<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON JULY 24, 1998
REGISTRATION NO. 33-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FIX-CORP INTERNATIONAL, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
Delaware 4953 34-1783774
(State or jurisdiction of (Primary standard (I.R.S. Employer
incorporation or organization) classification code number) Identification No.)
3637 SOUTH GREEN ROAD / SUITE 201 / BEACHWOOD, OHIO 44122 / (216) 292-3182
(Address and telephone number of principal executive offices)
MARK FIXLER, PRESIDENT / FIX-CORP INTERNATIONAL, INC.
3637 SOUTH GREEN ROAD / SUITE 201 / BEACHWOOD, OHIO 44122 / (216) 292-3182
(Name, address, and telephone number of agent for service)
Copies to: STEVEN R. KERBER, ESQ.
BRICKER & ECKLER LLP
100 SOUTH THIRD STREET
COLUMBUS, OHIO 43215-4291
(614) 227-2300
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [__]
<PAGE>
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [__]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [__]
<TABLE>
CALCULATION OF REGISTRATION FEE
TITLE OF EACH DOLLAR PROPOSED PROPOSED
CLASS OF AMOUNT MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) FEE(3)
- ---------- ------------- ----------- ----------------- ------
<S> <C> <C> <C> <C>
Common Stock, $54,339,941 $4.375 $54,339,941 $16,030.28
$.001 par value
</TABLE>
(1) In accordance with Rule 416 under the Securities Act, Common Stock
offered hereby shall also be deemed to cover additional securities to be
offered or issued to prevent dilution resulting from stock splits, stock
dividends or similar transactions. (2) Estimated solely for the purpose of
calculating the amount of the registration fee pursuant to Rules 457(g) and
457(c), based on the average of the high and low reported price of the
Company's Common Stock on July 22, 1998. (3) $7,089.73 paid January 20,
1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. <PAGE>
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<PAGE>
SUBJECT TO COMPLETION, DATED JULY 24, 1998
PRELIMINARY PROSPECTUS
FIX-CORP INTERNATIONAL, INC.
12,420,558 SHARES
COMMON STOCK
$.001 PAR VALUE
This prospectus ("Prospectus") relates to 12,420,558 shares (the "Shares") of
common stock, $.001 par value (the "Common Stock"), of Fix-Corp International,
Inc., a Delaware corporation ("Fix-Corp", the "Company", the "Small Business
Issuer" or the "Registrant"). This Prospectus is filed with the United States
Securities and Exchange Commission (the "Commission" or the "SEC") and relates
to a Registration Statement on Form SB-2 (the "Registration Statement") also
filed with the SEC. The Shares will be outstanding shares of Common Stock
acquired upon exercise of warrants or the conversion of convertible debt
securities, owned by the persons named in this Prospectus under the caption
"SELLING STOCKHOLDERS" or by pledgees, donees, transferees or other successors
in interest and permitted assigns of such selling stockholders (the "Selling
Stockholders"). The Shares were acquired by the Selling Stockholders in
connection with the exercise of warrants ("Warrants") by certain of the Selling
Stockholders and the conversion of convertible debentures ("Debentures") held by
certain of the Selling Stockholders, all of which Warrants, Debentures and
Shares, as and when issued to the Selling Stockholders, were exempt from the
registration provisions of the Securities Act.
The Company will not receive any of the proceeds from the sale of the Shares;
however, in consideration of issuing the Debentures and Warrants, the Company
received $18,000,000 which was used for working capital, expansion and
commencement of its principal lines of business and other general corporate
purposes.
The Company has not made any underwriting arrangements with respect to the
Shares. The Common Stock is traded on the over the counter ("OTC") electronic
bulletin board maintained by the National Association of Securities Dealers (the
"Bulletin Board") under the symbol "FIXC". On July 22, 1998, the closing bid
and asked prices of the Common Stock as reported on the OTC Bulletin Board were
$4 5/16 and $4 7/16, respectively.
This Prospectus is to be used in connection with the sale of the Shares from
time to time by the Selling Stockholders. The Shares may be sold from time to
time by the Selling Stockholders, directly or through underwriters, dealers or
agents, in market transactions on the OTC Bulletin Board, on any other national
securities exchange or automated quotation system on which the Common Stock may
be listed or traded, including block trades or ordinary brokers transactions or
in privately negotiated transactions. The price at which any of the Shares may
be sold, and the commissions, if any, paid in connection with any sale, may be
privately negotiated, may be based on then prevailing market prices and may vary
from transaction to transaction and as a result are not currently known. See
"PLAN OF DISTRIBUTION."
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The Selling Stockholders and any broker-dealers participating in the
distribution of the Shares may be deemed to be "underwriters" within the
meaning of the 1933 Act, and any commissions or discounts given to any such
broker-dealer may be regarded as underwriting commissions or discounts under
the 1933 Act. The Shares have not been registered for sale by the Selling
Stockholders under the securities laws of any state as of the date of this
Prospectus. Brokers or dealers effecting transactions in the Shares should
confirm the registration thereof under the securities laws of the states in
which transactions occur or the existence of any exemption from registration.
The Company will pay certain of the legal and other expenses of this offering
(estimated to be $37,500), except that the Selling Stockholders will bear the
cost of any brokerage commissions or discounts or other selling expenses
incurred by the Selling Stockholders in connection with the sale of its Shares.
The Company has agreed to indemnify the Selling Stockholders against certain
liabilities, including liabilities arising under the Securities Act. See "PLAN
OF DISTRIBUTION."
No dealer, salesperson or other person has been authorized to give any
information or to make any representations not contained, or incorporated by
reference, in this Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by the Company
or the Selling Stockholders. This Prospectus does not constitute an offer to
sell or the solicitation of any offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful to make such
offer in such jurisdiction. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create any implication that
the information herein is correct as of any time subsequent to the date hereof
or that there has been no change in the affairs of the Company since such date.
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
(SEE "RISK FACTORS" BEGINNING ON PAGE 6.)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JULY 24, 1998.
AVAILABLE INFORMATION AND
INFORMATION INCORPORATED BY REFERENCE
The Company incorporates herein by reference the Company's 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, as amended (the "Exchange
Act"), filed November 13, 1997 (effective January 12, 1998), as amended November
17, 1997, December 22, 1997, March 2, 1998 and July
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<PAGE>
15, 1998 with the Commission (File No. 000-23369) pursuant to the Exchange
Act (the "Form 10-SB").
This Prospectus constitutes a part of the Registration Statement filed by the
Company with the Commission under the Securities Act with respect to the Shares
offered hereby. In accordance with the rules and regulations of the Commission,
this Prospectus omits certain of the information contained in the Registration
Statement. Reference is hereby made to the Registration Statement and related
exhibits and the documents incorporated herein by reference for further
information with respect to the Company and the Company's Common Stock.
Statements contained herein or incorporated herein by reference concerning the
provisions of any document are not necessarily complete and, in each instance,
reference is made to the copy of such document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference.
All documents and reports subsequently filed by the Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus
and prior to the termination of the offering of the Shares shall be deemed to be
incorporated herein by reference and to be a part hereof from the date of filing
of such documents. Any statement contained herein or in a document incorporated
or deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document that also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
Prior to the effective date of the Form 10-SB (January 12, 1998), the Company
was not required to file reports with the Commission under the Exchange Act.
Upon the effective date of the Form 10-SB, the Company is required to file with
the Commission reports, proxy statements and other information under the
Exchange Act. The Company has filed an annual report on Form 10-KSB with the
Commission for fiscal year 1997, and the Company provided audited financial
statements to its stockholders, along with proxy materials, in anticipation of
the annual meeting of stockholders held during April, 1998. With respect to
fiscal years in which the Company is required to file an annual report with the
Commission, the Company will furnish annual reports to its stockholders which
include audited financial statements. The audited financial statements provided
to stockholders are reported on by its independent auditors. A quarterly report
containing unaudited condensed financial information for the first quarter of
each fiscal year are also provided. The Company also furnishes such other
reports from time to time as it may determine or as may be required by law.
The Company will furnish without charge to each person, including any beneficial
owner, to whom this Prospectus is delivered, upon the written or oral request of
such person, a copy of any or all the documents incorporated herein by
reference, other than exhibits to such documents unless such exhibits are
specifically incorporated by reference in such documents, and any other
documents specifically identified herein as incorporated by reference into the
Registration Statement to which this Prospectus relates or into such other
documents. Requests should be
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<PAGE>
addressed to: Investor Relations, 3637 South Green Road, Suite 201,
Beachwood, Ohio 44122; telephone: (216) 292-3182.
Reports, proxy statements and other information filed by the Company may be
inspected and copied at the public reference facilities maintained by the SEC at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Regional
Offices of the SEC at Seven World Trade Center, Suite 1300, New York, New York
and at Suite 1400, 500 West Madison Street, Chicago, Illinois. Copies of such
information can be obtained by mail from the Public Reference Section of the SEC
at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
Filings with the Commission made by the Company electronically through the EDGAR
system, such as the Registration Statement and the Form 10-SB (including certain
exhibits), are also available on the Commission's site on the World Wide Web, by
pointing a browser to (http://www.sec.gov/cgi-bin/srch-edgar), inserting in the
search box the phrase "fix corp international inc" and selecting the documents
identified under "Company name" as "FIX CORP INTERNATIONAL INC".
The Company's executive offices are located at 3637 South Green Road, Suite 201,
Beachwood, Ohio 44122, and its telephone number is (216) 292-3182.
RISK FACTORS
In addition to the other information in this Prospectus, the following factors
should be carefully considered in evaluating an investment in the Shares offered
by this Prospectus:
DEVELOPMENT STAGE. The Company was incorporated in October 1995 and was engaged
in corporate awards jewelry marketing and receivables financing for small
businesses until late 1996. In December 1996, the Company purchased the Heath
Resource Recovery Plant in Heath, Ohio (the "Facility") and its principal
business changed to plastics recycling. The Company is now operating
profitably, but there can be no assurance that such profitability will be
sustained. See "DESCRIPTION OF BUSINESS" and "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
LIMITED EXPERIENCE. The Company's business strategy relies primarily on its
success in manufacturing and marketing recycled plastic resin and plastic resin
products, an area in which the Company has limited experience. The success of
its business strategy should be considered in light of the risks, expenses and
difficulties frequently encountered in entering into industries characterized by
intense competition. There can be no assurance that the Company will be able to
manufacture or market its products or proposed products, maintain or expand its
market share or achieve commercial revenues from its products or proposed
products in the future. In addition, certain aspects of the Company's business
strategy can only be implemented if Pallet Technology's business in Florida
becomes fully operational. Some of the foregoing factors are not within the
Company's control and there can be no assurance that the Company will be able to
implement its business strategy, that Pallet Technology's Florida business will
become fully operational or that the Company's business strategy will result in
profitability. See
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"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS," "DESCRIPTION OF BUSINESS" and the Company's financial statements
and notes thereto.
DEPENDENCE ON SIGNIFICANT CUSTOMERS. No customer of the Company's
subsidiaries purchases more than 30% of production, and the one customer that
does approach 30% is a distributor. If that customer is lost, the Company
believes that there is adequate demand for the Company's products so that the
loss of that customer would not have a material adverse effect on the
Company. However, there can be no assurances that the demand will be adequate
or that the lost distributor-customer could be replaced by other distributors
or customers. The loss of this distributor-customer or any other significant
customer could have a material adverse effect on the Company. See
"DESCRIPTION OF BUSINESS."
DEPENDENCE ON KEY SUPPLIERS. Raw materials for the Company's recycling
operations, that is, HDPE, generally are currently readily available. This may
change for various reasons. If the Company relies on a limited number of
suppliers of HDPE because, for example, the market demand for HDPE increases,
the Company's reliance on a limited number of suppliers would involve several
risks, including obtaining an adequate supply of raw materials and components in
order to manufacture or market products, increased raw material or component
costs and reduced control over pricing, quality and timely delivery. Any
interruption in the supply of raw materials or components could have a material
adverse effect on the Company. Furthermore, certain potential alternative
suppliers may have pre-existing exclusive relationships with competitors of the
Company and others which may preclude the Company from manufacturing certain of
its proposed products. See "DESCRIPTION OF BUSINESS--RAW MATERIALS."
PRICE SENSITIVITY. The Company's principal operations involve the recycling of
HDPE plastics. 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.
UNCERTAINTY OF MARKET ACCEPTANCE OF CERTAIN PROPOSED PRODUCTS. Although the
Company currently markets plastic resin, and manufactures plastic pallets at the
Facility, as defined below, the Company does not anticipate manufacturing
plastic pallet products at its Florida Plant until the third quarter of 1998.
Any unexpected developmental, regulatory or manufacturing problems could delay
the commercialization of the Company's proposed products and have a material
adverse effect on the Company and its prospects. In addition, the market
acceptance of any of the Company's proposed products, such as plastic pallets,
will be substantially dependent on the ability of the Company to demonstrate to
the business community the capabilities and perceived benefits of the Company's
proposed products as well as to sell commercial quantities of the proposed
products at acceptable prices. There can be no assurance that the Company will
be able to ultimately successfully develop plastic pallets
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or that it will be able to gain market acceptance for its plastic pallets.
See "DESCRIPTION OF BUSINESS--PALLET TECHNOLOGY."
LEVERAGE. The Company is significantly leveraged. It has entered into
security agreements with a lender which substantially encumber all of the
Company's assets. In addition, under the terms of the Debentures, the
Company is required to make quarterly interest payments and satisfy the
principal amount of $18,000,000 in less than three years. The Company's
future operating performance and ability to service or refinance its
indebtedness will be subject to future economic conditions and to financial,
business and other factors, many of which are beyond its control, and
consequently the Company may be unable to service all of its debt in the
future. There can be no assurance that the Company's future operating
performance will be sufficient to service such indebtedness or that the
Company will be able to refinance its indebtedness in whole or in part. The
degree to which the Company is leveraged can have significant effects on the
Company, including the following: (i) the Company's ability to obtain
additional financing in the future for working capital, capital expenditures,
acquisitions, general corporate purposes or other purposes may be limited;
(ii) a substantial portion of the Company's cash flow from operations will be
dedicated to the payment of the principal of and interest on its existing
indebtedness, thereby reducing funds available for operations; (iii) the
agreements governing the Company's indebtedness and 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. See "DESCRIPTION OF BUSINESS; --ACQUISITION OF THE
FACILITY; --PALLET TECHNOLOGY;" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
NEED FOR ADDITIONAL FINANCING. The Company has funded its operations to date
primarily through equity and debt financings. The Company anticipates that
its current funds from such financings, together with cash flow from
operations (if any), should be sufficient to fund the Company's operations,
including its proposed expansion, for the foreseeable future. However, there
can be no assurance that events affecting the Company's operations will not
result in the Company depleting its funds before that time. The Company may
need to raise substantial additional funds to continue to fund operating
expenses or its expansion strategy. There can be no assurance that additional
financing will be available, or, if available, that such financing will be on
terms favorable to the Company. Failure to obtain such additional financing
would have a material adverse effect on the Company. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--LIQUIDITY AND CAPITAL RESOURCES AS OF DECEMBER 31, 1997" and the
Company's financial statements and notes thereto.
SUBSTANTIAL INDEBTEDNESS DUE AFTER JUNE 30, 1998. At June 30, 1998, the
Company had an aggregate of $32,486,813 in outstanding indebtedness,
including $9,719,400 in bank loans, $18,000,000 in subordinated convertible
debentures, and $4,767,413 of accounts payable (which includes approximately
$450,000 to equipment vendors which the Company
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intends to pay with the proceeds of its existing credit facilities). In the
event the Company is not successful in generating revenue to service this
indebtedness or in renegotiating the terms of the loans, there can be no
assurance that the loans will not become due. In addition, there can be no
assurance that the Company will be able to service this indebtedness or to
renegotiate the terms of indebtedness on favorable terms to the Company or at
all. The failure of the Company to service this indebtedness or to
renegotiate the indebtedness would have a material adverse effect upon the
Company. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION--PHASE 2; --PHASE 3; --CONVERTIBLE DEBENTURES" and
"DESCRIPTION OF BUSINESS; --ACQUISITION OF THE FACILITY; --PALLET TECHNOLOGY."
COMPETITION AND RAPID TECHNOLOGICAL CHANGE. The recycling and recycled
plastics industries are subject to intense competition and rapid and
significant technological change. The Company faces competition from other
recycling and plastics companies, many of which have substantially greater
financial and other resources than the Company and, therefore, are able to
spend more than the Company in areas such as product development,
manufacturing and marketing. Although a company with greater resources will
not necessarily be able to bring a new product to market before its smaller
competitors, substantial resources enable a company to support many new
products simultaneously, thereby improving the likelihood of at least some of
its new products being among the first to make it to market. Furthermore,
certain of the Company's competitors are significantly smaller than the
Company and may, therefore, have lower fixed costs and greater operating
flexibility. Since the recycling process used by the Company involves
technology in the public domain, other firms would not need to invest in
licenses or development of new technology to compete with the Company's
recycling operations. The Company's revenues and profitability could be
adversely affected by technological change. Competitors may develop products
which may render the Company's products or proposed products uneconomical or
result in products being commercialized that may be superior to the Company's
products. In addition, alternatives to recycled plastics could be developed,
which would have a material adverse effect on the Company. See "DESCRIPTION
OF BUSINESS."
UNCERTAIN PROTECTION OF PATENTS AND PROPRIETARY RIGHTS. The Company relies
on a combination of licenses and trade secrets to protect its proprietary
technology, rights and know-how. There can be no assurance that such license
rights will not be infringed upon, that the Company's trade secrets will not
otherwise become known to or independently developed by competitors, that
non-disclosure agreements will not be breached, or that the Company would
have adequate remedies for any such infringement or breach. Litigation may
be necessary to enforce proprietary rights of the Company or to defend the
Company against third-party claims of infringement. Such litigation could
result in substantial cost to, and a diversion of effort by, the Company and
its management and may have a material adverse effect on the Company. The
Company currently is an exclusive and non-exclusive licensee of various
technologies and may in the future desire or be required to obtain other
licenses to develop, manufacture and market commercially viable products.
The Company's success and potential competitive advantage is dependent upon
its ability to exploit the technology under these licenses. There can be no
assurance that the Company will be able to exploit the technology covered by
these license agreements or that it will be able to do so exclusively. In
addition, there
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can be no assurance that any patents or patent applications pursuant to which
the Company has obtained licenses are valid and enforceable, or that any
licenses required to be obtained by the Company in the future will be valid
and enforceable or obtainable on commercially reasonable terms, if at all.
There can be no assurance that patent applications which underlie the
Company's licenses will result in patents being issued, or that, if issued,
the patents will afford protection against competitors with similar
technology. Although the Company is not aware of any claim against it for
infringement, the Company's ability to commercialize its products and
proposed products depends on its not infringing the proprietary rights of
competitors. Laws regarding the enforceability of intellectual property vary
from jurisdiction to jurisdiction. There can be no assurance that
intellectual property issues will be uniformly resolved, or that local laws
will provide the Company with consistent rights and benefits. In addition,
there can be no assurance that competitors will not be issued patents which
may prevent the manufacturing or marketing of the Company's products or
proposed products or require licensing and the payment of fees or royalties
by the Company in order for the Company to be able to manufacture or market
certain products. See "DESCRIPTION OF BUSINESS--PATENTS, TRADEMARKS AND
LICENSES."
ENVIRONMENTAL MATTERS. 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 and local environmental laws and
regulations pertaining to the discharge of materials into the environment,
the handling and disposition of wastes (including solid and hazardous wastes)
or otherwise relating to the protection of the environment. As is the case
with manufacturers in general, if a release of hazardous substances occurs on
or from the Company's properties or any associated off-site 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. See "DESCRIPTION OF
BUSINESS--ENVIRONMENTAL MATTERS AND GOVERNMENTAL REGULATIONS."
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POTENTIAL PRODUCT LIABILITY; AVAILABILITY OF INSURANCE. The testing,
manufacturing, and marketing of the Company's products and proposed products
involve the inherent risks of product liability claims or similar legal
theories against the Company, some of which may cause the Company to incur
significant defense costs. Although the Company currently maintains product
liability insurance coverage which it believes is adequate, there can be no
assurance that the coverage limits of its insurance are adequate or that all
such claims will be covered by insurance. In addition, these policies
generally must be renewed every year. While the Company has been able to
obtain product liability insurance in the past, there can be no assurance it
will be able to obtain insurance in the future on its products or proposed
products. Product liability insurance varies in cost, is difficult to obtain
and may not be available in the future on terms acceptable to the Company, if
it is available at all. A successful product liability claim or other
judgment against the Company in excess of its insurance coverage could have a
material adverse effect upon the Company or its reputation. See "DESCRIPTION
OF BUSINESS."
YEAR 2000 COMPLIANCE. The year 2000 compliance issue, which is common to
most companies, concerns the inability of computerized information systems to
properly recognize and process date sensitive information as the year 2000
approaches. The Company currently is working to address and resolve this
issue with respect to its computerized information systems, but has not yet
assessed the total costs. However, based on preliminary information available
to the Company, in part because the Company does not believe that its
recycling and manufacturing operations use date sensitive systems in any
material respect, such costs are not currently expected to have a material
adverse impact on the Company's financial position or results of operations
in the future.
DEPENDENCE ON KEY PERSONNEL. The Company is dependent on the experience,
abilities and continued services of its current management personnel. In
particular, Mr. Fixler, its Chairman of the Board and Chief Executive
Officer, has played a significant role in the development and management of
the Company. The Company has entered into a three-year employment agreement
with Mr. Fixler commencing January 1, 1997 and has obtained a $2,500,000 key
man life insurance policy on the life of Mr. Fixler, for the benefit of the
Company. The Company has also entered into a five-year employment agreement
with each of Mr. DeLaurentiis and Mr. Kittelson. The loss or reduction of
services of Mr. Fixler, Mr. DeLaurentiis, Mr. Kittelson or any other key
employee could have a material adverse effect on the Company. There is no
assurance that additional managerial assistance will not be required. The
Company's future success depends in large part upon its ability to attract
and retain highly qualified personnel. The Company faces competition for such
personnel from other companies and organizations, many of which have
significantly greater resources than the Company. There can be no assurance
that the Company will be able to attract and retain the necessary personnel
on acceptable terms or at all. See "DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS," "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT," "DESCRIPTION OF BUSINESS--EMPLOYMENT AGREEMENTS," "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS,' and "EXECUTIVE COMPENSATION."
11
<PAGE>
ABSENCE OF PUBLIC MARKET; VOLATILITY. There has been a limited public
trading market for the Company's Common Stock and there can be no assurance
that an active trading market will be sustained. There can be no assurance
that the Common Stock will trade in the public market at or above its current
or any particular price. The trading price of the Common Stock could be
subject to significant fluctuations in response to variations in quarterly
operating results, even mild expressions of interest on a given day (being
traded on the OTC Bulletin Board), and other factors and such fluctuations
could cause the market price of the Common Stock to fluctuate substantially.
Accordingly, the Common Stock should be expected to experience substantial
price changes in short periods of time, owing to the vagaries of the Bulletin
Board. Even if the Company is performing according to its plan and there is
no legitimate Company-specific financial basis 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. In addition, the stock
markets in the United States have, from time to time, experienced significant
price and volume fluctuations that are unrelated or disproportionate to the
operating performance of individual companies. Such fluctuations may
adversely affect the price of the Common Stock. See "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
POSSIBLE ADVERSE EFFECTS OF ISSUANCE OF PREFERRED STOCK; ANTI-TAKEOVER
PROVISIONS. The Company's Amended and Restated Certificate of Incorporation
authorizes the issuance of a maximum of 2,000,000 shares of preferred stock,
par value $.001 per share ("Preferred Stock"), with designations, rights and
preferences as set forth in the Company's Amended and Restated Certificate of
Incorporation. As a result of the foregoing, the Board of Directors can
issue, without further stockholder approval, Preferred Stock with dividend,
liquidation, conversion, voting or other rights that would adversely affect
the voting power or other rights of the holders of the Common Stock. The
issuance of Preferred Stock could, under certain circumstances, discourage,
delay or prevent a change in control of the Company. In addition, the
issuance of Preferred Stock could dilute the rights of holders of the Common
Stock and the market price of the Common Stock. Although the Company has no
plans to issue any shares of Preferred Stock, there can be no assurance that
it will not issue Preferred Stock at some future date. The Company is subject
to Delaware General Corporation Law provisions that prohibit the Company from
entering into certain business combinations without the approval of its
stockholders and, as such, could prohibit or delay mergers or other
transactions or changes in control with respect to the Company. Such
provisions, accordingly, may discourage attempts to acquire the Company. See
"DESCRIPTION OF SECURITIES."
SHARES ELIGIBLE FOR FUTURE SALE; EXERCISE OF REGISTRATION RIGHTS. Certain of
the outstanding shares of Common Stock are "restricted securities" under
Rule 144 under the Securities Act, and (except for shares purchased by
"affiliates" of the Company as such term is defined in Rule 144) would be
eligible for sale as the applicable holding periods expire. In the future,
these shares may be sold only pursuant to a registration statement under the
Securities Act or an applicable exemption, including pursuant to Rule 144.
Under Rule 144, a person who has owned Common Stock for at least one year
may, under certain circumstances,
12
<PAGE>
sell within any three-month period a number of shares of Common Stock that
does not exceed the greater of 1% of the then outstanding shares of Common
Stock or the average weekly trading volume during the four calendar weeks
prior to such sale. In addition, a person who is not deemed to have been an
affiliate of the Company at any time during the three months preceding a
sale, and who has beneficially owned the restricted securities for the last
two years is entitled to sell all such shares without regard to the volume
limitations, current public information requirements, manner of sale
provisions and notice requirements. Sales or the expectation of sales of a
substantial number of shares of Common Stock in the public market by the
Selling Stockholders could adversely affect the prevailing market price of
the Common Stock, possibly having a depressive effect on any trading market
for the Common Stock, and may impair the Company's ability to raise capital
at that time through additional sale of its equity securities.
The holders of the Warrants have been granted registration rights with
respect to the 1,347,463 shares issuable upon exercise of the Warrants. The
sale, or availability for sale, of the outstanding Common Stock underlying
the Warrants in the public market by the Selling Stockholders could adversely
affect the prevailing market price of the Common Stock and could impair the
Company's ability to raise additional capital. See "DESCRIPTION OF
SECURITIES."
NO DIVIDENDS ANTICIPATED. The Company has not declared or paid any dividends
on its Common Stock and there is no assurance that the Company will pay
dividends in the future. The Company currently intends to retain future
earnings to fund the development and growth of its businesses, to repay
indebtedness and for general corporate purposes, and, therefore, does not
anticipate paying any cash dividends in the foreseeable future. Any future
determination to declare and pay dividends will be made by the Board of
Directors of the Company in light of the Company's earnings, financial
position, capital requirements, credit agreements and such other factors as
the Board of Directors deems relevant. Any decision to pay dividends is
subject to Delaware law, under which the Company is permitted to pay cash
dividends to the Company only (i) out of the Company's capital surplus (the
excess of net assets over stated capital) or (ii) out of the net income of
the Company for the fiscal year in which the dividend is declared and/or the
preceding fiscal year. See "DESCRIPTION OF SECURITIES."
SECONDARY TRADING RESTRICTIONS. The Common Stock is governed by a Commission
rule for "penny stocks" (defined as stocks that cost $5.00 or less per share)
that imposes additional sales practice burdens and requirements upon
broker-dealers which sell such securities to persons other than established
customers and accredited investors (generally institutions with assets in
excess of $5,000,000 or individuals with a net worth in excess of $1,000,000
or annual income exceeding $200,000 or $300,000 jointly with their spouse).
For transactions covered by this penny stock rule, broker-dealers must make a
special suitability determination for the unaccredited purchaser and receive
the purchaser's written agreement to the transaction prior to the sale.
Consequently, the penny stock rule may affect the ability of broker-dealers
to sell the Company's securities and also may affect the ability of persons
now owning or subsequently acquiring the Company's securities to resell such
securities in any trading market that may develop. Although the Company's
goal is to have its securities included in the National Association of
Securities Dealers Automated Quotation System ("NASDAQ"), which would
13
<PAGE>
exempt such securities from the above rule, there is no assurance that the
Company will meet the NASDAQ listing requirements.
SPECIAL NOTE--FORWARD-LOOKING STATEMENTS
Certain statements contained in this Registration Statement, including,
without limitation, statements containing the words "believes,"
"anticipates," "expects," "estimates," "intends" and words of similar import,
are intended to identify such expressions as "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 Prospectus. Certain of these factors are discussed in more detail
elsewhere in "RISK FACTORS." Given these uncertainties, readers of this
Registration Statement and investors are cautioned to consider carefully
these factors in addition to the other information set forth in this
Prospectus, and 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's actual results, performance or achievements could
differ materially from the results expressed in or implied by these
forward-looking statements.
SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock by the Selling Stockholders as of July 24, 1998,
and the number of shares of Common Stock covered by this Prospectus.
<TABLE>
<CAPTION>
NUMBER OF
SHARES NUMBER OF
BENEFICIALLY MAXIMUM SHARES
OWNED PRIOR NUMBER OF BENEFICIALLY
TO SHARES OWNED AFTER PERCENT OF
SELLING STOCKHOLDER OFFERING(1) OFFERED(2) OFFERING OUTSTANDING
------------ ---------- ------------ -----------
<S> <C> <C> <C> <C>
JNC Opportunity Fund ____________ __________ 0 0
Ltd.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
JNC Strategic Fund ____________ __________ 0 0
Ltd.
Diversified Strategies ____________ __________ 0 0
Fund, L.P.
</TABLE>
(1) Includes (i) the number of shares of Common Stock issuable upon
conversion of Debentures assuming conversion at the conversion formula
price in effect on July __, 1998 (which price will fluctuate from time to
time based on changes in the market price of the Common Stock and
provisions in the formula for determining the conversion price) and
(ii) the number of shares of Common Stock issuable upon exercise in full of
the Warrants. The Debentures and the Warrants were issued by the Company
to the following Selling Stockholders in October, 1997, November, 1997,
January, 1998, March, 1998, April, 1998 and June, 1998, in transactions
exempt from the registration requirements of the Securities Act. The
Warrants were issued to the Selling Stockholders for the following number
of shares of Common Stock: JNC Opportunity Fund Ltd. - 922,690; JNC
Strategic Fund Ltd. - 318,810; and Diversified Strategies Fund, L.P. -
105,963. The shares to be sold shall include, in addition to the numbers
indicated, any additional shares of Common Stock of the Company that become
issuable in connection with the Shares by reason of any stock divided,
stock split, recapitalization or other similar transaction effected without
the receipt of consideration that results in an increase in the number of
outstanding shares of the Company's Common Stock.
(2) In order to provide for (i) fluctuations in the market price of the
Common Stock, (ii) provisions in the formula for determining the conversion
price of the Debentures provided for therein, and (iii) shares of Common
Stock which may be issued for payment of interest on the Debentures, the
aggregate number of shares of Common Stock registered hereby exceeds the
aggregate number of such shares issuable upon conversion of Debentures at
the conversion price in effect on the date hereof.
PLAN OF DISTRIBUTION
The Selling Stockholders may, from time to time, sell all or a portion of the
Shares on the OTC Bulletin Board, in privately negotiated transactions or
otherwise, at fixed prices that may be changed, at market prices prevailing
at the time of sale, at prices related to such market prices or at negotiated
prices. The Shares may be sold by the Selling Stockholders by one or more of
the following methods, without limitation: (a) block trades in which the
broker or dealer so engaged will attempt to sell the Shares as agent but may
position and resell a portion of the block as principal to facilitate the
transaction, (b) purchases by a broker or dealer as principal and resale by
such broker or dealer for its account pursuant to this Prospectus, (c) an
exchange distribution
15
<PAGE>
in accordance with the rules of such exchange, (d) ordinary brokerage
transactions and transactions in which the broker solicits purchasers,
(e) privately negotiated transactions, (f) short sales and (g) a combination
of any such methods of sale. In effecting sales, brokers and dealers engaged
by the Selling Stockholders may arrange for other brokers or dealers to
participate. Brokers or dealers may receive commissions or discounts from the
Selling Stockholders (or, if any such broker-dealer acts as agent for the
purchaser of such shares, from such purchaser) in amounts to be negotiated
which are not expected to exceed those customary in the types of transactions
involved. Broker-dealers may agree with the Selling Stockholders to sell a
specified number of such Shares at a stipulated price per share, and, to the
extent such broker-dealer is unable to do so acting as agent for a Selling
Stockholder, to purchase as principal any unsold Shares at the price required
to fulfill the broker-dealer commitment to the Selling Stockholders.
Broker-dealers who acquire Shares as principal may thereafter resell such
Shares from time to time in transactions (which may involve block
transactions and sales to and through other broker-dealers, including
transactions of the nature described above) in the over-the-counter market or
otherwise at prices and on terms then prevailing at the time of sale, at
prices then related to the then-current market price or in negotiated
transactions and, in connection with such resales, may pay to or receive from
the purchasers of such Shares commissions as described above. The Selling
Stockholders may also sell the Shares in accordance with Rule 144 under the
Securities Act, rather than pursuant to this Prospectus.
The Selling Stockholders and any broker-dealers or agents that participate
with the Selling Stockholders in sales of the Shares may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with
such sales. In such event, any commissions received by such broker-dealers or
agents and any profit on the resale of the Shares purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act.
From time to time the Selling Stockholders may engage in short sales, short
sales against the box, puts and calls and other transactions in securities of
the Company or derivatives thereof, and may sell and deliver the Shares in
connection therewith or in settlement of securities loans. If the Selling
Stockholders engage in such transactions, the conversion price may be
affected. From time to time the Selling Stockholders may pledge their Shares
pursuant to the margin provisions of its customer agreements with its
brokers. Upon a default by the Selling Stockholders, the broker may offer and
sell the pledged Shares from time to time.
The Company is required to pay all fees and expenses incident to the
registration of the Shares, including fees and disbursements (not to exceed
an aggregate of $5,000) of counsel to the Selling Stockholders. The Company
has agreed to indemnify the Selling Stockholders against certain losses,
claims, damages and liabilities, including liabilities under the Securities
Act.
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.
16
<PAGE>
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 "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.
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".
17
<PAGE>
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 Statement as outstanding as of June
30, 1998. The Company has notified its transfer agent accordingly.
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 "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
18
<PAGE>
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 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.
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
19
<PAGE>
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, 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.
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>
<C> <C> <C>
Amount and Nature
Name and Address of Beneficial
Beneficial Owner Ownership Percent of
Class
Mark Fixler 4,644,392 15.4%
3637 South Green Road
20
<PAGE>
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.
<TABLE>
<CAPTION>
COMMON STOCK
<S> <C> <C>
Name and Address Amount and Nature
of Beneficial Owner of Beneficial Ownership Percent of
Class
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.
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
21
<PAGE>
voluntary or involuntary, to share equally in the assets of the Company
available for distribution to stockholders. The Board of Directors is
authorized to issue additional shares of Common Stock on such terms and
conditions and for such consideration as the Board may deem appropriate
without further stockholder action. Reference is made to the Company's
Amended and Restated Certificate of Incorporation and Bylaws which are
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.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES.
Officers and directors of the Company are indemnified by the Company in
accordance with Article X of its Amended and Restated Certificate of
Incorporation, and Article VI of its Bylaws, under each, to the maximum
extent permissible by law. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers and
controlling persons of the Company pursuant to the Delaware General
Corporation Law or the provisions of the Company's Amended and Restated
Certificate of Incorporation or Bylaws, or otherwise, the Company has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for the indemnification against
such liabilities (other than the payment by the Company of expenses incurred
or paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Company will, unless in
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the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
DESCRIPTION OF BUSINESS
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 "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS 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.
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
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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.
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
"DESCRIPTION OF BUSINESS--PATENTS, TRADEMARKS AND LICENSES" and "MANAGEMENT'S
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DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--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
"DESCRIPTION OF BUSINESS--CALIFORNIA GRANT AND ALLIED SIGNAL AGREEMENT."
In connection with the Company's initial registration of the Common Stock,
the financial statements for the years ended December 31, 1996 and 1997 have
been restated 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
Facility. The restated purchase price of $3,400,000 has been reallocated on
the same basis as the components of the appraised fair market value of the
Facility at the time of the purchase.
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
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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 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
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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
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.
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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 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 "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
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dedicated to the payment of the principal of and interest on its existing
indebtedness, thereby reducing funds available for operations; (iii) the
agreements governing the Company's indebtedness and convertible debentures
contain certain restrictive covenants. The Company's ability to make
scheduled payments of the principal of, or interest on, or to refinance, its
indebtedness will depend on its future operating performance and cash flow,
which are subject to prevailing economic conditions, primarily interest rate
levels and financial, competitive, business and other factors, many of which
are beyond its control.
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
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
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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 "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 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
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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. Mr. Kittelson has entered into a written employment agreement
with the Company with a term of five years commencing July 16, 1998. See
"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.
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.
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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.
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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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.
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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.
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 "DESCRIPTION OF BUSINESS,
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- --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.
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 "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 "DESCRIPTION OF
BUSINESS--RECENT DEVELOPMENTS."
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<PAGE>
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.
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
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<PAGE>
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>
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
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<PAGE>
date Pallet Technologies had ordered its equipment, making a commitment of
approximately $3,700,000. This additional 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 "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
used 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.
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.
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<PAGE>
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 payment of interest thereon and exercise of
such warrants. Except in limited circumstances, the conversion rights are
subject to an aggregate limit of 4.9% of the Company's outstanding Common
Stock.
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 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 payment of interest thereon and exercise of
such warrants. Except in limited circumstances, the conversion rights are
subject to an aggregate limit of 4.9% of the Company's outstanding Common
Stock.
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 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 payment of interest thereon and exercise of such
warrants. Except in limited circumstances, the conversion rights are subject
to an aggregate limit of 4.9% of the Company's outstanding Common Stock.
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 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 payment of interest thereon and exercise of
such warrants. Except in limited circumstances, the conversion rights are
subject to an aggregate limit of 4.9% of the Company's outstanding Common
Stock.
The debenture transaction documents include additional representations,
warranties, covenants and default provisions often customary for such
financings.
YEAR 2000 COMPLIANCE
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<PAGE>
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.
DESCRIPTION OF PROPERTY
The Facility is located in an industrial park which is about three miles from
Interstate 70 and two miles from U.S. Highway 40, within the city limits of
Heath (Licking County), Ohio. The closest metropolitan area is Columbus,
Ohio, about 30 miles away. There is vacant land to the north which has been
zoned for additional industrial buildings. The site is approximately 10
acres.
The Facility was constructed in 1991 and includes 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.
BASIS LIFE CLAIMED METHOD
----- ------------ ------
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<PAGE>
Building $1,000,000 39 years Straight-line
Equipment $11,600,000 10 years Straight-line
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,
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.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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
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<PAGE>
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, 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 "DESCRIPTION OF BUSINESS, --ACQUISITION OF THE FACILITY, and --PALLET
TECHNOLOGY;" "MARKET PRICE OF AND DIVIDENDS ON REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS;" "RECENT SALES OF UNREGISTERED SECURITIES;"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, --PHASE 2, --PHASE 3, and --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 "DESCRIPTION OF BUSINESS--RECENT
DEVELOPMENTS."
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MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND OTHER
STOCKHOLDER 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.
Mr. Aisenberg holds an option to purchase 200,000 shares of Common Stock
under his employment agreement with the Company. Mr. Kittelson holds an
option to purchase 500,000 shares of Common Stock, none of which are
currently vested, under his employment agreement and his incentive stock
option agreement with the Company, each dated July 16, 1998. The option to
purchase 4,000,000 shares of Common Stock previously held by Mr. Fixler were
cancelled in April, 1998. See "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.
QUARTER
ENDING HIGH LOW
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
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.
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,
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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.
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.
Mr. Kittelson is party to a five year employment contract with the Company dated
July 16, 1998. Under this agreement, the Company pays him a salary of $125,000
per year. He is also eligible for annual bonuses and raises subject to the
approval of the Board of Directors of the Company. In addition, Mr. Kittelson
receives a car allowance and other benefits customarily given to executive
officers. He is Chief Financial Officer of the Company. He was not employed by
the Company during fiscal year 1996 or 1997. Pursuant to his employment
agreement, and his
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incentive stock option agreement, each dated July 16, 1998, Mr. Kittelson was
granted an option to purchase 500,000 shares of common stock of the Company
at a price of $4.18 per share, with the option to 100,000 of those 500,000
shares vesting on each anniversary of those agreements.
The Company currently has no stock appreciation rights, long-term incentive,
stock option plans or similar benefit plans for its executives or other
employees.
FINANCIAL STATEMENTS
The audited financial statements of the Company as of December 31, 1996 and
as of December 31, 1997 included in the Prospectus have been audited by
Harmon & Company, CPA, Inc., Columbus, Ohio, an independent public accounting
firm, as indicated in its report with respect thereto, and are included
herein in reliance upon the authority of Harmon & Company, CPA, Inc. as an
expert in accounting and auditing and in giving said reports.
LEGAL MATTERS
The validity of the securities offered by the Prospectus is being passed upon
for the Company by Bricker & Eckler LLP, 100 South Third Street, Columbus, Ohio
43215-4291.
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 the Form 10-SB. The Company has had no material disagreements with its
accountants.
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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, and unaudited
consolidated balance sheet and consolidated income statement and statement of
retained earnings for the three month period ending March 31, 1998, are
included.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
- --------
<S> <C>
Available Information and
Information Incorporated by Reference 5
Risk Factors 6
Special Note--Forward-Looking Statements 14
Selling Stockholders 14
Plan of Distribution 15
Legal Proceedings 16
Directors, Executive Officers, Promoters and Control Persons 16
Security Ownership of Certain Beneficial Owners and Management 17
Description of Securities 18
Disclosure of Commission Position of Indemnification for
Securities Act Liabilities 19
Description of Business 19
Management's Discussion and Analysis of Financial Condition
and Results of Operations 25
Description of Property 29
Certain Relationship and Related Transactions 30
Market Price of and Dividends on the Registrant's Common
Equity and Other Stockholder Matters 30
Executive Compensation 31
Financial Statements 32
Legal Matters 32
Changes in and Disagreements with Accountants 32
</TABLE>
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
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 that
Certificate provides, in accordance with Section 145 of the General
Corporation Law of Delaware, that a director shall not be personally liable
to the Company or its stockholders for breach of duty or care or other duty
as a director, except for liability for acts not in good faith or which
involve intentional misconduct, or any transaction in which the director
derived an improper personal benefit or for any type of liability not
contemplated by Section 145 of the General Corporation Law of Delaware. As a
result of the Company's Amended and Restated 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
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<PAGE>
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 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.
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<PAGE>
(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.
(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).
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses in connection with the issuance and distribution of the securities
being registered, other than underwriting compensation, are:
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<TABLE>
<S> <C>
SEC Filing Fee for Registration Statement. . $16,030
Accounting Fees. . $2,470
Legal Fees and Expenses. . $17,000
Miscellaneous. . $2,000*
TOTAL. . $37,500*
</TABLE>
*Estimated Amount
All of the expenses listed above will be borne by the Company.
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)
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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.
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<PAGE>
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 $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.
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<PAGE>
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 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 and payment of interest thereon.
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 payment of interest
thereon 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 payment of interest thereon 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 payment of interest thereon and exercise of such warrants.
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<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 payment of interest thereon 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 each 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 transactions 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
debentures issued in June, 1998 and in lieu of certain penalties for failure
to timely effect the Registration Statement on Form SB-2 and the 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.
INDEX TO EXHIBITS
<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
55
<PAGE>
Lifechoice,
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 Quantum Chemical 10/29/96
Purchase and Sale Agreement Corporation and Fix-Corp
Agreement 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
5.1 (4) Opinion of Bricker & Eckler LLP
regarding the legality of the
securities being registered
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
56
<PAGE>
Funding Division, Lender
and Fixcor Industries,
Inc., Borrower, and Mark
Fixler, Guarantor
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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<C> <C> <S> <C>
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
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
58
<PAGE>
Purchase Agreement Inc., JNC Opportunity Fund
Ltd. and Diversified
Strategies Fund, L.P.
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.
59
<PAGE>
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.
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
60
<PAGE>
Corp International, Inc.
10.42(1) 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
10.43(1) 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(1) 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(1) 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(1) 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
61
<PAGE>
10.47(1) Convertible Debenture Fix-Corp International, 6/25/98
Purchase Agreement Inc. and JNC Opportunity
Fund Ltd.
10.48(1) 4% Convertible Debenture Fix-Corp International, 6/25/98
Due June 25, 2001 Inc. and JNC Opportunity
Fund Ltd.
10.49(1) Registration Rights Fix-Corp International, 6/25/98
Agreement Inc. and JNC Opportunity
Fund Ltd.
10.50(1) Warrant Fix-Corp International, 6/25/98
Inc. and JNC Opportunity
Fund Ltd.
10.51(1) Letter Agreement Fix-Corp International, 6/25/98
Inc., JNC Opportunity Fund
Ltd., JNC Strategic Fund
Ltd. Diversified Strategies
Fund, L.P.
10.52(4) Executive Employment Fix-Corp International, 7/16/98
Agreement Chief Inc. and Roger
Financial Officer Kittelson
10.53(4) Incentive Stock Fix-Corp International, 7/16/98
Option Agreement Inc. and Roger
Kittelson
11(1) Statement re: Computation
of Per Share Earnings
21(4) Subsidiaries (name, state of incorporation,
names under which each does business)
23.1(4) Consent of Harmon & Company, CPA, Inc.
22.2(5) Consent of Bricker & Eckler LLP
24(6) Powers of Attorney
27(4) Financial Data Schedule
</TABLE>
62
<PAGE>
(1) Filed with the Registration Statement on Form 10-SB, as amended on Form
10-SB/A by the Company on November 17, 1997, on December 22, 1997, on March
2, 1998, and on July 15, 1998, each with SEC File No. 000-23369, and
effective by lapse of time on January 12, 1998.
(2) Filed with the Registration Statement on Form SB-2 filed by the Company
on January 20, 1998, SEC File No. 333-44551.
(3) Filed with the Annual Report on form 10-KSB filed by the Company on June
2, 1998, SEC File No. 333-23369.
(4) Filed herewith.
(5) Included in Exhibit 5.1
(6) Included on the signature page of this registration statement as
initially filed January 20, 1998
UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement; and notwithstanding the
forgoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of
prospects filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in the volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(iii) To include any additional or changed material information on
the plan of distribution.
(2) For the purpose of determining any liability under the Securities Act,
to treat each post-effective amendment as a new registration statement of
the securities offered, and the offering of such securities at that time to
be the initial bona fide offering.
63
<PAGE>
(3) To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the termination of the offering.
(b) The undersigned Registrant, hereby requesting acceleration of the
effective date of the registration statement under Rule 461 under the
Securities Act, hereby undertakes to include the following:
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Company pursuant to the provisions of the Delaware General Corporation Law
or of the Amended and Restated Certificate of Incorporation or Bylaws of
the Company, or otherwise, the Company has been advised that in the opinion
of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred
or paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Company will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT CERTIFIES
THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM SB-2 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF BEACHWOOD, STATE OF OHIO, ON JULY 24, 1998.
FIX-CORP INTERNATIONAL, INC.
BY: /s/ Mark Fixler
-------------------------------
MARK FIXLER
CHAIRMAN OF THE BOARD OF DIRECTORS AND
CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
THE UNDERSIGNED OFFICERS AND DIRECTORS OF FIX-CORP INTERNATIONAL, INC., HEREBY
SEVERALLY CONSTITUTE AND APPOINT MARK FIXLER AND ANDREW I. PRESS, AND EACH OF
THEM SINGLY, OUR TRUE AND LAWFUL ATTORNEYS AND AGENTS, WITH FULL POWER TO THEM,
AND EACH OF THEM, TO
64
<PAGE>
SIGN FOR US AND IN OUR NAMES IN THE CAPACITIES INDICATED BELOW, THE
REGISTRATION STATEMENT ON FORM SB-2 FILED HEREWITH AND ANY AND ALL
PRE-EFFECTIVE AND POST-EFFECTIVE AMENDMENTS TO SAID REGISTRATION STATEMENT,
AND GENERALLY TO DO ALL SUCH THINGS IN OUR NAMES AND ON OUR BEHALF IN OUR
CAPACITIES AS OFFICERS AND DIRECTORS TO ENABLE FIX-CORP INTERNATIONAL, INC.
TO COMPLY WITH THE PROVISIONS OF THE SECURITIES ACT AND ALL REQUIREMENTS OF
THE SECURITIES AND EXCHANGE COMMISSION, HEREBY RATIFYING AND CONFIRMING OUR
SIGNATURES AS THEY MAY BE SIGNED BY OUR SAID ATTORNEYS, OR ANY OF THEM, TO
SAID REGISTRATION STATEMENT AND ANY AND ALL AMENDMENTS THERETO.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES
AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
-------- ----
<C> <S> <C>
/s/ Mark Fixler Chairman of the Board of Directors, July 24, 1998
- --------------- President and Chief Executive Officer
MARK FIXLER (Principal Executive Officer)
/s/ Roger A. Kittelson Chief Financial Officer July 24, 1998
- ---------------------- (Principal Accounting and
ROGER A. KITTELSON Financial Officer)
Treasurer and Director July __, 1998
- ----------------
ANDREW I. PRESS
Vice President and Director July __, 1998
- --------------------
GARY M. DELAURENTIIS
Director July __, 1998
- ---------------
MICHAEL DISANTO
Director July __, 1998
- --------------
S. DARWIN NOLL
Director July __, 1998
- ---------------------
LAWRENCE C. SCHMELZER
</TABLE>
<PAGE>
[LETTERHEAD]
(614) 227-2326
July 24, 1998
Board of Directors
Fix-Corp International, Inc.
3637 South Green Road, Suite 201
Beachwood, Ohio 44122
Gentlemen:
Reference is made to the filing by Fix-Corp International, Inc., a
Delaware corporation (the "Company"), of Amendment No. 1 to the Registration
Statement on Form SB-2 (the "Registration Statement") with the Securities and
Exchange Commission pursuant to the provisions of the Securities Act of 1933,
as amended, covering the registration of _________ shares of the Company's
Common Stock, $.001 par value per share (the "Common Stock").
We have examined the Company's corporate records, including its Restated
and Amended Certificate of Incorporation, as amended, By-Laws, its corporate
minutes, the form of its Common Stock certificates and such other documents
and information as we have deemed necessary or relevant under the
circumstances.
Based upon the foregoing, we are of the opinion that the Company is a
duly incorporated and legally existing corporation under the laws of the
State of Delaware. We are also of the opinion, based on the foregoing and
assuming compliance with applicable federal and state securities laws, that
the Common Stock issuable upon conversion of the Debentures and exercise of
the Warrants described in the Registration Statement will be, when converted
or exercised pursuant to their terms, validly issued and outstanding, fully
paid and non-assessable.
<PAGE>
Board of Directors
Fix-Corp International, Inc.
July 24, 1998
Page 2
We hereby consent to be named in the Registration Statement and in the
Prospectus which constitutes a part thereof as counsel of the Company, and we
hereby consent to the filing of the opinion as Exhibit 5.1 to the
Registration Statement.
Very truly yours,
BRICKER & ECKLER LLP
/s/ Steven R. Kerber
---------------------------------
Steven R. Kerber
A Partner
<PAGE>
EXECUTIVE EMPLOYMENT AGREEMENT
CHIEF FINANCIAL OFFICER
THIS AGREEMENT made and entered into at Beachwood, Ohio on this 16th day of
July, 1998, by and between FIX-CORP INTERNATIONAL, INC., a duly organized and
existing Delaware corporation having a usual place of business in Beachwood,
Ohio (hereinafter referred to as the "Company"), and ROGER KITTELSON, whose
address is 303 E. Streetsboro Street, Hudson, Ohio 44236 (hereinafter referred
to as the "Executive").
WITNESSETH:
WHEREAS, Fix-Corp desires to employ Executive as the Chief Financial
Officer of the Company and Executive desires to accept such position
and employment pursuant to the terms and conditions hereinafter set
forth.
WHEREAS, the continued availability of Executive's services is
regarded by the Company as important to its continued corporate growth
and success, and Executive desires to formalize his employment with
the Company.
NOW THEREFORE, in consideration of the mutual promises hereinafter set
forth, the parties hereto agree as follows:
1. EMPLOYMENT AND DUTIES. The Company hereby employs the Executive in
the capacity of Chief Financial Officer and to perform such other duties
consistent with his executive status, as may be determined and assigned to
him by the Company's Chief Executive Officer ("CEO"), President and/or Board
of Directors of the Company.
2. PERFORMANCE. Executive agrees to devote all of his time and efforts
to the performance of his duties as Chief Financial Officer of the Company
and to the performance of such other duties consistent with his executive
status as are assigned to him from time to time by the CEO, President or by
the Directors of the Company. During said employment, Executive agrees not to
engage in any other business activity, whether or not said activity is
pursued for gain, profit. or other pecuniary advantage(s), without first
obtaining written consent from the Company's President or CEO; provided,
however, that subject to the provisions as set forth hereinafter, nothing
contained in this Agreement shall be construed as preventing Executive from
investing his assets in such form or manner as will not require any services
on his part in operation of the affairs of the business organization in which
such investments are made. Executive will devote his best efforts to the
needs of the Company and its subsidiaries and affiliates, and shall not allow
his investing activities to materially interfere with his duties to Company-
The Executive may have reasonable time off to attend professional courses and
<PAGE>
programs necessary to maintain his license and/or registration as a certified
public accountant in Ohio.
In addition to the foregoing, Executive further agrees that (i) he will
be loyal to the Company and its subsidiaries and affiliates, (ii) he will not
disclose to competitors information, financial or otherwise, confidential to
the Company and its subsidiaries and affiliates; and, (iii) he will use his
best efforts to promote the business of the Company and its subsidiaries and
affiliates.
3. TERM. Except in the case of earlier termination, as hereinafter
specifically provided, the term of this contract shall be. for five (5)
years, commencing on July 16, 1998. This Agreement shall be automatically
renewed for a successive five (5) year term (the "Renewal Term") unless
either party gives notice of its intention no to renew by delivering written
notice to the other party not less than 90 days prior to the expiration of
the existing term.
4. COMPENSATION. For all the services to be rendered by Executive in
any capacity hereunder including services as Chief Financial Officer, or any
other duties assigned to him by the CEO, President or by the Directors of the
Company, the Company agrees to pay Executive as follows:
(a) During the Employment Period an annual base salary of One Hundred
Twenty-Five Thousand Dollars ($125,000.00), plus such increases as the Board
of Directors of the Company, in its sole discretion, may grant from time to
time, which salary shall be payable in accordance with customary Company
policies and practices. Executive shall also be entitled to participate in
any annual bonus plan established by the Board of Directors of the Company;
provided, however, that the foregoing shall not be construed to guarantee a
bonus to the Executive or the establishment of such plan.
(b) If Fix Corp elects to cancel this Agreement prior to the end of the
Employment Period, or if this Agreement is renewed, Fix Corp elects to cancel
this Agreement prior to the end of the Renewal Term, voluntarily and without
cause, then the Executive is entitled to receive a total of One Hundred
Twenty-Five Thousand Dollars ($125,000.00) in severance benefits, payable in
a lump sum less payroll taxes within thirty (30) days after the effective
date of such termination. Any such termination of this Agreement by Fix-Corp
shall also terminate services being provided by the Executive to the
Company's subsidiaries and affiliates.
5. INSURANCE. (a) The Company, at its expense, shall provide Executive
with family coverage in the medical and hospitalization insurance program
offered by the Company. The Company, at its expense, shall also provide
Executive with disability income insurance protection and any group life
insurance that is provided for any other executive or principals of the
Company.
(b) The Company shall also provide and pay for life insurance on the
life of the Executive for Two Hundred Fifty Thousand Dollars ($250,000.00)
provided the Executive is insurable at reasonable rates. The Executive
represents he is in good health and has no pre-
2
<PAGE>
existing health conditions which would preclude the Company obtaining such
insurance at reasonable prevailing rates. If the Executive is not insurable
at reasonable rates, then the Company shall not be obligated to provide such
insurance coverage. The beneficiary of such policy shall be the Executive's
spouse or such other person(s) as the Executive shall designate in writing to
the insurance company. The owner of the policy shall be the Company.
(c) Executive agrees that the Company, in its discretion, may apply for
and procure in its own name and for its own benefit, life insurance in any
amount or amounts considered advisable; and that he shall have no right,
title or interest therein; and further, agrees to submit to any medical or
other examination and to execute and deliver any application or other
instrument in writing, reasonably necessary to effectuate such insurance.
6. PENSION AND PROFIT SHARING. The Company shall include Executive in
all Company pension and profit-sharing plans in a comparable manner as
provided for its other executives.
7. MISCELLANEOUS BENEFITS. The Company agrees to provide Executive
with the following benefits at its sole expense:
(a) An automobile allowance of Five Hundred Dollars ($500.00) per month.
(b) Professional dues and program costs for all professional
organization memberships and continuing educational programs deemed
reasonably necessary by Executive to maintain his professional standing as a
certified public accountant and as Chief Financial Officer of the Company.
(c) Sick leave benefits as are granted pursuant to Company policy.
(d) Vacation benefits as follows: Executive shall be entitled during
each 12 month period of this Agreement to a vacation of four (4) weeks,
during which time the Executive's compensation shall continue to be paid. The
Executive shall schedule all such vacation time with Fix-Corp's CEO and
President at least two (2) weeks in advance of the time sought for such
vacation(s). The length of time of such vacation(s) and the accessibility of
the Executive during such vacation(s) must be commercially reasonable such
that the Executive shall not be unavailable to perform his duties for
unreasonable lengths of time. Vacation time shall not accumulate from year to
year and any unused vacation time which shall remain at the end of each 12
month period of employment beginning with the execution date of this
Agreement shall be paid to the Executive at the end of each 12 month period
on a per diem rate upon his yearly compensation as set forth in Section 4
above.
(e) All expenses, including meals, lodging, transportation and
miscellaneous, for business and related travel which are approved in advance
by the President and/or CEO of the Company and excepting those expenses
associated with the automobile allowance being received by the Executive as
described in Section 7(a) above. The Company agrees to reimburse the
Executive for said travel expenses upon written request.
3
<PAGE>
(f) Disability benefits, to include payment to Executive of the
periodic salary installments as stated above, for a period no more than
twelve (12) months from the date of disability rendering the Executive unable
to perform his normal duties as Chief Financial Officer of the Company.
(g) Executive shall receive an incentive stock option to purchase five
hundred thousand (500,000) shares (the "Shares") of restricted, unregistered
stock of Fix-Corp International, Inc. at market price as of the close of the
exchange on July 16, 1998. These incentive stock options are not vested. On
July 16, 1999 (1st anniversary of date of grant), an option to purchase
100,000 (ie. 20%) shares will become vested. The remaining incentive stock
options will vest at the rate of 100,000 shares on each anniversary date
thereafter (ie. July 16, 2000; July 16, 2001; July 16, 2002; and July 16,
2003). No further vesting of shares shall occur on or after the date either
party gives notice of termination of the employment of the Executive for
whatever reason(s). The vested option(s) may be exercised by the Executive at
any time during the Employment Period or Renewal Term if the Agreement has
been renewed, by written notice given by certified mail return receipt
requested to the Executive to the Company's President and/or CEO. This option
is not assignable by the Executive. If the Executive's employment with the
Company is terminated pursuant to Section 4(b), then the Executive's option
to purchase the Shares shall terminate within ninety (90) days after the
Executive receives written notice that his employment with the Company is
being terminated. In the event that the Executive's employment is terminated
with cause as hereinafter defined and/or voluntarily by the Executive, then
the Executive's option to purchase the Shares as set forth above shall
terminate effective on the earlier of the date he is terminated, or the date
he received written notice of his termination, or the date upon which the act
or omission giving rise to Executive's termination for cause occurred. The
Shares referred to above resulting from exercise of the Executive's option
being acquired by the Executive pursuant to this Agreement will be acquired
solely by and for the account of the Executive for investment and said shares
are not being acquired for resale or distribution. The Company expressly
acknowledges, and the Executive so agrees, that the shares are not registered
under Federal securities laws and under the law of any state, are not to be
registered as part of this Agreement and may not be sold without registration
under any applicable Federal or state securities laws and said shares will be
a legend so stating.
8. CONFIDENTIAL INFORMATION. Executive covenants and agrees with the
Company that he will not either during the term of his employment, or at any
time thereafter, disclose to anyone any confidential information concerning
the business, financial affairs, operations, research, patents, processes or
products of the Company and its subsidiaries and affiliates, or any other
knowledge or information which would not have been accessible to Executive
other than through his employment with the Company and its subsidiaries and
affiliates. In relation to all such confidential information, the Executive
shall not publish, disclose, or make accessible to any other person or entity
either during or after the termination of his employment and Executive
represents and warrants that he will only use such information during his
employment with the Company and then only for the benefit of the Company and
its subsidiaries and affiliates. Upon request at any time, Executive shall
deliver to the Company all tangible evidence of such confidential information
and documentation prior to or at the termination of his employment.
4
<PAGE>
Executive agrees that he will promptly disclose to the Company any and
all improvements, discoveries, ideas or inventions composing proprietary
intellectual property which may be material to the operations and business of
the Company (the "Improvements") which Improvements are made or conceived by
Executive, acting alone or in conjunction with others, either (a) during the
Employment Period, or (b) within three (3) years after the Employment Period
if such Improvements result from or were suggested by such employment.
Executive shall not disclose any such Improvements to any person except the
Company, and shall provide the Company written documentation of such
Improvements. Executive agrees that, at the request of the Company, Executive
will execute such applications, statements, assignments or other documents,
furnish such information and data and take all such other action (including
without limitation the giving of testimony) as the Company may from time to
time reasonably request in order to obtain for the Company a registration or
patent in the United State or any foreign county covering or pertaining to
any such Improvement.
9. NONCOMPETITION COVENANT. The Executive acknowledges that his
services and responsibilities are of particular significance to the Company
and that his position with the Company does and will continue to give him an
intimate knowledge of its business, business plans and finances. Because of
this, it is important to the Company that the Executive be restricted from
competing with the Company in the event of the termination of his employment.
The parties hereto further acknowledge and agree that the business of Company
and the sale of its goods and services is national and international in
scope. Based thereon, the Executive agrees that during the term of his
employment and during the period of three (3) years following the termination
of such employment, however terminated, whether voluntary or involuntary,
whether with cause or without cause, or whether by reason of the expiration
of the term of this agreement and whether or not his employment shall then be
covered by this agreement or an extension thereof, he will not, either as an
individual on his own account or as a partner, employee, agent, executive or
employee of any other person, firm, association, corporation, or any other
business entity, either directly or indirectly, within the United States or
any foreign country in which the Company and/or its subsidiaries and/or
affiliates is/are then doing business, do any of the following:
(a) directly or indirectly, without the prior written consent of the
Company, enter into or engage generally in any business which manufacturers,
sells or distributes any products in competition with the business of the
Company or its affiliates in those geographical areas in which the Company
conducts or has conducted such business during the Employment Period; and/or,
(b) convert to Executive's own use or the use of others, or memorize
for the purpose for converting to Executive's own use or to the use of
others, customers lists, customer leads and customer files belonging to and
in the possession of the Company; and/or,
(c) solicit, either directly or indirectly, any of the customers or
customer leads of the Company, confidential knowledge of which was obtained
by Executive's employment with the Company; and/or,
5
<PAGE>
(d) solicit, either directly or indirectly, any of the employees, staff
or officers of Company for the purpose of offering said employees, staff or
officers employment outside the Company whether such employment be a business
competitive with that of the Company or otherwise; and/or,
(e) make disclosure to any other person or entity of confidential
information acquired from the Company, including, but not limited to, the
names and addresses of the Company's customers, clients and accounts,
customer leads, the names and addresses of suppliers and financial
institutions and lenders doing business with the Company, policies and
procedures and methods developed for the operation of the Company, including
advertising techniques, accounting methods, manufacturing information,
techniques, processes and secrets, personnel procedures and the names and
addresses of all company employees, processes and research and development
being used and conducted by the Company, and all other policies and
procedures and processes utilized in the daily operation and success of the
Company's business; and/or,
(f) make disclosure to any person or entity of any confidential
information acquired by the Executive relating to the Company's business
and/or business expansion plan(s), finances, financial status, operating
and/or manufacturing processes and techniques, research and development,
solvency, banking relationships, and any other information acquired by the
Executive which would not have otherwise been disclosed to him had he not
been employed by the Company.
For purposes of this Section 9., any person, firm, association or
corporation that has a relationship with the Company and which shall have
been terminated prior to the date of the termination of employment of
Executive as a result of any direct or indirect activities on the part of
Executive calculated to divert or to entice business, opportunities or
patronage away from the Company shall be considered to have continued as such
customer as of the date of the termination of Executive's agreement.
The aforesaid covenants as contained in the terms and provisions of this
Section 9. entered into by and between Company and Executive represent the
essence of this agreement and they shall be construed as independent on any
other provisions of this agreement. The existence of any claim or cause of
action of the Executive against the Company, whether predicated on this
agreement or otherwise, shall not constitute a defense to the enforcement by
Employer of these covenants.
Recognizing the irreparable nature of the injury that could result from
Executive's violation of the provisions of this Section 9. of this agreement,
and that damages would be inadequate compensation, it is agreed by and
between the parties hereto that any violation by Executive of the provisions
of this Section 9. of this agreement shall be the proper subject for
immediate injunctive and other equitable relief to the Company in any Court
of competent jurisdiction. Executive further agrees to communicate the
content of this Section 9. to any prospective employer, entity or associate
of his engaged in a business competitive to the business
6
<PAGE>
of the Company and for whom the Executive intends to render services within
three (3) years after termination of his employment with the Company.
Executive agrees and acknowledges that the restrictions contained in
this contract are reasonable and necessary in order to preserve and protect
the Company's legitimate interests, and further that any violation of the
terms and conditions of this Section 9. will result in irreparable injury for
which the Company would have adequate remedy at law.
10. REPRESENTATIONS OF EMPLOYEE. Executive represents and warrants to
the Company that he is under no contractual or other restriction or
obligation which is inconsistent with the execution of this Agreement, the
performance of his duties hereunder, or the other rights of the Company or
its subsidiaries or affiliates hereunder and Executive is under no physical
or mental disability that would hinder his performance of duties under this
Agreement. Executive further represents that he is not subject to any
judgment or decree, the effect of which would prohibit, limit or otherwise
restrict the employment of the Executive by the Company pursuant to the terms
of this Agreement as well as the use by the Executive of his skills,
expertise and knowledge.
11. ASSIGNMENT. This Agreement may be assigned by the Company in the
event of a merger, consolidation and/or sale of its assets, and the rights
and obligations of the Company under this agreement shall inure to the
benefit of and shall be binding upon the Company's successors and assigns.
The Executive further agrees that the terms and conditions of this Agreement
shall be enforceable against the Executive by any successor or assigns of the
Company, whether such succession or assignment results from the merger and/or
consolidation of the Company or the sale of the Company's assets to any
purchaser.
12. DELETED
13. TERMINATION FOR CAUSE. Notwithstanding any other provision of this
Agreement, Executive's employment may be terminated immediately by the
Company at any time for cause. Cause shall exist if (i) Executive shall be
convicted of a crime, (ii) Executive shall commit any act or omit to take any
action negligently or in bad faith and to the detriment of the Company,
and/or its subsidiaries, affiliates and/or employees, including but not
limited to unauthorized disclosures of confidential information of the
Company and/or its subsidiaries' or affiliates, or (iii) Executive commits
acts of self dealing, or (iv) Executive shall breach any term of this
Agreement and fail to correct such breach within ten (10) days after
commission of the same, then, and in each such case, the Company shall have
the right to give notice of termination of Executive's services hereunder as
of a date (not earlier than ten (10) days from such notice) to be specified
in such notice and this Agreement shall terminate on the date so specified.
Any termination under this Section 13. shall be deemed to be with cause and
the severance provisions of Section 4(b) of this Agreement shall not apply to
such termination regardless of whether the Company fully complies with the
notice provisions set forth above.
In the event of Executive's termination of this employment for any
reason, Executive agrees that he, or in the event of his incapacity or death,
his legal representatives will
7
<PAGE>
immediately surrender to the Company in good condition all monies, motor
vehicles, merchandise, account books, memorandum, records, tools, keys and
other property, of whatsoever nature, tangible or intangible, which are in
his possession and which belong to or may reasonably be considered to relate
to or be, in any way, connected with the business of the Company. In the
event that said items are not so returned, the Company shall have the right
to recover said property and to deduct any compensation due and payable to
Executive, the reasonable value of said items plus all proper and reasonable
costs and expenses incurred in searching for, taking and removing and
recovering said property. In the event that said items are returned in
damaged condition or in other than in good and operable condition, reasonable
wear and tear excepted, the Company shall have the right to deduct from any
compensation due and payable to Executive, the reasonable value of repairing
and/or replacing said items.
14. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if sent by certified or
registered mail to his residence at 303 E. Streetsboro Street, Hudson, Ohio
44236 in the case of Executive, or to the Company at 3637 S. Green Road,
Suite 201, Beachwood, Ohio 44122 in the case of Fix-Corp.
15. WAIVER. The waiver by either party of a breach of any provision of
this agreement shall not operate or be construed as a waiver of any
subsequent breach of this agreement.
16. MISCELLANEOUS. Should any part of this contract for any reason be
declared invalid, such shall not affect the validity of any remaining portion
hereof, which remaining portion shall continue in force and effect as if this
contract had been executed with such invalid portion eliminated, and it is
hereby declared the intention of the parties hereof that they would have
executed the remaining portion of this contract without including any such
part, parts or portion which may for any reason be hereafter declared invalid.
This agreement supersedes any and all prior written or oral agreements
between the Executive and the Company and this agreement may not be changed
except by a writing executed by each party hereto. This agreement is executed
and delivered in Beachwood, Ohio and shall be construed and enforced in
accordance with the laws and decisions of the state of Ohio. In the event of
any litigation at any time arising hereunder it is specifically agreed among
the parties that the sole and exclusive jurisdiction and venue for such
litigation shall be Cuyahoga County, Ohio, except that in the event the
Company seeks to enforce the provisions of Section 9. of this Agreement
through injunctive relief, jurisdiction and venue as to such injunctive
relief and any damages associated with the breach of this agreement shall be
proper in any Court of competent jurisdiction.
The covenants, agreements, representations, and warranties contained in
or made pursuant to this Agreement shall survive Executive's termination of
employment.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this agreement as a
sealed instrument in the day and year first above written.
FIX-CORP INTERNATIONAL, INC. EXECUTIVE:
By: /s/ Gary DeLaurentiis By: /s/ Roger A. Kittelson
--------------------------------- --------------------------------
Gary DeLaurentiis, President Roger Kittelson
By: /s/ Mark Fixler
---------------------------------
Mark Fixler, Chairman & CEO
<PAGE>
INCENTIVE STOCK OPTION AGREEMENT
THIS INCENTIVE STOCK OPTION AGREEMENT made and entered into at
Beachwood, Ohio on this 16th day of July, 1998, by and between FIX-CORP
INTERNATIONAL, INC., a duly organized and existing Delaware corporation
having a usual place of business located at 3637 S. Green Road, Suite 201,
Beachwood, Ohio 44122 (hereinafter referred to as the "Company"), and ROGER
KITTELSON, whose address is 303 E. Streetsboro Street, Hudson, Ohio 44236
(hereinafter referred to as the "Executive").
WITNESSETH:
WHEREAS, on July 16, 1998, the Company and Executive entered into an
Executive Employment Agreement (the "Executive Employment Agreement")
which contains terms and conditions granting to the Executive certain
Incentive Stock Options; and,
WHEREAS, the Company has employed the Executive and considers it
desirable and in its best interest and as an added incentive to the
Executive to advance the interests of the Company, to grant to the
Executive options to purchase common shares of the Company.
NOW THEREFORE, in consideration of the mutual promises hereinafter set
forth, the parties hereto agree as follows:
1. GRANT OF INCENTIVE STOCK OPTIONS. The Company hereby grants to the
Executive the right to purchase Five Hundred Thousand (500,000) of the
Company's Common Stock $.001 par value, at a price of Four Dollars and 18/00
($4.18) per share. These Incentive Stock Options are granted as of July 16,
1998 and are subject to the terms and conditions hereinafter set forth and as
referred to in the Executive Employment Agreement.
2. TIME OF EXERCISE OF THE OPTION. These incentive stock options are
not vested. On July 16, 1999 (1st anniversary of date of grant), an option to
purchase 100,000 (ie. 20%) shares will become vested. The remaining incentive
stock options will vest at the rate of 100,000 shares on each anniversary
date thereafter (ie. July 16, 2000; July 16, 2001; July 16, 2002; and July
16, 2003). No further vesting of shares shall occur on or after the date
either party gives notice of termination of the employment of the Executive
for whatever reason(s).
Subject to the option termination provision hereinafter set forth, the
option may be exercised by the Executive at any time during the Employment
Period or Renewal Term if the
<PAGE>
Executive Employment Agreement has been renewed, by written notice given by
certified mail return receipt requested to the Company's President and/or
CEO. These options are not assignable by the Executive.
If the Executive's employment with the Company is terminated pursuant to
Section 4(b) of the Executive Employment Agreement, then the Executive's
option to purchase the Shares and the vesting of said shares as described
above, shall terminate within ninety (90) days after the Executive receives
written notice that his employment with the Company is being terminated. In
the event that the Executive's employment is terminated with cause as
provided in the Executive Employment Agreement and/or voluntarily by the
Executive, then the Executive's option to purchase the Shares and the vesting
of the shares as described above shall terminate effective on the earlier of
the date he is terminated, or the date he received written notice of his
termination, or the date upon which the act or omission giving rise to
Executive's termination for cause occurred. If the Executive's employment
with the Company is terminated due to death or disability, then the
Executive's option to purchase the Shares and the vesting of said shares as
described above, shall terminate (a) in the event of disability, within one
(1) year after the Executive's employment with the Company is terminated as a
result of any disability or, (b) in the event of death, within six (6) months
of the Executive's death. If the Executive's employment with the Company
terminates as a result of the term of the Employment Period ending and/or the
term of the Renewal Term ending as provided in the Executive's Employment
Agreement, than the Executive's option to purchase the shares shall terminate
and be of no further effect.
The Shares referred to above resulting from exercise of the Executive's
option being acquired by the Executive pursuant to this Agreement and the
Executive Employment Agreement will be acquired solely by and for the account
of the Executive for investment and said shares are not being acquired for
resale or distribution. The Company expressly acknowledges, and the Executive
so agrees, that the shares are not registered under Federal securities laws
and under the law of any state, are not to be registered as part of this
Agreement and/or the Executive Employment Agreement and may not be sold
without registration under any applicable Federal or state securities laws
and said shares will be a legend so stating.
3. PAYMENT OF THE EXERCISE PRICE. The exercise price must be received
by the Company from the Executive within ten (10) days of the exercise of any
Incentive Stock Option.
4. TRANSFERABILITY. These incentive Options may not be transferred by
the Executive, except upon the Executive's death by will or by the laws of
descent and distribution.
5. VESTING. These incentive Options are not vested. The option to
purchase the shares shall become vested upon the following schedule:
2
<PAGE>
<TABLE>
<CAPTION>
Date No. of Shares
---- -------------
<S> <C>
July 16, 1999 (1st anniversary) 100,000 (20%)
July 16, 2000 (2nd anniversary) 100,000 (20%)
July 16, 2001 (3rd anniversary) 100,000 (20%)
July 16, 2002 (4th anniversary) 100,000 (20%)
July 16, 2003 (5th anniversary) 100,000 (20%)
------- -----
Total 500,000 (100%)
</TABLE>
No Incentive Stock Option will vest in the Executive if his employment
with the Company and its subsidiaries is terminated, as more specifically
described in Section (2) above.
Any Incentive Stock Option that does not vest will be irrevocably
forfeited by the Executive.
6. EXERCISE. An Incentive Stock Option may be exercised beginning on
the date it vests pursuant to Section 5, and it remains exercisable until it
terminates pursuant to Section 2. An Incentive Stock Option is exercised by
delivery to the Company's President and/or CEO at the Company's offices
located at 3637 5. Green Road, Suite 201, Beachwood, Ohio 44122 written
notice of exercise by certified mail, return receipt requested.
During the Executive's lifetime, only the Executive may exercise the
Incentive Stock Options. If the Executive dies prior to the expiration of an
Incentive Stock Option without having exercised the option as to all of the
shares covered thereby, the Incentive Stock Option may be exercised, to the
extent of the shares with respect to which the Incentive Stock Option could
have been exercised on the date of the Executive's death (but subject to the
termination provisions of Section 2), by the estate of the Executive or a
person who acquired the right to exercise the Incentive Stock Option by
bequest or inheritance or by reason of the death of the Executive.
7. WITHHOLDING TAXES. If when a person exercises an Incentive Stock
Option such option does not qualify for the tax treatment available pursuant
to Section 422 of the Internal Revenue Code, the Company may require such
person to remit to the Company an amount sufficient to satisfy any federal,
state or local withholding tax requirements prior to the issuance of any
stock certificate. Alternatively, the Company may issue such certificate net
of the number of shares sufficient to satisfy the withholding tax
requirements. For withholding tax purposes, the shares will be valued on the
date the withholding obligation is incurred.
8. CAPITAL ADJUSTMENTS. The number of shares of Common Stock that may
be purchased pursuant to these Incentive Stock Options will be subject to an
appropriate and equitable adjustment, as determined by the Company to reflect
any stock dividends, stock split or share combination, and will be subject to
such exchange of shares, recapitalization, merger, consolidation, separation,
reorganization. liquidation or the like, of or by the Company.
3
<PAGE>
9. RIGHTS AS A SHAREHOLDER. The Executive shall have no rights as a
shareholder with respect to any shares subject to these Incentive Stock
Options until payment of the option price and delivery to the Executive of
such shares so purchased. No adjustment shall be made for dividends ordinary
or extraordinary, whether in cash, securities or other property) or
distributions or other rights for which the record date is prior to the date
such certificate is issued, except as provided in Section 8 hereof.
To evidence their agreement to the terms and conditions of this right to
purchase. the Company and the Executive have signed this Incentive Stock
Option Agreement. The terms and conditions of this Agreement shall be binding
up the heirs, executors, administrators and successors of the parties hereto.
This Agreement shall be construed in accordance with the laws of the state of
Ohio and shall not be modified other than in writing signed by each of the
parties.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands on
the day and year first above written.
COMPANY:
FIX CORP INTERNATIONAL, INC.
By: /s/ Mark Fixler
-----------------------------
Name: Mark Fixler
---------------------------
Title: CEO
--------------------------
EXECUTIVE:
/s/ Roger A. Kittelson
--------------------------------
Roger Kittelson
4
<PAGE>
EXHIBIT 21
SUBSIDIARIES
OF
FIX-CORP INTERNATIONAL, INC.
<TABLE>
<CAPTION>
Name State of Incorporation
<S> <C>
Fixcor Industries, Inc. Delaware
Pallet Technology, Inc. Delaware
Poly Style Industries, Inc. Delaware
Fixcor Recovery Systems, Inc. Delaware
Fixcor Recovery Systems Ltd. Alberta, Canada
</TABLE>
Fixcor Recovery Systems Ltd. is a subsidiary of Fixcor Recovery Systems, Inc.
All subsidiaries are wholly owned. No subsidiary conducts business under any
name other than the corporate name, except that "Inc." or "Ltd" is not
uniformly used as part of the name.
<PAGE>
Harmon and Company, CPA 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 indicated in the Company's annual report on
Form 10-KSB for the years ended December 31, 1996 and 1997.
/s/
Harmon and Company, CPA, Inc.
Dublin, Ohio
July 24, 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>
