construction or otherwise.
11.16 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts and
transactions hereunder and all rights and obligations of Coast and Borrower
shall be governed by the internal laws of the State of California, without
regard to its conflicts of law principles. As a material part of the
consideration to Coast to enter into this Agreement, Borrower (a) agrees that
all actions and proceedings relating directly or indirectly to this Agreement
shall, at Coast's option, be litigated in courts located within California, and
that the exclusive venue therefor shall be Los Angeles County; (b) consents to
the jurisdiction and venue of any such court and consents to service of process
in any such action or proceeding by personal delivery or any other method
permitted by law; and (c) waives any and all rights Borrower may have to object
to the jurisdiction of any such court, or to transfer or change the venue of any
such action or proceeding.
11.17
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<PAGE>
MUTUAL WAIVER OF JURY TRIAL. BORROWER AND COAST EACH HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN COAST AND BORROWER, OR ANY CONDUCT, ACTS OR
OMISSIONS OF COAST OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH COAST OR BORROWER, IN ALL
OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
BORROWERS:
FIX-CORP INTERNATIONAL, INC.
By /s/ Gary M. DeLaurentiis
-------------------------------------
President or Vice President
By /s/ Sherry L. Durst
-------------------------------------
Secretary or Ass't Secretary
FIXCOR INDUSTRIES, INC.
By /s/ Gary M. DeLaurentiis
-------------------------------------
President or Vice President
By /s/ Mark Fixler
-------------------------------------
Secretary or Ass't Secretary
PALLET TECHNOLOGY, INC.
By /s/ Gary M. DeLaurentiis
-------------------------------------
President or Vice President
By /s/ Mark Fixler
-------------------------------------
Secretary or Ass't Secretary
POLY STYLE INDUSTRIES, INC.
By /s/ Gary M. DeLaurentiis
-------------------------------------
President or Vice President
By /s/ Mark Fixler
-------------------------------------
Secretary or Ass't Secretary
COAST:
COAST BUSINESS CREDIT,
a division of Southern Pacific Bank
By /s/ John C. Steiner
--------------------------------------
Its: Vice President
---------------------------------
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- --------------------------------------------------------------------------------
COAST
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWER: FIX-CORP INTERNATIONAL, INC.
3637 S. GREEN RD., SUITE 201
BEACHWOOD, OHIO 44122
CO-BORROWERS:
FIXCOR Industries, Inc.| Poly Style Industries, Inc.
1835 James Parkway 120 N.E. 179th Street.
Heath, Ohio 43056 N. Miami Beach, Florida 33179
Pallet Technology, Inc.
1835 James Parkway
Heath, Ohio 43056
Date: June __, 1998
This Schedule forms an integral part of the Loan and Security Agreement among
Coast Business Credit, a division of Southern Pacific Bank, and the
above-borrower and co-borrowers of even date.
- --------------------------------------------------------------------------------
SECTION 2 - CREDIT FACILITIES
SECTION 2.1 - CREDIT LIMIT: Loans in a total amount at any time
outstanding not to exceed the lesser of
a total of Twenty Million Dollars
($20,000,000) at any one time
outstanding (the "Maximum Dollar
Amount"), or the sum of (a), (b), (c),
(d) and (e) below:
(a) Receivable Loans in an amount not
to exceed eighty percent (80%) of
Eligible Receivables (as defined in
Section 1 of the Agreement); provided
that if the Dilution Percentage (as
defined in Section 1 of the Agreement)
is less than 5%, the percentage in the
foregoing shall be up to eighty-five
percent (85%), plus
(b) Inventory Loans in an amount not to
exceed the lesser of:
(1) An advance rate of 50% of the
value of Borrower's Eligible
Inventory (as defined in
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Section 1 of the Agreement),
calculated at the lower of
cost or market value and
determined on a first in,
first out basis, and
(2) Two Million Dollars
($2,000,000),
Subject to an appraisal acceptable
to Coast, plus
(c) Term Loan, in a total amount not to
exceed the lesser of:
(1) Eighty percent (80%) of the
orderly liquidation in-place
value of machinery and
equipment, 80% of new
machinery and Equipment
purchased in the last 90 days,
and sixty-five percent (65%)
of the fair market value of
Real Estate (after subtracting
taxes and installation
charges), and
(2) Ten Million Dollars
($10,000,000)
The Term Loan will be repayable in
84 equal monthly installments of
principal, plus interest,
commencing one (1) month after the
Closing Date, with a final due date
of June 30, 2003.
Subject to appraisal(s) acceptable
to Coast, plus
(d) Equipment Acquisition Loans, in
minimum advances of One Hundred Thousand
Dollars ($100,000), based on a sixty
(60) month amortization, in a total
amount not to exceed the lesser of:
(1) Eighty percent (80%) of the
cost of new Equipment (after
subtracting taxes and
installation charges), or up
to eighty percent (80%) of the
appraised liquidation value of
used Equipment acquired by
Borrower (after subtracting
taxes and installation
charges); and
(2) Five Million Dollars
($5,000,000)
Availability of this Equipment
Acquisition Loan portion of the
credit facility is subject to
maintenance of a Total Debt Service
Coverage Ratio of not less than
1.25:1 for two (2) consecutive
quarters.
Total Debt Service Coverage Ratio
shall mean the quotient of
(x) EBITDA less all capital
expenditures except that portion
which is financed, less taxes paid
during such period, dived by
(y) the sum of all principal,
interest and other payments made or
required to be made by Borrower on
indebtedness
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<PAGE>
during such period, including any
fees and charges owed by Borrower
in connection with any such
indebtedness.
"EBITDA" shall mean, for any
period, the net income for such
period of Borrower determined in
accordance with GAAP (excluding any
extraordinary income items,
including, without limitation, gain
on sale of assets, income relating
to foreign exchange, swap or other
derivative transactions and changes
in GAAP), plus the following items,
to the extent deducted from the
revenues of Borrower in the
calculation of net income or loss:
(i) depreciation, (ii) amortization
of intangibles and any other
non-cash items, (iii) cash interest
expense (excluding any interest
paid-in-kind) and (iv) tax expense.
(e) In its discretion, reasonably
exercised, Coast may finance the
assets of acquisitions otherwise
permitted under this Agreement.
Eligible assets may include
accounts receivable, inventory,
equipment and real estate of the
target company. Such financing
shall be subject to Coast's
customary due diligence, audits,
and credit approval by Coast's
credit committee.
Notwithstanding anything in this
Agreement to the contrary, Coast
reserves the right to make separate
Loans to each Borrower based upon each
Borrower's respective Collateral.
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SECTION 3 - INTEREST AND FEES
SECTION 3.1 - INTEREST RATE: A rate equal to the Prime Rate plus
1.25% per annum, calculated on the basis
of a 360-day year for the actual number
of days elapsed. Equipment Acquisition
and Term Loans will be calculated at a
rate equal to the Prime Rate plus 1.5%.
The interest rate applicable to all
Loans shall be adjusted monthly as of
the first day of each month, and the
interest to be charged for each month
shall be based on the highest Prime Rate
in effect during the prior month, but in
no event shall the rate of interest
charged on any Loans in any month be
less than 9% per annum.
SECTION 3.1 -
MINIMUM MONTHLY INTEREST: An amount based upon a minimum daily
outstanding loan balance equal to
forty-five percent (45%) (currently Nine
Million Dollars ($9,000,000)) of the
Maximum Dollar Amount.
SECTION 3.2 - ORIGINATION FEE: .75% of the total credit limit, to be
fully earned and payable on the Closing
Date and a .25% fee will be due and
payable at each successive anniversary
date thereafter.
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<PAGE>
SECTION 3.2 - FACILITY FEE: $10,000, per quarter, payable on the
Closing Date (prorated for any partial
quarter at the beginning of the term of
this Agreement).
SECTION 9.1 - RENEWAL FEE: 1/2% of the Maximum Dollar Amount per
year.
SECTION 9.2 -
EARLY TERMINATION FEE: An amount equal to two percent (2%) of
the Maximum Dollar Amount (as defined in
the Schedule), if termination occurs on
or before the third anniversary of the
effective date of this Agreement; and
one percent (1%) of the Maximum Dollar
Amount, if termination occurs after the
third anniversary and on or before the
fifth anniversary of the effective date
of this Agreement.
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SECTION 5 - CONDITIONS PRECEDENT
SECTION 5.13 - OTHER CONDITIONS, DOCUMENTS AND AGREEMENTS:
1. Corporate guaranty of Fix-Corp International, Inc.
2. All applicable taxes to be current at date of
funding and ongoing;
3. Perfected first security interest on all company
assets including accounts receivable, inventory,
machinery and equipment and all other tangible and
intangible assets including patents, trademarks,
customer lists and contracts;
4. Collections to be received on a Lockbox or Blocked
Account basis;
5. Satisfactory completion of a field audit;
6. No Accounts Payable over 120 days past invoice
date at date of funding;
7. Minimum loan availability at funding of $500,000;
8. Subordination of all shareholder debt in a form
and substance acceptable to Coast;
9. All facilities to be cross-collateralized and
cross-defaulted;
10. First mortgage with policy of title insurance on
the Real Estate, in a form and substance
acceptable to Coast;
11. Background check on key Company Officers,
acceptable to Coast;
12. Landlord Waivers and/or Warehouse Agreements in a
form acceptable to Coast at funding; and
13. Concurrently with Coast's initial advances under
this Agreement, the assignment to Coast by Gordon
Brothers Capital Corp. of its loans made to
Borrower.
14. Coast's review and approval of a Phase I
environmental assessment.
15. Coast's review and approval of an appraisal on the
Real Estate within 120 days of Closing Date. If
the appraisal is not acceptable to Coast, Coast
may reduce the Term Loan.
16. Receipt of bill and hold letter from H.
Muehlstein.
17. Review of Customer Contracts satisfactory to
Coast.
18. Receipt of final inventory and equipment
appraisals with results satisfactory to Coast.
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SECTION 6 - REPRESENTATIONS, WARRANTIES AND COVENANTS
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<PAGE>
SECTION 6.2 -
PRIOR NAMES OF BORROWER: None.
SECTION 6.2 -
PRIOR TRADE NAMES OF BORROWER: None.
SECTION 6.2 -
EXISTING TRADE NAMES OF BORROWER: None.
SECTION 6.3 -
OTHER LOCATIONS AND ADDRESSES: 2135 James Parkway, Building 3
Heath, Ohio 43056
Mid-Ohio Warehouse
550 Wehrle Avenue, Building 27
Newark, Ohio 43055
SECTION 6.10 -
MATERIAL ADVERSE LITIGATION: None except as disclosed in 10Q
previously delivered to Coast.
SECTION 6.10 -
FUTURE CLAIMS and Litigation: Borrower will promptly inform Coast in
writing of any claim, proceeding,
litigation or investigation in the
future threatened or instituted by or
against Borrower involving any single
claim of Fifty Thousand Dollars
($50,000) or more, or involving One
Hundred Thousand Dollars ($100,000) or
more in the aggregate.
- --------------------------------------------------------------------------------
SECTION 8 - ADDITIONAL DUTIES OF BORROWER
SECTION 8.1 -OTHER PROVISIONS: ----------------------------------------
SECTION 8.2 - INSURANCE: Subject to the limitations set forth in
Section 8.2 of the Agreement, Coast
shall release to Borrower insurance
proceeds with respect to Equipment
totaling less than One Thousand Dollars
($100,000).
SECTION 8.3 - REPORTING: Borrower shall provide Coast with the
following:
1. Monthly Receivable agings, aged by
invoice date, within ten (10) days
after the end of each month.
2. Monthly accounts payable agings,
aged by invoice and due date, and
outstanding or held check registers
within ten (10) days after the end
of each month.
3. Monthly internally prepared
financial statements, as soon as
available, and in any event within
thirty (30) days after the end of
each month.
4. Quarterly internally prepared
financial statements, as soon as
available, and in any event within
forty-five (45) days after the end
-25-
<PAGE>
of each fiscal quarter of Borrower
5. Quarterly customer lists, including
customer name, address, and phone
number, the location of customer
contracts (including letters of
agency) and identification of
customers who have been added or
who have been deleted since the
last report provided to Coast.
6. Customer Contracts and documents
relating thereto (including, but
not limited to, letters of agency)
and customer base documents and
information shall at all times be
available to Coast for inspection
and verification and maintained in
a location and in a manner
acceptable to Coast to protect its
rights and security interests
therein.
7. Annual financial statements, as
soon as available, and in any event
within ninety (90) days following
the end of Borrower's fiscal year,
containing the unqualified opinion
of, and certified by, an
independent certified public
accountant acceptable to Coast.
8. Monthly reconciliation of sales,
credits, and collections vs.
Accounts Receivables aging, general
ledger and collections received by
Coast.
9. Copies of all 10K's, as soon as
delivered to the United States
Securities Exchange Commission (if
applicable), and in any event
within ninety (90) days following
Borrower's fiscal year-end, and
copies of all Forms 10Q, as soon as
delivered to the United States
Securities Exchange Commission, and
in any event within forty-five (45)
days following the end of each
fiscal quarter.
10. Monthly inventory rollforward
reports for raw materials and
finished goods, along with average
cost conversion from pounds to
Dollars.
SECTION 8.5 -
NEGATIVE COVENANTS Fifty Thousand Dollars ($50,000)
(ACQUIRED ASSETS):
-26-
<PAGE>
SECTION 9 - TERM
SECTION 9.1 -MATURITY DATE: June 30, 2003, subject to automatic
renewal as provided in Section 9.1 of
the Agreement, and early termination as
provided in Section 9.2 of the
Agreement.
-27-
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
"ACCOUNT DEBTOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
"AFFILIATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
"AUDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
"BORROWER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
"BORROWER'S ADDRESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
"BUSINESS DAY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
"CHANGE OF CONTROL . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
"CLOSING DATE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
"COAST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
"CODE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
"COLLATERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
"CREDIT LIMIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
"DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
"DEPOSIT ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
"DILUTION PERCENTAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
"DOLLARS OR $. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
"EARLY TERMINATION FEE . . . . . . . . . . . . . . . . . . . . . . . . . . .2
"ELIGIBLE FOREIGN RECEIVABLES. . . . . . . . . . . . . . . . . . . . . . . .2
"ELIGIBLE INVENTORY. . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
"ELIGIBLE RECEIVABLES. . . . . . . . . . . . . . . . . . . . . . . . . . . .3
"EQUIPMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
"EQUIPMENT ACQUISITION LOANS . . . . . . . . . . . . . . . . . . . . . . . .4
"EVENT OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
"GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
"GENERAL INTANGIBLES . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
"INVENTORY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
"INVESTMENT PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
"LOAN DOCUMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
"LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
</TABLE>
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<PAGE>
(CONTINUED)
<TABLE>
<CAPTION>
Page
<S> <C>
"MATERIAL ADVERSE EFFECT . . . . . . . . . . . . . . . . . . . . . . . . . .4
"MATURITY DATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
"MAXIMUM DOLLAR AMOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . .4
"MINIMUM MONTHLY INTEREST. . . . . . . . . . . . . . . . . . . . . . . . . .4
"NET WORTH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
"OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
"PERMITTED LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
"PERSON. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
"PRIME RATE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
"REAL ESTATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
"RECEIVABLE LOANS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
"RECEIVABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
"RENEWAL DATE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
"RENEWAL FEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
"SOLVENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
"TERM LOAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
"OTHER TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
2. CREDIT FACILITIES. . . . . . . . . . . . . . . . . . . . . . . . . . .6
2.1 Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
3. INTEREST AND FEES. . . . . . . . . . . . . . . . . . . . . . . . . . .6
3.1 Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
3.2 Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
4. SECURITY INTEREST. . . . . . . . . . . . . . . . . . . . . . . . . . .6
5. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . .7
5.1 Status of Accounts at Closing . . . . . . . . . . . . . . . . . .7
5.2 Minimum Availability. . . . . . . . . . . . . . . . . . . . . . .7
5.3 Landlord Waiver . . . . . . . . . . . . . . . . . . . . . . . . .7
5.4 Executed Agreement. . . . . . . . . . . . . . . . . . . . . . . .7
5.5 Opinion of Borrower's Counsel . . . . . . . . . . . . . . . . . .7
5.6 Priority of Coast's Liens . . . . . . . . . . . . . . . . . . . .7
</TABLE>
-ii-
<PAGE>
(CONTINUED)
<TABLE>
<CAPTION>
Page
<S> <C>
5.7 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
5.8 Borrower's Existence. . . . . . . . . . . . . . . . . . . . . . .7
5.9 Organizational Documents. . . . . . . . . . . . . . . . . . . . .7
5.10 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
5.11 Due Diligence . . . . . . . . . . . . . . . . . . . . . . . . . .8
5.12 Year 2000 Problem Assessment Certificate. . . . . . . . . . . . .8
5.13 Other Documents and Agreements. . . . . . . . . . . . . . . . . .8
6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER. . . . . . .8
6.1 Existence and Authority . . . . . . . . . . . . . . . . . . . . .8
6.2 Name; Trade Names and Styles. . . . . . . . . . . . . . . . . . .8
6.3 Place of Business; Location of Collateral . . . . . . . . . . . .8
6.4 Title to Collateral; Permitted Liens. . . . . . . . . . . . . . .8
6.5 Maintenance of Collateral . . . . . . . . . . . . . . . . . . . .9
6.6 Books and Records . . . . . . . . . . . . . . . . . . . . . . . .9
6.7 Financial Condition, Statements and Reports . . . . . . . . . . .9
6.8 Tax Returns and Payments; Pension Contributions . . . . . . . . .9
6.9 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . .9
6.10 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . .9
6.11 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . .9
6.12 YEAR 2000 COMPLIANCE. . . . . . . . . . . . . . . . . . . . . . .9
7. RECEIVABLES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.1 Representations Relating to Receivables . . . . . . . . . . . . 10
7.2 Representations Relating to Documents and Legal Compliance. . . 10
7.3 Schedules and Documents relating to Receivables . . . . . . . . 10
7.4 Collection of Receivables . . . . . . . . . . . . . . . . . . . 10
7.5 Remittance of Proceeds. . . . . . . . . . . . . . . . . . . . . 10
7.6 Disputes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.7 Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.8 Verification. . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.9 No Liability. . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
-iii-
<PAGE>
(CONTINUED)
<TABLE>
<CAPTION>
Page
<S> <C>
8. ADDITIONAL DUTIES OF THE BORROWER. . . . . . . . . . . . . . . . . . 11
8.1 Financial and Other Covenants. . . . . . . . . . . . . . . . . 11
8.2 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
8.3 Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
8.4 Access to Collateral, Books and Records. . . . . . . . . . . . 11
8.5 Negative Covenants . . . . . . . . . . . . . . . . . . . . . . 12
8.6 Litigation Cooperation . . . . . . . . . . . . . . . . . . . . 12
8.7 Further Assurances . . . . . . . . . . . . . . . . . . . . . . 12
9. TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
9.1 Maturity Date. . . . . . . . . . . . . . . . . . . . . . . . . 13
9.2 Early Termination. . . . . . . . . . . . . . . . . . . . . . . 13
9.3 Payment of Obligations . . . . . . . . . . . . . . . . . . . . 13
10. EVENTS OF DEFAULT AND REMEDIES . . . . . . . . . . . . . . . . . . . 13
10.1 Events of Default. . . . . . . . . . . . . . . . . . . . . . . 13
10.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
10.3 Standards for Determining Commercial Reasonableness. . . . . . 15
10.4 Power of Attorney. . . . . . . . . . . . . . . . . . . . . . . 16
10.5 Application of Proceeds. . . . . . . . . . . . . . . . . . . . 17
10.6 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . 17
11. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . 17
11.1 Interest Computation . . . . . . . . . . . . . . . . . . . . . 17
11.2 Application of Payments. . . . . . . . . . . . . . . . . . . . 18
11.3 Charges to Accounts. . . . . . . . . . . . . . . . . . . . . . 18
11.4 Monthly Accountings. . . . . . . . . . . . . . . . . . . . . . 18
11.5 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
11.6 Severability . . . . . . . . . . . . . . . . . . . . . . . . . 18
11.7 Integration. . . . . . . . . . . . . . . . . . . . . . . . . . 18
11.8 Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
11.9 No Liability for Ordinary Negligence . . . . . . . . . . . . . 18
11.10 Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
-iv-
<PAGE>
(CONTINUED)
<TABLE>
<CAPTION>
Page
<S> <C>
11.11 Time of Essence. . . . . . . . . . . . . . . . . . . . . . . . 19
11.12 Attorneys Fees, Costs and Charges. . . . . . . . . . . . . . . 19
11.13 Benefit of Agreement . . . . . . . . . . . . . . . . . . . . . 19
11.14 Publicity. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
11.15 Paragraph Headings; Construction . . . . . . . . . . . . . . . 19
11.16 Governing Law; Jurisdiction; Venue . . . . . . . . . . . . . . 20
11.17 Mutual Waiver of Jury Trial. . . . . . . . . . . . . . . . . . 20
</TABLE>
-v-
<PAGE>
COAST
CONTINUING GUARANTY
Borrower: FIXCOR Industries, Inc.
Pallet Technology, Inc.
Poly Style Industries, Inc.
Guarantor: Fix-Corp International, Inc.
Date: June 8, 1998
THIS CONTINUING GUARANTY is executed by the above-named guarantor (the
"Guarantor"), as of the above date, in favor of COAST BUSINESS CREDIT-Registered
Trademark-, a division of Southern Pacific Bank ("Coast"), a California
corporation, with offices at 12121 Wilshire Boulevard, Suite 1111, Los Angeles,
California 90025, with respect to the Indebtedness of the above-named borrowers
(jointly and severally, the "Borrower").
1. SECURED CONTINUING GUARANTY. Guarantor hereby unconditionally
guarantees and promises to pay on demand to Coast, at the address indicated
above, or at such other address as Coast may direct, in lawful money of the
United States, and to perform for the benefit of Coast, all Indebtedness of
Borrower now or hereafter owing to or held by Coast. This Continuing Guaranty
is secured by that certain Loan and Security dated as of even date herewith
among Guarantor, Borrower and Coast (the "Loan Agreement") and the Loan
Documents (as defined in the Loan Agreement). As used herein, the term
"Indebtedness" is used in its most comprehensive sense and shall mean and
include without limitation: (a) any and all debts, duties, obligations,
liabilities, representations, warranties and guaranties of Borrower or any one
or more of them, heretofore, now, or hereafter made, incurred, or created,
whether directly to Coast or acquired by Coast by assignment or otherwise, or
held by Coast on behalf of others, however arising, whether voluntary or
involuntary, due or not due, absolute or contingent, liquidated or unliquidated,
certain or uncertain, determined or undetermined, monetary or non-monetary,
written or oral, and whether Borrower may be liable individually or jointly with
others, and regardless of whether recovery thereon may be or hereafter become
barred by any statute of limitations, discharged or uncollectible in any
bankruptcy, insolvency or other proceeding, or otherwise unenforceable; and
(b) any and all amendments, modifications, renewals and extensions of any or all
of the foregoing, including without limitation amendments, modifications,
renewals and extensions which are evidenced by any new or additional instrument,
document or agreement; and (c) any and all attorneys' fees, court costs, and
collection charges incurred in endeavoring to collect or enforce any of the
foregoing against Borrower, Guarantor, or any other person liable thereon
(whether or not suit be brought) and any other expenses of, for or incidental to
collection thereof. As used herein, the term "Borrower" shall include any
successor to the business and assets of Borrower, and shall also include
Borrower in its capacity as a debtor or debtor in possession under the federal
Bankruptcy Code, and any trustee, custodian or receiver for
<PAGE>
Borrower or any of its assets, should Borrower hereafter become the subject of
any bankruptcy or insolvency proceeding, voluntary or involuntary; and all
indebtedness, liabilities and obligations incurred by any such person shall be
included in the Indebtedness guaranteed hereby. This Guaranty is given in
consideration for credit and other financial accommodations which may, from time
to time, be given by Coast to Borrower in Coast's sole discretion, but Guarantor
acknowledges and agrees that acceptance by Coast of this Guaranty shall not
constitute a commitment of any kind by Coast to extend such credit or other
financial accommodation to Borrower or to permit Borrower to incur Indebtedness
to Coast. All sums due under this Guaranty shall bear interest from the date
due until the date paid at the highest rate charged with respect to any of the
Indebtedness.
2. WAIVERS. Guarantor hereby waives: (a) presentment for payment,
notice of dishonor, demand, protest, and notice thereof as to any instrument,
and all other notices and demands to which Guarantor might be entitled,
including without limitation notice of all of the following: the acceptance
hereof; the creation, existence, or acquisition of any Indebtedness; the amount
of the Indebtedness from time to time outstanding; any foreclosure sale or other
disposition of any property which secures any or all of the Indebtedness or
which secures the obligations of any other guarantor of any or all of the
Indebtedness; any adverse change in Borrower's financial position; any other
fact which might increase Guarantor's risk; any default, partial payment or
non-payment of all or any part of the Indebtedness; the occurrence of any other
Event of Default (as hereinafter defined); any and all agreements and
arrangements between Coast and Borrower and any changes, modifications, or
extensions thereof, and any revocation, modification or release of any guaranty
of any or all of the Indebtedness by any person (including without limitation
any other person signing this Guaranty); (b) any right to require Coast to
institute suit against, or to exhaust its rights and remedies against, Borrower
or any other person, or to proceed against any property of any kind which
secures all or any part of the Indebtedness, or to exercise any right of offset
or other right with respect to any reserves, credits or deposit accounts held by
or maintained with Coast or any indebtedness of Coast to Borrower, or to
exercise any other right or power, or pursue any other remedy Coast may have;
(c) any defense arising by reason of any disability or other defense of Borrower
or any other guarantor or any endorser, co-maker or other person, or by reason
of the cessation from any cause whatsoever of any liability of Borrower or any
other guarantor or any endorser, co-maker or other person, with respect to all
or any part of the Indebtedness, or by reason of any act or omission of Coast or
others which directly or indirectly results in the discharge or release of
Borrower or any other guarantor or any other person or any Indebtedness or any
security therefor, whether by operation of law or otherwise; (d) any defense
arising by reason of any failure of Coast to obtain, perfect, maintain or keep
in force any security interest in, or lien or encumbrance upon, any property of
Borrower or any other person; (e) any defense based upon any failure of Coast to
give Guarantor notice of any sale or other disposition of any property securing
any or all of the Indebtedness, or any defects in any such notice that may be
given, or any failure of Coast to comply with any provision of applicable law in
enforcing any security interest in or lien upon any property securing any or all
of the Indebtedness including, but not limited to, any failure by Coast to
dispose of any property securing any or all of the Indebtedness in a
commercially reasonable manner; (f) any defense based upon or arising out of any
bankruptcy, insolvency, reorganization, arrangement, readjustment of debt,
liquidation or dissolution proceeding commenced by or against
-2-
<PAGE>
Borrower or any other guarantor or any endorser, co-maker or other person,
including without limitation any discharge of, or bar against collecting, any of
the Indebtedness (including without limitation any interest thereon), in or as a
result of any such proceeding; and (g) the benefit of any and all statutes of
limitation with respect to any action based upon, arising out of or related to
this Guaranty. Until all of the Indebtedness has been paid, performed, and
discharged in full, nothing shall discharge or satisfy the liability of
Guarantor hereunder except the full performance and payment of all of the
Indebtedness. If any claim is ever made upon Coast for repayment or recovery of
any amount or amounts received by Coast in payment of or on account of any of
the Indebtedness, because of any claim that any such payment constituted a
preferential transfer or fraudulent conveyance, or for any other reason
whatsoever, and Coast repays all or part of said amount by reason of any
judgment, decree or order of any court or administrative body having
jurisdiction over Coast or any of its property, or by reason of any settlement
or compromise of any such claim effected by Coast with any such claimant
(including without limitation the Borrower), then and in any such event,
Guarantor agrees that any such judgment, decree, order, settlement and
compromise shall be binding upon Guarantor, notwithstanding any revocation or
release of this Guaranty or the cancellation of any note or other instrument
evidencing any of the Indebtedness, or any release of any of the Indebtedness,
and the Guarantor shall be and remain liable to Coast under this Guaranty for
the amount so repaid or recovered, to the same extent as if such amount had
never originally been received by Coast, and the provisions of this sentence
shall survive, and continue in effect, notwithstanding any revocation or release
of this Guaranty. Guarantor hereby expressly and unconditionally waives all
rights of subrogation, reimbursement and indemnity of every kind against
Borrower, and all rights of recourse to any assets or property of Borrower, and
all rights to any collateral or security held for the payment and performance of
any Indebtedness, including (but not limited to) any of the foregoing rights
which Guarantor may have under any present or future document or agreement with
any Borrower or other person, and including (but not limited to) any of the
foregoing rights which Guarantor may have under any equitable doctrine of
subrogation, implied contract, or unjust enrichment, or any other equitable or
legal doctrine. Neither Coast, nor any of its directors, officers, employees,
agents, attorneys or any other person affiliated with or representing Coast
shall be liable for any claims, demands, losses or damages, of any kind
whatsoever, made, claimed, incurred or suffered by Guarantor or any other party
through the ordinary negligence of Coast, or any of its directors, officers,
employees, agents, attorneys or any other person affiliated with or representing
Coast.
3. CONSENTS. Guarantor hereby consents and agrees that, without notice
to or by Guarantor and without affecting or impairing in any way the obligations
or liability of Guarantor hereunder, Coast may, from time to time before or
after revocation of this Guaranty, do any one or more of the following in
Coast's sole and absolute discretion: (a) accelerate, accept partial payments
of, compromise or settle, renew, extend the time for the payment, discharge, or
performance of, refuse to enforce, and release all or any parties to, any or all
of the Indebtedness; (b) grant any other indulgence to Borrower or any other
person in respect of any or all of the Indebtedness or any other matter;
(c) accept, release, waive, surrender, enforce, exchange, modify, impair, or
extend the time for the performance, discharge, or payment of, any and all
property of any kind securing any or all of the Indebtedness or any guaranty of
any or all of the Indebtedness, or on which Coast at any time may have a lien,
or refuse to enforce its rights or make any compromise or settlement or
-3-
<PAGE>
agreement therefor in respect of any or all of such property; (d) substitute or
add, or take any action or omit to take any action which results in the release
of, any one or more endorsers or guarantors of all or any part of the
Indebtedness, including, without limitation one or more parties to this
Guaranty, regardless of any destruction or impairment of any right of
contribution or other right of Guarantor; (e) amend, alter or change in any
respect whatsoever any term or provision relating to any or all of the
Indebtedness, including the rate of interest thereon; (f) apply any sums
received from Borrower, any other guarantor, endorser, or co-signer, or from the
disposition of any collateral or security, to any indebtedness whatsoever owing
from such person or secured by such collateral or security, in such manner and
order as Coast determines in its sole discretion, and regardless of whether such
indebtedness is part of the Indebtedness, is secured, or is due and payable;
(g) apply any sums received from Guarantor or from the disposition of any
collateral or security securing the obligations of Guarantor, to any of the
Indebtedness in such manner and order as Coast determines in its sole
discretion, regardless of whether or not such Indebtedness is secured or is due
and payable. Guarantor consents and agrees that Coast shall be under no
obligation to marshal any assets in favor of Guarantor, or against or in payment
of any or all of the Indebtedness. Guarantor further consents and agrees that
Coast shall have no duties or responsibilities whatsoever with respect to any
property securing any or all of the Indebtedness. Without limiting the
generality of the foregoing, Coast shall have no obligation to monitor, verify,
audit, examine, or obtain or maintain any insurance with respect to, any
property securing any or all of the Indebtedness.
4. ACCOUNT STATED. Coast's books and records showing the account between
it and the Borrower shall be admissible in evidence in any action or proceeding
as prima facie proof of the items therein set forth. Coast's monthly statements
rendered to the Borrower shall be binding upon the Guarantor (whether or not the
Guarantor receives copies thereof), and shall constitute an account stated
between Coast and the Borrower, unless Coast receives a written statement of the
Borrower's exceptions within 30 days after the statement was mailed to the
Borrower. The Guarantor assumes full responsibility for obtaining copies of
such monthly statements from the Borrower, if the Guarantor desires such copies.
5. EXERCISE OF RIGHTS AND REMEDIES; FORECLOSURE OF TRUST DEEDS.
Guarantor consents and agrees that, without notice to or by Guarantor and
without affecting or impairing in any way the obligations or liability of
Guarantor hereunder, Coast may, from time to time, before or after revocation of
this Guaranty, exercise any right or remedy it may have with respect to any or
all of the Indebtedness or any property securing any or all of the Indebtedness
or any guaranty thereof, including without limitation judicial foreclosure,
nonjudicial foreclosure, exercise of a power of sale, and taking a deed,
assignment or transfer in lieu of foreclosure as to any such property, and
Guarantor expressly waives any defense based upon the exercise of any such right
or remedy, notwithstanding the effect thereof upon any of Guarantor's rights,
including without limitation, any destruction of Guarantor's right of
subrogation against Borrower and any destruction of Guarantor's right of
contribution or other right against any other guarantor of any or all of the
Indebtedness or against any other person, whether by operation of Sections 580a,
580d or 726 of the California Code of Civil Procedure, or any comparable
provisions of the laws of any other jurisdiction, or any other statutes or rules
of law now or hereafter in effect, or otherwise. Without limiting the
generality of the foregoing, (a) Guarantor waives all rights and defenses
arising out of an election of remedies by
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Coast, even though that election of remedies, such as a nonjudicial foreclosure
with respect to security for any of the Indebtedness, has destroyed the
guarantor's rights of subrogation and reimbursement against the principal by the
operation of Section 580d of the Code of Civil Procedure or otherwise. (b)
Guarantor further waives all rights and defenses arising out of an election of
remedies by Coast, even though that election of remedies, such as a nonjudicial
foreclosure with respect to security for any of the Indebtedness, has destroyed
the guarantor's rights of subrogation, reimbursement and contribution against
any other guarantor of the guaranteed obligation, by the operation of Section
580d of the Code of Civil Procedure or otherwise. (c) Guarantor understands
that if Coast forecloses any present or future trust deed, which secures any or
all of the Indebtedness or which secures any other guaranty of any or all of the
Indebtedness, by nonjudicial foreclosure, Guarantor may, as a result, have a
complete defense to liability under this Guaranty, based on the legal doctrine
of estoppel and Sections 580a, 580d or 726 of the California Code of Civil
Procedure, and Guarantor hereby expressly waives all such defenses. (d)
Guarantor understands and agrees that, in the event Coast in its sole discretion
forecloses any trust deed now or hereafter securing any or all of the
Indebtedness, by nonjudicial foreclosure, Guarantor will remain liable to Coast
for any deficiency, even though Guarantor will lose his right of subrogation
against the Borrower, and even though Guarantor will be unable to recover from
the Borrower the amount of the deficiency for which Guarantor is liable, and
even though Guarantor may have retained his right of subrogation against
Borrower if Coast had foreclosed said trust deed by judicial foreclosure as
opposed to nonjudicial foreclosure, and even though absent the waivers set forth
herein Guarantor may have had a complete defense to any liability for any
deficiency hereunder. (e) Guarantor understands and agrees that, in the event
Coast in its sole discretion forecloses any trust deed now or hereafter securing
any other guaranty of any or all of the Indebtedness, by nonjudicial
foreclosure, Guarantor will remain liable to Coast for any deficiency, even
though Guarantor will lose his right of subrogation or contribution against the
other guarantor, and even though Guarantor will be unable to recover from the
other guarantor any part of the deficiency for which Guarantor is liable, and
even though Guarantor may have retained his right of subrogation or contribution
against the other guarantor if Coast had foreclosed said trust deed by judicial
foreclosure as opposed to nonjudicial foreclosure, and even though absent the
waivers set forth herein Guarantor may have had a complete defense to any
liability for any deficiency hereunder.
6. ACCELERATION. Notwithstanding the terms of all or any part of the
Indebtedness, the obligations of the Guarantor hereunder to pay and perform all
of the Indebtedness shall, at the option of Coast, immediately become due and
payable, without notice, and without regard to the expressed maturity of any of
the Indebtedness, in the event: (a) any warranty, representation, statement,
report, or certificate made or delivered to Coast by Borrower or Guarantor, or
any of their respective officers, partners, employees, or agents, is incorrect,
false, untrue, or misleading when given in any material respect; or (b) Borrower
or Guarantor shall fail to pay or perform when due all or any part of the
Indebtedness; or (c) Guarantor shall fail to pay or perform when due any
indebtedness or obligation of Guarantor to Coast or to any parent, subsidiary or
corporate affiliate of Coast, whether under this Guaranty or any other
instrument, document, or agreement heretofore or hereafter entered into; or
(d) there occurs in Coast's judgment, reasonably exercised, a material
impairment of the prospect of payment or performance of any or all of the
Indebtedness; or (e) any event shall occur which
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may or does result in the acceleration of the maturity of any indebtedness of
Borrower or Guarantor to others (regardless of any requirement of notice,
opportunity to cure or other condition prior to the exercise of any right of
acceleration); or (f) Borrower or Guarantor shall fail promptly to perform or
comply with any term or condition of any agreement with any third party which
does or may result in a material adverse effect on the business of Borrower or
Guarantor; or (g) there shall be made or exist any levy, assessment, attachment,
seizure, lien, or encumbrance for any cause or reason whatsoever upon all or any
part of the property of Borrower or Guarantor (unless discharged by payment,
release or bond not more than ten days after such event has occurred); or
(h) there shall occur the dissolution, termination of existence, insolvency, or
business failure of Borrower or Guarantor, or the appointment of a receiver,
trustee or custodian for Borrower or Guarantor or all or any part of the
property of either of them, or the assignment for the benefit of creditors by
Borrower or Guarantor, or the commencement of any proceeding by or against
Borrower or Guarantor under any reorganization, bankruptcy, insolvency,
arrangement, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction, now or hereafter in effect; or (i) Borrower or Guarantor shall
be deceased or declared incompetent by any court or a guardian or conservator
shall be appointed for either of them or for the property of either of them; or
(j) Guarantor or Borrower shall generally not pay their respective debts as they
become due or shall enter into any agreement (whether written or oral), or offer
to enter into any such agreement, with all or a significant number of its
creditors regarding any moratorium or other indulgence with respect to its debts
or the participation of such creditors or their representatives in the
supervision, management, or control of the business of either of them; or
(k) Borrower or Guarantor shall conceal, remove or permit to be concealed or
removed any part of its property, with intent to hinder, delay or defraud its
creditors, or make or suffer any transfer of any of its property which may be
fraudulent under any bankruptcy, fraudulent conveyance or similar law, or shall
make any transfer of its property to or for the benefit of any creditor at a
time when other creditors similarly situated have not been paid; or (l) the
board of directors or shareholders of Borrower or Guarantor shall adopt any
resolution or plan for its dissolution or the liquidation of all or
substantially all of its assets; or (m) Guarantor shall revoke this Guaranty or
contest or deny liability under this Guaranty. All of the foregoing are
hereinafter referred to as "Events of Default".
7. RIGHT TO ATTACHMENT REMEDY. Guarantor agrees that, notwithstanding
the existence of any property securing any or all of the Indebtedness, Coast
shall have all of the rights of an unsecured creditor of Guarantor, including
without limitation the right to obtain a temporary protective order and writ of
attachment against Guarantor with respect to any sums due under this Guaranty.
Guarantor further agrees that in the event any property secures the obligations
of Guarantor under this Guaranty, to the extent that Coast, in its sole and
absolute discretion, determines prior to the disposition of such property that
the amount to be realized by Coast therefrom may be less than the indebtedness
of the Guarantor under this Guaranty, Coast shall have all the rights of an
unsecured creditor against Guarantor, including without limitation the right of
Coast, prior to the disposition of said property, to obtain a temporary
protective order and writ of attachment against Guarantor. Guarantor waives the
benefit of Section 483.010(b) of the California Code of Civil Procedure and of
any and all other statutes and rules of law now or hereafter in effect requiring
Coast to first resort to or exhaust all such collateral before seeking or
obtaining any attachment remedy against Guarantor. Coast shall have no
liability to Guarantor as a result thereof,
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whether or not the actual deficiency realized by Coast is less than the
anticipated deficiency on the basis of which Coast obtains a temporary
protective order or writ of attachment.
8. INDEMNITY. Guarantor hereby agrees to indemnify Coast and hold Coast
harmless from and against any and all claims, debts, liabilities, demands,
obligations, actions, causes of action, penalties, costs and expenses (including
without limitation attorneys' fees), of every nature, character and description,
which Coast may sustain or incur based upon or arising out of any of the
Indebtedness, any actual or alleged failure to collect and pay over any
withholding or other tax relating to Borrower or its employees, any relationship
or agreement between Coast and Borrower, any actual or alleged failure of Coast
to comply with any writ of attachment or other legal process relating to
Borrower or any of its property, or any other matter, cause or thing whatsoever
occurred, done, omitted or suffered to be done by Coast relating in any way to
Borrower or the Indebtedness (except any such amounts sustained or incurred as
the result of the gross negligence or willful misconduct of Coast or any of its
directors, officers, employees, agents, attorneys, or any other person
affiliated with or representing Coast). Notwithstanding any provision in this
Guaranty to the contrary, the indemnity agreement set forth in this Section
shall survive any termination or revocation of this Guaranty and shall for all
purposes continue in full force and effect.
9. SUBORDINATION. Any and all rights of Guarantor under any and all
debts, liabilities and obligations owing from Borrower to Guarantor, including
any security for and guaranties of any such obligations, whether now existing or
hereafter arising, are hereby subordinated in right of payment to the prior
payment in full of all of the Indebtedness. No payment in respect of any such
subordinated obligations shall at any time be made to or accepted by Guarantor
if at the time of such payment any Indebtedness is outstanding. If any Event of
Default has occurred, Borrower and any assignee, trustee in bankruptcy,
receiver, or any other person having custody or control over any or all of
Borrower's property are hereby authorized and directed to pay to Coast the
entire unpaid balance of the Indebtedness before making any payments whatsoever
to Guarantor, whether as a creditor, shareholder, or otherwise; and insofar as
may be necessary for that purpose, Guarantor hereby assigns and transfers to
Coast all rights to any and all debts, liabilities and obligations owing from
Borrower to Guarantor, including any security for and guaranties of any such
obligations, whether now existing or hereafter arising, including without
limitation any payments, dividends or distributions out of the business or
assets of Borrower. Any amounts received by Guarantor in violation of the
foregoing provisions shall be received and held as trustee for the benefit of
Coast and shall forthwith be paid over to Coast to be applied to the
Indebtedness in such order and sequence as Coast shall in its sole discretion
determine, without limiting or affecting any other right or remedy which Coast
may have hereunder or otherwise and without otherwise affecting the liability of
Guarantor hereunder. Guarantor hereby expressly waives any right to set-off or
assert any counterclaim against Borrower.
10. REVOCATION. This is a Continuing Guaranty relating to all of the
Indebtedness, including Indebtedness arising under successive transactions which
from time to time continue the Indebtedness or renew it after it has been
satisfied. Guarantor waives all benefits of California Civil Code Section 2815,
and agrees that the obligations of Guarantor hereunder may not be terminated or
revoked in any manner except by giving 90 days' advance written notice
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of revocation to Coast at its address above by registered first-class U.S. mail,
postage prepaid, return receipt requested, and only as to new loans made by
Coast to Borrower more than 90 days after actual receipt of such written notice
by Coast. No termination or revocation of this Guaranty shall be effective
until 90 days following the date of actual receipt of said written notice of
revocation by Coast. Notwithstanding such written notice of revocation or any
other act of Guarantor or any other event or circumstance, Guarantor agrees that
this Guaranty and all consents, waivers and other provisions hereof shall
continue in full force and effect as to any and all Indebtedness which is
outstanding on or before the 90th day following actual receipt of said written
notice of revocation by Coast, and all extensions, renewals and modifications of
said Indebtedness (including without limitation amendments, extensions, renewals
and modifications which are evidenced by new or additional instruments,
documents or agreements executed before or after expiration of said 90-day
period), and all interest thereon, accruing before or after expiration of said
90-day period, and all attorneys' fees, court costs and collection charges,
incurred before or after expiration of said 90-day period, in endeavoring to
collect or enforce any of the foregoing against Borrower, Guarantor or any other
person liable thereon (whether or not suit be brought) and any other expenses
of, for or incidental to collection thereof.
11. INDEPENDENT LIABILITY. Guarantor hereby agrees that one or more
successive or concurrent actions may be brought hereon against Guarantor, in the
same action in which Borrower may be sued or in separate actions, as often as
deemed advisable by Coast. The liability of Guarantor hereunder is exclusive
and independent of any other guaranty of any or all of the Indebtedness whether
executed by Guarantor or by any other guarantor (including without limitation
any other persons signing this Guaranty). The liability of Guarantor hereunder
shall not be affected, revoked, impaired, or reduced by any one or more of the
following: (a) the fact that the Indebtedness exceeds the maximum amount of
Guarantor's liability, if any, specified herein or elsewhere (and no agreement
specifying a maximum amount of Guarantor's liability shall be enforceable unless
set forth in a writing signed by Coast or set forth in this Guaranty); or
(b) any direction as to the application of payment by Borrower or by any other
party; or (c) any other continuing or restrictive guaranty or undertaking or any
limitation on the liability of any other guarantor (whether under this Guaranty
or under any other agreement); or (d) any payment on or reduction of any such
other guaranty or undertaking; or (e) any revocation, amendment, modification or
release of any such other guaranty or undertaking; or (f) any dissolution or
termination of, or increase, decrease, or change in membership of any Guarantor
which is a partnership. Guarantor hereby expressly represents that he was not
induced to give this Guaranty by the fact that there are or may be other
guarantors either under this Guaranty or otherwise, and Guarantor agrees that
any release of any one or more of such other guarantors shall not release
Guarantor from his obligations hereunder either in full or to any lesser extent.
If Guarantor is a married person, Guarantor hereby expressly agrees that
recourse may be had against his or her separate property for all of his or her
obligations hereunder.
12. FINANCIAL CONDITION OF BORROWER. Guarantor is fully aware of the
financial condition of Borrower and is executing and delivering this Guaranty at
Borrower's request and based solely upon his own independent investigation of
all matters pertinent hereto, and Guarantor is not relying in any manner upon
any representation or statement of Coast with respect thereto. Guarantor
represents and warrants that he is in a
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position to obtain, and Guarantor hereby assumes full responsibility for
obtaining, any additional information concerning Borrower's financial condition
and any other matter pertinent hereto as Guarantor may desire, and Guarantor is
not relying upon or expecting Coast to furnish to him any information now or
hereafter in Coast's possession concerning the same or any other matter. By
executing this Guaranty, Guarantor knowingly accepts the full range of risks
encompassed within a contract of continuing guaranty, which risks Guarantor
acknowledges include without limitation the possibility that Borrower will incur
additional Indebtedness for which Guarantor will be liable hereunder after
Borrower's financial condition or ability to pay such Indebtedness has
deteriorated and/or after bankruptcy or insolvency proceedings have been
commenced by or against Borrower. Guarantor shall have no right to require
Coast to obtain or disclose any information with respect to the Indebtedness,
the financial condition or character of Borrower, the existence of any
collateral or security for any or all of the Indebtedness, the filing by or
against Borrower of any bankruptcy or insolvency proceeding, the existence of
any other guaranties of all or any part of the Indebtedness, any action or
non-action on the part of Coast, Borrower, or any other person, or any other
matter, fact, or occurrence.
13. REPORTS AND FINANCIAL STATEMENTS OF GUARANTOR. Guarantor shall, at
its sole cost and expense, at any time and from time to time, prepare or cause
to be prepared, and provide to Coast upon Coast's request (i) such financial
statements and reports concerning Guarantor for such periods of time as Coast
may designate, (ii) any other information concerning Guarantor's business,
financial condition or affairs as Coast may request, and (iii) copies of any and
all foreign, federal, state and local tax returns and reports of or relating to
Guarantor as Coast may from time to time request. Guarantor hereby
intentionally and knowingly waives any and all rights and privileges it may have
not to divulge or deliver said tax returns, reports and other information which
are requested by Coast hereunder or in any litigation in which Coast may be
involved relating directly or indirectly to Borrower or to Guarantor. Guarantor
further agrees immediately to give written notice to Coast of any adverse change
in Guarantor's financial condition and of any condition or event which
constitutes an Event of Default under this Guaranty. All reports and
information furnished to Coast hereunder shall be complete, accurate and correct
in all respects. Whenever requested, Guarantor shall further deliver to Coast a
certificate signed by Guarantor (and, if Guarantor is a partnership, by all
general partners of Guarantor, in their individual capacities, and, if Guarantor
is a corporation, by the president and secretary of Guarantor, in their
individual capacities) warranting and representing that all reports, financial
statements and other documents and information delivered or caused to be
delivered to Coast under this Guaranty, are complete, correct and thoroughly and
accurately present the financial condition of Guarantor, and that there exists
on the date of delivery of said certificate to Coast no condition or event which
constitutes an Event of Default under this Guaranty.
14. REPRESENTATIONS AND WARRANTIES. 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, furnishes goods
or services to Guarantor, purchases or acquires goods or services from
Guarantor, and/or otherwise has a direct or indirect corporate or business
relationship with Guarantor, (ii) this Guaranty has been duly and validly
authorized, executed and delivered and constitutes the valid and binding
obligation of Guarantor, enforceable in accordance with its terms, and (iii) the
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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.
15. COSTS. Whether or not suit be instituted, Guarantor agrees to
reimburse Coast on demand for all reasonable attorneys' fees and all other
reasonable costs and expenses incurred by Coast in enforcing this Guaranty, or
arising out of or relating in any way to this Guaranty, or in enforcing any of
the Indebtedness against Borrower, Guarantor, or any other person, or in
connection with any property of any kind securing all or any part of the
Indebtedness. Without limiting the generality of the foregoing, and in addition
thereto, Guarantor shall reimburse Coast on demand for all reasonable attorneys'
fees and costs Coast incurs in any way relating to Guarantor, Borrower or the
Indebtedness, in order to: obtain legal advice; enforce or seek to enforce any
of its rights; commence, intervene in, respond to, or defend any action or
proceeding; file, prosecute or defend any claim or cause of action in any action
or proceeding (including without limitation any probate claim, bankruptcy claim,
third-party claim, secured creditor claim, reclamation complaint, and complaint
for relief from any stay under the Bankruptcy Code or otherwise); protect,
obtain possession of, sell, lease, dispose of or otherwise enforce any security
interest in or lien on any property of any kind securing any or all of the
Indebtedness; or represent Coast in any litigation with respect to Borrower's or
Guarantor's affairs. In the event either Coast or Guarantor files any lawsuit
against the other predicated on a breach of this Guaranty, the prevailing party
in such action shall be entitled to recover its attorneys' fees and costs of
suit from the non-prevailing party.
16. NOTICES. Any notice which a party shall be required or shall desire
to give to the other hereunder (except for notice of revocation, which shall be
governed by Section 10 of this Guaranty) shall be given by personal delivery or
by telecopier or by depositing the same in the United States mail, first class
postage pre-paid, addressed to Coast at its address set forth in the heading of
this Guaranty and to Guarantor at his address set forth under his signature
hereon, and such notices shall be deemed duly given on the date of personal
delivery or one day after the date telecopied or 3 business days after the date
of mailing as aforesaid. Coast and Guarantor may change their address for
purposes of receiving notices hereunder by giving written notice thereof to the
other party in accordance herewith. Guarantor shall give Coast immediate
written notice of any change in his address.
17. CLAIMS. Guarantor agrees that any claim or cause of action by
Guarantor against Coast, or any of Coast's directors, officers, employees,
agents, accountants or attorneys, based upon, arising from, or relating to this
Guaranty, or any other present or future agreement between Coast and Guarantor
or between Coast and Borrower, or any other transaction contemplated hereby or
thereby or relating hereto or thereto, or any other matter, cause or thing
whatsoever, whether or not relating hereto or thereto, occurred, done, omitted
or suffered to be done by Coast, or by Coast's directors, officers, employees,
agents, accountants or attorneys, whether sounding in contract or in tort or
otherwise, shall be barred unless asserted by Guarantor by the commencement of
an action or proceeding in a court of competent jurisdiction within Los Angeles
County, California. This provision shall survive any termination of this
Guaranty or any other agreement.
18. CONSTRUCTION; SEVERABILITY. If more than one person has executed this
Guaranty,
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the term "Guarantor" as used herein shall be deemed to refer to all and any one
or more such persons and their obligations hereunder shall be joint and several.
Without limiting the generality of the foregoing, if more than one person has
executed this Guaranty, this Guaranty shall in all respects be interpreted as
though each person signing this Guaranty had signed a separate Guaranty, and
references herein to "other guarantors" or words of similar effect shall include
without limitation other persons signing this Guaranty. As used in this
Guaranty, the term "property" is used in its most comprehensive sense and shall
mean all property of every kind and nature whatsoever, including without
limitation real property, personal property, mixed property, tangible property
and intangible property. Words used herein in the masculine gender shall
include the neuter and feminine gender, words used herein in the neuter gender
shall include the masculine and feminine, words used herein in the singular
shall include the plural and words used in the plural shall include the
singular, wherever the context so reasonably requires. If any provision of this
Guaranty or the application thereof to any party or circumstance is held
invalid, void, inoperative or unenforceable, the remainder of this Guaranty and
the application of such provision to other parties or circumstances shall not be
affected thereby, the provisions of this Guaranty being severable in any such
instance.
19. GENERAL PROVISIONS. Coast shall have the right to seek recourse
against Guarantor to the full extent provided for herein and in any other
instrument or agreement evidencing obligations of Guarantor to Coast, and
against Borrower to the full extent of the Indebtedness. No election in one
form of action or proceeding, or against any party, or on any obligation, shall
constitute a waiver of Coast's right to proceed in any other form of action or
proceeding or against any other party. The failure of Coast to enforce any of
the provisions of this Guaranty at any time or for any period of time shall not
be construed to be a waiver of any such provision or the right thereafter to
enforce the same. All remedies hereunder shall be cumulative and shall be in
addition to all rights, powers and remedies given to Coast by law or under any
other instrument or agreement. Time is of the essence in the performance by
Guarantor of each and every obligation under this Guaranty. If Borrower is a
corporation, partnership or other entity, Guarantor hereby agrees that Coast
shall have no obligation to inquire into the power or authority of Borrower or
any of its officers, directors, partners, or agents acting or purporting to act
on its behalf, and any Indebtedness made or created in reliance upon the
professed exercise of any such power or authority shall be included in the
Indebtedness guaranteed hereby. This Guaranty is the entire and only agreement
between Guarantor and Coast with respect to the guaranty of the Indebtedness of
Borrower by Guarantor, and all representations, warranties, agreements, or
undertakings heretofore or contemporaneously made, which are not set forth
herein, are superseded hereby. No course of dealings between the parties, no
usage of the trade, and no parol or extrinsic evidence of any nature shall be
used or be relevant to supplement or explain or modify any term or provision of
this Guaranty. There are no conditions to the full effectiveness of this
Guaranty. The terms and provisions hereof may not be waived, altered, modified,
or amended except in a writing executed by Guarantor and a duly authorized
officer of Coast. All rights, benefits and privileges hereunder shall inure to
the benefit of and be enforceable by Coast and its successors and assigns and
shall be binding upon Guarantor and his heirs, executors, administrators,
personal representatives, successors and assigns. Neither the death of
Guarantor nor notice thereof to Coast shall terminate this Guaranty as to his
estate, and, notwithstanding the death of Guarantor or notice thereof to Coast,
this
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Guaranty shall continue in full force and effect with respect to all
Indebtedness, including without limitation Indebtedness incurred or created
after the death of Guarantor and notice thereof to Coast. Section headings are
used herein for convenience only. Guarantor acknowledges that the same may not
describe completely the subject matter of the applicable Section, and the same
shall not be used in any manner to construe, limit, define or interpret any term
or provision hereof.
20. GOVERNING LAW; VENUE AND JURISDICTION. This instrument and all acts
and transactions pursuant or relating hereto and all rights and obligations of
the parties hereto shall be governed, construed, and interpreted in accordance
with the internal laws of the State of California. In order to induce Coast to
accept this Guaranty, and as a material part of the consideration therefor,
Guarantor (i) agrees that all actions or proceedings relating directly or
indirectly hereto shall, at the option of Coast, be litigated in courts located
within Los Angeles County, California, (ii) consents to the jurisdiction of any
such court and consents to the service of process in any such action or
proceeding by personal delivery or any other method permitted by law; and
(iii) waives any and all rights Guarantor may have to transfer or change the
venue of any such action or proceeding.
21. SECURITY. The obligations of Guarantor hereunder are secured by that
certain Loan and Security Agreement dated as of even date herewith between
Guarantor and Coast.
22. MUTUAL WAIVER OF RIGHT TO JURY TRIAL. COAST AND GUARANTOR HEREBY
WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION, CLAIM, LAWSUIT OR PROCEEDING
BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO: (i) THIS GUARANTEE OR ANY
SUPPLEMENT OR AMENDMENT THERETO; OR (ii) ANY OTHER PRESENT OR FUTURE INSTRUMENT
OR AGREEMENT BETWEEN COAST AND GUARANTOR ; OR (iii) ANY BREACH, CONDUCT, ACTS OR
OMISSIONS OF COAST OR GUARANTOR OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSON AFFILIATED WITH OR REPRESENTING
COAST OR GUARANTOR; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT
OR TORT OR OTHERWISE.
23. RECEIPT OF COPY. Guarantor acknowledges receipt of a copy of this
Guaranty.
BY: FIX-CORP INTERNATIONAL, INC.
By: /s/ Gary M. DeLaurentiis
-----------------------------------
(Please sign here)
Gary M. DeLaurentiis
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(Please print or type name here)
Its: President
-----------------------------------
(Please print title here)
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COAST
CONTINUING GUARANTY
Borrower: Pallet Technology, Inc.
Poly Style Industries, Inc.
Guarantor: FIXCOR Industries, Inc.
Date: June 8, 1998
THIS CONTINUING GUARANTY is executed by the above-named guarantor (the
"Guarantor"), as of the above date, in favor of COAST BUSINESS CREDIT-Registered
Trademark-, a division of Southern Pacific Bank ("Coast"), a California
corporation, with offices at 12121 Wilshire Boulevard, Suite 1111, Los Angeles,
California 90025, with respect to the Indebtedness of the above-named borrowers
(jointly and severally, the "Borrower").
1. SECURED CONTINUING GUARANTY. Guarantor hereby unconditionally
guarantees and promises to pay on demand to Coast, at the address indicated
above, or at such other address as Coast may direct, in lawful money of the
United States, and to perform for the benefit of Coast, all Indebtedness of
Borrower now or hereafter owing to or held by Coast. This Continuing Guaranty
is secured by that certain Loan and Security Agreement of even date herewith
among Guarantor, Borrower, Fix-Corp International, Inc. and Coast (the "Loan
Agreement") and the Loan Documents (as defined in the Loan Agreement). As used
herein, the term "Indebtedness" is used in its most comprehensive sense and
shall mean and include without limitation: (a) any and all debts, duties,
obligations, liabilities, representations, warranties and guaranties of Borrower
or any one or more of them, heretofore, now, or hereafter made, incurred, or
created, whether directly to Coast or acquired by Coast by assignment or
otherwise, or held by Coast on behalf of others, however arising, whether
voluntary or involuntary, due or not due, absolute or contingent, liquidated or
unliquidated, certain or uncertain, determined or undetermined, monetary or
non-monetary, written or oral, and whether Borrower may be liable individually
or jointly with others, and regardless of whether recovery thereon may be or
hereafter become barred by any statute of limitations, discharged or
uncollectible in any bankruptcy, insolvency or other proceeding, or otherwise
unenforceable; and (b) any and all amendments, modifications, renewals and
extensions of any or all of the foregoing, including without limitation
amendments, modifications, renewals and extensions which are evidenced by any
new or additional instrument, document or agreement; and (c) any and all
attorneys' fees, court costs, and collection charges incurred in endeavoring to
collect or enforce any of the foregoing against Borrower, Guarantor, or any
other person liable thereon (whether or not suit be brought) and any other
expenses of, for or incidental to collection thereof. As used herein, the term
"Borrower" shall include any successor to the business and assets of Borrower,
and shall also include Borrower in its capacity as a debtor or debtor in
possession under the federal Bankruptcy Code, and any trustee, custodian or
receiver for Borrower or any of its assets, should Borrower
<PAGE>
hereafter become the subject of any bankruptcy or insolvency proceeding,
voluntary or involuntary; and all indebtedness, liabilities and obligations
incurred by any such person shall be included in the Indebtedness guaranteed
hereby. This Guaranty is given in consideration for credit and other financial
accommodations which may, from time to time, be given by Coast to Borrower in
Coast's sole discretion, but Guarantor acknowledges and agrees that acceptance
by Coast of this Guaranty shall not constitute a commitment of any kind by Coast
to extend such credit or other financial accommodation to Borrower or to permit
Borrower to incur Indebtedness to Coast. All sums due under this Guaranty shall
bear interest from the date due until the date paid at the highest rate charged
with respect to any of the Indebtedness.
2. WAIVERS. Guarantor hereby waives: (a) presentment for payment,
notice of dishonor, demand, protest, and notice thereof as to any instrument,
and all other notices and demands to which Guarantor might be entitled,
including without limitation notice of all of the following: the acceptance
hereof; the creation, existence, or acquisition of any Indebtedness; the amount
of the Indebtedness from time to time outstanding; any foreclosure sale or other
disposition of any property which secures any or all of the Indebtedness or
which secures the obligations of any other guarantor of any or all of the
Indebtedness; any adverse change in Borrower's financial position; any other
fact which might increase Guarantor's risk; any default, partial payment or
non-payment of all or any part of the Indebtedness; the occurrence of any other
Event of Default (as hereinafter defined); any and all agreements and
arrangements between Coast and Borrower and any changes, modifications, or
extensions thereof, and any revocation, modification or release of any guaranty
of any or all of the Indebtedness by any person (including without limitation
any other person signing this Guaranty); (b) any right to require Coast to
institute suit against, or to exhaust its rights and remedies against, Borrower
or any other person, or to proceed against any property of any kind which
secures all or any part of the Indebtedness, or to exercise any right of offset
or other right with respect to any reserves, credits or deposit accounts held by
or maintained with Coast or any indebtedness of Coast to Borrower, or to
exercise any other right or power, or pursue any other remedy Coast may have;
(c) any defense arising by reason of any disability or other defense of Borrower
or any other guarantor or any endorser, co-maker or other person, or by reason
of the cessation from any cause whatsoever of any liability of Borrower or any
other guarantor or any endorser, co-maker or other person, with respect to all
or any part of the Indebtedness, or by reason of any act or omission of Coast or
others which directly or indirectly results in the discharge or release of
Borrower or any other guarantor or any other person or any Indebtedness or any
security therefor, whether by operation of law or otherwise; (d) any defense
arising by reason of any failure of Coast to obtain, perfect, maintain or keep
in force any security interest in, or lien or encumbrance upon, any property of
Borrower or any other person; (e) any defense based upon any failure of Coast to
give Guarantor notice of any sale or other disposition of any property securing
any or all of the Indebtedness, or any defects in any such notice that may be
given, or any failure of Coast to comply with any provision of applicable law in
enforcing any security interest in or lien upon any property securing any or all
of the Indebtedness including, but not limited to, any failure by Coast to
dispose of any property securing any or all of the Indebtedness in a
commercially reasonable manner; (f) any defense based upon or arising out of any
bankruptcy, insolvency, reorganization, arrangement, readjustment of debt,
liquidation or dissolution proceeding commenced by or against Borrower or any
other guarantor or any endorser,
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<PAGE>
co-maker or other person, including without limitation any discharge of, or bar
against collecting, any of the Indebtedness (including without limitation any
interest thereon), in or as a result of any such proceeding; and (g) the benefit
of any and all statutes of limitation with respect to any action based upon,
arising out of or related to this Guaranty. Until all of the Indebtedness has
been paid, performed, and discharged in full, nothing shall discharge or satisfy
the liability of Guarantor hereunder except the full performance and payment of
all of the Indebtedness. If any claim is ever made upon Coast for repayment or
recovery of any amount or amounts received by Coast in payment of or on account
of any of the Indebtedness, because of any claim that any such payment
constituted a preferential transfer or fraudulent conveyance, or for any other
reason whatsoever, and Coast repays all or part of said amount by reason of any
judgment, decree or order of any court or administrative body having
jurisdiction over Coast or any of its property, or by reason of any settlement
or compromise of any such claim effected by Coast with any such claimant
(including without limitation the Borrower), then and in any such event,
Guarantor agrees that any such judgment, decree, order, settlement and
compromise shall be binding upon Guarantor, notwithstanding any revocation or
release of this Guaranty or the cancellation of any note or other instrument
evidencing any of the Indebtedness, or any release of any of the Indebtedness,
and the Guarantor shall be and remain liable to Coast under this Guaranty for
the amount so repaid or recovered, to the same extent as if such amount had
never originally been received by Coast, and the provisions of this sentence
shall survive, and continue in effect, notwithstanding any revocation or release
of this Guaranty. Guarantor hereby expressly and unconditionally waives all
rights of subrogation, reimbursement and indemnity of every kind against
Borrower, and all rights of recourse to any assets or property of Borrower, and
all rights to any collateral or security held for the payment and performance of
any Indebtedness, including (but not limited to) any of the foregoing rights
which Guarantor may have under any present or future document or agreement with
any Borrower or other person, and including (but not limited to) any of the
foregoing rights which Guarantor may have under any equitable doctrine of
subrogation, implied contract, or unjust enrichment, or any other equitable or
legal doctrine. Neither Coast, nor any of its directors, officers, employees,
agents, attorneys or any other person affiliated with or representing Coast
shall be liable for any claims, demands, losses or damages, of any kind
whatsoever, made, claimed, incurred or suffered by Guarantor or any other party
through the ordinary negligence of Coast, or any of its directors, officers,
employees, agents, attorneys or any other person affiliated with or representing
Coast.
3. CONSENTS. Guarantor hereby consents and agrees that, without notice
to or by Guarantor and without affecting or impairing in any way the obligations
or liability of Guarantor hereunder, Coast may, from time to time before or
after revocation of this Guaranty, do any one or more of the following in
Coast's sole and absolute discretion: (a) accelerate, accept partial payments
of, compromise or settle, renew, extend the time for the payment, discharge, or
performance of, refuse to enforce, and release all or any parties to, any or all
of the Indebtedness; (b) grant any other indulgence to Borrower or any other
person in respect of any or all of the Indebtedness or any other matter;
(c) accept, release, waive, surrender, enforce, exchange, modify, impair, or
extend the time for the performance, discharge, or payment of, any and all
property of any kind securing any or all of the Indebtedness or any guaranty of
any or all of the Indebtedness, or on which Coast at any time may have a lien,
or refuse to enforce its rights or make any compromise or settlement or
agreement therefor in respect of any or all of such
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property; (d) substitute or add, or take any action or omit to take any action
which results in the release of, any one or more endorsers or guarantors of all
or any part of the Indebtedness, including, without limitation one or more
parties to this Guaranty, regardless of any destruction or impairment of any
right of contribution or other right of Guarantor; (e) amend, alter or change in
any respect whatsoever any term or provision relating to any or all of the
Indebtedness, including the rate of interest thereon; (f) apply any sums
received from Borrower, any other guarantor, endorser, or co-signer, or from the
disposition of any collateral or security, to any indebtedness whatsoever owing
from such person or secured by such collateral or security, in such manner and
order as Coast determines in its sole discretion, and regardless of whether such
indebtedness is part of the Indebtedness, is secured, or is due and payable;
(g) apply any sums received from Guarantor or from the disposition of any
collateral or security securing the obligations of Guarantor, to any of the
Indebtedness in such manner and order as Coast determines in its sole
discretion, regardless of whether or not such Indebtedness is secured or is due
and payable. Guarantor consents and agrees that Coast shall be under no
obligation to marshal any assets in favor of Guarantor, or against or in payment
of any or all of the Indebtedness. Guarantor further consents and agrees that
Coast shall have no duties or responsibilities whatsoever with respect to any
property securing any or all of the Indebtedness. Without limiting the
generality of the foregoing, Coast shall have no obligation to monitor, verify,
audit, examine, or obtain or maintain any insurance with respect to, any
property securing any or all of the Indebtedness.
4. ACCOUNT STATED. Coast's books and records showing the account between
it and the Borrower shall be admissible in evidence in any action or proceeding
as prima facie proof of the items therein set forth. Coast's monthly statements
rendered to the Borrower shall be binding upon the Guarantor (whether or not the
Guarantor receives copies thereof), and shall constitute an account stated
between Coast and the Borrower, unless Coast receives a written statement of the
Borrower's exceptions within 30 days after the statement was mailed to the
Borrower. The Guarantor assumes full responsibility for obtaining copies of
such monthly statements from the Borrower, if the Guarantor desires such copies.
5. EXERCISE OF RIGHTS AND REMEDIES; FORECLOSURE OF TRUST DEEDS.
Guarantor consents and agrees that, without notice to or by Guarantor and
without affecting or impairing in any way the obligations or liability of
Guarantor hereunder, Coast may, from time to time, before or after revocation of
this Guaranty, exercise any right or remedy it may have with respect to any or
all of the Indebtedness or any property securing any or all of the Indebtedness
or any guaranty thereof, including without limitation judicial foreclosure,
nonjudicial foreclosure, exercise of a power of sale, and taking a deed,
assignment or transfer in lieu of foreclosure as to any such property, and
Guarantor expressly waives any defense based upon the exercise of any such right
or remedy, notwithstanding the effect thereof upon any of Guarantor's rights,
including without limitation, any destruction of Guarantor's right of
subrogation against Borrower and any destruction of Guarantor's right of
contribution or other right against any other guarantor of any or all of the
Indebtedness or against any other person, whether by operation of Sections 580a,
580d or 726 of the California Code of Civil Procedure, or any comparable
provisions of the laws of any other jurisdiction, or any other statutes or rules
of law now or hereafter in effect, or otherwise. Without limiting the
generality of the foregoing, (a) Guarantor waives all rights and defenses
arising out of an election of remedies by Coast, even though that election of
remedies, such
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<PAGE>
as a nonjudicial foreclosure with respect to security for any of the
Indebtedness, has destroyed the guarantor's rights of subrogation and
reimbursement against the principal by the operation of Section 580d of the Code
of Civil Procedure or otherwise. (b) Guarantor further waives all rights and
defenses arising out of an election of remedies by Coast, even though that
election of remedies, such as a nonjudicial foreclosure with respect to security
for any of the Indebtedness, has destroyed the guarantor's rights of
subrogation, reimbursement and contribution against any other guarantor of the
guaranteed obligation, by the operation of Section 580d of the Code of Civil
Procedure or otherwise. (c) Guarantor understands that if Coast forecloses any
present or future trust deed, which secures any or all of the Indebtedness or
which secures any other guaranty of any or all of the Indebtedness, by
nonjudicial foreclosure, Guarantor may, as a result, have a complete defense to
liability under this Guaranty, based on the legal doctrine of estoppel and
Sections 580a, 580d or 726 of the California Code of Civil Procedure, and
Guarantor hereby expressly waives all such defenses. (d) Guarantor understands
and agrees that, in the event Coast in its sole discretion forecloses any trust
deed now or hereafter securing any or all of the Indebtedness, by nonjudicial
foreclosure, Guarantor will remain liable to Coast for any deficiency, even
though Guarantor will lose his right of subrogation against the Borrower, and
even though Guarantor will be unable to recover from the Borrower the amount of
the deficiency for which Guarantor is liable, and even though Guarantor may have
retained his right of subrogation against Borrower if Coast had foreclosed said
trust deed by judicial foreclosure as opposed to nonjudicial foreclosure, and
even though absent the waivers set forth herein Guarantor may have had a
complete defense to any liability for any deficiency hereunder. (e) Guarantor
understands and agrees that, in the event Coast in its sole discretion
forecloses any trust deed now or hereafter securing any other guaranty of any or
all of the Indebtedness, by nonjudicial foreclosure, Guarantor will remain
liable to Coast for any deficiency, even though Guarantor will lose his right of
subrogation or contribution against the other guarantor, and even though
Guarantor will be unable to recover from the other guarantor any part of the
deficiency for which Guarantor is liable, and even though Guarantor may have
retained his right of subrogation or contribution against the other guarantor if
Coast had foreclosed said trust deed by judicial foreclosure as opposed to
nonjudicial foreclosure, and even though absent the waivers set forth herein
Guarantor may have had a complete defense to any liability for any deficiency
hereunder.
6. ACCELERATION. Notwithstanding the terms of all or any part of the
Indebtedness, the obligations of the Guarantor hereunder to pay and perform all
of the Indebtedness shall, at the option of Coast, immediately become due and
payable, without notice, and without regard to the expressed maturity of any of
the Indebtedness, in the event: (a) any warranty, representation, statement,
report, or certificate made or delivered to Coast by Borrower or Guarantor, or
any of their respective officers, partners, employees, or agents, is incorrect,
false, untrue, or misleading when given in any material respect; or (b) Borrower
or Guarantor shall fail to pay or perform when due all or any part of the
Indebtedness; or (c) Guarantor shall fail to pay or perform when due any
indebtedness or obligation of Guarantor to Coast or to any parent, subsidiary or
corporate affiliate of Coast, whether under this Guaranty or any other
instrument, document, or agreement heretofore or hereafter entered into; or
(d) there occurs in Coast's judgment, reasonably exercised, a material
impairment of the prospect of payment or performance of any or all of the
Indebtedness; or (e) any event shall occur which may or does result in the
acceleration of the
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<PAGE>
maturity of any indebtedness of Borrower or Guarantor to others (regardless of
any requirement of notice, opportunity to cure or other condition prior to the
exercise of any right of acceleration); or (f) Borrower or Guarantor shall fail
promptly to perform or comply with any term or condition of any agreement with
any third party which does or may result in a material adverse effect on the
business of Borrower or Guarantor; or (g) there shall be made or exist any levy,
assessment, attachment, seizure, lien, or encumbrance for any cause or reason
whatsoever upon all or any part of the property of Borrower or Guarantor (unless
discharged by payment, release or bond not more than ten days after such event
has occurred); or (h) there shall occur the dissolution, termination of
existence, insolvency, or business failure of Borrower or Guarantor, or the
appointment of a receiver, trustee or custodian for Borrower or Guarantor or all
or any part of the property of either of them, or the assignment for the benefit
of creditors by Borrower or Guarantor, or the commencement of any proceeding by
or against Borrower or Guarantor under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or hereafter in effect; or (i) Borrower or
Guarantor shall be deceased or declared incompetent by any court or a guardian
or conservator shall be appointed for either of them or for the property of
either of them; or (j) Guarantor or Borrower shall generally not pay their
respective debts as they become due or shall enter into any agreement (whether
written or oral), or offer to enter into any such agreement, with all or a
significant number of its creditors regarding any moratorium or other indulgence
with respect to its debts or the participation of such creditors or their
representatives in the supervision, management, or control of the business of
either of them; or (k) Borrower or Guarantor shall conceal, remove or permit to
be concealed or removed any part of its property, with intent to hinder, delay
or defraud its creditors, or make or suffer any transfer of any of its property
which may be fraudulent under any bankruptcy, fraudulent conveyance or similar
law, or shall make any transfer of its property to or for the benefit of any
creditor at a time when other creditors similarly situated have not been paid;
or (l) the board of directors or shareholders of Borrower or Guarantor shall
adopt any resolution or plan for its dissolution or the liquidation of all or
substantially all of its assets; or (m) Guarantor shall revoke this Guaranty or
contest or deny liability under this Guaranty. All of the foregoing are
hereinafter referred to as "Events of Default".
7. RIGHT TO ATTACHMENT REMEDY. Guarantor agrees that, notwithstanding
the existence of any property securing any or all of the Indebtedness, Coast
shall have all of the rights of an unsecured creditor of Guarantor, including
without limitation the right to obtain a temporary protective order and writ of
attachment against Guarantor with respect to any sums due under this Guaranty.
Guarantor further agrees that in the event any property secures the obligations
of Guarantor under this Guaranty, to the extent that Coast, in its sole and
absolute discretion, determines prior to the disposition of such property that
the amount to be realized by Coast therefrom may be less than the indebtedness
of the Guarantor under this Guaranty, Coast shall have all the rights of an
unsecured creditor against Guarantor, including without limitation the right of
Coast, prior to the disposition of said property, to obtain a temporary
protective order and writ of attachment against Guarantor. Guarantor waives the
benefit of Section 483.010(b) of the California Code of Civil Procedure and of
any and all other statutes and rules of law now or hereafter in effect requiring
Coast to first resort to or exhaust all such collateral before seeking or
obtaining any attachment remedy against Guarantor. Coast shall have no
liability to Guarantor as a result thereof, whether or not the actual deficiency
realized by
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Coast is less than the anticipated deficiency on the basis of which Coast
obtains a temporary protective order or writ of attachment.
8. INDEMNITY. Guarantor hereby agrees to indemnify Coast and hold Coast
harmless from and against any and all claims, debts, liabilities, demands,
obligations, actions, causes of action, penalties, costs and expenses (including
without limitation attorneys' fees), of every nature, character and description,
which Coast may sustain or incur based upon or arising out of any of the
Indebtedness, any actual or alleged failure to collect and pay over any
withholding or other tax relating to Borrower or its employees, any relationship
or agreement between Coast and Borrower, any actual or alleged failure of Coast
to comply with any writ of attachment or other legal process relating to
Borrower or any of its property, or any other matter, cause or thing whatsoever
occurred, done, omitted or suffered to be done by Coast relating in any way to
Borrower or the Indebtedness (except any such amounts sustained or incurred as
the result of the gross negligence or willful misconduct of Coast or any of its
directors, officers, employees, agents, attorneys, or any other person
affiliated with or representing Coast). Notwithstanding any provision in this
Guaranty to the contrary, the indemnity agreement set forth in this Section
shall survive any termination or revocation of this Guaranty and shall for all
purposes continue in full force and effect.
9. SUBORDINATION. Any and all rights of Guarantor under any and all
debts, liabilities and obligations owing from Borrower to Guarantor, including
any security for and guaranties of any such obligations, whether now existing or
hereafter arising, are hereby subordinated in right of payment to the prior
payment in full of all of the Indebtedness. No payment in respect of any such
subordinated obligations shall at any time be made to or accepted by Guarantor
if at the time of such payment any Indebtedness is outstanding. If any Event of
Default has occurred, Borrower and any assignee, trustee in bankruptcy,
receiver, or any other person having custody or control over any or all of
Borrower's property are hereby authorized and directed to pay to Coast the
entire unpaid balance of the Indebtedness before making any payments whatsoever
to Guarantor, whether as a creditor, shareholder, or otherwise; and insofar as
may be necessary for that purpose, Guarantor hereby assigns and transfers to
Coast all rights to any and all debts, liabilities and obligations owing from
Borrower to Guarantor, including any security for and guaranties of any such
obligations, whether now existing or hereafter arising, including without
limitation any payments, dividends or distributions out of the business or
assets of Borrower. Any amounts received by Guarantor in violation of the
foregoing provisions shall be received and held as trustee for the benefit of
Coast and shall forthwith be paid over to Coast to be applied to the
Indebtedness in such order and sequence as Coast shall in its sole discretion
determine, without limiting or affecting any other right or remedy which Coast
may have hereunder or otherwise and without otherwise affecting the liability of
Guarantor hereunder. Guarantor hereby expressly waives any right to set-off or
assert any counterclaim against Borrower.
10. REVOCATION. This is a Continuing Guaranty relating to all of the
Indebtedness, including Indebtedness arising under successive transactions which
from time to time continue the Indebtedness or renew it after it has been
satisfied. Guarantor waives all benefits of California Civil Code Section 2815,
and agrees that the obligations of Guarantor hereunder may not be terminated or
revoked in any manner except by giving 90 days' advance written notice of
revocation to Coast at its address above by
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registered first-class U.S. mail, postage prepaid, return receipt requested, and
only as to new loans made by Coast to Borrower more than 90 days after actual
receipt of such written notice by Coast. No termination or revocation of this
Guaranty shall be effective until 90 days following the date of actual receipt
of said written notice of revocation by Coast. Notwithstanding such written
notice of revocation or any other act of Guarantor or any other event or
circumstance, Guarantor agrees that this Guaranty and all consents, waivers and
other provisions hereof shall continue in full force and effect as to any and
all Indebtedness which is outstanding on or before the 90th day following actual
receipt of said written notice of revocation by Coast, and all extensions,
renewals and modifications of said Indebtedness (including without limitation
amendments, extensions, renewals and modifications which are evidenced by new or
additional instruments, documents or agreements executed before or after
expiration of said 90-day period), and all interest thereon, accruing before or
after expiration of said 90-day period, and all attorneys' fees, court costs and
collection charges, incurred before or after expiration of said 90-day period,
in endeavoring to collect or enforce any of the foregoing against Borrower,
Guarantor or any other person liable thereon (whether or not suit be brought)
and any other expenses of, for or incidental to collection thereof.
11. INDEPENDENT LIABILITY. Guarantor hereby agrees that one or more
successive or concurrent actions may be brought hereon against Guarantor, in the
same action in which Borrower may be sued or in separate actions, as often as
deemed advisable by Coast. The liability of Guarantor hereunder is exclusive
and independent of any other guaranty of any or all of the Indebtedness whether
executed by Guarantor or by any other guarantor (including without limitation
any other persons signing this Guaranty). The liability of Guarantor hereunder
shall not be affected, revoked, impaired, or reduced by any one or more of the
following: (a) the fact that the Indebtedness exceeds the maximum amount of
Guarantor's liability, if any, specified herein or elsewhere (and no agreement
specifying a maximum amount of Guarantor's liability shall be enforceable unless
set forth in a writing signed by Coast or set forth in this Guaranty); or
(b) any direction as to the application of payment by Borrower or by any other
party; or (c) any other continuing or restrictive guaranty or undertaking or any
limitation on the liability of any other guarantor (whether under this Guaranty
or under any other agreement); or (d) any payment on or reduction of any such
other guaranty or undertaking; or (e) any revocation, amendment, modification or
release of any such other guaranty or undertaking; or (f) any dissolution or
termination of, or increase, decrease, or change in membership of any Guarantor
which is a partnership. Guarantor hereby expressly represents that he was not
induced to give this Guaranty by the fact that there are or may be other
guarantors either under this Guaranty or otherwise, and Guarantor agrees that
any release of any one or more of such other guarantors shall not release
Guarantor from his obligations hereunder either in full or to any lesser extent.
If Guarantor is a married person, Guarantor hereby expressly agrees that
recourse may be had against his or her separate property for all of his or her
obligations hereunder.
12. FINANCIAL CONDITION OF BORROWER. Guarantor is fully aware of the
financial condition of Borrower and is executing and delivering this Guaranty at
Borrower's request and based solely upon his own independent investigation of
all matters pertinent hereto, and Guarantor is not relying in any manner upon
any representation or statement of Coast with respect thereto. Guarantor
represents and warrants that he is in a position to obtain, and Guarantor hereby
assumes
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full responsibility for obtaining, any additional information concerning
Borrower's financial condition and any other matter pertinent hereto as
Guarantor may desire, and Guarantor is not relying upon or expecting Coast to
furnish to him any information now or hereafter in Coast's possession concerning
the same or any other matter. By executing this Guaranty, Guarantor knowingly
accepts the full range of risks encompassed within a contract of continuing
guaranty, which risks Guarantor acknowledges include without limitation the
possibility that Borrower will incur additional Indebtedness for which Guarantor
will be liable hereunder after Borrower's financial condition or ability to pay
such Indebtedness has deteriorated and/or after bankruptcy or insolvency
proceedings have been commenced by or against Borrower. Guarantor shall have no
right to require Coast to obtain or disclose any information with respect to the
Indebtedness, the financial condition or character of Borrower, the existence of
any collateral or security for any or all of the Indebtedness, the filing by or
against Borrower of any bankruptcy or insolvency proceeding, the existence of
any other guaranties of all or any part of the Indebtedness, any action or
non-action on the part of Coast, Borrower, or any other person, or any other
matter, fact, or occurrence.
13. REPORTS AND FINANCIAL STATEMENTS OF GUARANTOR. Guarantor shall, at
its sole cost and expense, at any time and from time to time, prepare or cause
to be prepared, and provide to Coast upon Coast's request (i) such financial
statements and reports concerning Guarantor for such periods of time as Coast
may designate, (ii) any other information concerning Guarantor's business,
financial condition or affairs as Coast may request, and (iii) copies of any and
all foreign, federal, state and local tax returns and reports of or relating to
Guarantor as Coast may from time to time request. Guarantor hereby
intentionally and knowingly waives any and all rights and privileges it may have
not to divulge or deliver said tax returns, reports and other information which
are requested by Coast hereunder or in any litigation in which Coast may be
involved relating directly or indirectly to Borrower or to Guarantor. Guarantor
further agrees immediately to give written notice to Coast of any adverse change
in Guarantor's financial condition and of any condition or event which
constitutes an Event of Default under this Guaranty. All reports and
information furnished to Coast hereunder shall be complete, accurate and correct
in all respects. Whenever requested, Guarantor shall further deliver to Coast a
certificate signed by Guarantor (and, if Guarantor is a partnership, by all
general partners of Guarantor, in their individual capacities, and, if Guarantor
is a corporation, by the president and secretary of Guarantor, in their
individual capacities) warranting and representing that all reports, financial
statements and other documents and information delivered or caused to be
delivered to Coast under this Guaranty, are complete, correct and thoroughly and
accurately present the financial condition of Guarantor, and that there exists
on the date of delivery of said certificate to Coast no condition or event which
constitutes an Event of Default under this Guaranty.
14. REPRESENTATIONS AND WARRANTIES. 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, furnishes goods
or services to Guarantor, purchases or acquires goods or services from
Guarantor, and/or otherwise has a direct or indirect corporate or business
relationship with Guarantor, (ii) this Guaranty has been duly and validly
authorized, executed and delivered and constitutes the valid and binding
obligation of Guarantor, enforceable in accordance with its terms, and (iii) the
execution and delivery of this Guaranty does not
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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.
15. COSTS. Whether or not suit be instituted, Guarantor agrees to
reimburse Coast on demand for all reasonable attorneys' fees and all other
reasonable costs and expenses incurred by Coast in enforcing this Guaranty, or
arising out of or relating in any way to this Guaranty, or in enforcing any of
the Indebtedness against Borrower, Guarantor, or any other person, or in
connection with any property of any kind securing all or any part of the
Indebtedness. Without limiting the generality of the foregoing, and in addition
thereto, Guarantor shall reimburse Coast on demand for all reasonable attorneys'
fees and costs Coast incurs in any way relating to Guarantor, Borrower or the
Indebtedness, in order to: obtain legal advice; enforce or seek to enforce any
of its rights; commence, intervene in, respond to, or defend any action or
proceeding; file, prosecute or defend any claim or cause of action in any action
or proceeding (including without limitation any probate claim, bankruptcy claim,
third-party claim, secured creditor claim, reclamation complaint, and complaint
for relief from any stay under the Bankruptcy Code or otherwise); protect,
obtain possession of, sell, lease, dispose of or otherwise enforce any security
interest in or lien on any property of any kind securing any or all of the
Indebtedness; or represent Coast in any litigation with respect to Borrower's or
Guarantor's affairs. In the event either Coast or Guarantor files any lawsuit
against the other predicated on a breach of this Guaranty, the prevailing party
in such action shall be entitled to recover its attorneys' fees and costs of
suit from the non-prevailing party.
16. NOTICES. Any notice which a party shall be required or shall desire
to give to the other hereunder (except for notice of revocation, which shall be
governed by Section 10 of this Guaranty) shall be given by personal delivery or
by telecopier or by depositing the same in the United States mail, first class
postage pre-paid, addressed to Coast at its address set forth in the heading of
this Guaranty and to Guarantor at his address set forth under his signature
hereon, and such notices shall be deemed duly given on the date of personal
delivery or one day after the date telecopied or 3 business days after the date
of mailing as aforesaid. Coast and Guarantor may change their address for
purposes of receiving notices hereunder by giving written notice thereof to the
other party in accordance herewith. Guarantor shall give Coast immediate
written notice of any change in his address.
17. CLAIMS. Guarantor agrees that any claim or cause of action by
Guarantor against Coast, or any of Coast's directors, officers, employees,
agents, accountants or attorneys, based upon, arising from, or relating to this
Guaranty, or any other present or future agreement between Coast and Guarantor
or between Coast and Borrower, or any other transaction contemplated hereby or
thereby or relating hereto or thereto, or any other matter, cause or thing
whatsoever, whether or not relating hereto or thereto, occurred, done, omitted
or suffered to be done by Coast, or by Coast's directors, officers, employees,
agents, accountants or attorneys, whether sounding in contract or in tort or
otherwise, shall be barred unless asserted by Guarantor by the commencement of
an action or proceeding in a court of competent jurisdiction within Los Angeles
County, California. This provision shall survive any termination of this
Guaranty or any other agreement.
18. CONSTRUCTION; SEVERABILITY. If more than one person has executed this
Guaranty, the term "Guarantor" as used herein shall be deemed to refer to all
and any one or more such
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persons and their obligations hereunder shall be joint and several. Without
limiting the generality of the foregoing, if more than one person has executed
this Guaranty, this Guaranty shall in all respects be interpreted as though each
person signing this Guaranty had signed a separate Guaranty, and references
herein to "other guarantors" or words of similar effect shall include without
limitation other persons signing this Guaranty. As used in this Guaranty, the
term "property" is used in its most comprehensive sense and shall mean all
property of every kind and nature whatsoever, including without limitation real
property, personal property, mixed property, tangible property and intangible
property. Words used herein in the masculine gender shall include the neuter
and feminine gender, words used herein in the neuter gender shall include the
masculine and feminine, words used herein in the singular shall include the
plural and words used in the plural shall include the singular, wherever the
context so reasonably requires. If any provision of this Guaranty or the
application thereof to any party or circumstance is held invalid, void,
inoperative or unenforceable, the remainder of this Guaranty and the application
of such provision to other parties or circumstances shall not be affected
thereby, the provisions of this Guaranty being severable in any such instance.
19. GENERAL PROVISIONS. Coast shall have the right to seek recourse
against Guarantor to the full extent provided for herein and in any other
instrument or agreement evidencing obligations of Guarantor to Coast, and
against Borrower to the full extent of the Indebtedness. No election in one
form of action or proceeding, or against any party, or on any obligation, shall
constitute a waiver of Coast's right to proceed in any other form of action or
proceeding or against any other party. The failure of Coast to enforce any of
the provisions of this Guaranty at any time or for any period of time shall not
be construed to be a waiver of any such provision or the right thereafter to
enforce the same. All remedies hereunder shall be cumulative and shall be in
addition to all rights, powers and remedies given to Coast by law or under any
other instrument or agreement. Time is of the essence in the performance by
Guarantor of each and every obligation under this Guaranty. If Borrower is a
corporation, partnership or other entity, Guarantor hereby agrees that Coast
shall have no obligation to inquire into the power or authority of Borrower or
any of its officers, directors, partners, or agents acting or purporting to act
on its behalf, and any Indebtedness made or created in reliance upon the
professed exercise of any such power or authority shall be included in the
Indebtedness guaranteed hereby. This Guaranty is the entire and only agreement
between Guarantor and Coast with respect to the guaranty of the Indebtedness of
Borrower by Guarantor, and all representations, warranties, agreements, or
undertakings heretofore or contemporaneously made, which are not set forth
herein, are superseded hereby. No course of dealings between the parties, no
usage of the trade, and no parol or extrinsic evidence of any nature shall be
used or be relevant to supplement or explain or modify any term or provision of
this Guaranty. There are no conditions to the full effectiveness of this
Guaranty. The terms and provisions hereof may not be waived, altered, modified,
or amended except in a writing executed by Guarantor and a duly authorized
officer of Coast. All rights, benefits and privileges hereunder shall inure to
the benefit of and be enforceable by Coast and its successors and assigns and
shall be binding upon Guarantor and his heirs, executors, administrators,
personal representatives, successors and assigns. Neither the death of
Guarantor nor notice thereof to Coast shall terminate this Guaranty as to his
estate, and, notwithstanding the death of Guarantor or notice thereof to Coast,
this Guaranty shall continue in full force and effect with respect to all
Indebtedness, including without
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limitation Indebtedness incurred or created after the death of Guarantor and
notice thereof to Coast. Section headings are used herein for convenience only.
Guarantor acknowledges that the same may not describe completely the subject
matter of the applicable Section, and the same shall not be used in any manner
to construe, limit, define or interpret any term or provision hereof.
20. GOVERNING LAW; VENUE AND JURISDICTION. This instrument and all acts
and transactions pursuant or relating hereto and all rights and obligations of
the parties hereto shall be governed, construed, and interpreted in accordance
with the internal laws of the State of California. In order to induce Coast to
accept this Guaranty, and as a material part of the consideration therefor,
Guarantor (i) agrees that all actions or proceedings relating directly or
indirectly hereto shall, at the option of Coast, be litigated in courts located
within Los Angeles County, California, (ii) consents to the jurisdiction of any
such court and consents to the service of process in any such action or
proceeding by personal delivery or any other method permitted by law; and
(iii) waives any and all rights Guarantor may have to transfer or change the
venue of any such action or proceeding.
21. SECURITY. The obligations of Guarantor hereunder are secured by that
certain Loan and Security Agreement dated as of even date herewith between
Guarantor and Coast.
22. MUTUAL WAIVER OF RIGHT TO JURY TRIAL. COAST AND GUARANTOR HEREBY
WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION, CLAIM, LAWSUIT OR PROCEEDING
BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO: (i) THIS GUARANTEE OR ANY
SUPPLEMENT OR AMENDMENT THERETO; OR (ii) ANY OTHER PRESENT OR FUTURE INSTRUMENT
OR AGREEMENT BETWEEN COAST AND GUARANTOR ; OR (iii) ANY BREACH, CONDUCT, ACTS OR
OMISSIONS OF COAST OR GUARANTOR OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSON AFFILIATED WITH OR REPRESENTING
COAST OR GUARANTOR; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT
OR TORT OR OTHERWISE.
23. RECEIPT OF COPY. Guarantor acknowledges receipt of a copy of this
Guaranty.
BY: FIXCOR INDUSTRIES, INC.
By: /s/ Gary M. DeLaurentiis
-----------------------------------
(Please sign here)
Gary M. DeLaurentiis
-----------------------------------
(Please print or type name here)
Its: President
-----------------------------------
(Please print title here)
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COAST
CONTINUING GUARANTY
Borrower: FIXCOR Industries, Inc.
Poly Style Industries, Inc.
Guarantor: Pallet Technology, Inc.
Date: June 8, 1998
THIS CONTINUING GUARANTY is executed by the above-named guarantor (the
"Guarantor"), as of the above date, in favor of COAST BUSINESS CREDIT-Registered
Trademark-, a division of Southern Pacific Bank ("Coast"), a California
corporation, with offices at 12121 Wilshire Boulevard, Suite 1111, Los Angeles,
California 90025, with respect to the Indebtedness of the above-named borrowers
(jointly and severally, the "Borrower").
1. SECURED CONTINUING GUARANTY. Guarantor hereby unconditionally
guarantees and promises to pay on demand to Coast, at the address indicated
above, or at such other address as Coast may direct, in lawful money of the
United States, and to perform for the benefit of Coast, all Indebtedness of
Borrower now or hereafter owing to or held by Coast. This Continuing Guaranty is
secured by that certain Loan and Security Agreement of even date herewith among
Guarantor, Borrower, Fix-Corp International, Inc. and Coast (the "Loan
Agreement") and the Loan Documents (as defined in the Loan Agreement). As used
herein, the term "Indebtedness" is used in its most comprehensive sense and
shall mean and include without limitation: (a) any and all debts, duties,
obligations, liabilities, representations, warranties and guaranties of Borrower
or any one or more of them, heretofore, now, or hereafter made, incurred, or
created, whether directly to Coast or acquired by Coast by assignment or
otherwise, or held by Coast on behalf of others, however arising, whether
voluntary or involuntary, due or not due, absolute or contingent, liquidated or
unliquidated, certain or uncertain, determined or undetermined, monetary or
non-monetary, written or oral, and whether Borrower may be liable individually
or jointly with others, and regardless of whether recovery thereon may be or
hereafter become barred by any statute of limitations, discharged or
uncollectible in any bankruptcy, insolvency or other proceeding, or otherwise
unenforceable; and (b) any and all amendments, modifications, renewals and
extensions of any or all of the foregoing, including without limitation
amendments, modifications, renewals and extensions which are evidenced by any
new or additional instrument, document or agreement; and (c) any and all
attorneys' fees, court costs, and collection charges incurred in endeavoring to
collect or enforce any of the foregoing against Borrower, Guarantor, or any
other person liable thereon (whether or not suit be brought) and any other
expenses of, for or incidental to collection thereof. As used herein, the term
"Borrower" shall include any successor to the business and assets of Borrower,
and shall also include Borrower in its capacity as a debtor or debtor in
possession under the federal Bankruptcy Code, and any trustee, custodian or
receiver for Borrower or any of its assets, should Borrower
<PAGE>
hereafter become the subject of any bankruptcy or insolvency proceeding,
voluntary or involuntary; and all indebtedness, liabilities and obligations
incurred by any such person shall be included in the Indebtedness guaranteed
hereby. This Guaranty is given in consideration for credit and other financial
accommodations which may, from time to time, be given by Coast to Borrower in
Coast's sole discretion, but Guarantor acknowledges and agrees that acceptance
by Coast of this Guaranty shall not constitute a commitment of any kind by Coast
to extend such credit or other financial accommodation to Borrower or to permit
Borrower to incur Indebtedness to Coast. All sums due under this Guaranty shall
bear interest from the date due until the date paid at the highest rate charged
with respect to any of the Indebtedness.
2. WAIVERS. Guarantor hereby waives: (a) presentment for payment,
notice of dishonor, demand, protest, and notice thereof as to any instrument,
and all other notices and demands to which Guarantor might be entitled,
including without limitation notice of all of the following: the acceptance
hereof; the creation, existence, or acquisition of any Indebtedness; the amount
of the Indebtedness from time to time outstanding; any foreclosure sale or other
disposition of any property which secures any or all of the Indebtedness or
which secures the obligations of any other guarantor of any or all of the
Indebtedness; any adverse change in Borrower's financial position; any other
fact which might increase Guarantor's risk; any default, partial payment or
non-payment of all or any part of the Indebtedness; the occurrence of any other
Event of Default (as hereinafter defined); any and all agreements and
arrangements between Coast and Borrower and any changes, modifications, or
extensions thereof, and any revocation, modification or release of any guaranty
of any or all of the Indebtedness by any person (including without limitation
any other person signing this Guaranty); (b) any right to require Coast to
institute suit against, or to exhaust its rights and remedies against, Borrower
or any other person, or to proceed against any property of any kind which
secures all or any part of the Indebtedness, or to exercise any right of offset
or other right with respect to any reserves, credits or deposit accounts held by
or maintained with Coast or any indebtedness of Coast to Borrower, or to
exercise any other right or power, or pursue any other remedy Coast may have;
(c) any defense arising by reason of any disability or other defense of Borrower
or any other guarantor or any endorser, co-maker or other person, or by reason
of the cessation from any cause whatsoever of any liability of Borrower or any
other guarantor or any endorser, co-maker or other person, with respect to all
or any part of the Indebtedness, or by reason of any act or omission of Coast or
others which directly or indirectly results in the discharge or release of
Borrower or any other guarantor or any other person or any Indebtedness or any
security therefor, whether by operation of law or otherwise; (d) any defense
arising by reason of any failure of Coast to obtain, perfect, maintain or keep
in force any security interest in, or lien or encumbrance upon, any property of
Borrower or any other person; (e) any defense based upon any failure of Coast to
give Guarantor notice of any sale or other disposition of any property securing
any or all of the Indebtedness, or any defects in any such notice that may be
given, or any failure of Coast to comply with any provision of applicable law in
enforcing any security interest in or lien upon any property securing any or all
of the Indebtedness including, but not limited to, any failure by Coast to
dispose of any property securing any or all of the Indebtedness in a
commercially reasonable manner; (f) any defense based upon or arising out of any
bankruptcy, insolvency, reorganization, arrangement, readjustment of debt,
liquidation or dissolution proceeding commenced by or against Borrower or any
other guarantor or any endorser,
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<PAGE>
co-maker or other person, including without limitation any discharge of, or bar
against collecting, any of the Indebtedness (including without limitation any
interest thereon), in or as a result of any such proceeding; and (g) the benefit
of any and all statutes of limitation with respect to any action based upon,
arising out of or related to this Guaranty. Until all of the Indebtedness has
been paid, performed, and discharged in full, nothing shall discharge or satisfy
the liability of Guarantor hereunder except the full performance and payment of
all of the Indebtedness. If any claim is ever made upon Coast for repayment or
recovery of any amount or amounts received by Coast in payment of or on account
of any of the Indebtedness, because of any claim that any such payment
constituted a preferential transfer or fraudulent conveyance, or for any other
reason whatsoever, and Coast repays all or part of said amount by reason of any
judgment, decree or order of any court or administrative body having
jurisdiction over Coast or any of its property, or by reason of any settlement
or compromise of any such claim effected by Coast with any such claimant
(including without limitation the Borrower), then and in any such event,
Guarantor agrees that any such judgment, decree, order, settlement and
compromise shall be binding upon Guarantor, notwithstanding any revocation or
release of this Guaranty or the cancellation of any note or other instrument
evidencing any of the Indebtedness, or any release of any of the Indebtedness,
and the Guarantor shall be and remain liable to Coast under this Guaranty for
the amount so repaid or recovered, to the same extent as if such amount had
never originally been received by Coast, and the provisions of this sentence
shall survive, and continue in effect, notwithstanding any revocation or release
of this Guaranty. Guarantor hereby expressly and unconditionally waives all
rights of subrogation, reimbursement and indemnity of every kind against
Borrower, and all rights of recourse to any assets or property of Borrower, and
all rights to any collateral or security held for the payment and performance of
any Indebtedness, including (but not limited to) any of the foregoing rights
which Guarantor may have under any present or future document or agreement with
any Borrower or other person, and including (but not limited to) any of the
foregoing rights which Guarantor may have under any equitable doctrine of
subrogation, implied contract, or unjust enrichment, or any other equitable or
legal doctrine. Neither Coast, nor any of its directors, officers, employees,
agents, attorneys or any other person affiliated with or representing Coast
shall be liable for any claims, demands, losses or damages, of any kind
whatsoever, made, claimed, incurred or suffered by Guarantor or any other party
through the ordinary negligence of Coast, or any of its directors, officers,
employees, agents, attorneys or any other person affiliated with or representing
Coast.
3. CONSENTS. Guarantor hereby consents and agrees that, without notice
to or by Guarantor and without affecting or impairing in any way the obligations
or liability of Guarantor hereunder, Coast may, from time to time before or
after revocation of this Guaranty, do any one or more of the following in
Coast's sole and absolute discretion: (a) accelerate, accept partial payments
of, compromise or settle, renew, extend the time for the payment, discharge, or
performance of, refuse to enforce, and release all or any parties to, any or all
of the Indebtedness; (b) grant any other indulgence to Borrower or any other
person in respect of any or all of the Indebtedness or any other matter;
(c) accept, release, waive, surrender, enforce, exchange, modify, impair, or
extend the time for the performance, discharge, or payment of, any and all
property of any kind securing any or all of the Indebtedness or any guaranty of
any or all of the Indebtedness, or on which Coast at any time may have a lien,
or refuse to enforce its rights or make any compromise or settlement or
agreement therefor in respect of any or all of such
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property; (d) substitute or add, or take any action or omit to take any action
which results in the release of, any one or more endorsers or guarantors of all
or any part of the Indebtedness, including, without limitation one or more
parties to this Guaranty, regardless of any destruction or impairment of any
right of contribution or other right of Guarantor; (e) amend, alter or change in
any respect whatsoever any term or provision relating to any or all of the
Indebtedness, including the rate of interest thereon; (f) apply any sums
received from Borrower, any other guarantor, endorser, or co-signer, or from the
disposition of any collateral or security, to any indebtedness whatsoever owing
from such person or secured by such collateral or security, in such manner and
order as Coast determines in its sole discretion, and regardless of whether such
indebtedness is part of the Indebtedness, is secured, or is due and payable;
(g) apply any sums received from Guarantor or from the disposition of any
collateral or security securing the obligations of Guarantor, to any of the
Indebtedness in such manner and order as Coast determines in its sole
discretion, regardless of whether or not such Indebtedness is secured or is due
and payable. Guarantor consents and agrees that Coast shall be under no
obligation to marshal any assets in favor of Guarantor, or against or in payment
of any or all of the Indebtedness. Guarantor further consents and agrees that
Coast shall have no duties or responsibilities whatsoever with respect to any
property securing any or all of the Indebtedness. Without limiting the
generality of the foregoing, Coast shall have no obligation to monitor, verify,
audit, examine, or obtain or maintain any insurance with respect to, any
property securing any or all of the Indebtedness.
4. ACCOUNT STATED. Coast's books and records showing the account between
it and the Borrower shall be admissible in evidence in any action or proceeding
as prima facie proof of the items therein set forth. Coast's monthly statements
rendered to the Borrower shall be binding upon the Guarantor (whether or not the
Guarantor receives copies thereof), and shall constitute an account stated
between Coast and the Borrower, unless Coast receives a written statement of the
Borrower's exceptions within 30 days after the statement was mailed to the
Borrower. The Guarantor assumes full responsibility for obtaining copies of
such monthly statements from the Borrower, if the Guarantor desires such copies.
5. EXERCISE OF RIGHTS AND REMEDIES; FORECLOSURE OF TRUST DEEDS.
Guarantor consents and agrees that, without notice to or by Guarantor and
without affecting or impairing in any way the obligations or liability of
Guarantor hereunder, Coast may, from time to time, before or after revocation of
this Guaranty, exercise any right or remedy it may have with respect to any or
all of the Indebtedness or any property securing any or all of the Indebtedness
or any guaranty thereof, including without limitation judicial foreclosure,
nonjudicial foreclosure, exercise of a power of sale, and taking a deed,
assignment or transfer in lieu of foreclosure as to any such property, and
Guarantor expressly waives any defense based upon the exercise of any such right
or remedy, notwithstanding the effect thereof upon any of Guarantor's rights,
including without limitation, any destruction of Guarantor's right of
subrogation against Borrower and any destruction of Guarantor's right of
contribution or other right against any other guarantor of any or all of the
Indebtedness or against any other person, whether by operation of Sections 580a,
580d or 726 of the California Code of Civil Procedure, or any comparable
provisions of the laws of any other jurisdiction, or any other statutes or rules
of law now or hereafter in effect, or otherwise. Without limiting the
generality of the foregoing, (a) Guarantor waives all rights and defenses
arising out of an election of remedies by Coast, even though that election of
remedies, such
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as a nonjudicial foreclosure with respect to security for any of the
Indebtedness, has destroyed the guarantor's rights of subrogation and
reimbursement against the principal by the operation of Section 580d of the Code
of Civil Procedure or otherwise. (b) Guarantor further waives all rights and
defenses arising out of an election of remedies by Coast, even though that
election of remedies, such as a nonjudicial foreclosure with respect to security
for any of the Indebtedness, has destroyed the guarantor's rights of
subrogation, reimbursement and contribution against any other guarantor of the
guaranteed obligation, by the operation of Section 580d of the Code of Civil
Procedure or otherwise. (c) Guarantor understands that if Coast forecloses any
present or future trust deed, which secures any or all of the Indebtedness or
which secures any other guaranty of any or all of the Indebtedness, by
nonjudicial foreclosure, Guarantor may, as a result, have a complete defense to
liability under this Guaranty, based on the legal doctrine of estoppel and
Sections 580a, 580d or 726 of the California Code of Civil Procedure, and
Guarantor hereby expressly waives all such defenses. (d) Guarantor understands
and agrees that, in the event Coast in its sole discretion forecloses any trust
deed now or hereafter securing any or all of the Indebtedness, by nonjudicial
foreclosure, Guarantor will remain liable to Coast for any deficiency, even
though Guarantor will lose his right of subrogation against the Borrower, and
even though Guarantor will be unable to recover from the Borrower the amount of
the deficiency for which Guarantor is liable, and even though Guarantor may have
retained his right of subrogation against Borrower if Coast had foreclosed said
trust deed by judicial foreclosure as opposed to nonjudicial foreclosure, and
even though absent the waivers set forth herein Guarantor may have had a
complete defense to any liability for any deficiency hereunder. (e) Guarantor
understands and agrees that, in the event Coast in its sole discretion
forecloses any trust deed now or hereafter securing any other guaranty of any or
all of the Indebtedness, by nonjudicial foreclosure, Guarantor will remain
liable to Coast for any deficiency, even though Guarantor will lose his right of
subrogation or contribution against the other guarantor, and even though
Guarantor will be unable to recover from the other guarantor any part of the
deficiency for which Guarantor is liable, and even though Guarantor may have
retained his right of subrogation or contribution against the other guarantor if
Coast had foreclosed said trust deed by judicial foreclosure as opposed to
nonjudicial foreclosure, and even though absent the waivers set forth herein
Guarantor may have had a complete defense to any liability for any deficiency
hereunder.
6. ACCELERATION. Notwithstanding the terms of all or any part of the
Indebtedness, the obligations of the Guarantor hereunder to pay and perform all
of the Indebtedness shall, at the option of Coast, immediately become due and
payable, without notice, and without regard to the expressed maturity of any of
the Indebtedness, in the event: (a) any warranty, representation, statement,
report, or certificate made or delivered to Coast by Borrower or Guarantor, or
any of their respective officers, partners, employees, or agents, is incorrect,
false, untrue, or misleading when given in any material respect; or (b) Borrower
or Guarantor shall fail to pay or perform when due all or any part of the
Indebtedness; or (c) Guarantor shall fail to pay or perform when due any
indebtedness or obligation of Guarantor to Coast or to any parent, subsidiary or
corporate affiliate of Coast, whether under this Guaranty or any other
instrument, document, or agreement heretofore or hereafter entered into; or
(d) there occurs in Coast's judgment, reasonably exercised, a material
impairment of the prospect of payment or performance of any or all of the
Indebtedness; or (e) any event shall occur which may or does result in the
acceleration of the
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maturity of any indebtedness of Borrower or Guarantor to others (regardless of
any requirement of notice, opportunity to cure or other condition prior to the
exercise of any right of acceleration); or (f) Borrower or Guarantor shall fail
promptly to perform or comply with any term or condition of any agreement with
any third party which does or may result in a material adverse effect on the
business of Borrower or Guarantor; or (g) there shall be made or exist any levy,
assessment, attachment, seizure, lien, or encumbrance for any cause or reason
whatsoever upon all or any part of the property of Borrower or Guarantor (unless
discharged by payment, release or bond not more than ten days after such event
has occurred); or (h) there shall occur the dissolution, termination of
existence, insolvency, or business failure of Borrower or Guarantor, or the
appointment of a receiver, trustee or custodian for Borrower or Guarantor or all
or any part of the property of either of them, or the assignment for the benefit
of creditors by Borrower or Guarantor, or the commencement of any proceeding by
or against Borrower or Guarantor under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or hereafter in effect; or (i) Borrower or
Guarantor shall be deceased or declared incompetent by any court or a guardian
or conservator shall be appointed for either of them or for the property of
either of them; or (j) Guarantor or Borrower shall generally not pay their
respective debts as they become due or shall enter into any agreement (whether
written or oral), or offer to enter into any such agreement, with all or a
significant number of its creditors regarding any moratorium or other indulgence
with respect to its debts or the participation of such creditors or their
representatives in the supervision, management, or control of the business of
either of them; or (k) Borrower or Guarantor shall conceal, remove or permit to
be concealed or removed any part of its property, with intent to hinder, delay
or defraud its creditors, or make or suffer any transfer of any of its property
which may be fraudulent under any bankruptcy, fraudulent conveyance or similar
law, or shall make any transfer of its property to or for the benefit of any
creditor at a time when other creditors similarly situated have not been paid;
or (l) the board of directors or shareholders of Borrower or Guarantor shall
adopt any resolution or plan for its dissolution or the liquidation of all or
substantially all of its assets; or (m) Guarantor shall revoke this Guaranty or
contest or deny liability under this Guaranty. All of the foregoing are
hereinafter referred to as "Events of Default".
7. RIGHT TO ATTACHMENT REMEDY. Guarantor agrees that, notwithstanding
the existence of any property securing any or all of the Indebtedness, Coast
shall have all of the rights of an unsecured creditor of Guarantor, including
without limitation the right to obtain a temporary protective order and writ of
attachment against Guarantor with respect to any sums due under this Guaranty.
Guarantor further agrees that in the event any property secures the obligations
of Guarantor under this Guaranty, to the extent that Coast, in its sole and
absolute discretion, determines prior to the disposition of such property that
the amount to be realized by Coast therefrom may be less than the indebtedness
of the Guarantor under this Guaranty, Coast shall have all the rights of an
unsecured creditor against Guarantor, including without limitation the right of
Coast, prior to the disposition of said property, to obtain a temporary
protective order and writ of attachment against Guarantor. Guarantor waives the
benefit of Section 483.010(b) of the California Code of Civil Procedure and of
any and all other statutes and rules of law now or hereafter in effect requiring
Coast to first resort to or exhaust all such collateral before seeking or
obtaining any attachment remedy against Guarantor. Coast shall have no
liability to Guarantor as a result thereof, whether or not the actual deficiency
realized by
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Coast is less than the anticipated deficiency on the basis of which Coast
obtains a temporary protective order or writ of attachment.
8. INDEMNITY. Guarantor hereby agrees to indemnify Coast and hold Coast
harmless from and against any and all claims, debts, liabilities, demands,
obligations, actions, causes of action, penalties, costs and expenses (including
without limitation attorneys' fees), of every nature, character and description,
which Coast may sustain or incur based upon or arising out of any of the
Indebtedness, any actual or alleged failure to collect and pay over any
withholding or other tax relating to Borrower or its employees, any relationship
or agreement between Coast and Borrower, any actual or alleged failure of Coast
to comply with any writ of attachment or other legal process relating to
Borrower or any of its property, or any other matter, cause or thing whatsoever
occurred, done, omitted or suffered to be done by Coast relating in any way to
Borrower or the Indebtedness (except any such amounts sustained or incurred as
the result of the gross negligence or willful misconduct of Coast or any of its
directors, officers, employees, agents, attorneys, or any other person
affiliated with or representing Coast). Notwithstanding any provision in this
Guaranty to the contrary, the indemnity agreement set forth in this Section
shall survive any termination or revocation of this Guaranty and shall for all
purposes continue in full force and effect.
9. SUBORDINATION. Any and all rights of Guarantor under any and all
debts, liabilities and obligations owing from Borrower to Guarantor, including
any security for and guaranties of any such obligations, whether now existing or
hereafter arising, are hereby subordinated in right of payment to the prior
payment in full of all of the Indebtedness. No payment in respect of any such
subordinated obligations shall at any time be made to or accepted by Guarantor
if at the time of such payment any Indebtedness is outstanding. If any Event of
Default has occurred, Borrower and any assignee, trustee in bankruptcy,
receiver, or any other person having custody or control over any or all of
Borrower's property are hereby authorized and directed to pay to Coast the
entire unpaid balance of the Indebtedness before making any payments whatsoever
to Guarantor, whether as a creditor, shareholder, or otherwise; and insofar as
may be necessary for that purpose, Guarantor hereby assigns and transfers to
Coast all rights to any and all debts, liabilities and obligations owing from
Borrower to Guarantor, including any security for and guaranties of any such
obligations, whether now existing or hereafter arising, including without
limitation any payments, dividends or distributions out of the business or
assets of Borrower. Any amounts received by Guarantor in violation of the
foregoing provisions shall be received and held as trustee for the benefit of
Coast and shall forthwith be paid over to Coast to be applied to the
Indebtedness in such order and sequence as Coast shall in its sole discretion
determine, without limiting or affecting any other right or remedy which Coast
may have hereunder or otherwise and without otherwise affecting the liability of
Guarantor hereunder. Guarantor hereby expressly waives any right to set-off or
assert any counterclaim against Borrower.
10. REVOCATION. This is a Continuing Guaranty relating to all of the
Indebtedness, including Indebtedness arising under successive transactions which
from time to time continue the Indebtedness or renew it after it has been
satisfied. Guarantor waives all benefits of California Civil Code Section 2815,
and agrees that the obligations of Guarantor hereunder may not be terminated or
revoked in any manner except by giving 90 days' advance written notice of
revocation to Coast at its address above by
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registered first-class U.S. mail, postage prepaid, return receipt requested, and
only as to new loans made by Coast to Borrower more than 90 days after actual
receipt of such written notice by Coast. No termination or revocation of this
Guaranty shall be effective until 90 days following the date of actual receipt
of said written notice of revocation by Coast. Notwithstanding such written
notice of revocation or any other act of Guarantor or any other event or
circumstance, Guarantor agrees that this Guaranty and all consents, waivers and
other provisions hereof shall continue in full force and effect as to any and
all Indebtedness which is outstanding on or before the 90th day following actual
receipt of said written notice of revocation by Coast, and all extensions,
renewals and modifications of said Indebtedness (including without limitation
amendments, extensions, renewals and modifications which are evidenced by new or
additional instruments, documents or agreements executed before or after
expiration of said 90-day period), and all interest thereon, accruing before or
after expiration of said 90-day period, and all attorneys' fees, court costs and
collection charges, incurred before or after expiration of said 90-day period,
in endeavoring to collect or enforce any of the foregoing against Borrower,
Guarantor or any other person liable thereon (whether or not suit be brought)
and any other expenses of, for or incidental to collection thereof.
11. INDEPENDENT LIABILITY. Guarantor hereby agrees that one or more
successive or concurrent actions may be brought hereon against Guarantor, in the
same action in which Borrower may be sued or in separate actions, as often as
deemed advisable by Coast. The liability of Guarantor hereunder is exclusive
and independent of any other guaranty of any or all of the Indebtedness whether
executed by Guarantor or by any other guarantor (including without limitation
any other persons signing this Guaranty). The liability of Guarantor hereunder
shall not be affected, revoked, impaired, or reduced by any one or more of the
following: (a) the fact that the Indebtedness exceeds the maximum amount of
Guarantor's liability, if any, specified herein or elsewhere (and no agreement
specifying a maximum amount of Guarantor's liability shall be enforceable unless
set forth in a writing signed by Coast or set forth in this Guaranty); or
(b) any direction as to the application of payment by Borrower or by any other
party; or (c) any other continuing or restrictive guaranty or undertaking or any
limitation on the liability of any other guarantor (whether under this Guaranty
or under any other agreement); or (d) any payment on or reduction of any such
other guaranty or undertaking; or (e) any revocation, amendment, modification or
release of any such other guaranty or undertaking; or (f) any dissolution or
termination of, or increase, decrease, or change in membership of any Guarantor
which is a partnership. Guarantor hereby expressly represents that he was not
induced to give this Guaranty by the fact that there are or may be other
guarantors either under this Guaranty or otherwise, and Guarantor agrees that
any release of any one or more of such other guarantors shall not release
Guarantor from his obligations hereunder either in full or to any lesser extent.
If Guarantor is a married person, Guarantor hereby expressly agrees that
recourse may be had against his or her separate property for all of his or her
obligations hereunder.
12. FINANCIAL CONDITION OF BORROWER. Guarantor is fully aware of the
financial condition of Borrower and is executing and delivering this Guaranty at
Borrower's request and based solely upon his own independent investigation of
all matters pertinent hereto, and Guarantor is not relying in any manner upon
any representation or statement of Coast with respect thereto. Guarantor
represents and warrants that he is in a position to obtain, and Guarantor hereby
assumes
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full responsibility for obtaining, any additional information concerning
Borrower's financial condition and any other matter pertinent hereto as
Guarantor may desire, and Guarantor is not relying upon or expecting Coast to
furnish to him any information now or hereafter in Coast's possession concerning
the same or any other matter. By executing this Guaranty, Guarantor knowingly
accepts the full range of risks encompassed within a contract of continuing
guaranty, which risks Guarantor acknowledges include without limitation the
possibility that Borrower will incur additional Indebtedness for which Guarantor
will be liable hereunder after Borrower's financial condition or ability to pay
such Indebtedness has deteriorated and/or after bankruptcy or insolvency
proceedings have been commenced by or against Borrower. Guarantor shall have no
right to require Coast to obtain or disclose any information with respect to the
Indebtedness, the financial condition or character of Borrower, the existence of
any collateral or security for any or all of the Indebtedness, the filing by or
against Borrower of any bankruptcy or insolvency proceeding, the existence of
any other guaranties of all or any part of the Indebtedness, any action or
non-action on the part of Coast, Borrower, or any other person, or any other
matter, fact, or occurrence.
13. REPORTS AND FINANCIAL STATEMENTS OF GUARANTOR. Guarantor shall, at
its sole cost and expense, at any time and from time to time, prepare or cause
to be prepared, and provide to Coast upon Coast's request (i) such financial
statements and reports concerning Guarantor for such periods of time as Coast
may designate, (ii) any other information concerning Guarantor's business,
financial condition or affairs as Coast may request, and (iii) copies of any and
all foreign, federal, state and local tax returns and reports of or relating to
Guarantor as Coast may from time to time request. Guarantor hereby
intentionally and knowingly waives any and all rights and privileges it may have
not to divulge or deliver said tax returns, reports and other information which
are requested by Coast hereunder or in any litigation in which Coast may be
involved relating directly or indirectly to Borrower or to Guarantor. Guarantor
further agrees immediately to give written notice to Coast of any adverse change
in Guarantor's financial condition and of any condition or event which
constitutes an Event of Default under this Guaranty. All reports and
information furnished to Coast hereunder shall be complete, accurate and correct
in all respects. Whenever requested, Guarantor shall further deliver to Coast a
certificate signed by Guarantor (and, if Guarantor is a partnership, by all
general partners of Guarantor, in their individual capacities, and, if Guarantor
is a corporation, by the president and secretary of Guarantor, in their
individual capacities) warranting and representing that all reports, financial
statements and other documents and information delivered or caused to be
delivered to Coast under this Guaranty, are complete, correct and thoroughly and
accurately present the financial condition of Guarantor, and that there exists
on the date of delivery of said certificate to Coast no condition or event which
constitutes an Event of Default under this Guaranty.
14. REPRESENTATIONS AND WARRANTIES. 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, furnishes goods
or services to Guarantor, purchases or acquires goods or services from
Guarantor, and/or otherwise has a direct or indirect corporate or business
relationship with Guarantor, (ii) this Guaranty has been duly and validly
authorized, executed and delivered and constitutes the valid and binding
obligation of Guarantor, enforceable in accordance with its terms, and (iii) the
execution and delivery of this Guaranty does not
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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.
15. COSTS. Whether or not suit be instituted, Guarantor agrees to
reimburse Coast on demand for all reasonable attorneys' fees and all other
reasonable costs and expenses incurred by Coast in enforcing this Guaranty, or
arising out of or relating in any way to this Guaranty, or in enforcing any of
the Indebtedness against Borrower, Guarantor, or any other person, or in
connection with any property of any kind securing all or any part of the
Indebtedness. Without limiting the generality of the foregoing, and in addition
thereto, Guarantor shall reimburse Coast on demand for all reasonable attorneys'
fees and costs Coast incurs in any way relating to Guarantor, Borrower or the
Indebtedness, in order to: obtain legal advice; enforce or seek to enforce any
of its rights; commence, intervene in, respond to, or defend any action or
proceeding; file, prosecute or defend any claim or cause of action in any action
or proceeding (including without limitation any probate claim, bankruptcy claim,
third-party claim, secured creditor claim, reclamation complaint, and complaint
for relief from any stay under the Bankruptcy Code or otherwise); protect,
obtain possession of, sell, lease, dispose of or otherwise enforce any security
interest in or lien on any property of any kind securing any or all of the
Indebtedness; or represent Coast in any litigation with respect to Borrower's or
Guarantor's affairs. In the event either Coast or Guarantor files any lawsuit
against the other predicated on a breach of this Guaranty, the prevailing party
in such action shall be entitled to recover its attorneys' fees and costs of
suit from the non-prevailing party.
16. NOTICES. Any notice which a party shall be required or shall desire
to give to the other hereunder (except for notice of revocation, which shall be
governed by Section 10 of this Guaranty) shall be given by personal delivery or
by telecopier or by depositing the same in the United States mail, first class
postage pre-paid, addressed to Coast at its address set forth in the heading of
this Guaranty and to Guarantor at his address set forth under his signature
hereon, and such notices shall be deemed duly given on the date of personal
delivery or one day after the date telecopied or 3 business days after the date
of mailing as aforesaid. Coast and Guarantor may change their address for
purposes of receiving notices hereunder by giving written notice thereof to the
other party in accordance herewith. Guarantor shall give Coast immediate
written notice of any change in his address.
17. CLAIMS. Guarantor agrees that any claim or cause of action by
Guarantor against Coast, or any of Coast's directors, officers, employees,
agents, accountants or attorneys, based upon, arising from, or relating to this
Guaranty, or any other present or future agreement between Coast and Guarantor
or between Coast and Borrower, or any other transaction contemplated hereby or
thereby or relating hereto or thereto, or any other matter, cause or thing
whatsoever, whether or not relating hereto or thereto, occurred, done, omitted
or suffered to be done by Coast, or by Coast's directors, officers, employees,
agents, accountants or attorneys, whether sounding in contract or in tort or
otherwise, shall be barred unless asserted by Guarantor by the commencement of
an action or proceeding in a court of competent jurisdiction within Los Angeles
County, California. This provision shall survive any termination of this
Guaranty or any other agreement.
18. CONSTRUCTION; SEVERABILITY. If more than one person has executed this
Guaranty, the term "Guarantor" as used herein shall be deemed to refer to all
and any one or more such
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<PAGE>
persons and their obligations hereunder shall be joint and several. Without
limiting the generality of the foregoing, if more than one person has executed
this Guaranty, this Guaranty shall in all respects be interpreted as though each
person signing this Guaranty had signed a separate Guaranty, and references
herein to "other guarantors" or words of similar effect shall include without
limitation other persons signing this Guaranty. As used in this Guaranty, the
term "property" is used in its most comprehensive sense and shall mean all
property of every kind and nature whatsoever, including without limitation real
property, personal property, mixed property, tangible property and intangible
property. Words used herein in the masculine gender shall include the neuter
and feminine gender, words used herein in the neuter gender shall include the
masculine and feminine, words used herein in the singular shall include the
plural and words used in the plural shall include the singular, wherever the
context so reasonably requires. If any provision of this Guaranty or the
application thereof to any party or circumstance is held invalid, void,
inoperative or unenforceable, the remainder of this Guaranty and the application
of such provision to other parties or circumstances shall not be affected
thereby, the provisions of this Guaranty being severable in any such instance.
19. GENERAL PROVISIONS. Coast shall have the right to seek recourse
against Guarantor to the full extent provided for herein and in any other
instrument or agreement evidencing obligations of Guarantor to Coast, and
against Borrower to the full extent of the Indebtedness. No election in one
form of action or proceeding, or against any party, or on any obligation, shall
constitute a waiver of Coast's right to proceed in any other form of action or
proceeding or against any other party. The failure of Coast to enforce any of
the provisions of this Guaranty at any time or for any period of time shall not
be construed to be a waiver of any such provision or the right thereafter to
enforce the same. All remedies hereunder shall be cumulative and shall be in
addition to all rights, powers and remedies given to Coast by law or under any
other instrument or agreement. Time is of the essence in the performance by
Guarantor of each and every obligation under this Guaranty. If Borrower is a
corporation, partnership or other entity, Guarantor hereby agrees that Coast
shall have no obligation to inquire into the power or authority of Borrower or
any of its officers, directors, partners, or agents acting or purporting to act
on its behalf, and any Indebtedness made or created in reliance upon the
professed exercise of any such power or authority shall be included in the
Indebtedness guaranteed hereby. This Guaranty is the entire and only agreement
between Guarantor and Coast with respect to the guaranty of the Indebtedness of
Borrower by Guarantor, and all representations, warranties, agreements, or
undertakings heretofore or contemporaneously made, which are not set forth
herein, are superseded hereby. No course of dealings between the parties, no
usage of the trade, and no parol or extrinsic evidence of any nature shall be
used or be relevant to supplement or explain or modify any term or provision of
this Guaranty. There are no conditions to the full effectiveness of this
Guaranty. The terms and provisions hereof may not be waived, altered, modified,
or amended except in a writing executed by Guarantor and a duly authorized
officer of Coast. All rights, benefits and privileges hereunder shall inure to
the benefit of and be enforceable by Coast and its successors and assigns and
shall be binding upon Guarantor and his heirs, executors, administrators,
personal representatives, successors and assigns. Neither the death of
Guarantor nor notice thereof to Coast shall terminate this Guaranty as to his
estate, and, notwithstanding the death of Guarantor or notice thereof to Coast,
this Guaranty shall continue in full force and effect with respect to all
Indebtedness, including without
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<PAGE>
limitation Indebtedness incurred or created after the death of Guarantor and
notice thereof to Coast. Section headings are used herein for convenience only.
Guarantor acknowledges that the same may not describe completely the subject
matter of the applicable Section, and the same shall not be used in any manner
to construe, limit, define or interpret any term or provision hereof.
20. GOVERNING LAW; VENUE AND JURISDICTION. This instrument and all acts
and transactions pursuant or relating hereto and all rights and obligations of
the parties hereto shall be governed, construed, and interpreted in accordance
with the internal laws of the State of California. In order to induce Coast to
accept this Guaranty, and as a material part of the consideration therefor,
Guarantor (i) agrees that all actions or proceedings relating directly or
indirectly hereto shall, at the option of Coast, be litigated in courts located
within Los Angeles County, California, (ii) consents to the jurisdiction of any
such court and consents to the service of process in any such action or
proceeding by personal delivery or any other method permitted by law; and
(iii) waives any and all rights Guarantor may have to transfer or change the
venue of any such action or proceeding.
21. SECURITY. The obligations of Guarantor hereunder are secured by that
certain Loan and Security Agreement dated as of even date herewith between
Guarantor and Coast.
22. MUTUAL WAIVER OF RIGHT TO JURY TRIAL. COAST AND GUARANTOR HEREBY
WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION, CLAIM, LAWSUIT OR PROCEEDING
BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO: (i) THIS GUARANTEE OR ANY
SUPPLEMENT OR AMENDMENT THERETO; OR (ii) ANY OTHER PRESENT OR FUTURE INSTRUMENT
OR AGREEMENT BETWEEN COAST AND GUARANTOR ; OR (iii) ANY BREACH, CONDUCT, ACTS OR
OMISSIONS OF COAST OR GUARANTOR OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSON AFFILIATED WITH OR REPRESENTING
COAST OR GUARANTOR; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT
OR TORT OR OTHERWISE.
23. RECEIPT OF COPY. Guarantor acknowledges receipt of a copy of this
Guaranty.
BY: PALLET TECHNOLOGY, INC.
By: /s/ Gary M. DeLaurentiis
-----------------------------------
(Please sign here)
Gary M. DeLaurentiis
-----------------------------------
(Please print or type name here)
Its: President
-----------------------------------
(Please print title here)
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COAST
CONTINUING GUARANTY
Borrower: FIXCOR Industries, Inc.
Pallet Technology, Inc.
Guarantor: Poly Style Industries, Inc.
Date: June 8, 1998
THIS CONTINUING GUARANTY is executed by the above-named guarantor (the
"Guarantor"), as of the above date, in favor of COAST BUSINESS CREDIT-Registered
Trademark-, a division of Southern Pacific Bank ("Coast"), a California
corporation, with offices at 12121 Wilshire Boulevard, Suite 1111, Los Angeles,
California 90025, with respect to the Indebtedness of the above-named borrowers
(jointly and severally, the "Borrower").
1. SECURED CONTINUING GUARANTY. Guarantor hereby unconditionally
guarantees and promises to pay on demand to Coast, at the address indicated
above, or at such other address as Coast may direct, in lawful money of the
United States, and to perform for the benefit of Coast, all Indebtedness of
Borrower now or hereafter owing to or held by Coast. This Continuing Guaranty is
secured by that certain Loan and Security Agreement of even date herewith among
Guarantor, Borrower, Fix-Corp International, Inc. and Coast (the "Loan
Agreement") and the Loan Documents (as defined in the Loan Agreement). As used
herein, the term "Indebtedness" is used in its most comprehensive sense and
shall mean and include without limitation: (a) any and all debts, duties,
obligations, liabilities, representations, warranties and guaranties of Borrower
or any one or more of them, heretofore, now, or hereafter made, incurred, or
created, whether directly to Coast or acquired by Coast by assignment or
otherwise, or held by Coast on behalf of others, however arising, whether
voluntary or involuntary, due or not due, absolute or contingent, liquidated or
unliquidated, certain or uncertain, determined or undetermined, monetary or
non-monetary, written or oral, and whether Borrower may be liable individually
or jointly with others, and regardless of whether recovery thereon may be or
hereafter become barred by any statute of limitations, discharged or
uncollectible in any bankruptcy, insolvency or other proceeding, or otherwise
unenforceable; and (b) any and all amendments, modifications, renewals and
extensions of any or all of the foregoing, including without limitation
amendments, modifications, renewals and extensions which are evidenced by any
new or additional instrument, document or agreement; and (c) any and all
attorneys' fees, court costs, and collection charges incurred in endeavoring to
collect or enforce any of the foregoing against Borrower, Guarantor, or any
other person liable thereon (whether or not suit be brought) and any other
expenses of, for or incidental to collection thereof. As used herein, the term
"Borrower" shall include any successor to the business and assets of Borrower,
and shall also include Borrower in its capacity as a debtor or debtor in
possession under the federal Bankruptcy Code, and any trustee, custodian or
receiver for Borrower or any of its assets, should Borrower
<PAGE>
hereafter become the subject of any bankruptcy or insolvency proceeding,
voluntary or involuntary; and all indebtedness, liabilities and obligations
incurred by any such person shall be included in the Indebtedness guaranteed
hereby. This Guaranty is given in consideration for credit and other financial
accommodations which may, from time to time, be given by Coast to Borrower in
Coast's sole discretion, but Guarantor acknowledges and agrees that acceptance
by Coast of this Guaranty shall not constitute a commitment of any kind by Coast
to extend such credit or other financial accommodation to Borrower or to permit
Borrower to incur Indebtedness to Coast. All sums due under this Guaranty shall
bear interest from the date due until the date paid at the highest rate charged
with respect to any of the Indebtedness.
2. WAIVERS. Guarantor hereby waives: (a) presentment for payment,
notice of dishonor, demand, protest, and notice thereof as to any instrument,
and all other notices and demands to which Guarantor might be entitled,
including without limitation notice of all of the following: the acceptance
hereof; the creation, existence, or acquisition of any Indebtedness; the amount
of the Indebtedness from time to time outstanding; any foreclosure sale or other
disposition of any property which secures any or all of the Indebtedness or
which secures the obligations of any other guarantor of any or all of the
Indebtedness; any adverse change in Borrower's financial position; any other
fact which might increase Guarantor's risk; any default, partial payment or
non-payment of all or any part of the Indebtedness; the occurrence of any other
Event of Default (as hereinafter defined); any and all agreements and
arrangements between Coast and Borrower and any changes, modifications, or
extensions thereof, and any revocation, modification or release of any guaranty
of any or all of the Indebtedness by any person (including without limitation
any other person signing this Guaranty); (b) any right to require Coast to
institute suit against, or to exhaust its rights and remedies against, Borrower
or any other person, or to proceed against any property of any kind which
secures all or any part of the Indebtedness, or to exercise any right of offset
or other right with respect to any reserves, credits or deposit accounts held by
or maintained with Coast or any indebtedness of Coast to Borrower, or to
exercise any other right or power, or pursue any other remedy Coast may have;
(c) any defense arising by reason of any disability or other defense of Borrower
or any other guarantor or any endorser, co-maker or other person, or by reason
of the cessation from any cause whatsoever of any liability of Borrower or any
other guarantor or any endorser, co-maker or other person, with respect to all
or any part of the Indebtedness, or by reason of any act or omission of Coast or
others which directly or indirectly results in the discharge or release of
Borrower or any other guarantor or any other person or any Indebtedness or any
security therefor, whether by operation of law or otherwise; (d) any defense
arising by reason of any failure of Coast to obtain, perfect, maintain or keep
in force any security interest in, or lien or encumbrance upon, any property of
Borrower or any other person; (e) any defense based upon any failure of Coast to
give Guarantor notice of any sale or other disposition of any property securing
any or all of the Indebtedness, or any defects in any such notice that may be
given, or any failure of Coast to comply with any provision of applicable law in
enforcing any security interest in or lien upon any property securing any or all
of the Indebtedness including, but not limited to, any failure by Coast to
dispose of any property securing any or all of the Indebtedness in a
commercially reasonable manner; (f) any defense based upon or arising out of any
bankruptcy, insolvency, reorganization, arrangement, readjustment of debt,
liquidation or dissolution proceeding commenced by or against Borrower or any
other guarantor or any endorser,
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co-maker or other person, including without limitation any discharge of, or bar
against collecting, any of the Indebtedness (including without limitation any
interest thereon), in or as a result of any such proceeding; and (g) the benefit
of any and all statutes of limitation with respect to any action based upon,
arising out of or related to this Guaranty. Until all of the Indebtedness has
been paid, performed, and discharged in full, nothing shall discharge or satisfy
the liability of Guarantor hereunder except the full performance and payment of
all of the Indebtedness. If any claim is ever made upon Coast for repayment or
recovery of any amount or amounts received by Coast in payment of or on account
of any of the Indebtedness, because of any claim that any such payment
constituted a preferential transfer or fraudulent conveyance, or for any other
reason whatsoever, and Coast repays all or part of said amount by reason of any
judgment, decree or order of any court or administrative body having
jurisdiction over Coast or any of its property, or by reason of any settlement
or compromise of any such claim effected by Coast with any such claimant
(including without limitation the Borrower), then and in any such event,
Guarantor agrees that any such judgment, decree, order, settlement and
compromise shall be binding upon Guarantor, notwithstanding any revocation or
release of this Guaranty or the cancellation of any note or other instrument
evidencing any of the Indebtedness, or any release of any of the Indebtedness,
and the Guarantor shall be and remain liable to Coast under this Guaranty for
the amount so repaid or recovered, to the same extent as if such amount had
never originally been received by Coast, and the provisions of this sentence
shall survive, and continue in effect, notwithstanding any revocation or release
of this Guaranty. Guarantor hereby expressly and unconditionally waives all
rights of subrogation, reimbursement and indemnity of every kind against
Borrower, and all rights of recourse to any assets or property of Borrower, and
all rights to any collateral or security held for the payment and performance of
any Indebtedness, including (but not limited to) any of the foregoing rights
which Guarantor may have under any present or future document or agreement with
any Borrower or other person, and including (but not limited to) any of the
foregoing rights which Guarantor may have under any equitable doctrine of
subrogation, implied contract, or unjust enrichment, or any other equitable or
legal doctrine. Neither Coast, nor any of its directors, officers, employees,
agents, attorneys or any other person affiliated with or representing Coast
shall be liable for any claims, demands, losses or damages, of any kind
whatsoever, made, claimed, incurred or suffered by Guarantor or any other party
through the ordinary negligence of Coast, or any of its directors, officers,
employees, agents, attorneys or any other person affiliated with or representing
Coast.
3. CONSENTS. Guarantor hereby consents and agrees that, without notice
to or by Guarantor and without affecting or impairing in any way the obligations
or liability of Guarantor hereunder, Coast may, from time to time before or
after revocation of this Guaranty, do any one or more of the following in
Coast's sole and absolute discretion: (a) accelerate, accept partial payments
of, compromise or settle, renew, extend the time for the payment, discharge, or
performance of, refuse to enforce, and release all or any parties to, any or all
of the Indebtedness; (b) grant any other indulgence to Borrower or any other
person in respect of any or all of the Indebtedness or any other matter;
(c) accept, release, waive, surrender, enforce, exchange, modify, impair, or
extend the time for the performance, discharge, or payment of, any and all
property of any kind securing any or all of the Indebtedness or any guaranty of
any or all of the Indebtedness, or on which Coast at any time may have a lien,
or refuse to enforce its rights or make any compromise or settlement or
agreement therefor in respect of any or all of such
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property; (d) substitute or add, or take any action or omit to take any action
which results in the release of, any one or more endorsers or guarantors of all
or any part of the Indebtedness, including, without limitation one or more
parties to this Guaranty, regardless of any destruction or impairment of any
right of contribution or other right of Guarantor; (e) amend, alter or change in
any respect whatsoever any term or provision relating to any or all of the
Indebtedness, including the rate of interest thereon; (f) apply any sums
received from Borrower, any other guarantor, endorser, or co-signer, or from the
disposition of any collateral or security, to any indebtedness whatsoever owing
from such person or secured by such collateral or security, in such manner and
order as Coast determines in its sole discretion, and regardless of whether such
indebtedness is part of the Indebtedness, is secured, or is due and payable;
(g) apply any sums received from Guarantor or from the disposition of any
collateral or security securing the obligations of Guarantor, to any of the
Indebtedness in such manner and order as Coast determines in its sole
discretion, regardless of whether or not such Indebtedness is secured or is due
and payable. Guarantor consents and agrees that Coast shall be under no
obligation to marshal any assets in favor of Guarantor, or against or in payment
of any or all of the Indebtedness. Guarantor further consents and agrees that
Coast shall have no duties or responsibilities whatsoever with respect to any
property securing any or all of the Indebtedness. Without limiting the
generality of the foregoing, Coast shall have no obligation to monitor, verify,
audit, examine, or obtain or maintain any insurance with respect to, any
property securing any or all of the Indebtedness.
4. ACCOUNT STATED. Coast's books and records showing the account between
it and the Borrower shall be admissible in evidence in any action or proceeding
as prima facie proof of the items therein set forth. Coast's monthly statements
rendered to the Borrower shall be binding upon the Guarantor (whether or not the
Guarantor receives copies thereof), and shall constitute an account stated
between Coast and the Borrower, unless Coast receives a written statement of the
Borrower's exceptions within 30 days after the statement was mailed to the
Borrower. The Guarantor assumes full responsibility for obtaining copies of
such monthly statements from the Borrower, if the Guarantor desires such copies.
5. EXERCISE OF RIGHTS AND REMEDIES; FORECLOSURE OF TRUST DEEDS.
Guarantor consents and agrees that, without notice to or by Guarantor and
without affecting or impairing in any way the obligations or liability of
Guarantor hereunder, Coast may, from time to time, before or after revocation of
this Guaranty, exercise any right or remedy it may have with respect to any or
all of the Indebtedness or any property securing any or all of the Indebtedness
or any guaranty thereof, including without limitation judicial foreclosure,
nonjudicial foreclosure, exercise of a power of sale, and taking a deed,
assignment or transfer in lieu of foreclosure as to any such property, and
Guarantor expressly waives any defense based upon the exercise of any such right
or remedy, notwithstanding the effect thereof upon any of Guarantor's rights,
including without limitation, any destruction of Guarantor's right of
subrogation against Borrower and any destruction of Guarantor's right of
contribution or other right against any other guarantor of any or all of the
Indebtedness or against any other person, whether by operation of Sections 580a,
580d or 726 of the California Code of Civil Procedure, or any comparable
provisions of the laws of any other jurisdiction, or any other statutes or rules
of law now or hereafter in effect, or otherwise. Without limiting the
generality of the foregoing, (a) Guarantor waives all rights and defenses
arising out of an election of remedies by Coast, even though that election of
remedies, such
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as a nonjudicial foreclosure with respect to security for any of the
Indebtedness, has destroyed the guarantor's rights of subrogation and
reimbursement against the principal by the operation of Section 580d of the Code
of Civil Procedure or otherwise. (b) Guarantor further waives all rights and
defenses arising out of an election of remedies by Coast, even though that
election of remedies, such as a nonjudicial foreclosure with respect to security
for any of the Indebtedness, has destroyed the guarantor's rights of
subrogation, reimbursement and contribution against any other guarantor of the
guaranteed obligation, by the operation of Section 580d of the Code of Civil
Procedure or otherwise. (c) Guarantor understands that if Coast forecloses any
present or future trust deed, which secures any or all of the Indebtedness or
which secures any other guaranty of any or all of the Indebtedness, by
nonjudicial foreclosure, Guarantor may, as a result, have a complete defense to
liability under this Guaranty, based on the legal doctrine of estoppel and
Sections 580a, 580d or 726 of the California Code of Civil Procedure, and
Guarantor hereby expressly waives all such defenses. (d) Guarantor understands
and agrees that, in the event Coast in its sole discretion forecloses any trust
deed now or hereafter securing any or all of the Indebtedness, by nonjudicial
foreclosure, Guarantor will remain liable to Coast for any deficiency, even
though Guarantor will lose his right of subrogation against the Borrower, and
even though Guarantor will be unable to recover from the Borrower the amount of
the deficiency for which Guarantor is liable, and even though Guarantor may have
retained his right of subrogation against Borrower if Coast had foreclosed said
trust deed by judicial foreclosure as opposed to nonjudicial foreclosure, and
even though absent the waivers set forth herein Guarantor may have had a
complete defense to any liability for any deficiency hereunder. (e) Guarantor
understands and agrees that, in the event Coast in its sole discretion
forecloses any trust deed now or hereafter securing any other guaranty of any or
all of the Indebtedness, by nonjudicial foreclosure, Guarantor will remain
liable to Coast for any deficiency, even though Guarantor will lose his right of
subrogation or contribution against the other guarantor, and even though
Guarantor will be unable to recover from the other guarantor any part of the
deficiency for which Guarantor is liable, and even though Guarantor may have
retained his right of subrogation or contribution against the other guarantor if
Coast had foreclosed said trust deed by judicial foreclosure as opposed to
nonjudicial foreclosure, and even though absent the waivers set forth herein
Guarantor may have had a complete defense to any liability for any deficiency
hereunder.
6. ACCELERATION. Notwithstanding the terms of all or any part of the
Indebtedness, the obligations of the Guarantor hereunder to pay and perform all
of the Indebtedness shall, at the option of Coast, immediately become due and
payable, without notice, and without regard to the expressed maturity of any of
the Indebtedness, in the event: (a) any warranty, representation, statement,
report, or certificate made or delivered to Coast by Borrower or Guarantor, or
any of their respective officers, partners, employees, or agents, is incorrect,
false, untrue, or misleading when given in any material respect; or (b) Borrower
or Guarantor shall fail to pay or perform when due all or any part of the
Indebtedness; or (c) Guarantor shall fail to pay or perform when due any
indebtedness or obligation of Guarantor to Coast or to any parent, subsidiary or
corporate affiliate of Coast, whether under this Guaranty or any other
instrument, document, or agreement heretofore or hereafter entered into; or
(d) there occurs in Coast's judgment, reasonably exercised, a material
impairment of the prospect of payment or performance of any or all of the
Indebtedness; or (e) any event shall occur which may or does result in the
acceleration of the
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maturity of any indebtedness of Borrower or Guarantor to others (regardless of
any requirement of notice, opportunity to cure or other condition prior to the
exercise of any right of acceleration); or (f) Borrower or Guarantor shall fail
promptly to perform or comply with any term or condition of any agreement with
any third party which does or may result in a material adverse effect on the
business of Borrower or Guarantor; or (g) there shall be made or exist any levy,
assessment, attachment, seizure, lien, or encumbrance for any cause or reason
whatsoever upon all or any part of the property of Borrower or Guarantor (unless
discharged by payment, release or bond not more than ten days after such event
has occurred); or (h) there shall occur the dissolution, termination of
existence, insolvency, or business failure of Borrower or Guarantor, or the
appointment of a receiver, trustee or custodian for Borrower or Guarantor or all
or any part of the property of either of them, or the assignment for the benefit
of creditors by Borrower or Guarantor, or the commencement of any proceeding by
or against Borrower or Guarantor under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or hereafter in effect; or (i) Borrower or
Guarantor shall be deceased or declared incompetent by any court or a guardian
or conservator shall be appointed for either of them or for the property of
either of them; or (j) Guarantor or Borrower shall generally not pay their
respective debts as they become due or shall enter into any agreement (whether
written or oral), or offer to enter into any such agreement, with all or a
significant number of its creditors regarding any moratorium or other indulgence
with respect to its debts or the participation of such creditors or their
representatives in the supervision, management, or control of the business of
either of them; or (k) Borrower or Guarantor shall conceal, remove or permit to
be concealed or removed any part of its property, with intent to hinder, delay
or defraud its creditors, or make or suffer any transfer of any of its property
which may be fraudulent under any bankruptcy, fraudulent conveyance or similar
law, or shall make any transfer of its property to or for the benefit of any
creditor at a time when other creditors similarly situated have not been paid;
or (l) the board of directors or shareholders of Borrower or Guarantor shall
adopt any resolution or plan for its dissolution or the liquidation of all or
substantially all of its assets; or (m) Guarantor shall revoke this Guaranty or
contest or deny liability under this Guaranty. All of the foregoing are
hereinafter referred to as "Events of Default".
7. RIGHT TO ATTACHMENT REMEDY. Guarantor agrees that, notwithstanding
the existence of any property securing any or all of the Indebtedness, Coast
shall have all of the rights of an unsecured creditor of Guarantor, including
without limitation the right to obtain a temporary protective order and writ of
attachment against Guarantor with respect to any sums due under this Guaranty.
Guarantor further agrees that in the event any property secures the obligations
of Guarantor under this Guaranty, to the extent that Coast, in its sole and
absolute discretion, determines prior to the disposition of such property that
the amount to be realized by Coast therefrom may be less than the indebtedness
of the Guarantor under this Guaranty, Coast shall have all the rights of an
unsecured creditor against Guarantor, including without limitation the right of
Coast, prior to the disposition of said property, to obtain a temporary
protective order and writ of attachment against Guarantor. Guarantor waives the
benefit of Section 483.010(b) of the California Code of Civil Procedure and of
any and all other statutes and rules of law now or hereafter in effect requiring
Coast to first resort to or exhaust all such collateral before seeking or
obtaining any attachment remedy against Guarantor. Coast shall have no
liability to Guarantor as a result thereof, whether or not the actual deficiency
realized by
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Coast is less than the anticipated deficiency on the basis of which Coast
obtains a temporary protective order or writ of attachment.
8. INDEMNITY. Guarantor hereby agrees to indemnify Coast and hold Coast
harmless from and against any and all claims, debts, liabilities, demands,
obligations, actions, causes of action, penalties, costs and expenses (including
without limitation attorneys' fees), of every nature, character and description,
which Coast may sustain or incur based upon or arising out of any of the
Indebtedness, any actual or alleged failure to collect and pay over any
withholding or other tax relating to Borrower or its employees, any relationship
or agreement between Coast and Borrower, any actual or alleged failure of Coast
to comply with any writ of attachment or other legal process relating to
Borrower or any of its property, or any other matter, cause or thing whatsoever
occurred, done, omitted or suffered to be done by Coast relating in any way to
Borrower or the Indebtedness (except any such amounts sustained or incurred as
the result of the gross negligence or willful misconduct of Coast or any of its
directors, officers, employees, agents, attorneys, or any other person
affiliated with or representing Coast). Notwithstanding any provision in this
Guaranty to the contrary, the indemnity agreement set forth in this Section
shall survive any termination or revocation of this Guaranty and shall for all
purposes continue in full force and effect.
9. SUBORDINATION. Any and all rights of Guarantor under any and all
debts, liabilities and obligations owing from Borrower to Guarantor, including
any security for and guaranties of any such obligations, whether now existing or
hereafter arising, are hereby subordinated in right of payment to the prior
payment in full of all of the Indebtedness. No payment in respect of any such
subordinated obligations shall at any time be made to or accepted by Guarantor
if at the time of such payment any Indebtedness is outstanding. If any Event of
Default has occurred, Borrower and any assignee, trustee in bankruptcy,
receiver, or any other person having custody or control over any or all of
Borrower's property are hereby authorized and directed to pay to Coast the
entire unpaid balance of the Indebtedness before making any payments whatsoever
to Guarantor, whether as a creditor, shareholder, or otherwise; and insofar as
may be necessary for that purpose, Guarantor hereby assigns and transfers to
Coast all rights to any and all debts, liabilities and obligations owing from
Borrower to Guarantor, including any security for and guaranties of any such
obligations, whether now existing or hereafter arising, including without
limitation any payments, dividends or distributions out of the business or
assets of Borrower. Any amounts received by Guarantor in violation of the
foregoing provisions shall be received and held as trustee for the benefit of
Coast and shall forthwith be paid over to Coast to be applied to the
Indebtedness in such order and sequence as Coast shall in its sole discretion
determine, without limiting or affecting any other right or remedy which Coast
may have hereunder or otherwise and without otherwise affecting the liability of
Guarantor hereunder. Guarantor hereby expressly waives any right to set-off or
assert any counterclaim against Borrower.
10. REVOCATION. This is a Continuing Guaranty relating to all of the
Indebtedness, including Indebtedness arising under successive transactions which
from time to time continue the Indebtedness or renew it after it has been
satisfied. Guarantor waives all benefits of California Civil Code Section 2815,
and agrees that the obligations of Guarantor hereunder may not be terminated or
revoked in any manner except by giving 90 days' advance written notice of
revocation to Coast at its address above by
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registered first-class U.S. mail, postage prepaid, return receipt requested, and
only as to new loans made by Coast to Borrower more than 90 days after actual
receipt of such written notice by Coast. No termination or revocation of this
Guaranty shall be effective until 90 days following the date of actual receipt
of said written notice of revocation by Coast. Notwithstanding such written
notice of revocation or any other act of Guarantor or any other event or
circumstance, Guarantor agrees that this Guaranty and all consents, waivers and
other provisions hereof shall continue in full force and effect as to any and
all Indebtedness which is outstanding on or before the 90th day following actual
receipt of said written notice of revocation by Coast, and all extensions,
renewals and modifications of said Indebtedness (including without limitation
amendments, extensions, renewals and modifications which are evidenced by new or
additional instruments, documents or agreements executed before or after
expiration of said 90-day period), and all interest thereon, accruing before or
after expiration of said 90-day period, and all attorneys' fees, court costs and
collection charges, incurred before or after expiration of said 90-day period,
in endeavoring to collect or enforce any of the foregoing against Borrower,
Guarantor or any other person liable thereon (whether or not suit be brought)
and any other expenses of, for or incidental to collection thereof.
11. INDEPENDENT LIABILITY. Guarantor hereby agrees that one or more
successive or concurrent actions may be brought hereon against Guarantor, in the
same action in which Borrower may be sued or in separate actions, as often as
deemed advisable by Coast. The liability of Guarantor hereunder is exclusive
and independent of any other guaranty of any or all of the Indebtedness whether
executed by Guarantor or by any other guarantor (including without limitation
any other persons signing this Guaranty). The liability of Guarantor hereunder
shall not be affected, revoked, impaired, or reduced by any one or more of the
following: (a) the fact that the Indebtedness exceeds the maximum amount of
Guarantor's liability, if any, specified herein or elsewhere (and no agreement
specifying a maximum amount of Guarantor's liability shall be enforceable unless
set forth in a writing signed by Coast or set forth in this Guaranty); or
(b) any direction as to the application of payment by Borrower or by any other
party; or (c) any other continuing or restrictive guaranty or undertaking or any
limitation on the liability of any other guarantor (whether under this Guaranty
or under any other agreement); or (d) any payment on or reduction of any such
other guaranty or undertaking; or (e) any revocation, amendment, modification or
release of any such other guaranty or undertaking; or (f) any dissolution or
termination of, or increase, decrease, or change in membership of any Guarantor
which is a partnership. Guarantor hereby expressly represents that he was not
induced to give this Guaranty by the fact that there are or may be other
guarantors either under this Guaranty or otherwise, and Guarantor agrees that
any release of any one or more of such other guarantors shall not release
Guarantor from his obligations hereunder either in full or to any lesser extent.
If Guarantor is a married person, Guarantor hereby expressly agrees that
recourse may be had against his or her separate property for all of his or her
obligations hereunder.
12. FINANCIAL CONDITION OF BORROWER. Guarantor is fully aware of the
financial condition of Borrower and is executing and delivering this Guaranty at
Borrower's request and based solely upon his own independent investigation of
all matters pertinent hereto, and Guarantor is not relying in any manner upon
any representation or statement of Coast with respect thereto. Guarantor
represents and warrants that he is in a position to obtain, and Guarantor hereby
assumes
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full responsibility for obtaining, any additional information concerning
Borrower's financial condition and any other matter pertinent hereto as
Guarantor may desire, and Guarantor is not relying upon or expecting Coast to
furnish to him any information now or hereafter in Coast's possession concerning
the same or any other matter. By executing this Guaranty, Guarantor knowingly
accepts the full range of risks encompassed within a contract of continuing
guaranty, which risks Guarantor acknowledges include without limitation the
possibility that Borrower will incur additional Indebtedness for which Guarantor
will be liable hereunder after Borrower's financial condition or ability to pay
such Indebtedness has deteriorated and/or after bankruptcy or insolvency
proceedings have been commenced by or against Borrower. Guarantor shall have no
right to require Coast to obtain or disclose any information with respect to the
Indebtedness, the financial condition or character of Borrower, the existence of
any collateral or security for any or all of the Indebtedness, the filing by or
against Borrower of any bankruptcy or insolvency proceeding, the existence of
any other guaranties of all or any part of the Indebtedness, any action or
non-action on the part of Coast, Borrower, or any other person, or any other
matter, fact, or occurrence.
13. REPORTS AND FINANCIAL STATEMENTS OF GUARANTOR. Guarantor shall, at
its sole cost and expense, at any time and from time to time, prepare or cause
to be prepared, and provide to Coast upon Coast's request (i) such financial
statements and reports concerning Guarantor for such periods of time as Coast
may designate, (ii) any other information concerning Guarantor's business,
financial condition or affairs as Coast may request, and (iii) copies of any and
all foreign, federal, state and local tax returns and reports of or relating to
Guarantor as Coast may from time to time request. Guarantor hereby
intentionally and knowingly waives any and all rights and privileges it may have
not to divulge or deliver said tax returns, reports and other information which
are requested by Coast hereunder or in any litigation in which Coast may be
involved relating directly or indirectly to Borrower or to Guarantor. Guarantor
further agrees immediately to give written notice to Coast of any adverse change
in Guarantor's financial condition and of any condition or event which
constitutes an Event of Default under this Guaranty. All reports and
information furnished to Coast hereunder shall be complete, accurate and correct
in all respects. Whenever requested, Guarantor shall further deliver to Coast a
certificate signed by Guarantor (and, if Guarantor is a partnership, by all
general partners of Guarantor, in their individual capacities, and, if Guarantor
is a corporation, by the president and secretary of Guarantor, in their
individual capacities) warranting and representing that all reports, financial
statements and other documents and information delivered or caused to be
delivered to Coast under this Guaranty, are complete, correct and thoroughly and
accurately present the financial condition of Guarantor, and that there exists
on the date of delivery of said certificate to Coast no condition or event which
constitutes an Event of Default under this Guaranty.
14. REPRESENTATIONS AND WARRANTIES. 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, furnishes goods
or services to Guarantor, purchases or acquires goods or services from
Guarantor, and/or otherwise has a direct or indirect corporate or business
relationship with Guarantor, (ii) this Guaranty has been duly and validly
authorized, executed and delivered and constitutes the valid and binding
obligation of Guarantor, enforceable in accordance with its terms, and (iii) the
execution and delivery of this Guaranty does not
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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.
15. COSTS. Whether or not suit be instituted, Guarantor agrees to
reimburse Coast on demand for all reasonable attorneys' fees and all other
reasonable costs and expenses incurred by Coast in enforcing this Guaranty, or
arising out of or relating in any way to this Guaranty, or in enforcing any of
the Indebtedness against Borrower, Guarantor, or any other person, or in
connection with any property of any kind securing all or any part of the
Indebtedness. Without limiting the generality of the foregoing, and in addition
thereto, Guarantor shall reimburse Coast on demand for all reasonable attorneys'
fees and costs Coast incurs in any way relating to Guarantor, Borrower or the
Indebtedness, in order to: obtain legal advice; enforce or seek to enforce any
of its rights; commence, intervene in, respond to, or defend any action or
proceeding; file, prosecute or defend any claim or cause of action in any action
or proceeding (including without limitation any probate claim, bankruptcy claim,
third-party claim, secured creditor claim, reclamation complaint, and complaint
for relief from any stay under the Bankruptcy Code or otherwise); protect,
obtain possession of, sell, lease, dispose of or otherwise enforce any security
interest in or lien on any property of any kind securing any or all of the
Indebtedness; or represent Coast in any litigation with respect to Borrower's or
Guarantor's affairs. In the event either Coast or Guarantor files any lawsuit
against the other predicated on a breach of this Guaranty, the prevailing party
in such action shall be entitled to recover its attorneys' fees and costs of
suit from the non-prevailing party.
16. NOTICES. Any notice which a party shall be required or shall desire
to give to the other hereunder (except for notice of revocation, which shall be
governed by Section 10 of this Guaranty) shall be given by personal delivery or
by telecopier or by depositing the same in the United States mail, first class
postage pre-paid, addressed to Coast at its address set forth in the heading of
this Guaranty and to Guarantor at his address set forth under his signature
hereon, and such notices shall be deemed duly given on the date of personal
delivery or one day after the date telecopied or 3 business days after the date
of mailing as aforesaid. Coast and Guarantor may change their address for
purposes of receiving notices hereunder by giving written notice thereof to the
other party in accordance herewith. Guarantor shall give Coast immediate
written notice of any change in his address.
17. CLAIMS. Guarantor agrees that any claim or cause of action by
Guarantor against Coast, or any of Coast's directors, officers, employees,
agents, accountants or attorneys, based upon, arising from, or relating to this
Guaranty, or any other present or future agreement between Coast and Guarantor
or between Coast and Borrower, or any other transaction contemplated hereby or
thereby or relating hereto or thereto, or any other matter, cause or thing
whatsoever, whether or not relating hereto or thereto, occurred, done, omitted
or suffered to be done by Coast, or by Coast's directors, officers, employees,
agents, accountants or attorneys, whether sounding in contract or in tort or
otherwise, shall be barred unless asserted by Guarantor by the commencement of
an action or proceeding in a court of competent jurisdiction within Los Angeles
County, California. This provision shall survive any termination of this
Guaranty or any other agreement.
18. CONSTRUCTION; SEVERABILITY. If more than one person has executed this
Guaranty, the term "Guarantor" as used herein shall be deemed to refer to all
and any one or more such
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persons and their obligations hereunder shall be joint and several. Without
limiting the generality of the foregoing, if more than one person has executed
this Guaranty, this Guaranty shall in all respects be interpreted as though each
person signing this Guaranty had signed a separate Guaranty, and references
herein to "other guarantors" or words of similar effect shall include without
limitation other persons signing this Guaranty. As used in this Guaranty, the
term "property" is used in its most comprehensive sense and shall mean all
property of every kind and nature whatsoever, including without limitation real
property, personal property, mixed property, tangible property and intangible
property. Words used herein in the masculine gender shall include the neuter
and feminine gender, words used herein in the neuter gender shall include the
masculine and feminine, words used herein in the singular shall include the
plural and words used in the plural shall include the singular, wherever the
context so reasonably requires. If any provision of this Guaranty or the
application thereof to any party or circumstance is held invalid, void,
inoperative or unenforceable, the remainder of this Guaranty and the application
of such provision to other parties or circumstances shall not be affected
thereby, the provisions of this Guaranty being severable in any such instance.
19. GENERAL PROVISIONS. Coast shall have the right to seek recourse
against Guarantor to the full extent provided for herein and in any other
instrument or agreement evidencing obligations of Guarantor to Coast, and
against Borrower to the full extent of the Indebtedness. No election in one
form of action or proceeding, or against any party, or on any obligation, shall
constitute a waiver of Coast's right to proceed in any other form of action or
proceeding or against any other party. The failure of Coast to enforce any of
the provisions of this Guaranty at any time or for any period of time shall not
be construed to be a waiver of any such provision or the right thereafter to
enforce the same. All remedies hereunder shall be cumulative and shall be in
addition to all rights, powers and remedies given to Coast by law or under any
other instrument or agreement. Time is of the essence in the performance by
Guarantor of each and every obligation under this Guaranty. If Borrower is a
corporation, partnership or other entity, Guarantor hereby agrees that Coast
shall have no obligation to inquire into the power or authority of Borrower or
any of its officers, directors, partners, or agents acting or purporting to act
on its behalf, and any Indebtedness made or created in reliance upon the
professed exercise of any such power or authority shall be included in the
Indebtedness guaranteed hereby. This Guaranty is the entire and only agreement
between Guarantor and Coast with respect to the guaranty of the Indebtedness of
Borrower by Guarantor, and all representations, warranties, agreements, or
undertakings heretofore or contemporaneously made, which are not set forth
herein, are superseded hereby. No course of dealings between the parties, no
usage of the trade, and no parol or extrinsic evidence of any nature shall be
used or be relevant to supplement or explain or modify any term or provision of
this Guaranty. There are no conditions to the full effectiveness of this
Guaranty. The terms and provisions hereof may not be waived, altered, modified,
or amended except in a writing executed by Guarantor and a duly authorized
officer of Coast. All rights, benefits and privileges hereunder shall inure to
the benefit of and be enforceable by Coast and its successors and assigns and
shall be binding upon Guarantor and his heirs, executors, administrators,
personal representatives, successors and assigns. Neither the death of
Guarantor nor notice thereof to Coast shall terminate this Guaranty as to his
estate, and, notwithstanding the death of Guarantor or notice thereof to Coast,
this Guaranty shall continue in full force and effect with respect to all
Indebtedness, including without
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limitation Indebtedness incurred or created after the death of Guarantor and
notice thereof to Coast. Section headings are used herein for convenience only.
Guarantor acknowledges that the same may not describe completely the subject
matter of the applicable Section, and the same shall not be used in any manner
to construe, limit, define or interpret any term or provision hereof.
20. GOVERNING LAW; VENUE AND JURISDICTION. This instrument and all acts
and transactions pursuant or relating hereto and all rights and obligations of
the parties hereto shall be governed, construed, and interpreted in accordance
with the internal laws of the State of California. In order to induce Coast to
accept this Guaranty, and as a material part of the consideration therefor,
Guarantor (i) agrees that all actions or proceedings relating directly or
indirectly hereto shall, at the option of Coast, be litigated in courts located
within Los Angeles County, California, (ii) consents to the jurisdiction of any
such court and consents to the service of process in any such action or
proceeding by personal delivery or any other method permitted by law; and
(iii) waives any and all rights Guarantor may have to transfer or change the
venue of any such action or proceeding.
21. SECURITY. The obligations of Guarantor hereunder are secured by that
certain Loan and Security Agreement dated as of even date herewith between
Guarantor and Coast.
22. MUTUAL WAIVER OF RIGHT TO JURY TRIAL. COAST AND GUARANTOR HEREBY
WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION, CLAIM, LAWSUIT OR PROCEEDING
BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO: (i) THIS GUARANTEE OR ANY
SUPPLEMENT OR AMENDMENT THERETO; OR (ii) ANY OTHER PRESENT OR FUTURE INSTRUMENT
OR AGREEMENT BETWEEN COAST AND GUARANTOR ; OR (iii) ANY BREACH, CONDUCT, ACTS OR
OMISSIONS OF COAST OR GUARANTOR OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSON AFFILIATED WITH OR REPRESENTING
COAST OR GUARANTOR; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT
OR TORT OR OTHERWISE.
23. RECEIPT OF COPY. Guarantor acknowledges receipt of a copy of this
Guaranty.
BY: POLY STYLE INDUSTRIES, INC.
By: /s/ Mark Fixler
-----------------------------------
(Please sign here)
Mark Fixler
-----------------------------------
(Please print or type name here)
Its: CEO/Secretary
-----------------------------------
(Please print title here)
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CONVERTIBLE DEBENTURE PURCHASE AGREEMENT, dated as of June 25, 1998 (this
"AGREEMENT"), between Fix-Corp International, Inc., a Delaware corporation (the
"COMPANY"), and JNC Opportunity Fund Ltd., a corporation organized under the
laws of the Cayman Islands (the "PURCHASER").
WHEREAS, subject to the terms and conditions set forth in this Agreement,
the Company desires to issue and sell to the Purchaser and the Purchaser desires
to purchase an aggregate principal amount of $3,000,000 of the Company's 4%
Convertible Debentures, due June 25, 2001 (the "DEBENTURES"), which are
convertible into shares of the Company's common stock, par value $.001 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 Purchaser and the
Purchaser shall purchase the Debentures for an aggregate purchase price of
$3,000,000. 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 Purchaser 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
$3,000,000, registered in the name of the Purchaser, (B) the Warrant (as defined
in Section 3.16), and (C) the legal opinion of Bricker & Eckler LLP
substantially in the form of EXHIBIT C ("LEGAL OPINION") addressed to the
Purchaser; (ii) the Purchaser shall deliver or cause to be delivered $3,000,000
in United States dollars; and (iii) 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.
<PAGE>
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
Purchaser:
(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 Warrant or the Registration Rights Agreement, dated the date
hereof, among the Company and the Purchaser (the "REGISTRATION RIGHTS AGREEMENT"
and, together with this Agreement, the Debentures and the Warrant, 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 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
<PAGE>
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 Warrant 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 WARRANT. The Debentures and the
Warrant 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 Warrant
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 Warrant 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 Debentures, and (ii) the
number of shares of Common Stock as are issuable upon exercise in full of the
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<PAGE>
Warrant (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
Warrant 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. This 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 Warrant are sometimes
referred to herein as the "UNDERLYING SHARES," and the Debentures, Warrant and
Underlying Shares are, collectively, the "SECURITIES." When issued in
accordance with the terms of the Debentures and the Warrant, 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 Required Approvals, 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 Purchaser (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
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<PAGE>
the aggregate, a Material Adverse Effect (together with the consents,
waivers, authorizations, 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 Purchaser' 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 of 1933, as amended (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 Purchaser (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
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<PAGE>
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.
(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 Purchaser 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 the Purchaser, its respective employees, officers,
directors, agents, and partners, and its 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 Purchaser.
(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
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<PAGE>
"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 the Transaction Documents or provided to the Purchaser or
its 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 the
Purchaser or any of its 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 Purchaser shall be relying on the foregoing representation in effecting
transactions in securities of the Company.
(s) REGISTRATION RIGHTS. Except as disclosed in Schedule 6(b) to 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 PURCHASER. The Purchaser hereby
makes the following representations and warranties to the Company.
(a) ORGANIZATION; AUTHORITY. The 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 the Purchaser has been duly authorized by all necessary
action on the part of the Purchaser. Each of this Agreement, the Registration
Rights Agreement and the Escrow Agreement has been duly executed by the
Purchaser and, when delivered by the Purchaser in accordance with the terms
hereof and the Escrow Agreement constitutes the valid and legally binding
obligation of the 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. The Purchaser is acquiring the Securities 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 the 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.
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<PAGE>
(c) PURCHASER STATUS. At the time the Purchaser was offered the
Securities, 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. The Purchaser either alone or together
with its 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. The Purchaser
acknowledges that an investment in the Securities is speculative and involves a
high degree of risk. The Purchaser is able to bear the economic risk of an
investment in the Securities to be acquired hereunder by the Purchaser, and, at
the present time, is able to afford a complete loss of such investment.
(f) ACCESS TO INFORMATION. The 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 the Purchaser or its representatives, agents or counsel shall
modify, amend or affect the 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. The Purchaser understands and acknowledges that (i)
the Securities 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 the Purchaser hereby consents to such
reliance.
The Company acknowledges and agrees that the Purchaser makes 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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<PAGE>
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 any transfer by the Purchaser
to an Affiliate (as such term is defined under Rule 405 promulgated under the
Securities Act) of the 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. Each such transferee shall have the
rights of the Purchaser under this Agreement and the Registration Rights
Agreement.
(b) The Purchaser agrees 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 JUNE 25, 1998, BETWEEN 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.
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Underlying Shares shall not contain any legend if conversion of
Debentures, exercise of Warrant 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 the 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 Warrant 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 terms of
the Debentures and the Warrant is unconditional and absolute regardless of the
effect of any such dilution.
3.3 FURNISHING OF INFORMATION. As long as the Purchaser owns 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 Purchaser may resell all of its 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 Purchaser) the Company
is not required to file reports pursuant to such sections, it will prepare and
furnish to the Purchaser 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
Purchaser 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 Purchaser 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 Purchaser.
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 Warrant 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
Warrant) 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
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materials relating to such meeting) and (z) within 5 Business Days 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 the Purchaser
be permitted to use its ability to convert Debentures or exercise its Warrant to
the extent that such conversion or exercise would result in the 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 the 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 the
Purchaser) and of which Debentures are convertible shall be in the sole
discretion of the Purchaser, and the submission of Debentures for conversion
shall be deemed to be the Purchaser's determination of whether such Debentures
are convertible (in relation to other securities owned by the 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 the Purchaser to convert Debentures at such time
as such conversion will not violate the provisions of this Section. The
provisions of this Section may be waived by the Purchaser upon not less than 75
days prior notice to the Company, and the provisions of this Section shall
continue to apply until such 75th day (or later, if stated in the notice of
waiver).
3.9 LISTING OF UNDERLYING SHARES. If the Common Stock hereafter is listed
for trading on the Nasdaq National Market, Nasdaq SmallCap Market (or on the
American Stock Exchange or New York Stock Exchange, or any other national
securities market or exchange), then the Company shall (1) take all necessary
steps to list the Underlying Shares thereon, including the preparation of any
required additional listing application therefor covering at least the sum of
two times the number of Underlying Shares as would be issuable upon a conversion
in full of the then outstanding principal amount of Debentures (plus all
Underlying Shares issuable as payment of interest thereon, assuming all such
interest were paid in shares of Common Stock) and upon exercise in full of the
then unexercised portion of the Warrant and (2) provide to the Purchaser
evidence of such listing, and the Company shall thereafter maintain the listing
of its Common Stock on such exchange or market as long as Underlying Shares are
issuable and/or outstanding. 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.
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 Purchaser to exercise its right of conversion smoothly and
expeditiously which are not set forth in the Debentures.
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3.11 PURCHASER' RIGHTS IF TRADING IN COMMON STOCK IS SUSPENDED OR DELISTED.
If at any time while the 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 the 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 the Purchaser, at an aggregate purchase price equal to the sum of
(I) the aggregate outstanding principal amount of Debentures then held by the
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 the 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 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. The Company and the 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
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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 Purchaser 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 Warrant and shall deliver
Underlying Shares in accordance with the respective terms and conditions and
time periods set forth in the Debentures and the Warrant.
3.15 RIGHT OF FIRST REFUSAL; SUBSEQUENT REGISTRATIONS; CERTAIN CORPORATE
ACTIONS. (a) 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 Purchaser, 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 2.1(c), and (iii) shares of Common
Stock issued upon conversion of the Debentures, as payment of interest thereon,
or upon exercise of the Warrant 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 the Subsequent Financing Notice of its willingness to cause the
Purchaser 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
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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 for 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 the 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 WARRANT. Prior to the Closing, the Company shall issue and
deliver to the Escrow Agent for delivery at the closing a Common Stock purchase
warrant, in the form of EXHIBIT D and registered in the name of the Purchaser
(the "WARRANT"), pursuant to which the Purchaser 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 300,000 shares of Common Stock at an exercise
price per share equal to $4.00.
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 Purchaser.
3.18 FORM SB-2. The Company has filed with the Commission on January 20,
1998 a registration statement on Form SB-2 (the "FORM SB-2") pursuant to the
Exchange Act. The Company shall use its best efforts to amend the Form SB-2 in
order to include the resale of the
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Underlying Securities thereunder as soon as possible but in no event later
than the 30th day after the Closing Date and shall take all commercially
reasonable steps necessary to cause such Form SB-2 to be declared effective
as soon as possible thereafter but in no event later than the 60th day after
the Closing Date, and shall provide to the Purchaser evidence of such filing
and effectiveness.
ARTICLE IV
MISCELLANEOUS
4.1 FEES AND EXPENSES. The Company shall pay at the Closing (i)
$7,500 to the Escrow Agent for the legal fees and disbursements incurred by the
Purchaser in connection with the preparation and negotiation of the Transaction
Documents and (ii) $5,000 to Encore for its due diligence expenses and
disbursements in connection with the transactions contemplated hereby. Other
than the amount 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 Purchaser shall be responsible
for its 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, the Registration Rights
Agreement, Escrow Agreement and the Warrant 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 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:
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If to the Company: Fix-Corp International, Inc.
3637 South Green Road, Suite 201
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 the Purchaser: JNC Opportunity Fund Ltd.
c/o Olympia Capital (Cayman) Ltd.
Williams House
20 Reid Street
Hamilton HM11
Bermuda
Facsimile No.: (441) 295-2305
Attn: Director
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: Managing Member
-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
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Company and the Purchaser; 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 the Purchaser transfers Debentures or Warrant.
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 Encore, who is an intended beneficiary of the provisions
of Sections 3.15, 4.1 and 4.3 entitled to enforce such provisions against the
parties hereto, and permitted assignees under Section 4.6, is not for the
benefit of, nor may any provision hereof be enforced by any other Person.
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.
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 Warrant.
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 Purchaser shall consult with each
other in issuing any press releases or otherwise making public statements with
respect to the
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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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this Convertible
Debenture Purchase Agreement to be duly executed by their respective authorized
persons as of the date first indicated above.
FIX-CORP INTERNATIONAL, INC.
By: /s/ Mark Fixler
---------------------------
Name: Mark Fixler
Title: CEO
JNC OPPORTUNITY FUND LTD.
By: /s/ Thomas H. Davis
---------------------------
Name: Thomas H. Davis
Title: Director
<PAGE>
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 JUNE
25, 1998, BETWEEN 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.
No. A-15 U.S. $3,000,000
FIX-CORP INTERNATIONAL, INC.
4% CONVERTIBLE DEBENTURE DUE JUNE 25, 2001
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 3637 South Green Road, Suite 201, Beachwood, OH 44122 (the
"COMPANY"), designated as its 4% Convertible Debentures, due June 25, 2001 (the
"DEBENTURES"), in an aggregate principal amount of $3,000,000.
FOR VALUE RECEIVED, the Company promises to pay to JNC Opportunity Fund
Ltd., or registered assigns (the "HOLDER"), the principal sum of Three Million
Dollars ($3,000,000), on or prior to June 25, 2001 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 4% per
annum, payable quarterly in arrears on March 31, June 30, September 30 and
December 31 of each year, commencing September 30, 1998, and on each Conversion
Date (as defined in Section 4(a)). 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 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
<PAGE>
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 (as defined in Section 6) 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
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overdue, and neither the Company nor any such agent shall be affected by notice
to the 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 (as
defined in Section 6), 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;
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(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 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 its
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);
(vii) an Underlying Securities Registration Statement shall not
have been declared effective by the Securities and Exchange Commission (the
"COMMISSION") on or prior to the 180th day after the Original Issue Date;
or
(viii) 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.
(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 the 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
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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 the 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.
SECTION 4. CONVERSION.
(a) 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 Section 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.
(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 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
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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
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 aggregateof 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) $4.00 (the "INITIAL CONVERSION
PRICE") and (B) 83% 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 Effectiveness Date (as defined in the Registration Rights Agreement), 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
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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 Holder 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 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.
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(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 the Holder) 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 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 Commn 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 the
Holder) 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
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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 Holder 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) 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
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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
Holder at its 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 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. The Holder is
entitled to convert the 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 Holder,
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.
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(f) The issuance of certificates for shares of the Common Stock on
conversion of the Debentures shall be made without charge to the Holder 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 Holder, 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 3637 South Green Road, Suite 201,
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 Holder 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 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 Holder (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
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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 Holder 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 Holder 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 (including interest therefor), 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 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.
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<PAGE>
"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 common stock, $.001 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 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.
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<PAGE>
"PURCHASE AGREEMENT" means the Convertible Debenture Purchase
Agreement, dated as of the Original Issue Date, among the Company and the
original Holder, 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 Holder, 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 Holder 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 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
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<PAGE>
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 appropriate
calendar month).
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE FOLLOWS]
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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: /s/ Mark Fixler
---------------------------
Name: Mark Fixler
Title: CEO
Attest:
By: /s/ Sherry L. Durst
---------------------------
Name: Sherry L. Durst
Title: Asst. Secretary
<PAGE>
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-15 into shares of
Common Stock, $.001 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>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "AGREEMENT") is made and
entered into as of June 25, 1998, between Fix-Corp International, Inc. a
Delaware corporation (the "COMPANY"), and JNC Opportunity Fund Ltd., a
corporation organized under the laws of the Cayman Islands (the "PURCHASER").
This Agreement is made pursuant to the Convertible Debenture Purchase
Agreement, dated as of the date hereof between the Company and the Purchaser
(the "PURCHASE AGREEMENT").
The Company and the Purchaser 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 generally are authorized or required by law or other government actions
to close.
"CLOSING DATE" shall have the meaning set forth in the Purchase
Agreement.
"COMMISSION" means the Securities and Exchange Commission.
<PAGE>
"COMMON SHARES" means the Diversified Shares, the Opportunity Shares
and the Strategic Shares.
"COMMON STOCK" means the Company's Common Stock, par value $.001 per
share.
"DEBENTURES" means the Company's 4% Convertible Debentures due June
25, 2001 issued to the Purchaser pursuant to the Purchase Agreement.
"DIVERSIFIED SHARES" means 5,000 shares of Common Stock issued to the
Escrow Agent on behalf of Diversified Strategies Fund, L.P. on the date hereof.
"EFFECTIVENESS DATE" means the 60th 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 30th day following the Closing Date.
"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).
"OPPORTUNITY SHARES" means 30,000 shares of Common Stock issued to the
Escrow Agent on behalf of the Purchaser on the date hereof.
"PERSON" means a corporation, an association, a partnership,
organization, government , a business, an individual, a political subdivision
thereof or a governmental agency.
"PURCHASE AGREEMENT" shall have the meaning set forth in the recitals
to this Agreement.
<PAGE>
"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.
"REGISTRABLE SECURITIES" means the sum of (a) the shares of Common
Stock issuable upon (i) conversion in full of the Debentures, (ii) exercise in
full of the Warrant and (iii) payment of interest in respect of the Debentures,
assuming all such interest is paid in shares of Common Stock and (b) the Common
Shares ; 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)(i) of this
definition shall be deemed to include not less than 200% of the number of shares
of Common Stock (1) 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) and
(2) issuable as payment of interest thereon, assuming all such interest is paid
in shares of Common Stock. 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), and interest thereon, (y)
300,000 shares of Common Stock in respect of the Warrant, and (z) 50,000 shares
of Common Stock in respect of the Common Shares. The Company shall be required
to file additional Registration Statements to the extent the sum of (i) the
actual number of shares of Common Stock into which Debentures are convertible
(together with interest thereon) and the Warrant are exercisable exceeds the
number of shares of Common Stock, and (ii) the Common Shares, 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 sum of (i) the number of shares
of Common Stock as are issuable upon conversion of Debentures (and payment of
interest thereon) and exercise of the Warrant, and (ii) the Common Shares,
exceeds 85% of the number of shares of Common Stock to beregistered in a
Registration Statement hereunder.
"REGISTRATION STATEMENT" means the registration statement, as amended,
pursuant to Section 2(a) (covering such number of Registrable Securities and any
additional Registration
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<PAGE>
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,
PROVIDED, HOWEVER, that in the event the Initial Registration Statement (as
defined in Section 2(a)) has been declared effective by the Commission on or
prior to the Filing Date, the term "Registration Statement" shall mean 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.
"STRATEGIC SHARES" means 15,000 shares of Common Stock issued to the
Escrow Agent on behalf of JNC Strategic Fund Ltd. on the date hereof.
"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.
"WARRANT" means the Common Stock purchase warrant issued to the
Purchaser pursuant to the Purchase Agreement on the Closing Date.
2. AMENDMENT TO SHELF REGISTRATION/NEW REGISTRATION STATEMENT
(a) On or prior to the Filing Date, the Company shall prepare and
file with the Commission a pre-effective amendment to the Company's SB-2
Registration Statement filed
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<PAGE>
with the Commission on January 20, 1998 (the "INITIAL REGISTRATION
STATEMENT"), in order to provide for the resale of the Registrable
Securities, PROVIDED, HOWEVER, that in the event the Initial Registration
Statement has been declared effective by the Commission on or prior to the
Filing Date, the Company shall prepare and file with the Commission a
Registration Statement in order to provide for the resale of the Registrable
Securities. The Company shall use its best efforts to cause the Registration
Statement (as amended) 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 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.
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<PAGE>
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, an amendment to the Registration Statement (and any additional
Registration Statements as may be required) in accordance with Section 2(a), and
cause the Registration Statement (as amended) 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 additional
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 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
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<PAGE>
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; 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.
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<PAGE>
(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 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
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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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(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.
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Each Holder agrees by its acquisition of such Registrable Securities
that (i) it will 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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4. REGISTRATION EXPENSES
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall, except as and to the extent
specified in Section 4(b), be borne by the Company whether or not pursuant to an
Underwritten Offering and whether or not the Registration Statement is filed or
becomes effective and whether or not any Registrable Securities are sold
pursuant to the Registration Statement. The fees and expenses referred to in
the foregoing sentence shall include, without limitation, (i) all registration
and filing fees (including, without limitation, fees and expenses (A) with
respect to filings required to be made with the OTC Bulletin Board and each
other securities exchange or market on which Registrable Securities are required
hereunder to be listed and (B) in compliance with state securities or Blue Sky
laws (including, without limitation, fees and disbursements of counsel for the
underwriters or Holders in connection with Blue Sky qualifications of the
Registrable Securities and determination of the eligibility of the Registrable
Securities for investment under the laws of such jurisdictions as the managing
underwriters, if any, or the Holders of a majority of Registrable Securities may
designate)), (ii) printing expenses (including, without limitation, expenses of
printing certificates for Registrable Securities and of printing prospectuses if
the printing of prospectuses is requested by the managing underwriters, if any,
or by the holders of a majority of the Registrable Securities included in the
Registration Statement), (iii) messenger, telephone and delivery expenses, (iv)
fees and disbursements of counsel for the Company and Special Counsel for the
Holders, in the case of the Special Counsel, to a maximum amount of $5,000, (v)
Securities Act liability insurance, if the Company so desires such insurance,
and (vi) fees and expenses of all other Persons retained by the Company in
connection with the consummation of the transactions contemplated by this
Agreement. In addition, the Company shall be responsible for all of its
internal expenses incurred in connection with the consummation of the
transactions contemplated by this Agreement (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit, the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder.
(b) If the Holders require an Underwritten Offering pursuant to the
terms hereof, the Company shall be responsible for all costs, fees and expenses
in connection therewith, except for the fees and disbursements of the
Underwriters (including any underwriting commissions and discounts) and their
legal counsel and accountants. By way of illustration which is not intended to
diminish from the provisions of Section 4(a), the Holders shall not be
responsible for, and the Company shall be required to pay the fees or
disbursements incurred by the Company (including by its legal counsel and
accountants) in connection with, the preparation and filing of a Registration
Statement and related Prospectus for such offering, the maintenance of such
Registration Statement in accordance with the terms hereof, the listing of the
Registrable Securities in accordance with the requirements hereof, and printing
expenses incurred to comply with the requirements hereof.
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5. INDEMNIFICATION
(a) INDEMNIFICATION BY THE COMPANY. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents (including any underwriters
retained by such Holder in connection with the offer and sale of Registrable
Securities), brokers (including brokers who offer and sell Registrable
Securities as principal as a result of a pledge or any failure to perform under
a margin call of Common Stock), investment advisors and employees of each of
them, each Person who controls any such Holder (within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act) and the officers,
directors, agents and employees of each such controlling Person, to the fullest
extent permitted by applicable law, from and against any and all losses, claims,
damages, liabilities, costs (including, without limitation, costs of preparation
and attorneys' fees) and expenses (collectively, "LOSSES"), as incurred, arising
out of or relating to any untrue or alleged untrue statement of a material fact
contained in the Registration Statement, any Prospectus or any form of
prospectus or in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or relating to any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in light of the circumstances under which they were made)
not misleading, except to the extent, but only to the extent, that such untrue
statements or omissions are based solely upon information regarding such Holder
furnished in writing to the Company by or on behalf of such Holder expressly for
use therein, or to the extent that such information relates to such Holder or
such Holder's proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder expressly for use in
the Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto. The Company shall notify the Holders promptly
of the institution, threat or assertion of any Proceeding of which the Company
is aware in connection with the transactions contemplated by this Agreement.
(b) INDEMNIFICATION BY HOLDERS. Each Holder shall, severally and not
jointly, indemnify and hold harmless the Company, its directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review) arising solely out of or based solely upon any untrue
statement of a material fact contained in the Registration Statement, any
Prospectus, or any form of prospectus, or arising solely out of or based solely
upon any omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading to the extent, but only to the
extent, that such untrue statement or omission is contained in any information
so furnished in writing by such Holder to the Company specifically for inclusion
in the Registration Statement or such Prospectus or to the extent that such
information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and
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was reviewed and expressly approved in writing by such Holder expressly for
use in the Registration Statement, such Prospectus or such form of
Prospectus. In no event shall the liability of any selling Holder hereunder
be greater in amount than the dollar amount of the net proceeds received by
such Holder upon the sale of the Registrable Securities giving rise to such
indemnification obligation.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any Proceeding shall
be brought or asserted against any Person entitled to indemnity hereunder (an
"INDEMNIFIED PARTY"), such Indemnified Party promptly shall notify the Person
from whom indemnity is sought (the "INDEMNIFYING PARTY") in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel
in any such Proceeding and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Party
or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses; or (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall have been advised by counsel that a conflict of interest is likely to
exist if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall,
without the prior written consent of the Indemnified Party, effect any
settlement of any pending Proceeding in respect of which any Indemnified Party
is a party, unless such settlement includes an unconditional release of such
Indemnified Party from all liability on claims that are the subject matter of
such Proceeding.
All fees and expenses of the Indemnified Party (including reasonable
fees and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within 10 Business
Days of written notice thereof to the Indemnifying Party (regardless of whether
it is ultimately determined that an Indemnified Party is not entitled to
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indemnification hereunder; PROVIDED, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).
(d) CONTRIBUTION. If a claim for indemnification under Section 5(a)
or 5(b) is unavailable to an Indemnified Party because of a failure or refusal
of a governmental authority to enforce such indemnification in accordance with
its terms (by reason of public policy or otherwise), then each Indemnifying
Party, in lieu of indemnifying such Indemnified Party, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such Losses, in
such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party and Indemnified Party in connection with the actions,
statements or omissions that resulted in such Losses as well as any other
relevant equitable considerations. The relative fault of such Indemnifying
Party and Indemnified Party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission of a material fact,
has been taken or made by, or relates to information supplied by, such
Indemnifying Party or Indemnified Party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission. The amount paid or payable by a party as a
result of any Losses shall be deemed to include, subject to the limitations set
forth in Section 5(c), any reasonable attorneys' or other reasonable fees or
expenses incurred by such party in connection with any Proceeding to the extent
such party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party in
accordance with its terms.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by PRO RATA
allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 5(d), the Purchaser
shall not be required to contribute, in the aggregate, any amount in excess
of the amount by which the proceeds actually received by the Purchaser from
the sale of the Registrable Securities subject to the Proceeding exceeds the
amount of any damages that the Purchaser have otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
The indemnity and contribution agreements contained in this Section
are in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
6. MISCELLANEOUS
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(a) REMEDIES. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement.
The Company and each Holder agree that monetary damages would not provide
adequate compensation for any losses incurred by reason of a breach by it of any
of the provisions of this Agreement and hereby further agrees that, in the event
of any action for specific performance in respect of such breach, it shall waive
the defense that a remedy at law would be adequate.
(b) NO INCONSISTENT AGREEMENTS. Except as and to the extent
specifically set forth in SCHEDULE 6(b) attached hereto, neither the Company nor
any of its subsidiaries has, as of the date hereof, nor shall the Company or any
of its subsidiaries, on or after the date of this Agreement, enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. Except as and to the extent specifically set forth in
SCHEDULE 6(b) attached hereto, neither the Company nor any of its subsidiaries
has previously entered into any agreement granting any registration rights with
respect to any of its securities to any Person. Without limiting the generality
of the foregoing, without the written consent of the Holders of a majority of
the then outstanding Registrable Securities, the Company shall not grant to any
Person the right to request the Company to register any securities of the
Company under the Securities Act unless the rights so granted are subject in all
respects to the prior rights in full of the Holders set forth herein, and are
not otherwise in conflict or inconsistent with the provisions of this Agreement.
(c) NO PIGGYBACK ON REGISTRATIONS. Except as and to the extent
specifically set forth in SCHEDULE 6(b) attached hereto, neither the Company nor
any of its security holders (other than the Holders in such capacity pursuant
hereto) may include securities of the Company in the Registration Statement
other than the Registrable Securities, and the Company shall not enter into any
agreement providing any such right to any of its securityholders.
(d) PIGGY-BACK REGISTRATIONS. If at any time during the
Effectiveness Period there is not an effective Registration Statement covering
all of the Registrable Securities and the Company shall determine to prepare and
file with the Commission a registration statement relating to an offering for
its own account or the account of others under the Securities Act of any of its
equity securities, other than on Form S-4 or Form S-8 (each as promulgated under
the Securities Act) or their then equivalents relating to equity securities to
be issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, then the Company shall send to each holder of Registrable
Securities written notice of such determination and, if within twenty (20) days
after receipt of such notice, any such holder shall so request in writing, the
Company shall include in such registration statement all or any part of the
Registrable Securities such
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holder requests to be registered. No right to registration of Registrable
Securities under this Section shall be construed to limit any registration
otherwise required hereunder.
(e) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and the Holders of at least a majority of the then outstanding Registrable
Securities; PROVIDED, HOWEVER, that, for the purposes of this sentence,
Registrable Securities that are owned, directly or indirectly, by the Company,
or an Affiliate of the Company are not deemed outstanding. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with respect
to a matter that relates exclusively to the rights of Holders and that does not
directly or indirectly affect the rights of other Holders may be given by
Holders of at least a majority of the Registrable Securities to which such
waiver or consent relates; PROVIDED, HOWEVER, that the provisions of this
sentence may not be amended, modified, or supplemented except in accordance with
the provisions of the immediately preceding sentence.
(f) 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 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.
3637 South Green Road, Suite 201
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 the Purchaser: JNC Opportunity Fund Ltd.
c/o Olympia Capital (Cayman) Ltd.
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Williams House, 20 Reid Street
Hamilton HM11
Bermuda
Facsimile No.: (441) 295-2305
Attn: Director
With copies to: Encore Capital Management, L.L.C.
12007 Sunrise Valley Drive
Suite 460
Reston, VA 20191
Facsimile No.: (703) 476-7711
Attn: Managing Member
-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
If to any other Person who is then the registered Holder:
To the address of such Holder as it appears in the
stock transfer books of the Company
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
(g) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each Holder. The Company may not
assign its rights or obligations hereunder without the prior written consent of
each Holder. The Purchaser may assign its rights hereunder in the manner and to
the Persons as permitted under the Purchase Agreement.
(h) ASSIGNMENT OF REGISTRATION RIGHTS. The rights of the
Purchaser hereunder, including the right to have the Company register for
resale Registrable Securities in accordance with the terms of this Agreement,
shall be automatically assignable by the Purchaser to any assignee or
transferee of all or a portion of the Debentures, the Warrant and other
Common Stock warrants referenced in the definition of Registrable Securities
or Registrable Securities without the consent of the Company if: (i) the
Purchaser agrees in writing with the transferee or assignee to assign such
rights, and a copy of such agreement is
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furnished to the Company within a reasonable time after such assignment, (ii)
the Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (a) the name and address of such transferee or
assignee, and (b) the securities with respect to such registration rights are
being transferred or assigned, (iii) at or before the time the Company receives
the written notice contemplated by clause (ii) of this Section, the transferee
or assignee agrees in writing with the Company to be bound by all of the
provisions of this Agreement, and (iv) such transfer shall have been made in
accordance with the applicable requirements of the Purchase Agreement. The
rights to assignment shall apply to the Purchaser's (and to subsequent)
successors and assigns.
(i) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement.
In the event that any signature is delivered by facsimile transmission, such
signature shall create a valid 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 were the original thereof.
(j) GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement shall
be governed by and construed in accordance with the laws of the State of New
York, without regard to principles of conflicts of law. Each party hereby
irrevocably submits to the non-exclusive jurisdiction of any New York state
court sitting in the Borough of Manhattan, the state and federal courts sitting
in the City of New York or any federal court sitting in the Borough of Manhattan
in the City of New York (collectively, the "NEW YORK COURTS") in respect of any
Proceeding arising out of or relating to this Agreement, and irrevocably accepts
for itself and in respect of its property, generally and unconditionally,
jurisdiction of the New York Courts. The Company irrevocably waives to the
fullest extent it may effectively do so under applicable law any objection that
it may now or hereafter have to the laying of the venue of any such proceeding
brought in any New York Court and any claim that any such Proceeding brought in
any New York Court has been brought in an inconvenient forum. Nothing herein
shall affect the right of any Holder. Each party 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 such party at the
address in effect for notices to it under this Agreement 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.
(k) CUMULATIVE REMEDIES. The remedies provided herein are cumulative
and not exclusive of any remedies provided by law.
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(l) SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
(m) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(n) SHARES HELD BY THE COMPANY AND ITS AFFILIATES. Whenever the
consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
its Affiliates (other than the Purchaser or transferees or successors or assigns
thereof if such Persons are deemed to be Affiliates solely by reason of their
holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
FIX-CORP INTERNATIONAL, INC.
By: /s/ Mark Fixler
---------------------------
Name: Mark Fixler
Title: CEO
JNC OPPORTUNITY FUND LTD.
By: /s/ Thomas H. Davis
---------------------------
Name: Thomas H. Davis
Title: Director
<PAGE>
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. 008 Dated: June 25, 1998
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 300,000 shares of Common
Stock, $.001 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 $4.00 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 June 25, 2001 (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.
2. REGISTRATION OF TRANSFERS AND EXCHANGES.
<PAGE>
(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 Purchase attached hereto (or attached to such New Warrant)
appropriately completed and duly
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<PAGE>
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 (the "SECURITIES ACT"), 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 Pearce 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
-3-
<PAGE>
destruction and indemnity, if reasonably satisfactory to it. Applicants for
a New Warrant under such 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 Holder (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
-4-
<PAGE>
right thereafter to exercise this Warrant only into the shares of stock and
other securities and property receivable 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 multiplying the
Exercise Price in effect immediately prior thereto by a fraction, the numerator
of which shall be the sum of (i) the number of shares of Common Stock
outstanding immediately prior to such issuance, and (ii) the number of shares of
Common Stock which the aggregate consideration received (or to be received,
assuming exercise or conversion in full of such rights, warrants and convertible
securities) for the issuance of such additional shares of Common Stock would
purchase at the Exercise Price, and the denominator of which shall be the sum of
the number of shares of Common Stock outstanding immediately after the issuance
of such additional shares. Such adjustment shall be made successively whenever
such an issuance is made.
-5-
<PAGE>
(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 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
-6-
<PAGE>
(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 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 Common Stock of record to be
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 Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; 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.
9. PAYMENT OF EXERCISE PRICE. The Holder may pay the Exercise Price
in one of the following manners:
(a) CASH EXERCISE. The Holder shall deliver immediately
available funds; or
(b) CASHLESS EXERCISE. The Holder shall surrender this Warrant
to the Company together with a notice of cashless exercise, in which event the
Company shall issue to the Holder the number of Warrant Shares determined as
follows:
X = Y (A-B)/A
where:
X = the number of Warrant Shares to be issued to the Holder.
Y = the number of Warrant Shares with respect to which this
Warrant is being exercised.
A = the average of the closing sale prices of the Common
Stock for the five (5) Trading Days immediately prior to
(but not including) the Date of Exercise.
B = the Exercise Price.
-7-
<PAGE>
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date.
10. FRACTIONAL SHARES. The Company shall not be required to issue or
cause to be issued fractional Warrant Shares on the exercise of this Warrant.
The number of full Warrant Shares which shall be issuable upon the exercise of
this Warrant shall be computed on the basis of the aggregate number of Warrant
Shares purchasable on exercise of this Warrant so presented. If any fraction of
a Warrant Share would, except for the provisions of this Section 10, be issuable
on the exercise of this Warrant, the Company shall, at its option, (i) pay an
amount in cash equal to the Exercise Price multiplied by such fraction or (ii)
round the number of Warrant Shares issuable, up to the next whole number.
11. NOTICES. Any and all notices or other communications or
deliveries 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, (ii) the business day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iii) upon actual receipt by
the party to whom such notice is required to be given. The addresses for such
communications shall be: (1) if to the Company, to 3637 South Green Road, Suite
201, Beachwood, OH 44122, or to Facsimile No.: (216) 292-6187 Attention: Chief
Financial Officer, or (ii) if to the Holder, to the Holder at the address or
facsimile number appearing on the Warrant Register or such other address or
facsimile number as the Holder may provide to the Company in accordance with
this Section 11.
12. WARRANT AGENT.
(a) The Company shall serve as warrant agent under this
Warrant. Upon thirty (30) days' notice to the Holder, the Company may appoint
a new warrant agent.
(b) Any corporation into which the Company or any new warrant
agent may be merged or any corporation resulting from any consolidation to which
the Company or any new warrant agent shall be a party or any corporation to
which the Company or any new warrant agent transfers substantially all of its
corporate trust or shareholders services business shall be a successor warrant
agent under this Warrant without any further act. Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holder's last
address as shown on the Warrant Register.
13. MISCELLANEOUS.
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<PAGE>
(a) This Warrant shall be binding on and inure to the benefit
of the parties hereto and their respective successors and permitted assigns.
This Warrant may be amended only in writing signed by the Company and the
Holder.
(b) Subject to Section 13(a), above, nothing in this Warrant
shall be construed to give to any person or corporation other than the
Company and the Holder any legal or equitable right, remedy or cause under
this Warrant; this Warrant shall be for the sole and exclusive benefit of the
Company and the Holder.
(c) This Warrant 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.
(d) The headings herein are for convenience only, do not
constitute a part of this Warrant and shall not be deemed to limit or affect
any of the provisions hereof.
(e) In case any one or more of the provisions of this Warrant
shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall
not in any way be affected or impaired thereby and the parties will attempt
in good faith to agree upon a valid and enforceable provision which shall be
a commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.
FIX-CORP INTERNATIONAL, INC.
By: /s/ Mark Fixler
---------------------------
Name: Mark Fixler
-------------------------
Title: CEO
------------------------
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To FIX-CORP INTERNATIONAL, INC.:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase [___________]
shares of Common Stock ("Common Stock"), $.001 par value per share, of Fix-Corp
International, Inc. and, if such Holder is not utilising the cashless exercise
provisions set forth in this Warrant, encloses herewith $________ in cash or
certified or official bank check or checks, which sum represents the aggregate
Exercise Price (as defined in the Warrant) for the number of shares of Common
Stock to which this Form of Election to Purchase relates, together with any
applicable taxes payable by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common Stock
issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
---------------------------------------
- ------------------------------------------------------------------------------
(Please print name and address)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
If the number of shares of Common Stock issuable upon this exercise shall
not be all of the shares of Common Stock which the undersigned is entitled to
purchase in accordance with the enclosed Warrant, the undersigned requests that
a New Warrant (as defined in the Warrant) evidencing the right to purchase the
shares of Common Stock not issuable pursuant to the exercise evidenced hereby be
issued in the name of and delivered to:
- ------------------------------------------------------------------------------
(Please print name and address)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Dated: , Name of Holder:
------------- ---
(Print)
--------------------------------
(By:)
----------------------------------
(Name:)
(Title:)
<PAGE>
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
<PAGE>
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of Fix-Corp
International, Inc. to which the within Warrant relates and appoints
________________ attorney to transfer said right on the books of Fix-Corp
International, Inc. with full power of substitution in the premises.
Dated:
,
- --------------- ---
---------------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
---------------------------------------
Address of Transferee
---------------------------------------
---------------------------------------
In the presence of:
- --------------------------
<PAGE>
June 25, 1998
Fix-Corp International, Inc.
3637 S. Green Rd., Suite 201
Beachwood, OH 44122
Gentlemen:
In connection with the issuance by Fix-Corp International, Inc. (the
"Company") of certain shares of its Common Stock, $.001 par value per share, to
the undersigned in the quantities set forth opposite our signatures below (the
"Shares"), each of the undersigned represents, warrants and agrees as set forth
below.
Capitalized terms not otherwise defined herein shall have the meanings set
forth in the documents identified on Schedule A attached hereto (the "Debenture
Documents").
1. WAIVER OF DEFAULT, PENALTIES:
In consideration of the issuance of the Shares, the undersigned hereby (i)
waives any Event of Default arising by reason of the failure of the Company to
have the Underlying Securities Registration Statement declared effective within
the time periods prescribed in Section 4(c)(i)(c) of the Debentures; provided,
if that the Underlying Securities Registration Statement is not declared
effective by July 15, 1998, the waiver contained in this clause (i) shall be
null and void AB INITIO and (ii) unconditionally waives through July 15, 1998
any adjustment to the Conversion Price by reason of the failure of the Company
to have the Underlying Securities Registration Statement declared effective
within the time periods prescribed in the Debenture Documents; provided, that if
the Underlying Securities Registration Statement is not declared effective by
July 15, 1998, adjustments to the Conversion Price shall commence to accrue (but
not retroactively) from such date and such date shall be deemed an "Event Date"
under the Debentures.
2. INVESTMENT REPRESENTATIONS:
(a) INVESTMENT INTENT. The undersigned is acquiring the Shares for its
own account for investment purposes only and not with a view to or for
distributing or reselling such Shares or any part thereof or interest therein,
without prejudice, however, to the undersigned's right, subject to the
provisions of the Debenture Documents, at all times to sell or otherwise dispose
of all or any part of such Shares pursuant to an effective registration
statement under the Securities Act and in compliance with applicable state
securities laws or under an exemption from or in a transaction not subject to
such registration.
(b) ACCREDITED STATUS. The undersigned is an "accredited investor" as
defined in Rule 501(a) under the Securities Act.
<PAGE>
(c) EXPERIENCE OF UNDERSIGNED. The undersigned, either alone or together
with its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of acquiring the Shares and has so evaluated such merits and risks.
(d) TRANSFER RESTRICTIONS. Shares may only be disposed of 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. 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. The
Shares shall bear a restrictive legend to such effect.
(e) RELIANCE. The undersigned understands and acknowledges that (i) the
Shares are being issued to it without registration under the Securities Act in a
transaction 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 the undersigned hereby consents to such reliance.
By signing and returning a copy of this letter, the Company represents,
warrants and agrees as follows:
(a) Assuming the accuracy of the representations and warranties of the
undersigned, the issuance of the Shares to the undersigned is exempt from the
registration requirements of the Securities Act.
(b) Upon issuance to the undersigned, the Shares will be duly authorized,
validly issued, fully paid, non assessable and free and clear of all liens,
encumbrances and rights of first refusal of any kind.
(c) Upon request of the undersigned, the Company shall reissue the Shares
free of all restrictive legends at the time there is an effective Underlying
Securities Registration Statement covering resale of the Shares.
<PAGE>
JNC OPPORTUNITY FUND LTD. (30,000 Shares)
By: /s/ Neil T. Chau
Its:
JNC STRATEGIC FUND LTD. (15,000 Shares)
By: /s/ Neil T. Chau
Its:
DIVERSIFIED STRATEGIES FUND, L.P. (5,000 Shares)
By: /s/ Neil T. Chau
Encore Capital
Its:
FIX-CORP INTERNATIONAL, INC.
By: /s/ Mark Fixler
Its: CEO
<PAGE>
SCHEDULE A
Amended and Restated Convertible Debenture Purchase Agreement
dated November 25, 1997 among the Company, JNC Opportunity Fund
Ltd. and Diversified Strategies Fund, L.P., together with related
Debentures, Warrants, Amended & Restated Registration Rights
Agreement and related transaction documents.
Convertible Debenture Purchase Agreement dated January 22, 1998
among the Company, JNC Opportunity Fund Ltd. and Diversified
Strategies Fund, L.P., together with related Debentures,
Warrants, Registration Rights Agreement and related transaction
documents.
Convertible Debenture Purchase Agreement dated March 11, 1998
between the Company and JNC Opportunity Fund Ltd., together with
related Debenture, Warrant, Registration Rights Agreement and
related transaction documents.
Convertible Debenture Purchase Agreement dated April 8, 1998
between the Company and JNC Strategic Fund Ltd., together with
related Debenture, Warrant, Registration Rights Agreement and
related transaction documents.
<PAGE>
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------
1996 1997
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<S> <C> <C>
BASIC EARNINGS
Loss from continuing operations $ (3,748,824) $ (1,027,084)
------------- --------------
------------- --------------
Shares
Weighted average number of
Common shares outstanding 14,040,040 26,139,451
------------- --------------
------------- --------------
Basic loss per common share:
Net Loss $ (.267) $ (.039)
------------- --------------
------------- --------------
DILUTED EARNINGS
Loss from continuing operations $ (3,748,824) $ (1,027,084)
------------- --------------
------------- --------------
Shares
Weighted average number of
Common shares outstanding 14,040,040 26,139,451
Assuming exercise of option 4,000,000 4,000,000
------------- --------------
Weighted average number of
Common shares outstanding
as adjusted 18,040,040 30,139,451
------------- --------------
------------- --------------
Diluted earnings per
common share:
Net Loss $ (.208) $ (.034)
------------- --------------
------------- --------------
</TABLE>
<PAGE>
[HARMON & COMPANY, CPA, INC. LETTERHEAD]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We hereby consent to the use in this Registration Statement of our report
included herein dated March 26, 1998, except as to Note 4, as to which the date
is July 10, 1998, relating to the consolidated financial statements of Fix-Corp
International, Inc. and subsidiaries, to the incorporation by reference of such
report included in the Company's annual report on Form 10-KSB for the years
ended December 31, 1996 and 1997.
/s/ Harmon & Company, CPA, Inc.
--------------------------------------
Harmon & Company, CPA, Inc.
Dublin, Ohio
July 15, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of income at December
31, 1996 and 1997 and the balance sheets and statements of income at December
31, 1996 and 1997 of the Company's 1997 Annual Report to Stockholders and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-END> DEC-31-1996 DEC-31-1997
<CASH> 224,539 6,895,619
<SECURITIES> 130,692 108,287
<RECEIVABLES> 88,763 1,643,503
<ALLOWANCES> 0 0
<INVENTORY> 96,002 2,910,220
<CURRENT-ASSETS> 761,668 11,632,914
<PP&E> 3,514,500 14,488,496
<DEPRECIATION> (6,428) (680,310)
<TOTAL-ASSETS> 5,374,116 27,490,098
<CURRENT-LIABILITIES> 3,660,325 7,907,543
<BONDS> 0 11,280,489
0 0
0 0
<COMMON> 20,974 30,058
<OTHER-SE> 1,692,817 8,272,008
<TOTAL-LIABILITY-AND-EQUITY> 5,374,116 27,490,098
<SALES> 232,824 8,020,304
<TOTAL-REVENUES> 510,779 435,004
<CGS> (383,164) (6,992,829)
<TOTAL-COSTS> (4,199,383) (2,045,767)
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (32,730) (820,707)
<INCOME-PRETAX> 3,801,674 (1,434,984)
<INCOME-TAX> (52,850) (407,900)
<INCOME-CONTINUING> (3,748,824) (1,027,084)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,748,824) (1,027,084)
<EPS-PRIMARY> (0.267) (0.039)
<EPS-DILUTED> (0.208) (0.034)
</TABLE>
