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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
Mark One
X Annual report pursuant to section 13 or 15(d) of the Securities Exchange
- - Act of 1934 [FEE REQUIRED] for the fiscal year ended December 31, 1997
Transition report under section 13 or 15(d) of the Securities Exchange Act
- - of 1934 [NO FEE REQUIRED] for the transition period from ________ to
________
Commission file number 000-23369
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FIX-CORP INTERNATIONAL, INC.
(Name of Small Business Issuer in its charter)
DELAWARE 34-1783774
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3637 SOUTH GREEN ROAD / SUITE 201
BEACHWOOD, OHIO 44122
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (216) 292-3182
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
NONE NONE
Securities to be registered under Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $ 0.001 PER SHARE
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes No X
--- ---
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.
The issuer's revenues for its most recent fiscal year were $8,020,304.
The aggregate market value of Common Stock held by non-affiliates is
$118,710,220 based on a closing sale price of $5.00 on May 29, 1998. As of
May 29, 1998, 30,308,765 shares of $.001 par value Common Stock were issued
and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE. If the following documents are
incorporated by reference, briefly describe them and identify the part of the
Form 10-KSB (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) any annual report to security holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to Rule 424(b) or
(c) of the Securities Act of 1933 ("Securities Act"). The listed documents
should be clearly described for identification purposes (e.g., annual report to
security holders for fiscal year ended December 24, 1990).
TRANSITIONAL SMALL BUSINESS DISCLOSURE
FORMAT (CHECK ONE):
Yes . . . No . X .
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Fix-Corp International, Inc. (the "Company") was organized under the laws
of the state of Delaware on October 27, 1995. A predecessor of the Company was
initially incorporated on August 11, 1995 under the laws of the state of Utah
and under the name Lifechoice, Inc. The acquisition by the Company of a company
organized by Mark Fixler, the Company's Chief Executive Officer, President and
Chairman of its Board of Directors, involved several events in or about October,
1995, including the following: (i) the Company changed its name from
Lifechoice, Inc. to Fix-Corp International, Inc.; (ii) Mr. Fixler assumed
control of the Company with 90% of its then-outstanding common stock; (iii) the
Company was redomiciled from being a corporation organized under Utah law to one
organized in Delaware; and (iv) the Company was transformed, from being a public
shell (under its prior name) with shareholders but no operations or assets, to a
corporation with the operations described below.
The Company's principal business is the manufacturing of recycled plastic
(in particular, high-density polyethylene or "HDPE") resin, through its
wholly-owned subsidiary, Fixcor Industries, Inc. ("Fixcor"), a Delaware
corporation incorporated on December 17, 1996. During January, 1998 the Company
commenced the manufacturing of plastic pallets from recycled resin through its
wholly-owned subsidiary, Pallet 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 newly formed 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
manufacturers window blinds from recycled polyvinyl chloride (or "PVC").
The Company also markets jewelry products for corporate awards and gifts
and extends financing to small businesses collateralized by purchase orders.
These two businesses constituted substantially all of the businesses of the
Company prior to the end of fiscal year 1996. During fiscal year 1997, however,
revenues from these businesses constituted less than 7% of the Company's total
revenues, with more than 93% of its revenues generated by the manufacturing of
recycled plastic resin. (See Part II, Item 6, "MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATIONS.")
In December, 1996, the Company acquired a recycling plant in Heath, Ohio,
also known as the Heath Resource Recovery Plant (the "Facility"), from Quantum
Chemical Corporation ("Quantum"). In connection with this acquisition, in
December, 1996, the Company formed Fixcor to own and operate the Facility. On
January 8, 1997, the first processing line at the Facility became operational.
During July, 1997, the Company formed 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
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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 million in advance
orders. As of May 1, 1998, Pallet Technology had approximately $10 million in
orders. Instead of purchasing the recycled plastic resin pellets from Fixcor as
previously 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 December 31, 1997 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 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
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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 operated those
assets at UV's location (the "UV Plant") until it moved those assets to other
space (the "Florida Plant") leased in North Miami Beach, Florida. The lease of
the Florida Plant was executed in April, 1998 and relocation was
finalized by approximately the end of May, 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 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 from plastic resin pellets
acquired from third party suppliers. See Part I, Item 1, "DESCRIPTION OF
BUSINESS--PATENTS, TRADEMARKS AND LICENSES" and Part II, Item 6, "MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION--PHASE 3."
SPECIAL NOTE--FORWARD-LOOKING STATEMENTS
Certain statements contained in this Report, including, without limitation,
statements containing the words "believes," "anticipates," "expects" and words
of similar import, constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual results, performance or achievements of the Company, or
industry results, to be materially different from any future results,
performance or achievements
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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 Report. Certain of these
factors are discussed in more detail elsewhere in this Report. Given these
uncertainties, readers of this Report and investors are cautioned not to place
undue reliance on such forward-looking statements. The Company disclaims any
obligation to update any such factors or to publicly announce the result of any
revisions to any of the forward-looking statements contained herein to reflect
future events or developments.
THE COMPANY
The Company has three wholly-owned subsidiaries, Fixcor, Pallet Technology
and Poly Style. Fixcor owns and operates the Facility, located in the Mid-Ohio
Industrial Park at 1835 James Parkway in Heath, Ohio 43056. On a month to month
basis, the Company has leased the UV Plant, located at 9200 N.W. 102nd Street in
Medley, Florida 33170 until approximately May 31, 1998, and currently 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 expected to take place as well as at the
Florida Plant. Poly Style's operations have taken place at the UV Plant, and
are to take place at the Florida Plant. 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 Medley and
North Miami Beach are suburbs. 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
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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. (Copies of the
principal documents evidencing this financing and guarantee are exhibits to this
Report.)
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 5,000,000 shares of common stock of
the Company (the "Common Stock"), valued at $6,000,000, or $1.20 per share, all
of which were restricted shares. Mr. Fixler was principally responsible for
representing the Company in these transactions.
In May, 1997, Fixcor secured financing for the Facility from NationsCredit
Commercial Corporation. This consisted of revolving loans up to $7,000,000 for
inventory and account receivable financing, permanent financing, and equipment
acquisition. This financing included a mortgage security agreement which
encumbered substantially all of the assets of the Facility. Mr. Fixler was the
guarantor of this facility in an amount up to $750,000 plus expenses.
OPERATIONS AT THE FACILITY
The Facility produces post-consumer high density polyethylene (HDPE) plastic
resin pellets. The Facility has three recycling lines which are capable of
producing approximately 66,000,000 to 72,000,000 pounds of post-consumer plastic
resin per year. The Company expects that the average selling price of this
resin can be maintained for the foreseeable future at the current level of
approximately $0.35 per pound, resulting in annual gross sales of approximately
$23,000,000 to $25,200,000 per year with all three processing lines operating.
The manufacturing process is substantially automated and 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
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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 sales to foreign customers. Its customers are generally
companies with annual sales revenue of between $50,000,000 and $250,000,000. In
addition, management believes that Fixcor enjoys a competitive advantage over
its competitors due to an advantageous rate for electric power from Ohio Power.
Fixcor owns its own substation that regulates and supplies its power. The
national rate charged to commercial customers is $0.09 per kilowatt hour.
Fixcor pays $0.032 per kilowatt hour for use at the Facility. This differential
translates into a cost of $0.011 per pound of plastic produced. In addition,
the Facility has its own waste water treatment plant. This permits the Facility
to recycle 50% to 75% of the water that it consumes per day and aids in lowering
the cost of producing resin pellets.
The Facility is designed to produce recycled HDPE. HDPE is a constituent
ingredient of many consumer packaging plastic products. The prices of raw
materials are a function of, among other things, the manufacturing capacity for
such raw materials of such consumer products. In the event of cost increases
for raw materials, failure to achieve corresponding sales price increases in a
timely manner, sales price erosion without a corresponding reduction in raw
material costs or failure to renegotiate favorable raw material supply contracts
could have a material adverse effect on the Company.
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. Pallet Technology
completed engineering work, ordered, received, and installed equipment at the
Facility, and operations commenced in February, 1998. Pallet Technology also
has ordered comparable equipment for installation at the Florida Plant. See
PART I, ITEM 1, "DESCRIPTION OF BUSINESS--RECENT DEVELOPMENTS" for more
information regarding Pallet Technology. The Company believes that plastic
possesses numerous advantages over wood, the material currently used for
pallets: plastic is extremely durable, has historically been less expensive,
possesses greater strength, will serve for a much longer term of service and,
when its life is over, can itself be recycled.
In July, 1997, the Company, Fixcor and Pallet Technology, as borrowers,
secured financing from Gordon Brothers Capital Corporation, in the form of a
$3,500,000 line of credit, intended to finance the acquisition of equipment for
use in the operations of Pallet Technology. This credit facility is secured by
substantially all of the assets of the Company and its
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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.
LEVERAGE
As discussed above, the Company is significantly leveraged. It has entered
into security agreements which substantially encumber all of the Company's
assets. The Company's future operating performance and ability to service or
refinance its indebtedness will be subject to future economic conditions and to
financial, business and other factors, many of which are beyond its control, and
consequently the Company may be unable to service all of its debt in the future.
There can be no assurance that the Company's future operating performance will
be sufficient to service such indebtedness or that the Company will be able to
refinance its indebtedness in whole or in part.
The degree to which the Company is leveraged can have significant effects
on the Company, including the following: (i) the Company's ability to obtain
additional financing in the future for working capital, capital expenditures,
acquisitions, general corporate purposes or other purposes may be limited; (ii)
a substantial portion of the Company's cash flow from operations will be
dedicated to the payment of the principal of and interest on its existing
indebtedness, thereby reducing funds available for operations; (iii) the
agreements governing the Company's indebtedness and convertible debentures
contain certain restrictive covenants. The Company's ability to make scheduled
payments of the principal of, or interest on, or to refinance, its indebtedness
will depend on its future operating performance and cash flow, which are subject
to prevailing economic conditions, primarily interest rate levels and financial,
competitive, business and other factors, many of which are beyond its control.
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 payable, as well as its accounts receivable, are
generally due within 35 days of invoice. The Company believes that this is
consistent with industry practice. Fixcor's operations and budget account for
the delay between paying for the raw materials and being paid for the resin
produced. Again, the Company believes that this is consistent with industry
practice.
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No customer of Fixcor purchases 40% or more of Fixcor's production. The
one customer that approaches purchasing 40% of the production is H. Muehlstein &
Co., to whom Fixcor sells resin for further distribution. No other customer
purchases more than 10% of Fixcor's production. 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. Generally, the Company 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 May 1, Pallet Technology had
approximately $10 million in orders. The Company expects to ship Pallet
Technology's products through traditional rail and truck channels.
RAW MATERIALS
Polyethylene constitutes the principal raw material used in the recycling
of plastic processed by the Company's subsidiaries. This raw material must be
sorted and baled before it can be utilized. Generally, there has been no
problem obtaining sorted and baled HDPE raw materials, which are available from
a wide variety of suppliers, including but not limited to major waste haulers
and landfills. PVC, the raw material used by Poly Style, is readily available
and the price does not materially fluctuate. Costs for these raw materials used
by Fixcor tend to fluctuate with various economic factors which generally affect
the Company and its competitors. The availability of raw materials was adequate
in 1996 and 1997 and management expects it to remain adequate throughout 1998.
Since Fixcor had no operations during 1996, it has no direct information with
respect to the price of raw materials during that year. Based on discussions
with current suppliers, it appears that the cost of raw materials was
approximately the same as the cost that the Company incurred during 1997, and
the first quarter of 1998. The Company believes that there is adequate
inventory of raw materials to meet Fixcor's production requirements, and that
its practices are consistent with industry norms. See Part I, Item 1,
"DESCRIPTION OF BUSINESS--RECENT DEVELOPMENTS."
PATENTS, TRADEMARKS AND LICENSES
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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 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.
See PART III, ITEM 10, 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
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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.
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.
10
<PAGE>
EMPLOYEES
As of May 1, 1998, the Company and its subsidiaries had a total of
approximately 91 employees, all of whom were full-time employees. Of these,
Fixcor had approximately 78 production personnel and a support staff of seven at
the Facility. The Company had another six employees at its headquarters office
in Beachwood. Poly Style has approximately 15 employees at the UV Plant, and
then at the Florida Plant. The Company has no collective bargaining agreement
with its employees and no union represents them. There have been no
interruptions or curtailments of operations due to labor disputes and the
Company believes that relations with its and its subsidiaries' employees are
good.
ITEM 2. 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. In connection with the third operating line, Fixcor put
into service 7,000 of these 48,000 square feet. There is also a concrete slab
in the rear with a portion of it covered by a canopy. The site is served by a
railroad spur to the south.
Fixcor holds the title to the real estate and real estate improvements
constituting the Facility. To secure its permanent financing, Fixcor granted
the lender a continuing security interest in all of Fixcor's property, including
the Facility.
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 this improvement was approximately $4,000,000,
financed by cash on hand, primarily using certain of the proceeds of the
convertible debentures. The Company believes that the value of the real estate
and improvements at the Facility are subject to general economic conditions. In
the opinion of management, the Facility is adequately covered by insurance. The
Company has no current plans to lease out any portion of the Facility. With
respect to each component of the Facility upon which depreciation is taken, the
following table sets forth the projected federal tax basis, life claimed and
method for purposes of depreciation.
<TABLE>
<CAPTION>
BASIS LIFE CLAIMED METHOD
<S> <C> <C> <C>
Building $2,000,000 39 years Straight-line
Equipment $12,500,000 10 years Straight-line
</TABLE>
11
<PAGE>
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 is moving 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. Each of Medley and North Miami Beach is
a suburb of Miami, Florida. The Company allocates space at the Florida Plant
between Poly Style and Pallet Technology.
ITEM 3. LEGAL PROCEEDINGS
The Company is from time to time made a party to legal proceedings arising
in the ordinary course of business. The Company does not believe that the
results of such legal proceedings, even if unfavorable to the Company, will have
a materially adverse impact on its financial condition or the results of its
operations.
The Company is a third party defendant in a lawsuit pending in the Common
Pleas Court of Cuyahoga County, Ohio, GLOBAL INVESTMENTS & ADVISORY GROUP, INC.
V. 3DM, LIMITED LIABILITY CO., ET AL. V. FIX-CORP INTERNATIONAL, ET AL. This
proceeding began on approximately July 9, 1997 when the Company was served with
a third party complaint filed by 3DM, Limited Liability Co. ("3DM") on May 12,
1997. This case arises out of the relationship between the Company and 3DM,
which the Company believes has been terminated and settled, and the relationship
between 3DM and Quantum in connection with the acquisition of the Facility. See
PART I, ITEM 1, "DESCRIPTION OF BUSINESS," and "DESCRIPTION OF BUSINESS,
ACQUISITION OF THE FACILITY". The latter relationship was the subject of prior
litigation in which the Company was also joined as a party defendant with 3DM.
The Company subsequently was dismissed from this earlier litigation. 3DM did
not bring any claim against the Company in the prior litigation, and a default
judgment was entered against 3DM and its principals on the matter of its breach
of its agreement with Quantum. In its claim against the Company, 3DM seeks
compensatory damages in excess of $25,000 and attorney fees in each of Counts I
through VII of the third party complaint and punitive damages in excess of
$25,000 and attorney fees in Count VIII although 3DM has served an amended
demand increasing its damage demand to $1,000,000. On February 2, 1998 the
Company filed a motion to dismiss the third party complaint filed against the
Company for failure to state a claim and for the reason that the Company is not
a proper subject of a third party complaint under the applicable rules of civil
procedure. The motion to dismiss was overruled by the court without any further
decision. However, the Company and Mr. Fixler were granted the right to file a
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<PAGE>
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.
In March and April, 1996, a person purporting to represent an entity known
as AMR Group ("AMR") approached the Company had represented they 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 for which AMR was to be granted warrants for 2 million 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 (2) years, in
January and February, 1998, AMR contacted the Company and asserted a right to
exercise certain warrants. The Company maintained its position that any
agreements with AMR had terminated due to non-performance. In addition, a check
of the records of the Ohio Secretary of State's indicates that no entity, trade
name or fictitious name has ever been registered under the name "AMR Group".
AMR filed an action against the Company and Mr. Fixler in the Common Pleas Court
of Cuyahoga County, Ohio alleging damages and requesting specific performance as
to certain alleged warrants and/or stock options. Based on the Company's
position that the alleged agreement contained an arbitration clause, AMR
dismissed its complaint and indicated that it would commence, and did commence,
an arbitration proceeding with respect to this matter. Prior to commencement of
the litigation, AMR through its attorney forwarded a letter which contained
statements which the Company and Mr. Fixler deemed to be improper and
actionable. In relation to this matter, the Company filed an answer and
counterclaim and a cross claim naming additional parties, whom the Company
believes were partners or joint venturers of AMR at the time of its initial
dealings with the Company and Mr. Fixler.
As of May 28,1998 and for approximately six 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 expects to receive a response
in the near future, and believes that this matter will be settled without
resort to litigation. 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 Report as outstanding as
of May 28, 1998. The Company has notified its transfer agent accordingly.
13
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1997.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock is traded over-the-counter ("OTC") on the
Electronic Bulletin Board (the "Bulletin Board") maintained by the National
Association of Securities Dealers ("NASD") under the Symbol "FIXC."
As of May 29, 1998, 30,308,769 shares of Common Stock were issued and
outstanding, and there were approximately 478 record holders 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. The option to purchase 4,000,000 shares
of Common Stock previously held by Mr. Fixler were cancelled in April, 1998.
See PART III, ITEM 10, 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 quarter of fiscal year 1998.
<TABLE>
<CAPTION>
Quarter Ending High Low
<S> <C> <C>
3/31/98 5 1/14 5
12/31/97 4-5/8 2-11/16
9/30/97 4-1/4 1-3/8
6/30/97 3/4 1/2
3/31/97 7/8 1/2
12/31/96 15/16 7/16
9/30/96 13/16 5/8
6/30/96 1-9/16 11/16
3/31/96 1-1/2 13/16
</TABLE>
The source of this information is America Online quotation services and
broker-dealers making a market in the Company's Common Stock. These prices
reflect inter-dealer prices, without retail markup, mark-down or commission and
may not represent actual transactions.
RESTRICTED SECURITIES
A significant portion of the Company's Common Stock is held by insiders and
persons who acquired shares in private offerings. These are "restricted
securities," as that term is defined in Rule 144 promulgated under the
Securities Act. In general, Rule 144 provides that, during any three-month
period, each person holding restricted securities can sell an amount of such
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<PAGE>
securities equal to the greater of (a) 1% of the number of outstanding shares,
or (b) the average weekly reported trading volume of those securities during the
preceding four calendar week period, provided that certain conditions are met.
One of these conditions is that the stock must be purchased for investment
purposes and held for a minimum period of one year, and in some instances even
longer. Sales of these restricted securities under Rule 144 or otherwise by
current stockholders of the Company could have a depressive effect on any
trading market for Common Stock. No predictions can be made of the effect, if
any, that market sales of shares or the availability of shares for sale will
have on the market price prevailing from time to time. Nevertheless, sales of
significant amounts of the Common Stock of the Company in the public market may
adversely affect market prices, and may impair the Company's ability to raise
capital at that time through additional sale of its equity securities.
NO DIVIDENDS
The Company has not declared or paid any dividends on its Common Stock and
there is no assurance that the Company will pay dividends in the future. The
Company currently intends to retain future earnings to fund the development and
growth of its businesses, to repay indebtedness and for general corporate
purposes, and, therefore, does not anticipate paying any cash dividends in the
foreseeable future. Any future determination to declare and pay dividends will
be made by the Board of Directors of the Company in light of the Company's
earnings, financial position, capital requirements, credit agreements and such
other factors as the Board of Directors deems relevant. Any decision to pay
dividends is subject to Delaware law, under which the Company is permitted to
pay cash dividends only (i) out of the Company's capital surplus (the excess of
net assets over stated capital) or (ii) out of the net income of the Company for
the fiscal year in which the dividend is declared and/or the preceding fiscal
year.
SECONDARY TRADING RESTRICTIONS
The Common Stock has been governed by a Securities and Exchange Commission
rule for "penny stocks" (defined as stocks that cost $5.00 or less per share)
that imposes additional sales practice burdens and requirements upon
broker-dealers which sell such securities to persons other than established
customers and accredited investors (generally institutions with assets in excess
of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual
income exceeding $200,000 or $300,000 jointly with their spouse). For
transactions covered by this penny stock rule, broker-dealers must make a
special suitability determination for the unaccredited purchaser and receive the
purchaser's written agreement to the transaction prior to the sale.
Consequently, the penny stock rule may affect the ability of broker-dealers to
sell the Company's securities and also may affect the ability of persons now
owning or subsequently acquiring the Company's securities to resell such
securities in any trading market that may develop. Although the Company's goal
is to have its securities included in the National Association of Securities
Dealers Automated Quotation System ("NASDAQ"), which would exempt such
securities from the above rule, there is no assurance that the Company will meet
the NASDAQ listing requirements. The Company believes that there are numerous
market makers for the Common Stock, including Nash-Weiss, Troster Singer, Sharp,
Fahenstock, Wein, Paragon, Olie, National Financial, Sherwood, Herzog, Hill,
Financial American, Mager
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<PAGE>
Schweitzer, G.V.R. Trading, North American Investment, Wall Street Equities,
M.H. Meyerson, Mercer-Bokert, Comprehensive Capital, and William Frankel. The
source of this list of market makers is a broker-dealer familiar with trading of
the Common Stock. Based on discussions with that broker-dealer, the Company
considers Nash-Weiss, Troster Singer, Sharp, Fahenstock, Wein, Paragon, Herzog,
Financial American, Mager Schweitzer and M.H. Meyerson to be the principal
market makers for the Common Stock.
PRICE VOLATILITY OF THE COMPANY'S SHARES
The Common Stock is traded on the NASD OTC Electronic Bulletin Board.
Because of the limited market for Bulletin Board stocks, even mild expressions
of interest may have a profound impact upon the stock's price on any given day.
Accordingly, Bulletin Board stock customarily experience above average price
fluctuations and volatility. Accordingly, the Company's common stock should be
expected to experience substantial price changes in short periods of time, owing
to the vagaries of the Bulletin Board exchange for stocks. Even if the Company
is performing according to its plan and there is no legitimate financial
component for this volatility, it must still be expected that substantial
percentage price swings will occur in these securities for the foreseeable
future, and percentage changes in stock indices (such as the Dow Jones
Industrial Average) could be magnified, particularly in downward movements of
the markets.
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 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.
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<PAGE>
- 1,000,000 shares issued to secure certain bridge financing 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)
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.
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 5,000,000 shares of Common Stock (at a value of $1.20 per share)
in a transaction exempt from registration under Section 4(2) of the Securities
Act.
From June, 1997 through September, 1997, pursuant to an offering under
Section 4(2) of the Securities Act, the Company sold 1,925,000 shares of
Preferred Stock at $1.00 per share. Each share of Preferred Stock was
convertible into one share of Common Stock, and as of
17
<PAGE>
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.
All of the share transactions summarized above were made directly by the
Company without use of an underwriter or placement agent and without payment of
commissions or other remuneration. In each case the aggregate sales proceeds,
after payment of offering expenses in immaterial amounts, were applied to the
working capital of the Company or to specific equipment purchases.
With respect to the exemption from registration of issuance of securities
claimed under Section 4(2) of the Securities Act, neither the Company nor any
person acting on its behalf offered or sold the securities by means of any form
of general solicitation or advertising. Prior to making any offer or sale, the
Company had reasonable grounds to believe and believed that each prospective
investor was capable of evaluating the merits and risks of the investment and
was able to bear the economic risk of the investment. Each purchaser
represented in writing that he was acquiring the securities for investment for
his own account, and agreed that the securities would not be sold without
registration under the Securities Act or exemption therefrom. Except for
securities issued under Rule 504, the certificates of which bear no restrictive
legend, a legend was placed on each certificate stating that the securities have
not been registered under the Securities Act and setting forth the restrictions
on their transferability.
In November, 1997, pursuant to Rule 506 of Regulation D, the Company issued
to two institutional investors $8,000,000 aggregate principal amount of
three-year 5% convertible 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
18
<PAGE>
Registration Statement on Form SB-2 with respect to resale by the holders of
shares of Common Stock issuable upon conversion of the debentures and exercise
of the warrants.
In January, 1998, pursuant to Rule 506 of Regulation D, the Company issued
to the same two purchasers $2,500,000 aggregate principal amount of three-year,
4% convertible debentures, convertible (together with interest thereon) at any
time into shares of Common Stock at a conversion price equal to the lesser of
(i) $3.34, or (ii) 83% of the average of the 5 lowest closing bid prices for the
10 trading days preceding conversion. The purchasers also received warrants to
purchase an aggregate 198,413 shares of Common Stock at an exercise price equal
to $3.34 per share. The warrants are exercisable at any time through January
22, 2001. The Company is required to amend the Registration Statement on Form
SB-2 to include resale by the holders of shares issuable upon conversion of such
debentures and exercise of such warrants.
In March, 1998, the Company issued to JNC Strategic Fund Ltd. $1,500,000
aggregate principal amount of three-year, 4% convertible debentures, convertible
(together with interest thereon) at any time into shares of Common Stock at a
conversion price equal to the lesser of (i) $3.31, or (ii) 83% of the average of
the 5 lowest closing bid prices for the 10 trading days preceding conversion.
The purchaser also received warrants to purchase an aggregate 126,268 shares of
Common Stock at an exercise price equal to $3.31 per share. The warrants are
exercisable at any time through March 11, 2001. The Company is required to
amend the Registration Statement on Form SB-2 to include resale by the holders
of shares issuable upon conversion of such debentures and exercise of such
warrants.
In April, 1998, the Company issued to JNC Strategic Fund Ltd. $3,000,000
aggregate principal amount of three-year, 4% convertible debentures, convertible
(together with interest thereon) at any time into shares of Common Stock at a
conversion price equal to the lesser of (i) $4.22, or (ii) 83% of the average of
the 5 lowest closing bid prices for the 10 trading days preceding conversion.
The purchaser also received warrants to purchase an aggregate 192,542 shares of
Common Stock at an exercise price equal to $4.22 per share. The warrants are
exercisable at any time through April 8, 2001. The Company is required to amend
the Registration Statement on Form SB-2 to include resale by the holders of
shares issuable upon conversion of such debentures and exercise of such
warrants.
Each of the debenture transactions requires that the Registration Statement
on Form SB-2, or amendments to it, be effective within a designated time after
the dates of issuance of the debentures and warrants. Under the terms of the
applicable convertible debenture purchase agreement, certain interest and
conversion rate liquidated damages accrue each month that effectiveness is
delayed. In March, 1998 with respect to the debentures issued in November, 1997
the Company agreed to issue 10,000 shares of the Company's Common Stock, and in
April, 1998 with respect to those debentures, the Company agreed to issue 20,000
shares of the Company's Common Stock, to the debenture holders in lieu of those
liquidated damages, in a transaction exempt from registration under Section 4(2)
of the Securities Act. These 30,000 shares were issued during the second
quarter of fiscal year 1998.
19
<PAGE>
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
offered and sold to 12 purchasers 121,000 shares of Common Stock at $3.625 per
share.
The Company is subject to an administrative order (the "Order") issued in
August, 1997 by the Ohio Division of Securities, and relating to certain matters
deemed to constitute violations of Ohio securities laws. The Company was
ordered to "cease and desist" from acts and practices found to violate Section
1707.44(C)(1), Ohio Revised Code (sales of securities not registered or exempt
from registration), and Section 1707.44(B)(1) (false representations in a
registration application). There were no further restrictions imposed pursuant
to the Order. The Company believes that such violations resulted principally
from miscommunication between the Company and its legal counsel at the time as
to certain information communicated to the Ohio Division of Securities in
connection with an application for registration by description filed in
December, 1995 with respect to sales of the Company's common stock in Ohio. The
Company believes that it is in compliance with the Order.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
DEVELOPMENT STAGE ACTIVITIES
In December, 1996, the Company formed Fixcor, a wholly-owned subsidiary.
This entity acquired the Facility, a stand-alone post-consumer plastic recycling
operation. The acquisition significantly changed the focus of the Company from
corporate awards jewelry marketing and financing to the manufacturing of plastic
resin.
With this acquisition, the Company's business plan may be divided into five
phases based upon the services performed, the products produced, and the
products and services to be performed and produced.
Note 2(C.) to the December 31, 1996 audited financial statements indicates
that for the year ended December 31, 1995, the Company incurred a bad debt of
$962,471. This charge to earnings related to the Company's Purchase Order
Financing business. As a result of an uncollectible financing, the Company
incurred this expense. After incurring this loss, the Company changed the
procedures it utilized to secure its interest in these transactions to preclude
any future losses. In fact, no losses have been incurred in these transactions
since 1995.
For the years 1996 and 1997, no bad debt provision was deemed necessary
since in the opinion of management all trade receivables are collectible
including the insignificant amount of purchase order financing receivables
outstanding as of December 31, 1997, $30,000.
PHASE 1
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<PAGE>
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 contains three
operating lines. The first became operational January 8, 1997, the second March
4, 1997, and the third October 22, 1997. Since the acquisition of this
Facility, the corporate awards jewelry marketing and the financing of purchase
orders has become an immaterial portion of the revenues and operations of the
Company. Funding of the Facility acquisition was made by obtaining bridge
financing in the amount of $2.5 million from Gordon Brothers Capital
Corporation, and the issuance of 5,000,000 restricted common shares of the
Company. The bridge financing was secured by a mortgage on the Facility, and a
security interest in all inventory, accounts receivables and contracts with
customers, and a personal guarantee of Mr. Fixler. On May 14, 1997, the Company
replaced this bridge financing with permanent financing from NationsCredit
Commercial Corporation for up to $7,000,000. This financing consisted of a
security agreement on all of Fixcor's assets, and a credit line based upon a
percentage of inventory and accounts receivable. 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. See PART I, ITEM 1,
"DESCRIPTION OF BUSINESS, --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 $4.0 million. 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 $13.0 million. With Pallet Technology operations
running at the Florida Plant, the Company estimates that 1998 revenues will be
$20.0 million. Permanent
21
<PAGE>
financing for the Pallet Technology equipment for installation at the Facility
was secured from Gordon Brothers Capital Corporation. See PART I, ITEM 1,
DESCRIPTION OF BUSINESS.
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 at the UV Plant, 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 are being moved to the Florida Plant. See PART I, ITEM 1, DESCRIPTION
OF BUSINESS--RECENT DEVELOPMENTS.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996, AS COMPARED TO THE
YEAR ENDED DECEMBER 31, 1997
Substantially all revenues for fiscal year 1996 were from corporate awards
jewelry marketing, and financing of purchase orders. The Company had no
revenues for this period from the Fixcor, Palletech 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 50 percent. The reduction in revenues
reflects a change in the orientation of the Company from financing 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 48%. This increase in volume
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 48%. This operation was the primary focus of the Company for
fiscal year 1997 and the first quarter of 1998. With
22
<PAGE>
the addition of another resin processing line during October, 1997, and future
expansion plans, it is expected that revenues in 1998 will be substantially
higher than those in 1997.
General and administrative expenses for the year ended December 31, 1996,
were $491,383 compared with $2,045,767 for the year ended December 31, 1997.
This increase is a result of gearing up the Fixcor operations. It includes
salaries and direct compensation related to the production and operation of the
Facility; fees and expenses incurred related to third party borrowings and the
sale of equity shares in the Company; and, the professional fees necessary to
meet regulatory commitments.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 1997, AS COMPARED TO THE
QUARTER ENDED MARCH 31, 1998
A review of the first quarter of fiscal year 1998 as compared to the
results of operations from the same period in 1997 indicates that the Company
has continued to grow and improved its profitability. Gross margins for the
first quarter of 1998 were $2,358,234 versus $530,586 for the prior year.
This growth is a result of increased resin sales from expanded capacity
and operations at the Facility, the startup and sales of plastic pallets by
Pallet Technology during the latter part of the first quarter of 1998, and the
profitability of the Poly-Style operations. Gross margins for these entities
are summarized below:
<TABLE>
<CAPTION>
SALES COST OF GOODS GROSS MARGIN
SOLD
<S> <C> <C> <C>
COMPANY 100,340 42,190 58,150
FIXCOR 3,468,573 1,549,771 1,936,802
POLY STYLE 72,026 28,810 43,216
PALLET 518,068 198,002 320,066
TECHNOLOGY
</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 $2.0 million 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.
23
<PAGE>
Another source of financing was the receipt of $4.0 million in the form of
subordinated convertible debentures. These debentures bring the total amount of
this form of debt to $12.0 million. (An additional $3.0 million in debentures
were sold in April, 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 $6,671,081 to $6,895,619 from
December 31, 1996 to December 31, 1997 and working capital increased by
$7,068,275 to $14,302,066 from December 31, 1996 to December 31, 1997. The
increases are the result of three occurrences. First, funds were generated by
internal operations and formula borrowings on inventories (up to 55%) and
receivables (up to 85%). The second source of funds was from the issuance of
capital stock. During the nine months ended September 30, 1997, 3,490,986
shares were issued resulting in additional funds of $4,751,475. The third
source of funds was from the issuance of convertible debentures. These monies
were used to acquire additional equipment and fund working capital needs in
Fixcor's operations.
As of March 31, 1998, other than ordering and installing equipment for use
by Pallet Technology at the Florida Plant in capital expenditures and
commitments therefor were minimal. As of that date Pallet Technologies had
ordered its equipment, making a commitment of approximately at least $3.7
million. 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 the discussion of
the "CONVERTIBLE DEBENTURES" below.
CONVERTIBLE DEBENTURES
On October 24, 1997, pursuant to a Convertible Debenture Purchase
Agreement, the Company issued and sold in a private placement to two
institutional investors an aggregate $5,000,000 principal amount of Debentures
bearing interest at the rate of 6% per annum, payable quarterly in arrears, and
due October 24, 2000 (the "October Debentures"). On November 25, 1997, pursuant
to an Amended and Restated Convertible Debenture Purchase Agreement and
collateral documents, the interest rate to the October Debentures was reduced to
5% (retaining the original October 24, 1997 effective date of the October
Debentures), and the Company issued new Debentures in the principal amount of
$3,000,000 to one of the October, 1997 investors, bearing a rate of 5% per
annum, payable quarterly in arrears, and due November 25, 2000. The Company
expects to use the net proceeds of the transactions primarily for the
acquisition of equipment for the start-up and expansion of Pallet Technology and
Fixcor operations. The
24
<PAGE>
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.
In January, 1998, the Company issued to the same two purchasers $2,500,000
aggregate principal amount of three-year, 4% convertible debentures, convertible
(together with interest thereon) at any time into shares of Common Stock at a
conversion price equal to the lesser of (i) $3.34, or (ii) 83% of the average of
the 5 lowest closing bid prices for the 10 trading days preceding conversion.
The purchasers also received warrants to purchase an aggregate 198,413 shares of
Common Stock at an exercise price equal to $3.34 per share. The warrants are
exercisable at any time through January 22, 2001. The Company is required to
amend the Registration Statement on Form SB-2 to include resale by the holders
of shares issuable upon conversion of such debentures and exercise of such
warrants
In March, 1998, the Company issued to JNC Strategic Fund Ltd. $1,500,000
aggregate principal amount of three-year, 4% convertible debentures, convertible
(together with interest thereon) at any time into shares of Common Stock at a
conversion price equal to the lesser of (i) $3.31, or (ii) 83% of the average of
the 5 lowest closing bid prices for the 10 trading days preceding conversion.
The purchasers also received warrants to purchase an aggregate 126,268 shares of
Common Stock at an exercise price equal to $3.31 per share. The warrants are
exercisable at any time through March 11, 2001. The Company is required to
amend the Registration Statement on Form SB-2 to include resale by the holders
of shares issuable upon conversion of such debentures and exercise of such
warrants.
In April, 1998, the Company issued to JNC Strategic Fund Ltd. $3,000,000
aggregate principal amount of three-year, 4% convertible debentures, 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 purchasers also received warrants to purchase an aggregate 192,542 shares of
Common Stock at an exercise price equal to $4.22 per share. The warrants are
25
<PAGE>
exercisable at any time through April 8, 2001. The Company is required to amend
the Registration Statement on Form SB-2 to include resale by the holders of
shares issuable upon conversion of such debentures and exercise of such
warrants.
The debenture transaction documents include additional representations,
warranties, covenants and default provisions not atypical for such financings.
The principal October 24, 1997, November 25, 1997 and January 22, 1998 debenture
transaction documents are attached to the Company's prior filings with the
Commission of the Registration Statement on Form 10-SB/A, or the Registration
Statement on Form SB-2 relating to the registration of shares issuable upon
conversion of the Debentures and exercise of the warrants.
YEAR 2000 COMPLIANCE
Many computer systems currently record years in a two-digit format. Such
systems, if not modified, will be unable to recognize and property 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 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.
26
<PAGE>
ITEM 7. FINANCIAL STATEMENTS.
FIX-CORP INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
12/31/96 12/31/97
----------- -----------
ASSETS
CURRENT ASSETS
<S> <C> <C>
CASH AND CASH EQUIVALENTS $224,539 $6,895,619
INVESTMENT IN MARKETABLE SECURITIES 130,692 108,287
TRADE ACCOUNTS RECEIVABLE, NET 88,763 1,309,503
OTHER RECEIVABLES - 0 - 334,000
PURCHASE ORDER FINANCING CONTRACTS 221,672 30,000
INVENTORY 96,002 2,910,220
PREPAID EXPENSES - 0 - 45,285
----------- -----------
TOTAL CURRENT ASSETS 761,668 11,632,914
----------- -----------
PROPERTY, PLANT & EQUIPMENT
LAND & LAND HELD FOR DEVELOPMENT 750,000 750,000
BUILDINGS 2,000,000 2,000,000
PLANT EQUIPMENT 6,642,000 17,600,841
OFFICE FURNITURE & FIXTURES 122,500 137,655
----------- -----------
9,514,500 20,488,496
LESS ACCUMULATED DEPRECIATION AND AMORTIZATION (6,428) (680,310)
----------- -----------
TOTAL PROPERTY, PLANT & EQUIPMENT 9,508,072 19,808,186
----------- -----------
DEFERRED INCOME TAXES 412,150 820,050
----------- -----------
OTHER ASSETS & DEFERRED CHARGES 212,226 1,228,948
----------- -----------
TOTAL ASSETS $10,894,116 $33,490,098
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
SHORT-TERM BORROWINGS $3,548,000 $320,000
EQUIPMENT PURCHASE CONTRACTS - 0 - 1,875,000
ACCOUNTS PAYABLE 68,008 2,064,137
ACCRUED EXPENSES 44,317 148,406
CURRENT PORTION OF LONG-TERM DEBT - 0 - 3,500,000
----------- -----------
TOTAL CURRENT LIABILITIES 3,660,325 7,907,543
----------- -----------
LONG-TERM DEBT
4% CONVERTIBLE DEBENTURES - 0 - 8,000,000
$7,000,000 REVOLVING TERM NOTE - 0 - 6,780,489
----------- -----------
- 0 - 14,780,489
LESS CURRENT PORTION OF LONG-TERM DEBT - 0 - (3,500,000)
----------- -----------
TOTAL LONG-TERM DEBT - 0 - 11,280,489
----------- -----------
STOCKHOLDERS' EQUITY
PREFERRED STOCK, $.001 PAR VALUE, 2,000,000 SHARES AUTHORIZED, -0- - 0 - - 0 -
SHARES ISSUED AND OUTSTANDING
COMMON STOCK, $.0001 PAR VALUE IN 1996 AND $.001 IN 1997, 100,000,000 SHARES
AUTHORIZED, 20,974,024 AND 30,058,289 ISSUED AND OUTSTANDING IN 1996 AND 1997 20,974 30,058
ADDITIONAL PAID IN CAPITAL 8,227,529 15,786,304
UNREALIZED HOLDING LOSS ON INVESTMENTS (68,673) (21,173)
RETAINED EARNINGS (DEFICIT) (946,039) (1,493,123)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 7,233,791 14,302,066
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $10,894,116 $33,490,098
------------- -------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE FINANCIAL STATEMENTS.
27
<PAGE>
FIX-CORP INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
12/31/96 12/31/97
----------- ------------
<S> <C> <C>
REVENUE
SALES, NET $232,824 $8,020,304
FEES ON PURCHASE ORDER CONTRACT FINANCING 408,337 191,795
COMMISSION & SHARED FINANCE FEES 102,442 157,711
----------- ------------
TOTAL REVENUE 743,603 8,369,810
----------- ------------
COST OF SALES AND CONTRACT FINANCING OPERATIONS
COST OF SALES & PLANT OPERATING COSTS 126,153 6,907,858
CONSULTING FEES & SHARED COMMISSIONS 42,939 37,181
INTEREST EXPENSE, CONTRACT FINANCING 250,822 156,100
DEFERRED PREOPERATING PLANT STARTUP COSTS, NET OF AMORTIZATION (36,750) (108,310)
----------- ------------
COST OF SALES AND CONTRACT FINANCING OPERATIONS 419,914 6,992,829
----------- ------------
GROSS PROFIT 323,689 1,376,981
----------- ------------
OPERATING EXPENSES
ADMINISTRATIVE SALARIES, WAGES AND RELATED COSTS 277,317 436,372
DEPRECIATION & AMORTIZATION 19,514 728,044
LEGAL & PROFESSIONAL, INCLUDING CONSULTING FEES 98,513 309,452
OTHER GENERAL & ADMINISTRATIVE 96,039 571,898
----------- ------------
TOTAL EXPENSES 491,383 2,045,767
----------- ------------
OPERATING INCOME (LOSS) (167,694) (668,786)
----------- ------------
OTHER INCOME (EXPENSE)
INTEREST INCOME - 0 - 85,498
INTEREST EXPENSE AND FINANCING COSTS, OTHER (32,730) (340,707)
OTHER EXPENSE - 0 - (30,989)
----------- ------------
(32,730) (286,198)
----------- ------------
NET (LOSS) BEFORE INCOME TAXES (200,423) (954,984)
----------- ------------
LESS PROVISION FOR DEFERRED INCOME TAXES
FEDERAL (43,000) (332,000)
STATE (9,850) (75,900)
----------- ------------
TOTAL DEFERRED INCOME TAXES (52,850) (407,900)
----------- ------------
NET LOSS ($147,573) ($547,084)
----------- ------------
NET LOSS PER COMMON SHARE
PRIMARY (0.011) (0.021)
----------- ------------
FULLY DILUTED (0.008) (0.018)
----------- ------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
PRIMARY 14,040,040 26,139,451
----------- ------------
FULLY DILUTED 18,040,040 30,139,451
----------- ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE FINANCIAL STATEMENTS.
28
<PAGE>
FIX-CORP INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED TOTAL
--------------------------- PAID-IN EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
------------- ------------ ---------- -------------- -----------
<S> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1995 7,106,056 $711 $ 641,230 ($835,216) ($193,275)
ACQUISITION OF OHIO RESOURCES RECOVERY PLANT 6,521,074 652 5,999,348 6,000,000
PRIVATE PLACEMENT OF COMMON STOCK, NET OF
RELATED ISSUANCE COST 5,746,894 575 1,605,827 1,606,402
ISSUANCE OF SHARES TO SECURE BRIDGE FINANCING AND
HELD IN ESCROW SUBJECT TO LOAN AGREEMENTS 1,600,000 160 - 0 - 160
NET LOSS FOR THE PERIOD (110,823) (110,823)
--------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1996 20,974,024 $2,097 $8,246,406 ($946,039) $7,302,464
ADJUSTMENT TO REFLECT CHANGE IN PAR VALUE - 0 - 18,877 (18,877) - 0 - - 0 -
--------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1996 AS RESTATED 20,974,024 $20,974 $8,227,529 ($946,039) 7,302,464
--------------------------------------------------------------------------
UNREALIZED HOLDING LOSS ON INVESTMENTS (68,673)
---------------
$7,233,791
---------------
PREFERRED STOCK PRIVATE PLACEMENT PROCEEDS:
ISSUANCE OF COMMON STOCK UPON CONVERSION 1,925,000 1,925 1,923,075 1,925,000
PROCEEDS FROM EXCERCISE OF RELATED WARRANRTS 1,925,000 1,925 1,923,075 1,925,000
PROCEEDS FROM VARIOUS PRIVATE PLACEMENT
OFFERINGS INCLUDING SHARES ISSUED FOR SERVICES
AND FINANCING COSTS 3,980,265 3,980 2,396,814 2,400,794
PROCEEDS FROM EXERCISE OF WARRANTS 500,000 500 62,000 62,500
CANCELLATION AND REISSUANCE OF COMMON SHARES ISSUED
IN 1996 TO SECURE BRIDGE FINANCING AS FOLLOWS:
CANCELLATION OF ORIGINAL SHARES (1,600,000) (1,600) - 0 - (1,600)
CONVERSION OF BRIDGE NOTE PAYABLE 33,000 33 49,967 50,000
CONVERSION OF BRIDGE NOTE PAYABLE 350,000 350 199,650 200,000
CONVERSION OF BRIDGE NOTE PAYABLE 200,000 200 99,800 100,000
SHARES ISSUED IN LIEU OF INTEREST 100,000 100 44,900 45,000
SHARES ISSUED IN LIEU OF INTEREST 100,000 100 28,025 28,125
PROCEEDS FROM EXERCISE OF RELATED WARRANTS 1,000,000 1,000 124,000 125,000
ACQUISTION OF EQUIPMENT 571,000 571 707,469 708,040
NET LOSS FOR THE PERIOD (547,084) (547,084)
--------------------------------------------------------------------------
30,058,289 $30,058 $15,786,304 ($1,493,123) $14,323,239
----------------------------------------------------------
UNREALIZED HOLDING LOSS ON INVESTMENTS (21,173)
---------------
$14,302,066
---------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE FINANCIAL STATEMENTS.
29
<PAGE>
FIX-CORP INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
12/31/96 12/31/97
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME (LOSS) ($110,823) ($547,084)
-------------- --------------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
DEPRECIATION & AMORTIZATION EXPENSE 19,514 728,044
INVESTMENT IN MARKETABLE SECURITIES (199,365) 22,405
(INCREASE) DECREASE IN TRADE ACCOUNTS RECEIVABLES (29,327) (1,220,740)
(INCREASE) DECREASE IN OTHER RECEIVABLES - 0 - (334,000)
(INCREASE) DECREASE IN PURCHASE ORDER FINANCING CONTRACTS (148,872) 191,672
(INCREASE) IN INVENTORY (96,002) (2,814,218)
(INCREASE) IN PREPAID EXPENSES - 0 - (45,285)
(INCREASE) IN DEFERRED TAX ASSET (52,850) (407,900)
INCREASE IN EQUIPMENT PURCHASE CONTRACTS - 0 - 1,875,000
INCREASE (DECREASE) IN ACCOUNTS PAYABLE (45,176) 1,996,129
INCREASE IN ACCRUED EXPENSES 3,717 104,089
-------------- --------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (659,184) (451,887)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
PURCHASE OF LAND & LAND HELD FOR DEVELOPMENT (500,000) - 0 -
PURCHASE OF BUILDINGS (1,000,000) - 0 -
PURCHASE OF PLANT EQUIPMENT (1,992,000) (10,250,801)
PURCHASE OF OFFICE FURNITURE & FIXTURES (100,000) (15,155)
ADDITIONS TO OTHER ASSETS (152,700) (951,859)
-------------- --------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (3,744,700) (11,217,815)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
PROCEEDS FROM SALE OF STOCK 1,606,402 6,438,294
PROCEEDS (PAYMENTS) ON SHORT-TERM BORROWINGS 2,950,000 (2,878,000)
PROCEEDS FROM CONVERTIBLE DEBENTURES - 0 - 8,000,000
PROCEEDS FROM GORDON BROTHERS FINANCINGS 198,161 6,780,489
PAYMENTS ON LONG-TERM DEBT (160,000) - 0 -
-------------- --------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 4,594,563 18,340,783
-------------- --------------
NET INCOME INCREASE (DECREASE) IN CASH $190,679 6,671,081
-------------- --------------
CASH AT BEGINNING OF PERIOD $33,860 $224,539
-------------- --------------
CASH AT END OF PERIOD $224,539 $6,895,619
-------------- --------------
SUPPLEMENTAL DISCLOSURES
INTEREST PAID, EXCLUDING PURCHASE ORDER CONTRACT FINANCING $32,730 $368,832
ISSUANCE OF COMMON STOCK FOR:
EQUIPMENT - 0 - 708,040
CONVERSION OF NOTES PAYABLE - 0 - 350,000
INTEREST EXPENSE - 0 - 28,125
ACQUISITION OF OHIO RESOURCES RECOVERY PLANT, HEATH, OHIO FOR
COMMON STOCK AND ALLOCATED AS FOLLOWS:
LAND & LAND HELD FOR DEVELOPMENT 250,000 - 0 -
BUILDINGS 1,000,000 - 0 -
PLANT EQUIPMENT 4,650,000 - 0 -
OFFICE FURNITURE & FIXTURES 100,000 - 0 -
-------------- --------------
6,000,000 - 0 -
-------------- --------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE FINANCIAL STATEMENTS.
30
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company did not engage an independent accountant until during fiscal
year 1997, when it engaged Harmon & Company, CPA, Inc., Columbus, Ohio,
generally, and in particular for purposes of preparing the Financial Statements
included with this Registration Statement. The Company has had no material
disagreements with its accountants.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
31
<PAGE>
MARK FIXLER, 42, is the Company's Chief Executive Officer and President and
the Chairman of its Board of Directors. Prior to founding Fix-Corp
International, Inc., Mr. Fixler served as President of several retail businesses
chiefly engaged in the jewelry business. He was President of Richard's
Jewelers, Inc. from November, 1989 until October, 1994. From October, 1994 to
October, 1995 Mr. Fixler was President of Fix-Corp International, Inc., an Ohio
corporation and a predecessor of the Company. He is currently President of the
Village Counsel of his home community, Mayfield Village, Ohio. See PART I, ITEM
6, EXECUTIVE COMPENSATION.
GARY M. DELAURENTIIS, 53, is the President of Fixcor and a Vice President
of the Company. Mr. DeLaurentiis joined the Company after it acquired the
Facility. Mr. DeLaurentiis has 21 years of management experience and 10 years
of experience in the plastic resin industry. Prior to joining the Company, he
operated his own consulting firm, GMD & Associates, from June, 1995 to December,
1996. Prior to being a consultant, from 1991 to June, 1995, Mr. DeLaurentiis
developed another start-up company in the plastic resin field, ANEW Corporation,
which was subsequently sold. Mr. DeLaurentiis also negotiated with the Chinese
government to develop a plastic recycling plant as part of a pilot project in a
Free Trade Zone of Southern China. This occurred when he was employed by RPX
Resins, Inc., another firm which he founded and managed from 1987 to 1992.
ANDREW I. PRESS, 49, has recently been appointed as Chief Financial Officer
of the Company. Mr. Press is a certified public accountant, and for the past
ten years has been affiliated with Bick-Fredman & Co. CPA's. He also has served
as officer and director of a Ohio-based venture capital company. He is a member
of the American Institute of C.P.A.'s ("AICPA") and the Ohio Society of C.P.A.'s
("OSCPA") and serves on AICPA's Small Business Taxation Committee and OSCPA's
State Taxation Committee. In addition to being a public speaker in the areas of
financial and tax planing, Mr. Press is presently a member of the Board of
Trustees and Treasurer for the Multiple Sclerosis Society of N.E. Ohio.
BOARD OF DIRECTORS
The Board of Directors is composed of six individuals, Mr. Fixler, Mr.
DeLaurentiis, Mr. Press, Michael DiSanto, Mr. Noll and Lawrence C. Schmelzer. A
brief biography of Messrs. DiSanto, Noll and Schmelzer follows. Messrs. Press,
DiSanto and Noll are serving their first term, having been elected at the annual
meeting of the Company's stockholders on April 22, 1998. Messrs. Fixler,
DeLaurentiis and Schmelzer were re-elected at that meeting. Each of the
directors is serving a one-year term expiring at the annual meeting of the
Company's stockholders in 1999.
MICHAEL DISANTO, 52, is owner and President of DiSanto Enterprises Inc., a
land development company established in 1994. From 1978 to 1994, Mr. DiSanto
was president of Transco Construction Co. Inc., a building and development
company which specialized in custom home construction and developing
communities. Mr. DiSanto received a Bachelor of Business Administration from
Ohio University in 1969. He is a member of the Builder Industry
32
<PAGE>
Association of Cleveland and sits on the Committee for Land Developers. Mr.
DiSanto has also applied his business expertise to the ownership of several
restaurants in the Cleveland and Atlanta areas.
S. DARWIN NOLL, 77, is Chairman and Chief Executive Officer of Cardinal
American Corporation, with which he has been affiliated for over 50 years.
During his work career, he served in executive capacities at 17 manufacturing
plants world wide. He has also served on the boards of Vocational Guidance
Services, Youth Opportunities Unlimited at the Cleveland Health Museum, The
Achievement Center for Children, St. Vincent Charity Hospital, The Jewish
Community Federation and the Cleveland 500 Foundation. Mr. Noll was recently
appointed to the Board of the Palm Beach Fellowship of Christians & Jews, 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.
The Board of Directors currently does not have any committees comprised
of members thereof. Following the Annual Meeting, it is expected that the
Board of Directors will create three standing committees, an Executive
Committee, a Compensation Committee and an Audit Committee.
EXECUTIVE COMMITTEE. The Executive Committee will exercise all the power
and authority of the Board of Directors in the management and affairs of the
Company between meetings of the Board of Directors, to the extent permitted by
law.
COMPENSATION COMMITTEE. The Compensation Committee will make
recommendations to the Board of Directors concerning compensation, including
incentive arrangements, of the Company's officers and key employees and others.
AUDIT COMMITTEE. The Audit Committee will (i) review the accounting and
financial reporting practices of the Company and the adequacy of its system of
internal controls, (ii) review the scope and results of any outside audit of the
Company and the fees therefor, and (iii) make recommendations to the Board of
Directors or management concerning auditing and accounting matters and the
selection of outside auditors.
SIGNIFICANT EMPLOYEES
33
<PAGE>
The only person who is not an executive officer but who is expected by
the Company to make a significant contribution to the business of the Company
is Mr. Aisenberg. He is party to a five year employment contract with the
Company dated March 5, 1998, pursuant to which Mr. Aisenberg serves as Vice
president of Development of the Company and President of Poly Style. Mr.
Aisenberg has been a Director of Nitro since 1995 and has been President of
UV since 1987. In these capacities, he has extensive experience in the
fields of engineering and plastics.
DEPENDENCE ON MANAGEMENT
The Company's success is principally dependent on its current management
personnel for the operation of its business. In particular, Mr. Fixler, its
President and Chief Executive Officer and Chairman of its Board of Directors,
has played a significant role in the development and management of the Company.
There is no assurance that additional managerial assistance will not be
required. The Company has entered into an employment agreement with each of Mr.
Fixler and Mr. DeLaurentiis. If the Company should lose the services of either
Mr. Fixler or Mr. DeLaurentiis, the Company may be significantly affected.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
None of Messrs. Fixler, Press, DeLaurentiis, DiSanto, Noll or Schmelzer
were required to file reports required by section 16(a) of the Exchange Act
during fiscal year 1997 or prior years. The Company expects to include
information as to filings required in 1998 in material filed with respect to
years subsequent to fiscal year 1997.
ITEM 10. 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 or purchase of assets to
another company or termination of employment for any other reason, Mr. Fixler is
entitled to a $2,000,000 severance benefit. Prior to 1997, Mr. Fixler was not
subject to a written employment agreement with the Company. He was paid a
salary of $119,000 in 1996 and $64,000 in 1995. 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 $125,000 per year. He is also eligible for annual bonuses subject to
the approval of the Board of Directors of the
34
<PAGE>
Company. In addition, Mr. DeLaurentiis receives a car allowance and other
benefits customarily given to executive officers. He is President of Fixcor and
Vice President of the Company. He was not employed by the Company or Fixcor
during fiscal year 1996.
Mr. Aisenberg is party to a five year employment contract with the Company
dated March 5, 1998, pursuant to which Mr. Aisenberg serves as Vice President of
Development of the Company and President of Poly Style, at an annual salary of
$150,000. Under that agreement, Mr. Aisenberg was granted an option to purchase
200,000 shares of common stock of the Company at a price of $3.05 per share,
exercisable at any time during the employment period. Mr. Aisenberg is also
entitled to expense reimbursement and other benefits customarily given to
executive officers, and to a $150,000 severance benefit if the employment
agreement is terminated prematurely.
The Company currently has no stock appreciation rights, long-term
incentive, stock option plans or similar benefit plans for its executives or
other employees.
ITEM 11. 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 May 29, 1998.
COMMON STOCK
<TABLE>
<CAPTION>
Amount and Name and Address Amount and Nature of
Beneficial Owner of Beneficial Owner Percent of Class
<S> <C> <C>
Mark Fixler 4,677,725 15.54%
3637 South Green Road
Suite 201
Beachwood, Ohio 44122
Gordon Brothers Capital, LLC* 2,390,300* 8.0%*
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.
COMMON STOCK
35
<PAGE>
<TABLE>
<CAPTION>
Amount and Name and Address Amount and Nature of
Beneficial Owner of Beneficial Owner Percent of Class
<S> <C> <C>
Mark Fixler 4,677,725 15.54%
3637 South Green Road
Suite 201
Beachwood, Ohio 44122
All Directors and Officers
as a Group 6,566,725* 21.67%*
</TABLE>
- --------------------------------------------------------------------------------
* Includes 200,000 shares which are subject to options granted by the Company
to Mr. Aisenberg, which are exercisable during the term of his current
employment agreement with the Company.
ITEM 12. 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 has guaranteed certain bridge and permanent financing of
the Company.
Upon consummation of the purchase of the Facility and prior to the securing
of permanent financing, the Company entered into a formal Acquisition Agreement
(the "Acquisition Agreement") under which the Company conveyed the Facility to
Fixcor in connection with its original subscription to all of the shares of
common stock of Fixcor. Mr. Fixler was also a party to this Acquisition
Agreement. Before the Company acquired the Facility under the Quantum
Agreement, he had 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 5,000,000 shares of Common Stock
(valued at $6,000,000 or $1.20 per share), all of which were restricted shares.
Mr. Fixler also has guaranteed up to $1,000,000 of the July, 1997 financing from
Gordon Brothers Capital Corporation.
In April, 1998 the Company entered into a lease with B-K-N Corporation, an
Ohio corporation, in which Mr. Noll, a Director of the Company, holds a
controlling interest, for the Florida Plant. The lease commenced April 17,
1998, is for a term of 10 years with a monthly rent payment of $24,375 and
includes an option to purchase during the first five years of the term. The
security deposit was made in the form of a demand note for $48,750. The Company
believes that the terms of that lease are at least as favorable to the Company
as the terms that would be agreed to by an unrelated party for comparable
property.
Gordon Brothers Capital, LLC, reported to be part of a group holding more
than five percent of the outstanding shares of Common Stock, has entered into
various lending and related relationships with the Company. Gordon Brothers
Capital, LLC has loaned funds or provided
36
<PAGE>
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
matures in October, 1998. 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 $2.0 million on its facility with Gordon Brothers
Capital, LLC. See PART I, ITEM 1, DESCRIPTION OF BUSINESS, --ACQUISITION OF THE
FACILITY, --PALLET TECHNOLOGY; PART II, ITEM 5, MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS, --RECENT SALES OF UNREGISTERED SECURITIES; PART II,
ITEM 6, MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION, --PHASE 2,
- --PHASE 3, --RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 1997 AS
COMPARED TO THE QUARTER ENDED MARCH 31, 1998.
In February, 1998, the Company entered into the UV Agreement 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 entered into the
First Amended Licensing and Marketing Agreement under which the royalty rate of
$2.50 per pallet sold under Pallet Technology's original agreement with Nitro is
reduced to $0.50 during the first five years and $0.25 during the next five
years. See PART I, ITEM 1, DESCRIPTION OF BUSINESS--RECENT DEVELOPMENTS.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index of Exhibits
<TABLE>
<CAPTION>
Exhibit Names of Date of
No. Name of Document Parties to Document Document
<S><C>
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
2.1 (1) Acquisition Agreement Fix-Corp, Inc. and Lifechoice, 10/95
Inc.
2.2 (1) Purchase and Sale Agreement Quantum Chemical Corporation and 08/14/96
Fix-Corp International, Inc.
2.3 (1) Amendment No. 1 to Purchase Quantum Chemical Corporation and 10/29/96
and Sale Agreement Fix-Corp International, Inc.
2.4 (1) Acquisition Agreement Fix-Corp International, Inc., 04/16/97
Fixcor Industries, Inc. and Mark
Fixler
3.1 (1) Amended and Restated Fix-Corp International, Inc. 05/27/97
Articles of Incorporation
3.2 (1) Bylaws Fix-Corp International, Inc. 11/14/95
3.3(1) Original Certificate of Fix-Corp International, Inc. 10/24/95
Incorporation of the Company
10.1 (1) Employment Contract Fix-Corp International, Inc. and 01/01/97
Mark Fixler
10.2 (1) Employment Agreement Fix-Corp International, Inc. and 01/01/97
Gary DeLaurentiis
10.3 (1) Loan and Security Agreement NationsCredit Commercial 05/14/97
Corporation through its
NationsCredit Commercial Funding
Division, Lender and Fixcor
Industries, Inc., Borrower
10.4 (1) Guaranty NationsCredit Commercial 05/14/97
Corporation through its
NationsCredit Commercial Funding
Division, Lender and Fixcor
Industries, Inc., Borrower, and
Mark Fixler, Guarantor
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
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
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, Inc. and 07/09/97
Agreement 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 of 07/07/97
Agreement 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, Inc., JNC 10/24/97
Purchase Agreement Opportunity Fund Ltd. and
Diversified Strategies Fund, L.P.
10.13 (2) 6% Convertible Debenture Due Fix-Corp International, Inc. and 10/24/97
October 24, 2000 Holder
10.14 (2) Registration Rights Fix-Corp International, Inc., JNC 10/24/97
Agreement Opportunity fund Ltd., and
Diversified Strategies Fund, L.P.
10.15 (2) Escrow Agreement Fix-Corp International, Inc., JNC 10/24/97
Opportunity Fund Ltd.,
Diversified Strategies Fund, L.P.
and Robinson Silverman Pearce
Aronsohn & Berman LLP
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10.16 (2) Warrant Fix-Corp International, Inc. and 10/24/97
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, Inc., JNC 11/25/97
Convertible Debenture Opportunity Fund Ltd. and
Purchase Agreement Diversified Strategies Fund, L.P.
10.19 (2) Amended and Restated Fix-Corp International, Inc., JNC 11/25/97
Registration Rights Opportunity Fund Ltd. and
Agreement Diversified Strategies Fund, L.P.
10.20 (2) Escrow Agreement Fix-Corp International, Inc., JNC 11/25/97
Opportunity Fund Ltd.,
Diversified Strategies Fund, L.P.
and Robinson, Silverman, Pearce,
Aronsohn & Berman LLP
10.21 (1) Convertible Debenture Fix-Corp International, Inc., JNC 1/22/98
Purchase Agreement Opportunity Fund Ltd. and
Diversified Strategies Fund, L.P.
10.22 (1) $2,000,000 4% Convertible Fix-Corp International, Inc. and 1/22/98
Debenture Due January 22, JNC Opportunity Fund Ltd.
2001
10.23 (1) $500,000 4% Convertible Fix-Corp International, Inc. and 1/22/98
Debenture Due January 22, Diversified Strategies Fund, L.P.
2001
10.24 (1) Registration Rights Fix-Corp International, Inc., JNC 1/22/98
Agreement Opportunity Fund Ltd. and
Diversified Strategies Fund, L.P.
10.25 (1) Warrant Fix-Corp International, Inc. and 1/22/98
JNC Opportunity Fund Ltd.
10.26 (1) Warrant Fix-Corp International, Inc. and 1/22/98
Diversified Strategies Fund, L.P.
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10.27 (1) Escrow Agreement Fix-Corp International, Inc., JNC 1/22/98
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., Yoram 2/3/98
Business Assets Aisenberg, Avraham Weinstein and
Fix-Corp International, Inc.
10.29 (1) First Amended Licensing and Nitro Plastics Technologies of 2/98
Marketing Agreement Israel, Yoram Aisenberg and
Pallet Technology, Inc.
10.30 (3) Employment Contract Yoram Aisenberg and Fix-Corp 3/5/98
International, Inc.
10.31 (3) Convertible Debenture Fix-Corp International, Inc. and 3/11/98
Purchase Agreement JNC Strategic Fund Ltd.
10.32 (3) 4% Convertible Debenture Due Fix-Corp International, Inc. and 3/11/98
March 11, 2001 JNC Strategic Fund Ltd.
10.33 (3) Registration Rights Fix-Corp International, Inc. and 3/11/98
Agreement JNC Strategic Fund Ltd.
10.34 (3) Warrant Fix-Corp International, Inc. and 3/11/98
JNC Strategic Fund Ltd.
10.35 (3) Escrow Agreement Fix-Corp International, Inc., JNC 3/11/98
Strategic Fund Ltd., and
Robinson, Silverman, Pearce,
Aronsohn & Berman LLP
10.36 (3) Convertible Debenture Fix-Corp International, Inc. and 4/8/98
Purchase Agreement JNC Strategic Fund Ltd.
10.37 (3) 4% Convertible Debenture Due Fix-Corp International, Inc. and 4/8/98
April 8, 2001 JNC Strategic Fund Ltd.
10.38 (3) Registration Rights Fix-Corp International, Inc. and 4/8/98
Agreement JNC Strategic Fund Ltd.
10.39 (3) Warrant Fix-Corp International, Inc. and 4/8/98
JNC Strategic Fund Ltd.
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10.40 (3) Escrow Agreement Fix-Corp International, Inc., JNC 4/8/98
Strategic Fund Ltd., and
Robinson, Silverman, Pearce,
Aronsohn & Berman LLP
10.41 (3) Standard Industrial Lease B-K-N Corporation and Fix-Corp 4/17/98
International, Inc.
27 (3) Financial Data Schedule
</TABLE>
(1) Filed with the Registration Statement on Form 10-SB, as amended on Form
10-SB/A by the Company on November 17, 1997, on December 22, 1997, and on March
2, 1998, each with SEC File No. 000-23369, and effective by lapse of time on
January 12, 1998.
(2) Filed with the Registration Statement on Form SB-2 filed by the Company on
January 20, 1998, SEC File No. 333-44551.
(3) Filed herewith. The exhibits filed with this report begin on page
(b) Reports on Form 8-K.
No reports on Form 8-K during were filed during the last quarter of the
period covered by this report.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FIX-CORP INTERNATIONAL, INC.
By /s/ Mark Fixler June 3, 1998
------------------------------------------- ----------
Mark Fixler,
Chief Executive Officer and President
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
/s/ Mark Fixler June 3, 1998
- ---------------------------------------------- ----------
Mark Fixler, Chief Executive Officer,
President and Director
/s/ Andrew I. Press June 1, 1998
- ---------------------------------------------- ----------
Andrew I. Press, Chief Financial Officer
42
<PAGE>
and Director
, 1998
- ---------------------------------------------- ----------
Gary M. DeLaurentiis,
Executive Vice President and Director
/s/ Michael DiSanto June 2, 1998
- ---------------------------------------------- ----------
Michael DiSanto, Director
, 1998
- ---------------------------------------------- ----------
S. Darwin Noll, Director
/s/ Lawrence C. Schmelzer June 3, 1998
- ---------------------------------------------- ----------
Lawrence C. Schmelzer, Director
43
<PAGE>
-------------------------------------
FIX-CORP INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
&
INDEPENDENT AUDITOR'S REPORT
DECEMBER 31, 1996 & 1997
-------------------------------------
----------------------------------
HARMON & COMPANY, CPA, INC.
COLUMBUS, OHIO
----------------------------------
<PAGE>
----------------------------
FIX-CORP INTERNAIONAL, INC.
AND SUBSIDIARIES
----------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT............................................. 2
CONSOLIDATED BALANCE SHEETS ............................................. 3
CONSOLIDATED STATEMENTS OF OPERATIONS ................................... 4
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY ............... 5
CONSOLIDATED STATEMENTS OF CASH FLOWS ................................... 6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS........................... 7
</TABLE>
-1-
<PAGE>
[LETTERHEAD]
[LOGO]
INDEPENDENT AUDITOR'S REPORT
TO THE BOARD OF DIRECTORS OF
FIX-CORP INTERNATIONAL, INC.
WE HAVE AUDITED THE ACCOMPANYING CONSOLIDATED BALANCE SHEETS OF FIX-CORP
INTERNATIONAL, INC. AND SUBSIDIARIES AS OF DECEMBER 31, 1997 AND 1996 AND THE
RELATED CONSOLIDATED STATEMENTS OF OPERATIONS, CASH FLOW, AND STOCKHOLDERS'
EQUITY FOR THE YEARS THEN ENDED. THESE FINANCIAL STATEMENTS ARE THE
RESPONSIBILITY OF THE MANAGEMENT OF FIX-CORP INTERNATIONAL, INC.. OUR
RESPONSIBILITY IS TO EXPRESS AN OPINION ON THESE FINANCIAL STATEMENTS BASED
ON OUR AUDIT.
WE HAVE CONDUCTED OUR AUDIT IN ACCORDANCE WITH GENERALLY ACCEPTED
AUDITING STANDARDS. THOSE STANDARDS REQUIRE THAT WE PLAN AND PERFORM THE
AUDIT TO OBTAIN REASONABLE ASSURANCE ABOUT WHETHER THE STATEMENTS ARE FREE OF
MATERIAL MISSTATEMENTS. AN AUDIT INCLUDES EXAMINING, ON A TEST BASIS,
EVIDENCE SUPPORTING THE AMOUNTS AND DISCLOSURES IN THE FINANCIAL STATEMENTS.
AN AUDIT ALSO INCLUDES ASSESSING THE ACCOUNTING PRINCIPLES USED AND
SIGNIFICANT ESTIMATES MADE BY MANAGEMENT, AS WELL AS EVALUATING THE OVERALL
FINANCIAL STATEMENT PRESENTATION. WE BELIEVE THAT OUR AUDIT PROVIDES A
REASONABLE BASIS FOR OUR OPINION.
IN OUR OPINION, THE 1996 AND 1997 FINANCIAL STATEMENTS REFERRED TO
ABOVE PRESENT FAIRLY, IN ALL MATERIAL RESPECTS, THE FINANCIAL POSITION OF
FIX-CORP INTERNATIONAL, INC. AND SUBSIDIARIES AS OF DECEMBER 31, 1997 AND
1996 AND THE RESULTS OF ITS OPERATIONS AND ITS CASH FLOWS FOR THE YEARS
THEN ENDED IN CONFORMITY WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.
/s/ Harmon & Company, CPA, Inc.
- -------------------------------------
HARMON & COMPANY, CPA, INC.
MARCH 26, 1998
-2-
<PAGE>
FIX-CORP INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
12/31/96 12/31/97
----------- -----------
ASSETS
CURRENT ASSETS
<S> <C> <C>
CASH AND CASH EQUIVALENTS $224,539 $6,895,619
INVESTMENT IN MARKETABLE SECURITIES 130,692 108,287
TRADE ACCOUNTS RECEIVABLE, NET 88,763 1,309,503
OTHER RECEIVABLES - 0 - 334,000
PURCHASE ORDER FINANCING CONTRACTS 221,672 30,000
INVENTORY 96,002 2,910,220
PREPAID EXPENSES - 0 - 45,285
----------- -----------
TOTAL CURRENT ASSETS 761,668 11,632,914
----------- -----------
PROPERTY, PLANT & EQUIPMENT
LAND & LAND HELD FOR DEVELOPMENT 750,000 750,000
BUILDINGS 2,000,000 2,000,000
PLANT EQUIPMENT 6,642,000 17,600,841
OFFICE FURNITURE & FIXTURES 122,500 137,655
----------- -----------
9,514,500 20,488,496
LESS ACCUMULATED DEPRECIATION AND AMORTIZATION (6,428) (680,310)
----------- -----------
TOTAL PROPERTY, PLANT & EQUIPMENT 9,508,072 19,808,186
----------- -----------
DEFERRED INCOME TAXES 412,150 820,050
----------- -----------
OTHER ASSETS & DEFERRED CHARGES 212,226 1,228,948
----------- -----------
TOTAL ASSETS $10,894,116 $33,490,098
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
SHORT-TERM BORROWINGS $3,548,000 $320,000
EQUIPMENT PURCHASE CONTRACTS - 0 - 1,875,000
ACCOUNTS PAYABLE 68,008 2,064,137
ACCRUED EXPENSES 44,317 148,406
CURRENT PORTION OF LONG-TERM DEBT - 0 - 3,500,000
----------- -----------
TOTAL CURRENT LIABILITIES 3,660,325 7,907,543
----------- -----------
LONG-TERM DEBT
4% CONVERTIBLE DEBENTURES - 0 - 8,000,000
$7,000,000 REVOLVING TERM NOTE - 0 - 6,780,489
----------- -----------
- 0 - 14,780,489
LESS CURRENT PORTION OF LONG-TERM DEBT - 0 - (3,500,000)
----------- -----------
TOTAL LONG-TERM DEBT - 0 - 11,280,489
----------- -----------
STOCKHOLDERS' EQUITY
PREFERRED STOCK, $.001 PAR VALUE, 2,000,000 SHARES AUTHORIZED, -0- - 0 - - 0 -
SHARES ISSUED AND OUTSTANDING
COMMON STOCK, $.0001 PAR VALUE IN 1996 AND $.001 IN 1997, 100,000,000 SHARES
AUTHORIZED, 20,974,024 AND 30,058,289 ISSUED AND OUTSTANDING IN 1996 AND 1997 20,974 30,058
ADDITIONAL PAID IN CAPITAL 8,227,529 15,786,304
UNREALIZED HOLDING LOSS ON INVESTMENTS (68,673) (21,173)
RETAINED EARNINGS (DEFICIT) (946,039) (1,493,123)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 7,233,791 14,302,066
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $10,894,116 $33,490,098
------------- -------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE FINANCIAL STATEMENTS.
-3-
<PAGE>
FIX-CORP INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
12/31/96 12/31/97
----------- ------------
<S> <C> <C>
REVENUE
SALES, NET $232,824 $8,020,304
FEES ON PURCHASE ORDER CONTRACT FINANCING 408,337 191,795
COMMISSION & SHARED FINANCE FEES 102,442 157,711
----------- ------------
TOTAL REVENUE 743,603 8,369,810
----------- ------------
COST OF SALES AND CONTRACT FINANCING OPERATIONS
COST OF SALES & PLANT OPERATING COSTS 126,153 6,907,858
CONSULTING FEES & SHARED COMMISSIONS 42,939 37,181
INTEREST EXPENSE, CONTRACT FINANCING 250,822 156,100
DEFERRED PREOPERATING PLANT STARTUP COSTS, NET OF AMORTIZATION (36,750) (108,310)
----------- ------------
COST OF SALES AND CONTRACT FINANCING OPERATIONS 419,914 6,992,829
----------- ------------
GROSS PROFIT 323,689 1,376,981
----------- ------------
OPERATING EXPENSES
ADMINISTRATIVE SALARIES, WAGES AND RELATED COSTS 277,317 436,372
DEPRECIATION & AMORTIZATION 19,514 728,044
LEGAL & PROFESSIONAL, INCLUDING CONSULTING FEES 98,513 309,452
OTHER GENERAL & ADMINISTRATIVE 96,039 571,898
----------- ------------
TOTAL EXPENSES 491,383 2,045,767
----------- ------------
OPERATING INCOME (LOSS) (167,694) (668,786)
----------- ------------
OTHER INCOME (EXPENSE)
INTEREST INCOME - 0 - 85,498
INTEREST EXPENSE AND FINANCING COSTS, OTHER (32,730) (340,707)
OTHER EXPENSE - 0 - (30,989)
----------- ------------
(32,730) (286,198)
----------- ------------
NET (LOSS) BEFORE INCOME TAXES (200,423) (954,984)
----------- ------------
LESS PROVISION FOR DEFERRED INCOME TAXES
FEDERAL (43,000) (332,000)
STATE (9,850) (75,900)
----------- ------------
TOTAL DEFERRED INCOME TAXES (52,850) (407,900)
----------- ------------
NET LOSS ($147,573) ($547,084)
----------- ------------
NET LOSS PER COMMON SHARE
PRIMARY (0.011) (0.021)
----------- ------------
FULLY DILUTED (0.008) (0.018)
----------- ------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
PRIMARY 14,040,040 26,139,451
----------- ------------
FULLY DILUTED 18,040,040 30,139,451
----------- ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE FINANCIAL STATEMENTS.
-4-
<PAGE>
FIX-CORP INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED TOTAL
--------------------------- PAID-IN EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
------------- ------------ ---------- -------------- -----------
<S> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1995 7,106,056 $711 $ 641,230 ($835,216) ($193,275)
ACQUISITION OF OHIO RESOURCES RECOVERY PLANT 6,521,074 652 5,999,348 6,000,000
PRIVATE PLACEMENT OF COMMON STOCK, NET OF
RELATED ISSUANCE COST 5,746,894 575 1,605,827 1,606,402
ISSUANCE OF SHARES TO SECURE BRIDGE FINANCING AND
HELD IN ESCROW SUBJECT TO LOAN AGREEMENTS 1,600,000 160 - 0 - 160
NET LOSS FOR THE PERIOD (110,823) (110,823)
--------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1996 20,974,024 $2,097 $8,246,406 ($946,039) $7,302,464
ADJUSTMENT TO REFLECT CHANGE IN PAR VALUE - 0 - 18,877 (18,877) - 0 - - 0 -
--------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1996 AS RESTATED 20,974,024 $20,974 $8,227,529 ($946,039) 7,302,464
--------------------------------------------------------------------------
UNREALIZED HOLDING LOSS ON INVESTMENTS (68,673)
---------------
$7,233,791
---------------
PREFERRED STOCK PRIVATE PLACEMENT PROCEEDS:
ISSUANCE OF COMMON STOCK UPON CONVERSION 1,925,000 1,925 1,923,075 1,925,000
PROCEEDS FROM EXCERCISE OF RELATED WARRANRTS 1,925,000 1,925 1,923,075 1,925,000
PROCEEDS FROM VARIOUS PRIVATE PLACEMENT
OFFERINGS INCLUDING SHARES ISSUED FOR SERVICES
AND FINANCING COSTS 3,980,265 3,980 2,396,814 2,400,794
PROCEEDS FROM EXERCISE OF WARRANTS 500,000 500 62,000 62,500
CANCELLATION AND REISSUANCE OF COMMON SHARES ISSUED
IN 1996 TO SECURE BRIDGE FINANCING AS FOLLOWS:
CANCELLATION OF ORIGINAL SHARES (1,600,000) (1,600) - 0 - (1,600)
CONVERSION OF BRIDGE NOTE PAYABLE 33,000 33 49,967 50,000
CONVERSION OF BRIDGE NOTE PAYABLE 350,000 350 199,650 200,000
CONVERSION OF BRIDGE NOTE PAYABLE 200,000 200 99,800 100,000
SHARES ISSUED IN LIEU OF INTEREST 100,000 100 44,900 45,000
SHARES ISSUED IN LIEU OF INTEREST 100,000 100 28,025 28,125
PROCEEDS FROM EXERCISE OF RELATED WARRANTS 1,000,000 1,000 124,000 125,000
ACQUISTION OF EQUIPMENT 571,000 571 707,469 708,040
NET LOSS FOR THE PERIOD (547,084) (547,084)
--------------------------------------------------------------------------
30,058,289 $30,058 $15,786,304 ($1,493,123) $14,323,239
----------------------------------------------------------
UNREALIZED HOLDING LOSS ON INVESTMENTS (21,173)
---------------
$14,302,066
---------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE FINANCIAL STATEMENTS.
-5-
<PAGE>
FIX-CORP INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
12/31/96 12/31/97
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME (LOSS) ($110,823) ($547,084)
-------------- --------------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
DEPRECIATION & AMORTIZATION EXPENSE 19,514 728,044
INVESTMENT IN MARKETABLE SECURITIES (199,365) 22,405
(INCREASE) DECREASE IN TRADE ACCOUNTS RECEIVABLES (29,327) (1,220,740)
(INCREASE) DECREASE IN OTHER RECEIVABLES - 0 - (334,000)
(INCREASE) DECREASE IN PURCHASE ORDER FINANCING CONTRACTS (148,872) 191,672
(INCREASE) IN INVENTORY (96,002) (2,814,218)
(INCREASE) IN PREPAID EXPENSES - 0 - (45,285)
(INCREASE) IN DEFERRED TAX ASSET (52,850) (407,900)
INCREASE IN EQUIPMENT PURCHASE CONTRACTS - 0 - 1,875,000
INCREASE (DECREASE) IN ACCOUNTS PAYABLE (45,176) 1,996,129
INCREASE IN ACCRUED EXPENSES 3,717 104,089
-------------- --------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (659,184) (451,887)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
PURCHASE OF LAND & LAND HELD FOR DEVELOPMENT (500,000) - 0 -
PURCHASE OF BUILDINGS (1,000,000) - 0 -
PURCHASE OF PLANT EQUIPMENT (1,992,000) (10,250,801)
PURCHASE OF OFFICE FURNITURE & FIXTURES (100,000) (15,155)
ADDITIONS TO OTHER ASSETS (152,700) (951,859)
-------------- --------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (3,744,700) (11,217,815)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
PROCEEDS FROM SALE OF STOCK 1,606,402 6,438,294
PROCEEDS (PAYMENTS) ON SHORT-TERM BORROWINGS 2,950,000 (2,878,000)
PROCEEDS FROM CONVERTIBLE DEBENTURES - 0 - 8,000,000
PROCEEDS FROM GORDON BROTHERS FINANCINGS 198,161 6,780,489
PAYMENTS ON LONG-TERM DEBT (160,000) - 0 -
-------------- --------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 4,594,563 18,340,783
-------------- --------------
NET INCOME INCREASE (DECREASE) IN CASH $190,679 6,671,081
-------------- --------------
CASH AT BEGINNING OF PERIOD $33,860 $224,539
-------------- --------------
CASH AT END OF PERIOD $224,539 $6,895,619
-------------- --------------
SUPPLEMENTAL DISCLOSURES
INTEREST PAID, EXCLUDING PURCHASE ORDER CONTRACT FINANCING $32,730 $368,832
ISSUANCE OF COMMON STOCK FOR:
EQUIPMENT - 0 - 708,040
CONVERSION OF NOTES PAYABLE - 0 - 350,000
INTEREST EXPENSE - 0 - 28,125
ACQUISITION OF OHIO RESOURCES RECOVERY PLANT, HEATH, OHIO FOR
COMMON STOCK AND ALLOCATED AS FOLLOWS:
LAND & LAND HELD FOR DEVELOPMENT 250,000 - 0 -
BUILDINGS 1,000,000 - 0 -
PLANT EQUIPMENT 4,650,000 - 0 -
OFFICE FURNITURE & FIXTURES 100,000 - 0 -
-------------- --------------
6,000,000 - 0 -
-------------- --------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE FINANCIAL STATEMENTS.
-6-
<PAGE>
FIX-CORP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 & 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND DESCRIPTION OF THE BUSINESS - FIX-CORP INTERNATIONAL,
INC. ("FIX-CORP") WAS ORGANIZED UNDER THE LAWS OF THE STATE OF DELAWARE ON
OCTOBER 27, 1995. A PREDECESSOR OF THE COMPANY WAS INITIALLY INCORPORATED ON
AUGUST 11,1995 UNDER THE LAWS OF THE STATE OF UTAH AND UNDER THE NAME
LIFECHOICE, INC. THE ACQUISITION BY THE COMPANY OF A COMPANY ORGANIZED BY
MARK FIXLER, THE COMPANY'S CHIEF EXECUTIVE OFFICER, PRESIDENT AND CHAIRMAN OF
ITS BOARD OF DIRECTORS, INVOLVED SEVERAL EVENTS IN OR ABOUT OCTOBER, 1995,
INCLUDING THE FOLLOWING: (i) THE COMPANY CHANGED ITS NAME FROM LIFECHOICE,
INC. TO FIX-CORP INTERNATIONAL, INC.; (ii) MR. FIXLER ASSUMED CONTROL OF THE
COMPANY WITH 90% OF ITS THEN-OUTSTANDING COMMON STOCK; (iii) THE COMPANY WAS
REDOMICILED FROM BEING A CORPORATION ORGANIZED UNDER UTAH LAW TO ONE
ORGANIZED IN DELAWARE; AND (iv) THE COMPANY WAS TRANSFORMED, FROM BEING A
PUBLIC SHELL (UNDER ITS PRIOR NAME) WITH SHAREHOLDERS BUT NO OPERATIONS OR
ASSETS, TO A CORPORATION WITH THE OPERATIONS DESCRIBED BELOW.
THE COMPANY'S PRINCIPAL BUSINESS IS THE MANUFACTURING OF RECYCLED
PLASTIC (IN PARTICULAR, HIGH-DENSITY POLYETHYLENE OR "HDPE") RESIN, THROUGH
ITS WHOLLY-OWNED SUBSIDIARY, FIXCOR INDUSTRIES, INC. ("FIXCOR"), A DELAWARE
CORPORATION INCORPORATED ON DECEMBER 17, 1996. DURING JANUARY, 1998 THE
COMPANY COMMENCED THE MANUFACTURING OF PLASTIC PALLETS FROM RECYCLED RESIN
THROUGH ITS WHOLLY-OWNED SUBSIDIARY, PALLET TECHNOLOGIES, INC., A DELAWARE
CORPORATION, INCORPORATED ON JULY 7, 1997. PALLET TECHNOLOGIES WAS
ORIGINALLY INCORPORATED UNDER THE NAME PALLETECH, INC. BUT AMENDED ITS
CERTIFICATE OF INCORPORATION ON DECEMBER 15, 1997 TO CHANGE ITS NAME.
THE COMPANY ALSO MARKETS JEWELRY PRODUCTS FOR CORPORATE AWARDS AND GIFTS
AND EXTENDS FINANCING TO SMALL BUSINESSES COLLATERALIZED BY PURCHASE ORDERS.
THESE TWO BUSINESSES CONSTITUTED SUBSTANTIALLY ALL OF THE BUSINESSES OF THE
COMPANY PRIOR TO THE END OF FISCAL YEAR 1996. DURING THE FISCAL YEAR 1997,
HOWEVER, REVENUES FROM THESE BUSINESSES CONSTITUTED LESS THAN 10% OF THE
COMPANY'S TOTAL REVENUES, WITH MORE THAN 90% OF ITS REVENUES GENERATED BY THE
MANUFACTURING OF RECYCLED PLASTIC RESIN.
IN DECEMBER, 1996, THE COMPANY ACQUIRED A RECYCLING PLANT IN HEATH,
OHIO, ALSO KNOWN AS THE HEATH RESOURCE RECOVERY PLANT, FROM QUANTUM CHEMICAL
CORPORATION. IN CONNECTION WITH THIS ACQUISITION, IN DECEMBER, 1996, THE
COMPANY FORMED FIXCOR TO OWN AND OPERATE THE FACILITY. ON JANUARY 8, 1997,
THE FIRST PROCESSING LINE AT THE FACILITY BECAME OPERATIONAL. DURING JULY,
1997, THE COMPANY FORMED PALLET TECHNOLOGIES TO MANUFACTURE PLASTIC PALLETS
FROM RECYCLED PLASTIC RESIN. THE COMPANY EXPECTS THAT IT WILL DEDICATE
SIGNIFICANTLY LESS RESOURCES TO THE CORPORATE AWARDS JEWELRY MARKETING AND
PURCHASE ORDER FINANCING BUSINESSES, THAT THE PLASTIC RECYCLING BUSINESS WILL
CONTINUE TO GROW, AND THAT THE OPERATIONS OF FIXCOR AND PALLET TECHNOLOGIES
WILL GENERATE A GREATER PERCENTAGE AND, EVENTUALLY, SUBSTANTIALLY ALL OF THE
REVENUE OF THE COMPANY IN FISCAL YEAR 1998, SUCH THAT THE COMPANY IS
CONSIDERED PRIMARILY TO BE IN THE PLASTIC RECYCLING AND RECYCLED PRODUCTS
BUSINESS.
THE FOLLOWING IS A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOLLOWED
IN THE PREPARATION OF THESE CONSOLIDATED FINANCIAL STATEMENTS. THE FINANCIAL
STATEMENTS AND NOTES ARE THE REPRESENTATION OF THE COMPANY'S MANAGEMENT, WHO
IS RESPONSIBLE FOR THEIR INTEGRITY AND OBJECTIVITY. THE POLICIES CONFORM TO
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND HAVE BEEN CONSISTENTLY APPLIED.
USE OF ESTIMATES - THE PREPARATION OF FINANCIAL STATEMENTS IN
CONFORMITY WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES REQUIRES MANAGEMENT
TO MAKE ESTIMATES AND ASSUMPTIONS THAT AFFECT THE REPORTED AMOUNTS OF ASSETS
AND LIABILITIES AND DISCLOSURES OF CONTINGENT ASSETS AND LIABILITIES AT THE
DATE OF THE FINANCIAL STATEMENTS AND THE REPORTED AMOUNTS OF REVENUES AND
EXPENSES DURING THE REPORTING PERIOD. ACTUAL RESULTS COULD DIFFER FROM THOSE
ESTIMATES.
-7-
<PAGE>
FIX-CORP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
PRINCIPLES OF CONSOLIDATION - THE FINANCIAL STATEMENTS INCLUDE THE
ACCOUNTS OF FIX-CORP INTERNATIONAL, INC. AND ITS WHOLLY-OWNED SUBSIDIARIES
FIXCOR INDUSTRIES, INC. AND PALLET TECHNOLOGIES, INC.. ALL SIGNIFICANT
INTERCOMPANY BALANCES AND TRANSACTIONS HAVE BEEN ELIMINATED.
EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS - EFFECTIVE IN 1996, FIX-CORP
ADOPTED STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 115, "ACCOUNTING FOR
CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES." UNDER STATEMENT NO. 115,
DEBT AND MARKETABLE EQUITY SECURITIES ARE REQUIRED TO BE CLASSIFIED IN ONE OF
THREE CATEGORIES: TRADING, AVAILABLE-FOR-SALE, OR HELD TO MATURITY. FIX-CORP'S
EQUITY SECURITIES QUALIFY UNDER THE PROVISIONS OF STATEMENT NO. 115 AS
AVAILABLE-FOR-SALE. SUCH SECURITIES ARE RECORDED AT FAIR VALUE, UNREALIZED
HOLDING GAINS AND LOSSES, NET OF THE RELATED TAX EFFECT, ARE NOT REFLECTED IN
EARNINGS BUT ARE REPORTED AS A SEPARATE COMPONENT OF STOCKHOLDERS' EQUITY UNTIL
REALIZED. A DECLINE IN THE MARKET VALUE OF AN AVAILABLE-FOR-SALE SECURITY BELOW
COST THAT IS DEEMED OTHER THAN TEMPORARY IS CHARGED TO EARNINGS AND RESULTS IN
THE ESTABLISHMENT OF A NEW COST BASIS FOR THE SECURITY.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 121 "ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF"
REQUIRES THAT LONG-LIVED ASSETS HELD AND USED BY A COMPANY BE REVIEWED FOR
IMPAIRMENT WHENEVER EVENTS OR CHANGES IN CIRCUMSTANCES INDICATE THAT THE
CARRYING AMOUNT OF AN ASSET MAY NOT BE RECOVERABLE. SFAS NO. 121 ALSO
ESTABLISHES THE PROCEDURES FOR REVIEW OF RECOVERABILITY, AND MEASUREMENT OF
IMPAIRMENT, IF NECESSARY, OF LONG-LIVED ASSETS. FIX-CORP, WITH THE ACQUISITION
OF THE HEATH RESOURCE RECOVERY PLANT, ADOPTED SFAS NO.121 AND DETERMINED THAT NO
IMPAIRMENT PROVISION OF THE CARRYING COST OF THE PLANT WAS NECESSARY.
CASH AND CASH EQUIVALENTS - CASH INCLUDES CASH EQUIVALENTS. THE COMPANY
CONSIDERS ALL HIGHLY LIQUID WITH AN ORIGINAL MATURITY OF THREE MONTHS OR LESS
TO BE CASH EQUIVALENTS.
ALLOWANCE FOR DOUBTFUL ACCOUNTS - IT IS THE OPINION OF MANAGEMENT THAT
ALL ACCOUNTS RECEIVABLE ARE COLLECTIBLE, THEREFORE AN ALLOWANCE FOR DOUBTFUL
ACCOUNTS IS NOT NECESSARY.
INVENTORY - INVENTORY IS STATED AT THE LOWER OF COST OR MARKET, USING THE
FIRST-IN, FIRST-OUT, (FIFO), METHOD OF ACCOUNTING, AND CONSISTS OF PLASTIC
RECYCLED PRODUCTS.
PROPERTY, PLANT AND EQUIPMENT - PROPERTY AND EQUIPMENT ARE STATED AT
COST. COSTS OF MAINTENANCE AND REPAIRS ARE CHARGED TO EXPENSE AS INCURRED.
MAJOR IMPROVEMENTS AND RENEWALS, IN GENERAL, ARE CAPITALIZED. ACQUISITIONS TO
FIXED ASSETS ARE DEPRECIATED ON THE STRAIGHT-LINE METHOD. THE ESTIMATED USEFUL
LIVES USED IN COMPUTING DEPRECIATION WERE CHANGED SUBSEQUENT TO THE ISSUANCE OF
THIS REPORT. THE DOLLAR EFFECT OF THE CHANGE IS MINOR IN NATURE, AS
SUBSTANTIALLY ALL ASSETS AFFECTED WERE ACQUIRED IN LATE DECEMBER, 1996, NOT
PLACED IN SERVICE DURING THE YEAR AND THEREFOR NO DEPRECIATION EXPENSE WAS
RECORDED. THE FOLLOWING IS A SUMMARY OF APPLICABLE LIVES:
<TABLE>
<CAPTION>
LIFE IN YEARS LIFE IN YEARS
DESCRIPTION AS PREVIOUSLY REPORTED AS CHANGED
- -------------------------------------------------------------------------
<S> <C> <C>
BUILDINGS 10-25 YEARS 39 YEARS
PLANT MACHINERY AND EQUIPMENT 5-10 YEARS 10 YEARS
OFFICE FURNITURE AND FIXTURES 5-7 YEARS 10 YEARS
</TABLE>
DEPRECIATION CHARGED AGAINST OPERATIONS FOR THE YEARS ENDED DECEMBER 31,
1996 AND 1997 WERE $3,214 AND $675,382, RESPECTIVELY.
ORGANIZATIONAL COSTS - ORGANIZATIONAL COSTS ARE BEING AMORTIZED OVER A
PERIOD OF 60 MONTHS AND IS PRESENTED NET OF ACCUMULATED AMORTIZATION OF $32,600
AND $48,900 IN 1996 AND 1997, RESPECTIVELY. AMORTIZATION EXPENSE CHARGED AGAINST
OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997 $16,300 AND $16,300,
RESPECTIVELY.
-8-
<PAGE>
FIX-CORP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DEFERRED TAXES AND INCOME TAXES - DURING 1995, THE COMPANY ADOPTED
FINANCIAL ACCOUNTING STANDARDS NO. 109, "ACCOUNTING FOR INCOME TAXES" AND ALL
YEARS PRESENTED REFLECT THE ADOPTION OF THIS METHOD, THE TOTAL EFFECT OF WHICH
WAS THE RECORDING OF A DEFERRED TAX ASSET OF $412,150 AND $820,050 IN 1996 AND
1997, RESPECTIVELY, NET OF A VALUATION ALLOWANCES OF $137,500 AND $137,500 IN
1996 AND 1997, RESPECTIVELY, WHICH ARISES SOLELY FROM THE ESTIMATED FUTURE
BENEFIT OF THE NET OPERATING LOSS CARRY-FORWARD OF APPROXIMATELY $2,233,300.
REVENUE RECOGNITION - REVENUE FROM SALES IS GENERALLY RECOGNIZED UPON
SHIPMENT, PROVIDED THAT NO SIGNIFICANT VENDOR OBLIGATIONS REMAIN AND COLLECTION
OF THE RESULTING RECEIVABLE IS DEEMED PROBABLE. FEES ON PURCHASE ORDER CONTRACT
FINANCING, COMMISSIONS AND SHARED FINANCE FEES ARE RECOGNIZED UPON FINALIZATION
AND COLLECTION OF THE RELATED FINANCING PROJECT.
LOSS PER COMMON SHARE - AS OF DECEMBER 31, 1996 AND 1997, LOSS PER COMMON
SHARE AND COMMON SHARE EQUIVALENT WERE COMPUTED BY DIVIDING THE NET LOSS BY THE
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK AND COMMON STOCK EQUIVALENTS
OUTSTANDING DURING THE YEAR.
NOTE 2 - INVESTMENT IN MARKETABLE SECURITIES
EFFECTIVE IN 1996, FIX-CORP ADOPTED STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS NO. 115, "ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY
SECURITIES." UNDER STATEMENT NO. 115, DEBT AND MARKETABLE EQUITY SECURITIES ARE
REQUIRED TO BE CLASSIFIED IN ONE OF THREE CATEGORIES: TRADING,
AVAILABLE-FOR-SALE, OR HELD TO MATURITY. FIX-CORP'S EQUITY SECURITIES QUALIFY
UNDER THE PROVISIONS OF STATEMENT NO. 115 AS AVAILABLE-FOR-SALE. SUCH SECURITIES
ARE RECORDED AT FAIR VALUE, UNREALIZED HOLDING GAINS AND LOSSES, NET OF THE
RELATED TAX EFFECT, ARE NOT REFLECTED IN EARNINGS BUT ARE REPORTED AS A SEPARATE
COMPONENT OF STOCKHOLDERS' EQUITY UNTIL REALIZED. A DECLINE IN THE MARKET VALUE
OF AN AVAILABLE-FOR-SALE SECURITY BELOW COST THAT IS DEEMED OTHER THAN TEMPORARY
IS CHARGED TO EARNINGS AND RESULTS IN THE ESTABLISHMENT OF A NEW COST BASIS FOR
THE SECURITY. THE UNREALIZED HOLDING LOSS ON INVESTMENTS OF $68,673 AND $21,173
WAS RECOGNIZED DIRECTLY TO CAPITAL IN 1996 AND 1997, RESPECTIVELY.
NOTE 3 - INVENTORY
INVENTORY IS STATED AT THE LOWER OF COST OR MARKET, USING THE FIRST-IN,
FIRST-OUT, (FIFO), METHOD OF ACCOUNTING, AND CONSISTS OF PLASTIC RECYCLED
PRODUCTS. INVENTORIES AT DECEMBER 31, BY MAJOR CLASSIFICATION, WERE AS FOLLOWS:
<TABLE>
<CAPTION>
1996 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
RAW MATERIALS $96,002 $2,457,209
WORK IN PROCESS - 0 - 86,210
FINISHED GOODS - 0 - 303,990
SUPPLIES & CHEMICALS - 0 - 62,811
----- ------
TOTAL INVENTORY $96,002 $2,910,220
------- ----------
</TABLE>
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
PLANT PURCHASE AND SALE AGREEMENT - ON DECEMBER 16, 1996 THE COMPANY
ACQUIRED, SUBJECT TO A CERTAIN PURCHASE AND SALE AGREEMENT, A PLANT IN CENTRAL
OHIO, HEREINAFTER REFERRED TO AS THE "RESOURCE RECOVERY" PLANT. THE ASSETS
CONSIST OF A POST-CONSUMER PLASTIC RECYCLING OPERATION INVOLVING TWO PARALLEL
RECYCLING LINES UNDER A SINGLE ROOFED STRUCTURE ON ITS OWN PLOT OF GROUND WITH A
PERMANENT EASEMENT FOR INGRESS AND EGRESS TO AN ADJOINING RAILROAD SPUR AND
TRUCK SCALE AND VARIOUS OTHER SUPPORT EQUIPMENT PERMITTING THIS BUSINESS TO
FUNCTION AS AN INDEPENDENT ENTITY.
-9-
<PAGE>
FIX-CORP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
THE PURCHASE PRICE, AND ALLOCATION THEREOF, IS SUMMARIZED AS FOLLOWS: AMOUNT
- --------------------------------------------------------------------------------
<S> <C>
LAND & LAND HELD FOR DEVELOPMENT $750,000
BUILDINGS 2,000,000
PLANT EQUIPMENT 6,550,000
OFFICE FURNITURE & FIXTURES 100,000
-------
TOTAL PURCHASE PRICE $9,400,000
----------
</TABLE>
AS MORE FULLY DESCRIBED IN NOTE 7, INCLUDED IN THE ACQUISITION OF THE
RESOURCE RECOVERY PLANT WAS A TRACK LEASE AGREEMENT FOR 200' OF RAILROAD SIDING
(INCLUDING LAND) FOR THE SOLE PURPOSE OF THE STORAGE OF RAILROAD CARS OWNED,
LEASED OR CONSIGNED TO THE COMPANY. THE TERM OF THE LEASE IS FOR A PERIOD OF TEN
(10) YEARS BEGINNING AUGUST 14, 1996 AND EXPIRING AUGUST 14, 2006, WITH AN
OPTION FOR AN ADDITIONAL TEN (10) YEARS EXPIRING AUGUST 14, 2016. ANNUAL
RENTALS, PAID IN ADVANCE, ARE $1,000 PER YEAR.
<TABLE>
<CAPTION>
THE PURCHASE PRICE WAS PAID AS FOLLOWS AMOUNT
- --------------------------------------------------------------------------------
<S> <C>
CASH $900,000
SECURED EQUIPMENT LOAN 2,500,000
COMMON STOCK (6,521,740 RESTRICTED SHARES) 6,000,000
---------
TOTAL PAYMENTS $9,400,000
----------
</TABLE>
AT CLOSING, THE COMPANY RECEIVED A GENERAL WARRANTY DEED FOR THE GROUND
AND ITS IMPROVEMENTS (I.E. THE PHYSICAL PLANT), AND A BILL OF SALE FOR THE
REMAINDER OF THE ASSETS. THE SELLER EXTENDED NO EXPRESS OR IMPLIED WARRANTIES
FOR THE EQUIPMENT TRANSFERRED AND DISCLAIMED ANY IMPLIED WARRANTY OF
MERCHANTABILITY AND IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE. THE
SELLER DID STIPULATE HOWEVER, THAT THE PLANT WAS NOT SUBJECT TO ANY CONTRACT OR
AGREEMENT WITH ANY LABOR UNION OR LINKED TO ANY COLLECTIVE BARGAINING AGREEMENT,
AND THAT THE PLANT WAS NOT SUBJECT TO ANY EMPLOYEE BENEFIT OR RETIREMENT
PROGRAMS. IN ADDITION, THE SELLER AGREED TO PROVIDE PERSONNEL TO CONSULT WITH
FIX-CORP FOR UP TO ONE YEAR AND ASSIST IN RE-STARTING THE FACILITY. IN ADDITION,
ALL BLUEPRINTS, CUSTOMER LISTS, DRAWINGS AND EQUIPMENT SPECIFICATIONS WERE MADE
AVAILABLE.
IN AUGUST, 1997, THE COMPANY ISSUED 471,000 SHARES OF COMMON STOCK (AT A
VALUE OF $1.24 PER SHARE) IN CONSIDERATION OF AN EQUIPMENT PURCHASE FROM A
COMMERCIAL ENTERPRISE.
PALLET TECHNOLOGIES HAS ORDERED A SPECIALIZED, STATE-OF-THE-ART, INJECTION
MOLDING MACHINE WHICH TRANSFORMS RESIN PELLETS, PRODUCED BY FIXCOR, INTO PLASTIC
PELLETS. INSTALLATION OF THIS EQUIPMENT WAS COMPLETED DURING JANUARY, 1998 AND
MANAGEMENT EXPECTS TO HAVE IT OPERATING AT FULL CAPACITY BY THE END OF THE FIRST
QUARTER OF FISCAL YEAR 1998. THE APPROXIMATE COST OF THE EQUIPMENT, MOLDS,
TRANSPORTATION AND INSTALLATION OF THE EQUIPMENT FOR PALLET TECHNOLOGIES'
OPERATION AT THE FACILITY IS $4,000,000, AND THE APPROXIMATE COST OF EQUIPMENT,
TRANSPORTATION AND INSTALLATION AT THE FLORIDA PLANT, MORE FULLY DESCRIBED IN
NOTE 13, IS EXPECTED TO BE $3,000,000, IN ADDITION TO APPROXIMATELY $1,000,000,
FOR THE COST OF MOLDS. PERMANENT FINANCING FOR THE PALLET TECHNOLOGIES
EQUIPMENT FOR INSTALLATION AT THE FACILITY WAS SECURED FROM GORDON BROTHERS
CAPITAL CORP.
-10-
<PAGE>
FIX-CORP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 5 - OTHER ASSETS AND DEFERRED CHARGES
<TABLE>
<CAPTION>
OTHER ASSETS AND DEFERRED CHARGES CONSIST OF THE FOLLOWING: 1996 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
UNAMORTIZED DEBT ISSUE COSTS (NET OF ACCUMULATED AMORTIZATION OF
$-0- AND $52,593 IN 1996 AND 1997, RESPECTIVELY) $-0- $894,082
DEFERRED PREOPERATING PLANT STARTUP COSTS (NET OF ACCUMULATED
AMORTIZATION OF $-0- AND $36,362 IN 1996 AND 1997, RESPECTIVELY 36,750 145,060
DISPUTED FINANCE DEPOSIT CLAIM, NET OF VALUATION ALLOWANCE OF
$30,000 IN 1997 90,000 60,000
LICENSE AGREEMENT -0- 30,000
NOTE RECEIVABLE FROM AFFILIATED COMPANY 26,000 26,000
ORGANIZATIONAL COSTS (NET OF ACCUMULATED AMORTIZATION OF $32,600
AND $48,900 IN 1996 AND 1997, RESPECTIVELY) 48,900 32,600
DEPOSITS 900 31,530
OTHER ASSETS 9,676 9,676
----- -----
TOTAL OTHER ASSETS AND DEFERRED CHARGES $212,226 $1,228,948
-------- ----------
</TABLE>
UNAMORTIZED DEBT ISSUE COSTS - UNAMORTIZED DEBT ISSUE COSTS CONSISTS OF
LEGAL AND ACCOUNTING FEES, PRINTING COSTS AND OTHER EXPENSES ASSOCIATED WITH
ISSUANCE OF DEBT AND FINANCING INSTRUMENTS, INCLUDING THE CONVERTIBLE
DEBENTURES. THE COSTS ARE BEING AMORTIZED OVER THE LIFE OF THE RELATED FINANCING
INSTRUMENT. AMORTIZATION EXPENSE CHARGED TO OPERATIONS WAS $-0- AND $36,362 IN
1996 AND 1997, RESPECTIVELY.
NOTE RECEIVABLE FROM AFFILIATED COMPANY - THE NOTE RECEIVABLE FROM
AFFILIATED COMPANY RESULTS FROM A LOAN TO FIX-SPORTS, INC., A COMPANY PARTIALLY
OWNED BY THE COMPANY'S PRESIDENT. THE NOTE BEARS INTEREST AT 10% AND IS SIGNED
PERSONALLY BY THE PRESIDENT AND COLLATERALIZED BY 52,000 SHARES OF THE COMPANY'S
COMMON STOCK.
DISPUTED FINANCE DEPOSIT CLAIM - THE DISPUTED FINANCE DEPOSIT CLAIM
RESULTS FROM A DEPOSIT THAT THE COMPANY PLACED WITH A FINANCE COMPANY IN ORDER
TO OBTAIN FINANCING FOR THE RESOURCE RECOVERY ACQUISITION. NO CONSIDERATION WAS
RECEIVED AND THE COMPANY INTENDS TO PURSUE ACTION TO RECOVER THE DEPOSIT. THE
COMPANY'S COUNSEL BELIEVES THAT THEY HAVE A LEGITIMATE COLLECTIBLE CLAIM.
DEFERRED PREOPERATING PLANT STARTUP COSTS - DEFERRED PREOPERATING PLANT
STARTUP COSTS CONSISTS OF CERTAIN CONSULTING, LABOR AND MAINTENANCE COSTS
INCURRED BY THE COMPANY SUBSEQUENT TO THE ACQUISITION OF THE RESOURCE RECOVERY
PLANT, MORE FULLY DESCRIBED IN NOTE 4. THE DEFERRED COSTS WILL BE AMORTIZED OVER
A THREE (3) YEAR PERIOD STARTING ON THE DATE THAT THE PLANT BECAME FULLY
OPERATIONAL IN FEBRUARY, 1997.
PATENTS, TRADEMARKS AND LICENSES - PALLET TECHNOLOGIES HAS ENTERED
INTO A LICENSING AND MARKETING AGREEMENT WITH NITRO PLASTICS TECHNOLOGIES.
UNDER THAT AGREEMENT, PALLET TECHNOLOGIES IS THE SUB-LICENSEE OF CERTAIN
PROPRIETARY INJECTION MOLDING TECHNOLOGY FOR THE MANUFACTURING OF PLASTIC
PALLETS AND OTHER PRODUCTS FROM RECYCLED PLASTIC. PALLET TECHNOLOGIES USES THE
TRADEMARK POWER-PAL 2000U WITH RESPECT TO ITS PALLETS, BUT HAS NOT REGISTERED
OR APPLIED FOR REGISTRATION OF THAT TRADEMARK.
IN FEBRUARY, 1998, NITRO, MR. AISENBERG AND PALLET TECHNOLOGIES ENTERED
INTO THE FIRST AMENDED LICENSING AND MARKETING AGREEMENT UNDER WHICH THE ROYALTY
RATE OF $2.50 PER PALLET SOLD UNDER PALLET TECHNOLOGIES' ORIGINAL AGREEMENT WITH
NITRO IS REDUCED TO $0.50 DURING THE FIRST FIVE YEARS AND $0.25 DURING THE NEXT
FIVE YEARS.
-11-
<PAGE>
FIX-CORP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
CALIFORNIA GRANT AND ALLIED SIGNAL AGREEMENT - IN JUNE, 1997, THE
COMPANY WAS AWARDED A $256,868 RESEARCH GRANT FROM THE INTEGRATED WASTE
MANAGEMENT BOARD OF THE STATE OF CALIFORNIA TO DEVELOP A SOLUTION TO THE
PROBLEMS ASSOCIATED WITH NON-RECYCLABLE HDPE MOTOR OIL CONTAINERS, WHICH HAVE
HISTORICALLY BEEN SENT TO LANDFILLS. THE SOLUTION WILL INVOLVE THE SEPARATION
OF THE REMAINING OIL FROM THE "EMPTY" CONTAINER, AND THEN THE RECYCLING OF THE
HDPE CONTAINER AND THE SEPARATE RECYCLING OF THE REMAINING OIL. TO DO THIS, IN
SEPTEMBER, 1997, FIXCOR ENTERED INTO A LICENSE AGREEMENT WITH THE FEDERAL
MANUFACTURING & TECHNOLOGIES BUSINESS UNIT OF ALLIEDSIGNAL INC. UNDER WHICH
ALLIEDSIGNAL LICENSES TO FIXCOR CERTAIN TECHNOLOGY AND FIXCOR PAYS A LICENSE FEE
AND ONGOING ROYALTIES BASED PRINCIPALLY ON SALES OF PRODUCTS SOLD ARISING OUT OF
USE OF THE LICENSED TECHNOLOGY.
NOTE 6 - DEFERRED TAXES AND INCOME TAXES
AS MORE FULLY DESCRIBED IN NOTE 1, THE COMPANY ADOPTED FINANCIAL ACCOUNTING
STANDARDS NO. 109, "ACCOUNTING FOR INCOME TAXES" AND ALL YEARS PRESENTED
REFLECT THE ADOPTION OF THIS METHOD. THE DEFERRED TAX ASSET OF $820,050, NET OF
A VALUATION ALLOWANCE OF $137,500, WHICH ARISES SOLELY FROM THE ESTIMATED FUTURE
BENEFIT OF THE NET OPERATING LOSS CARRY-FORWARD OF APPROXIMATELY $2,233,300.
<TABLE>
<CAPTION>
THE COMPONENTS OF THE DEFERRED TAX ASSET ARE AS FOLLOWS: 1996 1997
- -------------------------------------------------------------------------------------
<S> <C> <C>
TAX ASSET ARISING FORM NET OPERATING LOSS CARRYFORWARD:
FEDERAL $447,375 $779,375
STATE 102,275 178,175
-------- --------
TOTAL DEFERRED TAX ASSET 549,650 957,550
LESS VALUATION FOR DEFERRED TAX ASSETS (137,500) (137,500)
-------- --------
DEFERRED TAXES - NET $412,150 $820,050
-------- --------
-------- --------
</TABLE>
<TABLE>
<CAPTION>
THE COMPONENTS OF THE PROVISION FOR TAXES WERE AS FOLLOWS: 1996 1997
- -------------------------------------------------------------------------------------
<S> <C> <C>
PROVISION FOR DEFERRED TAXES:
FEDERAL $57,250 $332,000
STATE 13,100 75,900
VALUATION ALLOWANCE (17,500) - 0 -
------- -----
TOTAL $52,850 $407,900
------- --------
------- --------
</TABLE>
<TABLE>
<CAPTION>
THE AMOUNTS AND EXPIRATION DATES OF THE NET OPERATING LOSS CARRYFORWARD AVAILABLE
TO THE COMPANY AT DECEMBER 31, 1996 ARE AS FOLLOWS:
AMOUNT EXPIRATION DATE
- -------------------------------------------------------------------------------------
<S> <C> <C>
LOSS FOR THE YEAR ENDED DECEMBER 31, 1995 $1,114,642 2010
LOSS FOR THE YEAR ENDED DECEMBER 31, 1996 163,674 2011
LOSS FOR THE YEAR ENDED DECEMBER 31, 1997 954,984 2012
-------
TOTAL NET OPERATING LOSS CARRYFORWARD $2,233,300
----------
</TABLE>
-12-
<PAGE>
FIX-CORP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 7 - SHORT-TERM BORROWINGS
SHORT-TERM BORROWINGS AT DECEMBER 31 CONSISTED OF THE FOLLOWING:
<TABLE>
<CAPTION>
1996 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
SECURED EQUIPMENT NOTE PAYABLE $2,500,000 $- 0 -
CONVERTIBLE BRIDGE FINANCING NOTES PAYABLE 250,000 - 0 -
6.07% CONVERTIBLE BRIDGE FINANCING NOTES PAYABLE 200,000 - 0 -
NOTES PAYABLE TO SHAREHOLDERS 418,000 180,000
12% NOTE PAYABLE 80,000 80,000
NOTES PAYABLE TO OTHERS 100,000 60,000
------- ------
$3,548,000 $320,000
---------- --------
</TABLE>
SECURED EQUIPMENT LOAN PAYABLE - AT DECEMBER 31,1996 THE COMPANY WAS A
PARTY TO A LOAN AND SECURITY AGREEMENT WITH GORDON BROTHERS CAPITAL CORPORATION,
A DELAWARE COMPANY, AND MARK FIXLER, A PRINCIPAL SHAREHOLDER, PRESIDENT AND CEO,
PERSONALLY. THE LOAN WAS FOR $2,500,000 BEARING INTEREST AT 12 1/2% AND WAS
SECURED BY AN OPEN-END MORTGAGE TO THE PREMISES LOCATED AT 1835 JAMES PARKWAY,
HEATH, OHIO, NAMELY THE POST CONSUMER PLASTICS RECYCLING FACILITY OR RESOURCE
RECOVERY PLANT.
AS PART OF THAT AGREEMENT, GORDON BROTHERS WAS ENTITLED TO PURCHASE FROM
THE COMPANY AFTER DECEMBER 16, 1997 BUT BEFORE DECEMBER 16, 1999, FIVE HUNDRED
THOUSAND (500,000) SHARES OF THE COMPANY'S $.001 VALUE COMMON STOCK AT A PRICE
OF TWENTY-FIVE CENTS ($0.25) PER SHARE. SUCH SHARES UNDER OPTION ARE
RESTRICTED SHARES. GORDON BROTHERS CAPITAL CORPORATION EXERCISED THEIR OPTION
DURING 1997.
IN ADDITION TO THIS OPEN-END MORTGAGE, GORDON BROTHERS WAS GRANTED A
SECURITY INTEREST, INCLUDING A LIEN ON AND A PLEDGE OF ALL INVENTORY, ALL
ACCOUNTS AND ACCOUNTS RECEIVABLES, CONTRACT RIGHTS, AND ALL CUSTOMER LISTS AND
GOODWILL. MR. FIXLER HAS BEEN REQUIRED TO SIGN AS A GUARANTOR FOR FIX-CORP
INTERNATIONAL. THE SCHEDULE OF PAYMENTS REQUIRED UNDER THE LOAN PORTION OF THIS
AGREEMENT WAS DEFINED SO AS TO ALLOW A MODEST INITIAL PAYMENT, THEN A PAYMENT OF
APPROXIMATELY $79,734 FOR THE NEXT FIVE MONTHS, FOLLOWED BY A PAYMENT OF
$123,000, THEN $250,000, THEN $394,000 FOR THE FINAL FOUR MONTHS.
THE LOAN CONTRACT CONTAINED A NUMBER OF NEGATIVE COVENANTS, INCLUDING BUT
NOT LIMITED TO, CERTAIN LIMITATIONS ON THE ISSUANCE ANY ADDITIONAL EVIDENCES OF
INDEBTEDNESS; THE CREATION, ASSUMPTION, GUARANTEE OF INDEBTEDNESS IN ADDITION
TO THE INDEBTEDNESS OF THE LENDER; THERE CAN BE NO SALE OR TRANSFER OF OWNERSHIP
WITHOUT THE LENDER'S PRIOR WRITTEN CONSENT; AND THE BORROWER WAS BARRED FROM
MAKING ANY LOANS OR ADVANCES TO ANY INDIVIDUAL OR OFFICER OF THE BORROWER. IN
ADDITION, THE COMPANY IS PROHIBITED FROM PAYING DIVIDENDS WITHOUT THE PRIOR
WRITTEN PERMISSION OF THE LENDER AND MAY NOT MAKE ANY INVESTMENTS WITHOUT THE
LENDER'S PRIOR WRITTEN PERMISSION; THE BORROWER MAY NOT MERGE OR CONSOLIDATE
WITH OR INTO ANY OTHER CORPORATION; THE BORROWER MAY NOT SELL, LEASE OR DISPOSE
OF ITS ASSETS WITHOUT THE LENDER'S PRIOR WRITTEN CONSENT AND THE BORROWER MAY
NOT GRANT ANY SECURITY INTEREST IN OR MORTGAGE OF ANY OF ITS PROPERTIES THAT ARE
INCLUDED IN THE LENDER'S COLLATERAL. FINALLY, THE BORROWER IS BARRED FROM
ENGAGING IN ANY BUSINESS OTHER THEN THE BUSINESS IN WHICH IT IS CURRENTLY
ENGAGED OR A BUSINESS REASONABLY ALLIED THERETO.
IN MAY, 1997, FIXCOR SECURED FINANCING FOR THE FACILITY FROM NATIONSCREDIT
COMMERCIAL CORPORATION. THIS CONSISTED OF REVOLVING LOANS UP TO $7,000,000 FOR
INVENTORY AND ACCOUNT RECEIVABLE FINANCING, PERMANENT FINANCING, AND EQUIPMENT
ACQUISITION. THIS FINANCING INCLUDED A MORTGAGE SECURITY AGREEMENT WHICH
ENCUMBERED SUBSTANTIALLY ALL OF THE ASSETS OF THE FACILITY. MR. FIXLER IS THE
GUARANTOR OF THIS FACILITY IN AN AMOUNT UP TO $750,000 PLUS EXPENSES. CERTAIN
PROCEEDS OF THIS LOAN WERE USED TO RETIRE THE PREVIOUSLY DESCRIBED SECURED
EQUIPMENT LOAN PAYABLE GORDON BROTHERS.
-13-
<PAGE>
FIX-CORP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
BRIDGE FINANCING NOTES PAYABLE - DURING 1996 AND SUBJECT TO A CERTAIN
"CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM", MORE FULLY DESCRIBED IN NOTE 10,
THE COMPANY SOLD $250,000 IN BRIDGE NOTES TO QUALIFIED ACCREDITED INVESTORS.
THE PROCEEDS OF THE BRIDGE NOTES WERE USED FOR THE PURPOSE OF ACQUIRING THE
RESOURCE RECOVERY PLANT. THE NOTE HOLDERS ARE ENTITLED TO A TWENTY-TWO (22%)
PERCENT RETURN ON INVESTMENT AS WELL AS AN STOCK DIVIDEND OF EIGHTEEN (18%)
PERCENT OF MONIES INVESTED AT $.50 PER SHARE OR 18,000 SHARES OF COMMON STOCK,
WHICH WAS ISSUED AND HELD IN ESCROW. THE COMPANY RETAINED THE RIGHT TO
"REPURCHASE" THE SHARES UPON PAYMENT OF THE NOTES. THE TERM OF THE LOAN IS
GENERALLY 120 TO 180 DAYS FROM CLOSING.
ON DECEMBER 11, 1996, FOR VALUE RECEIVED, THE COMPANY PROMISED TO PAY TO
THE ORDER OF GENERATION CAPITAL ASSOCIATES, A NON AFFILIATED NEW YORK LIMITED
PARTNERSHIP OR ITS ASSIGNS, THE PRINCIPAL AMOUNT OF TWO HUNDRED THOUSAND
DOLLARS ($200,000). THE PRINCIPAL THEREOF AND ANY UNPAID ACCRUED INTEREST
THEREON BECAME DUE AND PAYABLE ON JUNE 31,1997. THE NOTE BEARS INTEREST AT THE
RATE OF 6.07% PERCENT PER ANNUM ON THE OUTSTANDING PRINCIPAL BALANCE, PAYABLE
QUARTERLY COMMENCING JANUARY 1,1997.
DURING 1997, $350,000 OF THE BRIDGE NOTES, INCLUDING CERTAIN INTEREST
ACCRUALS WERE CONVERTED INTO A TOTAL OF 783,000 SHARES OF COMMON STOCK. IN
ADDITION, CERTAIN WARRANTS RELATED TO THESE DEBT INSTRUMENTS WERE EXERCISED
RESULTING IN THE ISSUANCE OF 1,000,000 SHARES OF COMMON STOCK FOR $125,000.
NOTES PAYABLE - THE PROCEEDS OF THE NOTES HAVE GENERALLY BEEN USED FOR
WORKING CAPITAL AND PURCHASE ORDER FINANCING CONTRACTS. THE NOTES ARE GENERALLY
SHORT-TERM RENEWABLE NOTES BEARING INTEREST AT 1% PER MONTH. ALL NOTES ARE
CURRENT.
NOTE 8 - LONG-TERM DEBT
CONVERTIBLE DEBENTURES - ON OCTOBER 24, 1997, PURSUANT TO A CONVERTIBLE
DEBENTURE PURCHASE AGREEMENT, THE COMPANY ISSUED AND SOLD IN A PRIVATE PLACEMENT
TO TWO INSTITUTIONAL INVESTORS AN AGGREGATE $5,000,000 PRINCIPAL AMOUNT OF
DEBENTURES BEARING INTEREST AT THE RATE OF 6% PER ANNUM, PAYABLE QUARTERLY IN
ARREARS, AND DUE OCTOBER 24, 2000.
ON NOVEMBER 25, 1997, PURSUANT TO AN AMENDED AND RESTATED CONVERTIBLE
DEBENTURE PURCHASE AGREEMENT AND COLLATERAL DOCUMENTS, THE INTEREST RATE TO THE
OCTOBER DEBENTURES WAS REDUCED TO 5% (RETAINING THE ORIGINAL OCTOBER 24,1997
EFFECTIVE DATE OF THE OCTOBER DEBENTURES), AND THE COMPANY ISSUED NEW DEBENTURES
IN THE PRINCIPAL AMOUNT OF $3,000,000 TO ONE OF THE OCTOBER, 1997 INVESTORS,
BEARING A RATE OF 5% PER ANNUM, PAYABLE QUARTERLY IN ARREARS, AND DUE NOVEMBER
25, 2000.
THE COMPANY EXPECTS TO USE THE NET PROCEEDS OF THE TRANSACTIONS PRIMARILY
FOR THE ACQUISITION OF EQUIPMENT FOR THE START-UP AND EXPANSION OF PALLET
TECHNOLOGIES AND FIXCOR OPERATIONS. THE PRINCIPAL AMOUNT OF THE DEBENTURES,
TOGETHER WITH ANY ACCRUED AND UNPAID INTEREST THEREON, ARE CONVERTIBLE AT ANY
TIME INTO SHARES OF COMMON STOCK AT A CONVERSION PRICE EQUAL TO THE LESSER OF
(1) $3.91 (110% OF THE AVERAGE CLOSING BID PRICE FOR THE 5 TRADING DAYS
PRECEDING CLOSING), OR (2) 84% (PREVIOUSLY 85% UNDER THE OCTOBER DOCUMENTS) OF
THE AVERAGE OF THE 5 LOWEST CLOSING BID PRICES DURING THE 10 TRADING DAYS
PRECEDING CONVERSION. EXCEPT IN LIMITED CIRCUMSTANCES, THE CONVERSION RIGHTS
ARE SUBJECT TO AN AGGREGATE LIMIT OF 4.9% OF THE COMPANY'S OUTSTANDING COMMON
STOCK.
THE PURCHASERS ALSO RECEIVED WARRANTS TO PURCHASE AN AGGREGATE 331,400
SHARES OF COMMON STOCK AT AN EXERCISE PRICE EQUAL TO $3.91 PER SHARE. THE
WARRANTS ARE EXERCISABLE AT ANY TIME THROUGH OCTOBER 24, 2000. ONE OF THE
PURCHASERS ALSO RECEIVED WARRANTS TO PURCHASE AN AGGREGATE 198,840 SHARES OF
COMMON STOCK AT THAT SAME PRICE, EXERCISABLE AT ANY TIME THROUGH NOVEMBER 25,
2000. THE COMPANY HAS RESERVED AUTHORIZED SHARES OF COMMON STOCK SUFFICIENT TO
COVER CONVERSION OF DEBENTURES (AND PAYMENT OF INTEREST THEREON IN SHARES OF
COMMON STOCK) AND THE EXERCISE OF THE WARRANTS, AND IS REQUIRED TO EFFECT AND
MAINTAIN FOR THREE YEARS A REGISTRATION STATEMENT UNDER THE SECURITIES ACT
COVERING RESALES BY THE HOLDERS OF SUCH SHARES FOLLOWING CONVERSION OF
DEBENTURES (AND PAYMENT OF INTEREST THEREON IN SHARES OF COMMON STOCK) AND
EXERCISE OF WARRANTS.
-14-
<PAGE>
FIX-CORP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
IN JANUARY, 1998, THE COMPANY ISSUED TO THE SAME TWO PURCHASERS $2,500,000
AGGREGATE PRINCIPAL AMOUNT OF THREE-YEAR, 4% CONVERTIBLE DEBENTURES, CONVERTIBLE
(TOGETHER WITH INTEREST THEREON) AT ANY TIME INTO SHARES OF COMMON STOCK AT A
CONVERSION PRICE EQUAL TO THE LESSER OF (1) $3.34, OR (2) 83% OF THE AVERAGE OF
THE 5 LOWEST CLOSING BID PRICES FOR 'THE 10 TRADING DAYS PRECEDING CONVERSION.
THE PURCHASERS ALSO RECEIVED WARRANTS TO PURCHASE AN AGGREGATE 198,413 SHARES OF
COMMON STOCK AT AN EXERCISE PRICE EQUAL TO $3.34 PER SHARE. THE WARRANTS ARE
EXERCISABLE AT ANY TIME THROUGH JANUARY 22, 2001. THE COMPANY IS REQUIRED TO
AMEND THE REGISTRATION STATEMENT ON FORM SB-2 TO INCLUDE RESALE BY THE HOLDERS
OF SHARES ISSUABLE UPON CONVERSION OF SUCH DEBENTURES AND EXERCISE OF SUCH
WARRANTS.
UNDER GENERALLY THE SAME TERMS AND CONDITIONS IN MARCH, 1998, THE COMPANY
ISSUED TO THE SAME TWO PURCHASERS $1,500,000 AGGREGATE PRINCIPAL AMOUNT OF
THREE-YEAR, 4% CONVERTIBLE DEBENTURES, CONVERTIBLE (TOGETHER WITH INTEREST
THEREON) AT ANY TIME INTO SHARES OF COMMON STOCK AT A CONVERSION PRICE AS
PREVIOUSLY DEFINED. THE COMPANY IS REQUIRED TO AMEND THE REGISTRATION STATEMENT
ON FORM SB-2 TO INCLUDE RESALE BY THE HOLDERS OF SHARES ISSUABLE UPON CONVERSION
OF SUCH DEBENTURES AND EXERCISE OF SUCH WARRANTS.
THE DEBENTURE TRANSACTION DOCUMENTS INCLUDE ADDITIONAL REPRESENTATIONS,
WARRANTIES, COVENANTS AND DEFAULT PROVISIONS NOT ATYPICAL FOR SUCH FINANCINGS.
$7,000,000 REVOLVING-TERM NOTE - IN JULY, 1997, THE COMPANY, FIXCOR AND
PALLET TECHNOLOGIES, AS BORROWERS, SECURED FINANCING FROM GORDON BROTHERS
CAPITAL CORP., IN THE FORM OF A $3,500,000 LINE OF CREDIT, BEARING INTEREST AT
12%, THE PROCEEDS OF WHICH ARE INTENDED TO FINANCE THE ACQUISITION OF EQUIPMENT
FOR USE IN THE OPERATIONS OF PALLET TECHNOLOGIES. IN ADDITION, THE LENDERS ALSO
RECEIVED WARRANTS TO PURCHASE 500,000 SHARES OF COMMON STOCK AT AN EXERCISE
PRICE EQUAL TO $.125 PER SHARE. THIS FACILITY IS SECURED BY SUBSTANTIALLY ALL
OF THE ASSETS OF THE COMPANY AND ITS SUBSIDIARIES. MR. FIXLER IS THE GUARANTOR
OF THIS LINE OF CREDIT IN AN AMOUNT UP TO $1,000,000.
ALL FINANCING FROM NATIONSCREDIT COMMERCIAL CORPORATION WAS REFINANCED
THROUGH GORDON BROTHERS CAPITAL, LLC (SUCCESSOR TO GORDON BROTHERS CAPITAL
CORP.) IN DECEMBER, 1997. THIS RESULTED IN THE COMPANY, FIXCOR AND PALLET
TECHNOLOGIES BEING THE BORROWERS ON A REVOLVING CREDIT FACILITY IN THE PRINCIPAL
AMOUNT OF $7,000,000, $3,500,000 OF WHICH PRINCIPAL MATURES IN OCTOBER, 1998.
NOTE 9 - LEASE COMMITMENTS
ON OCTOBER 17, 1997, THE COMPANY ENTERED INTO A THREE (3) YEAR LEASE FOR
OFFICE SPACE THAT HOUSES THE CORPORATE OFFICES, PURCHASE ORDER AND MERCHANDISE
SALES SEGMENTS OF THE BUSINESS. RENT EXPENSE UNDER PRIOR LEASE ARRANGEMENTS
AMOUNTED TO $10,800 FOR THE YEAR ENDED DECEMBER 31, 1996. MONTHLY RENTALS
THROUGH DECEMBER 31, 1997 ARE $1,393 PER MONTH.
DURING 1997, THE COMPANY ENTERED INTO A "FEDERAL RAILCAR MASTER CAR LEASING
AGREEMENT AND SERVICE CONTRACT" TO FACILITATE SHIPMENTS TO CUSTOMERS. THE
VARIOUS RENTAL AGREEMENTS ARE FOR UP TO TWENTY (20) CARS AND ARE GENERALLY FOR A
TERM OF ONE (1) YEAR AND RENEWABLE AT THE OPTION OF THE COMPANY. RENT EXPENSE
UNDER THE VARIOUS CONTRACTS AMOUNTED TO $20,411 FOR THE YEAR ENDED DECEMBER 31,
1997. MONTHLY RENTALS THROUGH DECEMBER 31, 1997 WERE APPROXIMATELY $2,700 PER
MONTH. SUBSEQUENT TO DECEMBER 31, 1997, THE COMPANY ACCEPTED ADDITIONAL CARS
AND RENTALS UNDER THE MASTER AGREEMENT WHICH INCREASED TO APPROXIMATELY $23,000
PER MONTH.
PURSUANT TO A CERTAIN PURCHASE AND SALE AGREEMENT, MORE FULLY DESCRIBED IN
NOTE 4, INVOLVING THE ACQUISITION OF THE RESOURCE RECOVERY PLANT IN HEATH, OHIO,
THE COMPANY ENTERED INTO A TRACK LEASE AGREEMENT FOR 200' OF RAILROAD SIDING
(INCLUDING LAND) FOR THE SOLE PURPOSE OF THE STORAGE OF RAILROAD CARS OWNED,
LEASED OR CONSIGNED TO THE COMPANY. THE TERM OF THE LEASE IS FOR A PERIOD OF TEN
(10) YEARS BEGINNING AUGUST 14, 1996 AND EXPIRING AUGUST 14, 2006, WITH AN
OPTION FOR AN ADDITIONAL TEN (10) YEARS EXPIRING AUGUST 14, 2016. ANNUAL
RENTALS, PAID IN ADVANCE, ARE $1,000 PER YEAR.
-15-
<PAGE>
FIX-CORP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
ON AUGUST 5, 1997, TO FACILITATE A PLANNED INCREASE IN INVENTORY, THE
COMPANY ENTERED INTO A ONE (1) YEAR LEASE FOR 73,000 SQUARE FEET OF WAREHOUSE
SPACE AT A MONTHLY RENTAL OF $15,330. RENTAL EXPENSE FOR THE YEAR ENDED DECEMBER
31, 1997 AMOUNTED TO $76,650 .
NOTE 10 - COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AGREEMENTS - MR. FIXLER IS PARTY TO A THREE YEAR EMPLOYMENT
CONTRACT WITH THE COMPANY DATED JANUARY 1,1997. UNDER THIS AGREEMENT, THE
COMPANY PAYS HIM A SALARY OF $200,000 DURING THE FIRST YEAR, $250,000 DURING THE
SECOND YEAR AND $300,000 DURING THE FINAL YEAR. IN ADDITION, MR. FIXLER
RECEIVES A CAR ALLOWANCE AND REASONABLE CAR PHONE EXPENSES, PLUS OTHER BENEFITS
CUSTOMARILY GIVEN TO EXECUTIVE OFFICERS. UNDER THIS AGREEMENT, MR. FIXLER IS
ALSO GRANTED AN OPTION TO PURCHASE 4,000,000 SHARES OF COMMON STOCK OF THE
COMPANY AT A FIXED PRICE OF $.50 PER SHARE AND THIS OPTION MAY BE EXERCISED AT
ANY TIME DURING THE EMPLOYMENT PERIOD. FINALLY, IN THE EVENT OF A CONSOLIDATION
OR PURCHASE OF ASSETS TO ANOTHER COMPANY OR TERMINATION OF EMPLOYMENT FOR ANY
OTHER REASON, MR. FIXLER IS ENTITLED TO A $2,000,000 SEVERANCE BENEFIT. PRIOR
TO 1997, MR. FIXLER WAS NOT SUBJECT TO A WRITTEN EMPLOYMENT AGREEMENT WITH THE
COMPANY. HE WAS PAID A SALARY OF $119,000 IN 1996 AND $200,000 IN 1997.
MR. DELAURENTIIS, PRESIDENT OF FIX-COR INDUSTRIES, IS PARTY TO A FIVE YEAR
EMPLOYMENT CONTRACT WITH THE COMPANY DATED JANUARY 1,1997. UNDER THIS
AGREEMENT, THE COMPANY PAYS HIM A SALARY OF $125,000 PER YEAR. HE IS ALSO
ELIGIBLE FOR ANNUAL BONUSES SUBJECT TO THE APPROVAL OF THE BOARD OF DIRECTORS OF
THE COMPANY. IN ADDITION, MR. DELAURENTIIS RECEIVES A CAR ALLOWANCE AND OTHER
BENEFITS CUSTOMARILY GIVEN TO EXECUTIVE OFFICERS. HE IS ALSO A VICE PRESIDENT
OF THE COMPANY. HE WAS NOT EMPLOYED BY THE COMPANY OR FIXCOR DURING FISCAL YEAR
1996.
LEGAL PROCEEDINGS - THE COMPANY IS FROM TIME TO TIME MADE A PARTY TO
LEGAL PROCEEDINGS ARISING IN THE ORDINARY COURSE OF BUSINESS. THE COMPANY DOES
NOT BELIEVE THAT THE RESULTS OF SUCH LEGAL PROCEEDINGS, EVEN IF UNFAVORABLE TO
THE COMPANY, WILL HAVE A MATERIALLY ADVERSE IMPACT ON ITS FINANCIAL CONDITION OR
THE RESULTS OF ITS OPERATIONS.
THE COMPANY IS SUBJECT TO AN ADMINISTRATIVE ORDER ISSUED IN AUGUST, 1997 BY
THE OHIO DIVISION OF SECURITIES, AND RELATING TO CERTAIN MATTERS DEEMED TO
CONSTITUTE VIOLATIONS OF OHIO SECURITIES LAWS. THE COMPANY WAS ORDERED TO
'CEASE AND DESIST' FROM ACTS AND PRACTICES FOUND TO VIOLATE THE OHIO REVISED
CODE AS TO THE SALES OF SECURITIES. THERE WERE NO FURTHER RESTRICTIONS IMPOSED
PURSUANT TO THE ORDER. THE COMPANY BELIEVES THAT SUCH VIOLATIONS RESULTED
PRINCIPALLY FROM MISCOMMUNICATION BETWEEN THE COMPANY AND ITS LEGAL COUNSEL AT
THE TIME AS TO CERTAIN INFORMATION COMMUNICATED TO THE OHIO DIVISION OF
SECURITIES IN CONNECTION WITH AN APPLICATION FOR REGISTRATION BY DESCRIPTION
FILED IN DECEMBER, 1995 WITH RESPECT TO SALES OF THE COMPANY'S COMMON STOCK IN
OHIO. THE COMPANY BELIEVES THAT IT IS IN COMPLIANCE WITH THE ORDER.
NOTE 11 - STOCKHOLDERS' EQUITY
DESCRIPTION OF SECURITIES - THE AUTHORIZED CAPITAL STOCK OF THE COMPANY
CONSISTS OF 100,000,000 SHARES OF COMMON STOCK WITH A PAR VALUE OF $0.001 PER
SHARE, AND 2,000,000 SHARES OF PREFERRED STOCK WITH A PAR VALUE OF $0.001 PER
SHARE. 30,053,289 SHARES OF COMMON STOCK WERE ISSUED AND OUTSTANDING AS OF
DECEMBER 31, 1997..
PREFERRED STOCK - NO SHARES OF PREFERRED STOCK OF THE COMPANY (THE
"PREFERRED STOCK") WERE ISSUED AND OUTSTANDING AS OF DECEMBER 31, 1997. SHARES
OF PREFERRED STOCK WERE ISSUED DURING THE SECOND AND THIRD QUARTERS OF FISCAL
YEAR 1997, BUT ALL HAVE BEEN CONVERTED TO COMMON STOCK BY THE HOLDERS THEREOF.
RECENT SALES OF UNREGISTERED SECURITIES - DURING THE PERIOD NOVEMBER,
1995 THROUGH AUGUST, 1996, PURSUANT TO RULE 504 OF REGULATION D, THE COMPANY
OFFERED AND SOLD TO APPROXIMATELY 160 PURCHASERS 2,000,000 SHARES OF COMMON
STOCK AT $.50 PER SHARE.
-16-
<PAGE>
FIX-CORP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DURING THE PERIOD NOVEMBER, 1996 THROUGH MAY, 1997, THE COMPANY ISSUED
APPROXIMATELY 4,000,000 ADDITIONAL SHARES OF COMMON STOCK FOR VARIOUS PURPOSES
AND CONSIDERATION. THE COMPANY TREATED ALL SUCH ISSUANCES AS EXEMPT FROM
REGISTRATION UNDER RULE 504 OF REGULATION D, AND THE MAJOR TRANSACTIONS
REFLECTED THEREIN INCLUDED THE FOLLOWING:
(1.) IN 1997, THE COMPANY SOLD 3,980,265 SHARES SOLD FOR APPROXIMATELY
$2,400,000 OR $.60 PER SHARE.
(2.) 550,000 SHARES ISSUED TO SECURE CERTAIN BRIDGE FINANCING FROM
GENERATION CAPITAL ASSOCIATES..
(3.) IN SEPTEMBER, 1996, PURSUANT TO SECTION 4(2) OF THE SECURITIES ACT
THE COMPANY SOLD TO SIX PURCHASERS 575,000 SHARES OF COMMON STOCK
AT A PURCHASE PRICE OF $.50 PER SHARE.
(4.) IN DECEMBER, 1996 IN CONNECTION WITH CERTAIN BRIDGE FINANCING IN
THE AMOUNT OF $200,000, THE COMPANY GRANTED TO GENERATION CAPITAL
ASSOCIATES, A NEW YORK LIMITED PARTNERSHIP, WARRANTS FOR THE
PURCHASE OF AN AGGREGATE OF 100,000 SHARES OF COMMON STOCK AT AN
EXERCISE PRICE OF $.65 PER SHARE, WHICH WERE EVENTUALLY EXERCISED
AT THAT PRICE.
(5.) IN DECEMBER, 1996 AND JULY, 1997 IN CONNECTION WITH DEBT FINANCING
FROM GORDON BROTHERS CAPITAL CORPORATION AND PURSUANT TO SECTION
4(2) OF THE SECURITIES ACT, THE COMPANY GRANTED TO THE LENDER
WARRANTS FOR THE PURCHASE OF AN AGGREGATE OF 1,000,000 SHARES OF
COMMON STOCK AT AN EXERCISE PRICE OF $.125 PER SHARE, WHICH THE
LENDER EXERCISED IN NOVEMBER, 1997. CERTAIN 'PIGGYBACK' AND OTHER
REGISTRATION RIGHTS WITH RESPECT TO THE WARRANT SHARES WERE ALSO
GRANTED TO GORDON BROTHERS CAPITAL CORPORATION.
(6.) IN 1996 PURSUANT TO THE ACQUISITION AGREEMENT, THE COMPANY ISSUED
TO MR. FIXLER 6,063,036 SHARES OF COMMON STOCK (AT A VALUE OF $1.01
PER SHARE) IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION
4(2) OF THE SECURITIES ACT.
(7.) FROM JUNE, 1997 TO OCTOBER 1, 1997, PURSUANT TO AN OFFERING UNDER
SECTION 4(2) OF THE SECURITIES ACT, THE COMPANY SOLD 1,925,000
SHARES OF PREFERRED STOCK AT $1.00 PER SHARE. EACH SHARE OF
PREFERRED STOCK WAS CONVERTIBLE INTO ONE SHARE OF COMMON STOCK, AND
AS OF OCTOBER 1,1997 ALL OF THE PREFERRED STOCK HAD BEEN CONVERTED
INTO 1,925,000 SHARES OF COMMON STOCK. IN ADDITION, HOLDERS OF
PREFERRED STOCK WERE GRANTED RIGHTS TO ACQUIRE ADDITIONAL SHARES OF
COMMON STOCK AT $1.00 PER SHARE, AND 1,925,000 SHARES OF COMMON
STOCK WERE ISSUED PURSUANT TO EXERCISE OF SUCH RIGHTS.
(8.) IN AUGUST, 1997, PURSUANT TO SECTION 4(2) OF THE SECURITIES ACT THE
COMPANY ISSUED 571,000 SHARES OF COMMON STOCK (AT A VALUE OF $1.24
PER SHARE) IN CONSIDERATION OF AN EQUIPMENT PURCHASE FROM A
COMMERCIAL ENTERPRISE.
(9.) IN NOVEMBER, 1997, PURSUANT TO RULE 506 OF REGULATION D, THE
COMPANY ISSUED TO TWO INSTITUTIONAL INVESTORS $8,000,000 AGGREGATE
PRINCIPAL AMOUNT OF THREE-YEAR 5% CONVERTIBLE DEBENTURES. THE
TRANSACTION REFLECTED A REISSUANCE OF $5,000,000 CONVERTIBLE
DEBENTURES IN EXCHANGE FOR SIMILAR DEBENTURES ISSUED TO THE SAME
PURCHASERS IN OCTOBER, 1997, AND A NEW ISSUANCE OF $3,000,000
CONVERTIBLE DEBENTURES TO ONE OF SUCH PURCHASERS. THE PRINCIPAL
AMOUNT OF THE DEBENTURES, TOGETHER WITH ANY ACCRUED AND UNPAID
INTEREST THEREON, ARE CONVERTIBLE AT ANY TIME INTO SHARES OF COMMON
STOCK AT A CONVERSION PRICE EQUAL TO THE LESSER OF (I) $3.91 (110%
OF THE AVERAGE CLOSING BID PRICE FOR THE 5 TRADING DAYS PRECEDING
CLOSING), OR (II) 84% OF THE AVERAGE OF THE SLOWEST CLOSING BID
PRICES DURING THE 10 TRADING DAYS PRECEDING CONVERSION. THE
PURCHASERS ALSO RECEIVED WARRANTS TO PURCHASE AN AGGREGATE 530,240
SHARES OF COMMON STOCK AT AN EXERCISE PRICE EQUAL TO $3.91 PER
SHARE. THE WARRANTS ARE EXERCISABLE AT ANY TIME THROUGH OCTOBER
24, 2000 (AS TO 331,400 SHARES) AND NOVEMBER 25,2000 (AS TO 198,840
SHARES). PURSUANT TO THE TERMS OF THE DEBENTURES AND WARRANTS, THE
COMPANY HAS FILED WITH THE SEC A REGISTRATION STATEMENT ON FORM
SB-2 WITH RESPECT TO RESALE
-17-
<PAGE>
FIX-CORP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
BY THE HOLDERS OF SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION
OF THE DEBENTURES AND EXERCISE OF THE WARRANTS.
(10.) IN JANUARY, 1998, PURSUANT TO RULE 506 OF REGULATION D, THE COMPANY
ISSUED TO THE SAME TWO PURCHASERS $2,500,000 AGGREGATE PRINCIPAL
AMOUNT OF THREE-YEAR, 4% CONVERTIBLE DEBENTURES, CONVERTIBLE
(TOGETHER WITH INTEREST THEREON) AT ANY TIME INTO SHARES OF COMMON
STOCK AT A CONVERSION PRICE EQUAL TO THE LESSER OF (I) $3.34, OR
(II) 83% OF THE AVERAGE OF THE 5 LOWEST CLOSING BID PRICES FOR THE
10 TRADING DAYS PRECEDING CONVERSION. THE PURCHASERS ALSO RECEIVED
WARRANTS TO PURCHASE AN AGGREGATE 198,413 SHARES OF COMMON STOCK AT
AN EXERCISE PRICE EQUAL TO $3.34 PER SHARE. THE WARRANTS ARE
EXERCISABLE AT ANY TIME THROUGH JANUARY 22, 2001. THE COMPANY IS
REQUIRED TO AMEND THE REGISTRATION STATEMENT ON FORM SB-2 TO
INCLUDE RESALE BY THE HOLDERS OF SHARES ISSUABLE UPON CONVERSION OF
SUCH DEBENTURES AND EXERCISE OF SUCH WARRANTS.
STOCK OPTION - AN EMPLOYMENT AGREEMENT WAS EXECUTED ON JANUARY 3, 1997
WITH MARK FIXLER, THE COMPANY'S PRESIDENT, CEO AND PRINCIPAL SHAREHOLDER THAT
INCLUDES, AMONG OTHER PROVISIONS, AN OPTION TO THE EMPLOYEE TO PURCHASE FOUR
MILLION SHARES OF STOCK AT THE FIXED PRICE OF FIFTY CENTS PER SHARE. THIS OPTION
CAN BE EXERCISED AT ANY TIME DURING THE EMPLOYMENT PERIOD. THE COMPANY IS
SIMILARLY OBLIGATED TO PURCHASE $2 MILLION DOLLARS OF KEY MAN INSURANCE.
NOTE 12 - SEGMENT INFORMATION
THE COMPANY'S CORPORATE AWARDS JEWELRY MARKETING BUSINESS ACTIVITY IS STILL
CONTINUING ON A LIMITED BASIS. REVENUES FROM CORPORATE AWARDS JEWELRY MARKETING
BUSINESS FOR FISCAL YEAR 1997 WERE APPROXIMATELY 2.3% OF THE COMPANY'S REVENUE.
THE PURCHASE ORDER FINANCING BUSINESS IS BEING PHASED OUT. AS OF DECEMBER 31,
1997 THE AGGREGATE PRINCIPAL OF THE PURCHASE ORDER FINANCING CONTRACTS WAS
REDUCED TO APPROXIMATELY $30,000, AND THE COMPANY IS NOT ENTERING AND DOES NOT
INTEND TO ENTER INTO ANY ADDITIONAL PURCHASE ORDER FINANCING ARRANGEMENTS.
REVENUES FROM THE PURCHASE ORDER FINANCING BUSINESS FOR FISCAL YEAR 1997 WERE
APPROXIMATELY 4% OF THE COMPANY'S REVENUE.
NOTE 13 - SUBSEQUENT EVENTS
POLY STYLE INDUSTRIES, INC - IN FEBRUARY, 1998, THE COMPANY ENTERED INTO
AN AGREEMENT ON FEBRUARY 3, 1998 WITH UNIVERSAL VINYL CORP. ("UV"), A FLORIDA
CORPORATION, AS SELLER, AND YORAM AISENBERG AND AVRAHAM WEINSTEIN, JOINTLY AND
SEVERALLY AS GUARANTORS OF UV'S OBLIGATIONS. UNDER THE UV AGREEMENT, CERTAIN
CONDITIONS HAVING BEEN SATISFIED, ON FEBRUARY 28, 1998, THE COMPANY ACQUIRED THE
ASSETS OF UV, WHOSE OPERATIONS ARE LOCATED AT A PLANT IN MEDLEY, FLORIDA, A
SUBURB OF MIAMI. THE PURCHASE PRICE OF THESE ASSETS IS $1.04 MILLION. THE
SOURCE OF FUNDS FOR THIS ACQUISITION IS CASH ON HAND, ARISING FROM THE VARIOUS
CAPITAL RAISING ACTIVITIES OF THE COMPANY.
THE COMPANY INTENDS TO UTILIZE THE ASSETS ACQUIRED UNDER THE UV AGREEMENT
THROUGH ITS WHOLLY-OWNED SUBSIDIARY, POLY STYLE INDUSTRIES, INC. ("POLY STYLE"),
INCORPORATED UNDER DELAWARE LAW ON FEBRUARY 18, 1998. THE COMPANY INTENDS THAT
POLY STYLE WILL MOVE AND OPERATE THOSE ASSETS TO AND AT SPACE TO BE IDENTIFIED
AND TO BE LEASED IN MEDLEY, FLORIDA. THE LEASE AND RELOCATION IS NOT EXPECTED TO
BE FINALIZED UNTIL APPROXIMATELY THE END OF APRIL, 1998.
IN ADDITION TO BEING THE PRESIDENT OF UV, MR. AISENBERG IS A DIRECTOR OF
NITRO PLASTIC TECHNOLOGIES OF ISRAEL ("NITRO"). NITRO OWNS THE PROPRIETARY
INJECTION MOLDING PROCESS LICENSED TO AND USED BY PALLET TECHNOLOGIES IN
MANUFACTURING PALLETS. IN FEBRUARY, 1998, NITRO, MR. AISENBERG AND PALLET
TECHNOLOGIES ENTERED INTO THE FIRST AMENDED LICENSING AND MARKETING AGREEMENT
UNDER WHICH THE THE ROYALTY RATE OF $2.50 PER PALLET SOLD UNDER PALLET
TECHNOLOGIES' ORIGINAL AGREEMENT WITH NITRO IS REDUCED TO $0.50 DURING THE FIRST
FIVE YEARS AND $0.25 DURING THE NEXT FIVE YEARS. PALLET TECHNOLOGIES, IN
ADDITION TO CONTINUING ITS OPERATIONS AT THE FACILITY, HAS ORDERED (AT AN
AGGREGATE INSTALLED COST OF APPROXIMATELY $4.0 MILLION) AND, DURING
APPROXIMATELY THE THIRD QUARTER OF FISCAL 1998 EXPECTS TO INSTALL EQUIPMENT AT
THE FLORIDA PLANT, AND TO COMMENCE THE PRODUCTION OF PALLETS FROM PLASTIC RESIN
PELLETS ACQUIRED FROM THIRD PARTY SUPPLIERS.
-18-
<PAGE>
FIX-CORP INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
PALLET TECHNOLOGIES, INC - DURING JANUARY, 1998 THE COMPANY COMMENCED THE
MANUFACTURING OF PLASTIC PALLETS FROM RECYCLED RESIN THROUGH ITS WHOLLY-OWNED
SUBSIDIARY, PALLET TECHNOLOGIES, INC., A DELAWARE CORPORATION, INCORPORATED ON
JULY 7, 1997. PALLET TECHNOLOGIES WAS ORIGINALLY INCORPORATED UNDER THE NAME
PALLETECH, INC. BUT AMENDED ITS CERTIFICATE OF INCORPORATION ON DECEMBER 15,
1997 TO CHANGE ITS NAME.
CONVERTIBLE DEBENTURES - IN JANUARY, 1998, THE COMPANY ISSUED TO THE
SAME TWO PURCHASERS $2,500,000 AGGREGATE PRINCIPAL AMOUNT OF THREE-YEAR, 4%
CONVERTIBLE DEBENTURES, CONVERTIBLE (TOGETHER WITH INTEREST THEREON) AT ANY TIME
INTO SHARES OF COMMON STOCK AT A CONVERSION PRICE EQUAL TO THE LESSER OF (1)
$3.34, OR (2) 83% OF THE AVERAGE OF THE 5 LOWEST CLOSING BID PRICES FOR 'THE 10
TRADING DAYS PRECEDING CONVERSION. THE PURCHASERS ALSO RECEIVED WARRANTS TO
PURCHASE AN AGGREGATE 198,413 SHARES OF COMMON STOCK AT AN EXERCISE PRICE EQUAL
TO $3.34 PER SHARE. THE WARRANTS ARE EXERCISABLE AT ANY TIME THROUGH JANUARY
22, 2001. THE COMPANY IS REQUIRED TO AMEND THE REGISTRATION STATEMENT ON FORM
SB-2 TO INCLUDE RESALE BY THE HOLDERS OF SHARES ISSUABLE UPON CONVERSION OF SUCH
DEBENTURES AND EXERCISE OF SUCH WARRANTS.
UNDER GENERALLY THE SAME TERMS AND CONDITIONS IN MARCH, 1998, THE COMPANY
ISSUED TO THE SAME TWO PURCHASERS $1,500,000 AGGREGATE PRINCIPAL AMOUNT OF
THREE-YEAR, 4% CONVERTIBLE DEBENTURES, CONVERTIBLE (TOGETHER WITH INTEREST
THEREON) AT ANY TIME INTO SHARES OF COMMON STOCK AT A CONVERSION PRICE AS
PREVIOUSLY DEFINED. THE COMPANY IS REQUIRED TO AMEND THE REGISTRATION STATEMENT
ON FORM SB-2 TO INCLUDE RESALE BY THE HOLDERS OF SHARES ISSUABLE UPON CONVERSION
OF SUCH DEBENTURES AND EXERCISE OF SUCH WARRANTS.
-19-
<PAGE>
EXHIBIT 10.30
EMPLOYMENT CONTRACT
THIS AGREEMENT, executed on the date (or dates) set forth below, by and
between:
FIX-CORP INTERNATIONAL, INC., a Delaware corporation with its
principal place of business located at 3637 S. Green Road, Suite 201,
Beachwood, Ohio 44122, acting through its authorized officer Mark Fixler,
and hereafter referred to as either as the Company or Fix-Corp;
- and -
YORAM AISENBERG, an individual residing at 13351 Mustang Trail, Ft.
Lauderdale, Florida 33330, acting on his own behalf and hereafter referred
to as Yoram Aisenberg or Employee;
Declare as their mutual intent and purpose as follow.
RECITALS:
WHEREAS, the Company desires to engage Yoram Aisenberg to perform services
for the Company, Fix-Corp, as well as its present subsidiary Poly Style
Industries, Inc., or any future parent or subsidiary company of Fix-Corp, or any
affiliate of Fix-Corp International, Inc., FIXCOR Industries, Inc., Poly Style
Industries, Inc. and Pallet Technology, Inc.; and
WHEREAS, Yoram Aisenberg ["Employee" herein] desires to perform such
services on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in exchange for the above covenants and with both parties
intending to be legally bound, Yoram Aisenberg agrees to become an Employee of
Fix-Corp pursuant to the terms and conditions set forth below.
1. TERM
(a) The Company agrees to employ Employee, and the Employee agrees to
serve, pursuant to the terms and conditions of this Agreement for a period
commencing on March 5, 1998 and ending five years thereafter, or such shorter
period as may be provided for herein. The period during which Employee is
employed hereunder is hereafter referred to as the "Employment Period."
2. DUTIES AND SERVICES
(a) During the Employment Period, Employee shall be employed in the
business of the Company and shall also perform services in a responsible
executive or managerial capacity
<PAGE>
for any of the other subsidiaries or affiliates of the Company, or by any of
its subsidiaries or affiliates. In performance of his duties, Employee shall
be subject to the direction of the Board of Directors of the Company and of
the Board of its subsidiaries and / or affiliates. Employee agrees to his
employment as described in this Section 2 and agrees to devote all of his
time and efforts to the performance of his duties under this Agreement.
Employee shall make himself available to travel as the needs of the business
require.
(b) It is agreed that the Employee will serve as Vice President of
Product Development and President of Poly Style Industries, Inc.
3. COMPENSATION
(a) As full compensation for his services hereunder, the Company
shall pay Employee, during the Employment Period, a salary payable in equal
[semi-monthly or monthly] installments at the annual rate of $150,000 per
year. Nothing contained herein shall preclude Employee from participating in
the present or future employee benefit plans of the Company or of its
subsidiaries or affiliates if he meets the eligibility requirements therefor.
(b) If for any reason, the Company cannot or elects against honoring
the terms of this Employment Agreement for the full period of the Employment
Period, then Yoram Aisenberg is entitled to $150,000 severance benefit. If
control of the Company should transfer through Merger, Consolidation or
Purchase of Assets to another company which elects to terminate this
Employment Agreement, then Yoram Aisenberg shall be entitled to the remaining
unused portion, of the $150,000 a year severance benefit, payable upon
premature termination of this Employment Agreement, also pursuant to the
Amended Nitro Plastics Agreement.
4. EXPENSES AND BENEFITS
(a) Employee shall be entitled to reimbursement up to maximum of $10,000
during each full year of the Employment Period for reasonable travel and other
out-of-pocket expenses necessarily incurred in the performance of his duties
hereunder, upon submission and approval of written statements and bills in
accordance with the then regular procedures of the Company and / or its
subsidiaries or affiliates.
(b) Employee shall be entitled to two weeks of paid vacation, two
weeks of sick leave, and entitled to paid holidays recognized by the U.S.
Government.
(c) Employee shall be entitled to receive health and dental insurance.
(d) If the Employee should have to make cash contributions to the
Company, all such funds advanced shall be deemed a loan and payable upon
demand with interest at the rate of 10% per annum. If the Company, for any
reason, cannot meet the cash terms of this Employment Agreement, all such
amounts not paid shall be deemed a cash contribution and, by inference, a
loan by the Employee to the Company if the Employee continues to pursue his
duties with the same care and attention as when he was fully paid.
2
<PAGE>
(e) Employee shall receive the option to purchase 200,000 thousand
shares of stock of Fix-Corp at market price dated March 5, 1998. This option
may be exercised by the Employee at any time during the Employment Period.
(f) Key man life insurance for $300,000.
5. REPRESENTATIONS AND WARRANTIES OF EMPLOYEE
(a) Employee 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 hereunder and Employee is under no physical
or mental disability that would hinder his performance of duties under this
Agreement.
(b) Employee 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 Employee by the Company pursuant to the terms of this
Agreement.
6. NONCOMPETITION
In view of the unique and valuable services it is expected Employee will
render to the Company, and Employee's industry contacts, knowledge of customers,
trade secrets and other proprietary information relating to the business of
Fix-Corp, and in consideration of the shares identified in the Stock Acquisition
Agreement and the Acquisition Agreement of FIXCOR Industries [formerly Quantum
Chemical Company], and the compensation to be provided hereunder, the Employee
agrees:
(a) During the period Employee is employed by Fix-Corp or any of the
related companies referenced under this Agreement, he will not otherwise
engage in, or otherwise directly or indirectly be employed by, or act as a
consultant or lender to, or be a director, officer, employee, owner, or
partner of, any other business or organization, whether or not such business
or organization now is or shall then be competing with Fix-Corp or any of its
related companies; and to adhere to the Amended Nitro Plastics Agreement.
(b) For a period of three years after he ceases to be employed by
Fix-Corp or any of its related companies pursuant to this Agreement or
otherwise, the Employee shall not directly or indirectly compete with or be
engaged in the same business as Fix-Corp or any of its related companies, or
be employed by, or act as consultant or lender to, or be a director, officer,
employee, owner, or partner of, any business or organization which, at the
time of such cessation, directly or indirectly competes with or is engaged in
the same business as Fix-Corp or any of its related corporation.
3
<PAGE>
7. PATENTS, COPYRIGHTS, TECHNOLOGICAL INVENTIONS
(a) Any interest in patents, patent applications, inventions,
copyrights, developments, and processes ("Such Inventions") which Employee
now or hereafter during the period Employee is employed by any of the
Conglomerates corporations under this Agreement or otherwise may own or
develop relating to the fields in which any of the Conglomerates Corporations
may then be engaged shall belong to the Company; and forthwith upon request
of the Company Employee shall execute all such assignments and other
documents and take all such other action as the Company may reasonably
request in order to vest in the Company all his right, title and interest in
and to Such Inventions free and clear of all liens, charges, and encumbrances.
8. CONFIDENTIAL INFORMATION
(a) All confidential information which Employee may now possess, may
obtain during or after the Employment Period, or may create prior to the end
of the period Employee is employed by Fix-Corp or any of its related
companies under this Agreement or otherwise relating to the financial
condition, results of operations, business, properties, assets, liabilities,
or future prospects of Fix-Corp or any of its related companies or of any
customer or supplier of any of them shall not be published, disclosed, or
made accessible by him to any other person or entity either during or after
the termination of his employment or used by him except during the Employment
Period in the business and for the benefit of the Company, in each case
without prior written permission of the Company or, at the election at any
time of Fix-Corp, without the prior written permission of Fix-Corp, Employee
shall deliver to the Company all tangible evidence of such confidential
information prior to or at the termination of his employment. See Amended
Nitro Plastics Agreement.
9. TERMINATION
Notwithstanding anything herein contained, if on or after the date this
Agreement is executed and prior to the end of the Employment Period,
(a) Either (i) Employee shall be physically or mentally incapacitated
or disabled or otherwise unable fully to discharge his duties hereunder for a
period of three months, (ii) Employee shall be convicted of a crime, (iii)
Employee shall commit any act or omit to take any action in bad faith and to
the detriment of any of the companies, [or] (iv) Employee shall breach any
term of this Agreement and fail to correct such breach within ten days after
commission of the same, then, and in each such case, the Company shall have
the right to give notice of termination of Employee's services hereunder as
of a date (not earlier than ten days from such notice) to be specified in
such notice and this Agreement shall terminate on the date so specified; or
(b) Employee shall die, then this Agreement terminates on his death,
Whereupon Employee or his estate, as the case may be, shall be
entitled to receive only his salary at the rate provided in Section 3 to the
date on which termination shall take effect.
4
<PAGE>
Nothing contained in this Section 9 shall be deemed to limit any other right
the Company may have to terminate Employee's employment hereunder upon any
ground permitted by law.
10. MERGER, CONSOLIDATION, SALE OF ASSETS
In the event of a future disposition of (or including) the properties and
business of the Company, substantially as an entirety, by merger, consolidation,
sale of assets, or otherwise, then the Company may elect:
(a) To assign this Agreement and all of its rights and obligations
hereunder to the acquiring or surviving corporation; provided that such
corporation shall assume in writing all of the obligations of the Company
hereunder; and provided, further, that the Company (if and so long as it
remains in business as an independent going enterprise) shall remain liable
for the performance of its obligations hereunder in the event of an
unjustified failure of the acquiring corporation to perform its obligations
under this Agreement; or
(b) In addition to its other rights of termination, to terminate this
Agreement upon at least 30 days' written notice by paying Employee the
compensation at the rate provided in Section 3 to the date on which such
termination shall take effect.
11. SURVIVAL
(a) The covenants, agreements, representations, and warranties contained
in or made pursuant to this Agreement shall survive Employee's termination of
employment.
12. MODIFICATION
(a) This Agreement set forth the entire understanding of the parties
with respect to the subject matter hereof.
13. NOTICES
(a) Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or delivered against receipt to the party to whom
it is to be given at the address of such party set forth in the preamble to
this Agreement (or to such other address as the party shall have furnished in
writing in accordance with the provisions of this Section 13). Any notice
given to the Company shall be addressed to the attention of the Corporate
Secretary. Notice to the estate of Employee shall be sufficient if addressed
to Employee as provided in this Section 13. Any notice or other
communication given by certified mail shall be deemed given at the time of
certification thereof, except for a notice changing a party's address which
shall be deemed given at the time of receipt thereof.
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14. WAIVER
(a) Any waiver by either party of a breach of any provision of this
Agreement shall not operate as or be construed to be a waiver of any other
breach of that provision or of any breach of any other provision of this
Agreement. The failure of a party to insist upon strict adherence to any
term of this Agreement on one or more occasions shall not be considered a
waiver or deprive that party of the right thereafter to insist upon strict
adherence to that term or any other term of this Agreement. Any waiver must
be in writing.
15. BINDING EFFECT
(a) Employee's rights and obligations under this Agreement shall not
be transferable by assignment or otherwise, and such rights shall not be
subject to commutation, encumbrance, or the claims of Employee's creditors,
and any attempt to do any of the foregoing shall be void. The provisions of
this Agreement shall be binding upon and inure to the benefit of Employee and
his heirs and personal representatives, and shall be binding upon and inure
to the benefit of the Company and its successors and those who are its
assigns under Section 10.
16. NO THIRD PARTY BENEFICIARIES
(a) This Agreement does not create, and shall not be construed as
creating, any rights enforceable by any person not a party to this Agreement
(except as provided in Section 15).
17. HEADINGS
(a) The headings in this Agreement are solely for the convenience of
reference and shall be given no effect in the construction or interpretation
of this Agreement.
18. COUNTERPARTS; GOVERNING LAW
(a) This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. It shall be governed by and
construed in accordance with the laws of the State of Delaware, without
giving effect to the conflict of laws.
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IN WITNESS WHEREOF, the parties have duly executed this Agreement on the
date (or dates) set forth below.
FIX-CORP INTERNATIONAL, INC. YORAM AISENBERG
/s/: Mark Fixler /s/: Yoram Aisenberg
- ----------------------------------------- ----------------------------------
By: Mark Fixler By: Yoram Aisenberg
Title: President/CEO, Fix-Corp Int., Inc. Title: President, Poly Style
Industries, Inc.
Dated: 3/5/1998 Dated: Mar. 5. 1998
---------------------------------- ---------------------------
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EXHIBIT 10.31
- --------------------------------------------------------------------------------
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
Between
FIX-CORP INTERNATIONAL, INC.,
and
JNC STRATEGIC FUND LTD.
-----------------------------
March 11, 1998
-----------------------------
- --------------------------------------------------------------------------------
<PAGE>
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT, dated as of March 11, 1998
(this "AGREEMENT"), between Fix-Corp International, Inc., a Delaware
corporation (the "COMPANY"), and JNC Strategic Fund Ltd., a corporation
organized under the laws of the Cayman Islands (the "PURCHASER").
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Purchaser and the
Purchaser desires to purchase an aggregate principal amount of $1,500,000 of
the Company's 4% Convertible Debentures, due March 11, 2001 (the
"DEBENTURES"), which are convertible into shares of the Company's common
stock, par value $.001 per share (the "COMMON STOCK").
IN CONSIDERATION of the mutual covenants and agreements set forth herein
and for good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF DEBENTURES; CLOSING
1.1 THE CLOSING.
(a) THE CLOSING. (i) Subject to the terms and conditions set
forth in this Agreement, the Company shall issue and sell to the Purchaser
and the Purchaser shall purchase the Debentures for an aggregate purchase
price of $1,500,000. The closing of the purchase and sale of the Debentures
(the "CLOSING") shall take place at the offices of Robinson Silverman Pearce
Aronsohn & Berman LLP (the "ESCROW AGENT"), 1290 Avenue of the Americas, New
York, New York 10104, immediately following the execution hereof or such
later date as the parties shall agree. The date of the Closing is
hereinafter referred to as the "CLOSING DATE."
(ii) Prior to the Closing the parties shall deliver to the
Escrow Agent such items as are required to be delivered by them in accordance
with and subject to the terms and conditions of the Escrow Agreement, dated
as of the date hereof, by and among the Company, the Purchaser and the Escrow
Agent (the "ESCROW AGREEMENT"), including, the following: (i) the Company
shall deliver or cause to be delivered (A) Debentures in aggregate principal
amount equal to $1,500,000, registered in the name of the Purchaser, (B) the
Warrant (as defined in Section 3.16), and (C) the legal opinion of Bricker &
Eckler LLP substantially in the form of EXHIBIT C ("LEGAL OPINION") addressed
to the Purchaser; (ii) the Purchaser shall deliver or cause to be delivered
$1,500,000 in United States dollars; and (iii) each party hereto shall
deliver or cause to be delivered all other executed instruments, agreements
and certificates as are required to be delivered by or on their behalf at the
Closing.
1.2 FORM OF DEBENTURES. The Debentures shall be in the form of EXHIBIT A.
<PAGE>
1.3 CERTAIN DEFINITIONS. For purposes of this Agreement, "CONVERSION
PRICE," "ORIGINAL ISSUE DATE," "CONVERSION DATE", "TRADING DAY", "BUSINESS
DAY " and "PER SHARE MARKET VALUE" shall have the meanings set forth in the
Debentures; and "MARKET PRICE" as at any date shall mean the average Per
Share Market Value for the five (5) Trading Days immediately preceding such
date.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The
Company hereby makes the following representations and warranties to the
Purchaser:
(a) ORGANIZATION AND QUALIFICATION. The Company is a corporation,
duly incorporated, validly existing and in good standing under the laws of
the jurisdiction of its incorporation, with the requisite corporate power and
authority to own and use its properties and assets and to carry on its
business as currently conducted. The Company has no subsidiaries other than
as set forth in SCHEDULE 2.1(a) attached hereto (collectively, the
"SUBSIDIARIES"). Each of the Subsidiaries is a corporation, duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, with the full corporate power and
authority to own and use its properties and assets and to carry on its
business as currently conducted. Each of the Company and the Subsidiaries is
duly qualified to do business and is in good standing as a foreign
corporation in each jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the case may be,
could not, individually or in the aggregate, (x) adversely affect the
legality, validity or enforceability of this Agreement, the Debentures, the
Escrow Agreement, the Warrant or the Registration Rights Agreement, dated the
date hereof, among the Company and the Purchaser (the "REGISTRATION RIGHTS
AGREEMENT" and, together with this Agreement, the Debentures and the Warrant,
the "TRANSACTION DOCUMENTS"), (y) have a material adverse effect on the
results of operations, assets, prospects, or condition (financial or
otherwise) of the Company and the Subsidiaries, taken as a whole, or (z)
adversely impair the Company's ability to perform fully on a timely basis its
obligations under any Transaction Document (any of the foregoing, a "MATERIAL
ADVERSE EFFECT").
(b) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by the Transaction Documents and otherwise to carry
out its obligations thereunder. The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated thereby have been duly authorized by all necessary
action on the part of the Company. Each of the Transaction Documents has been
duly executed by the Company and when delivered in accordance with the terms
hereof shall constitute the legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general
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application. Neither the Company nor any Subsidiary is in violation of any of
the provisions of its respective certificate of incorporation, by-laws or
other charter documents.
(c) CAPITALIZATION. The authorized, issued and outstanding
capital stock of the Company is set forth in SCHEDULE 2.1(c). No shares of
Common Stock are entitled to preemptive or similar rights, nor is any holder
of the Common Stock entitled to preemptive or similar rights arising out of
any agreement or understanding with the Company by virtue of any of the
Transaction Documents. Except as disclosed in SCHEDULE 2.1(c), there are no
outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or, except as a result
of the purchase and sale of the Debentures and Warrant hereunder, securities,
rights or obligations convertible into or exchangeable for, or giving any
person any right to subscribe for or acquire any shares of Common Stock, or
contracts, commitments, understandings, or arrangements by which the Company
or any Subsidiary is or may become bound to issue additional shares of Common
Stock, or securities or rights convertible or exchangeable into shares of
Common Stock. To the knowledge of the Company, except as specifically
disclosed in the Disclosure Materials (as defined below) or SCHEDULE 2.1(c),
no Person (as defined below) beneficially owns (as determined pursuant to
Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT")) or has the right to acquire by agreement with or by
obligation binding upon the Company, beneficial ownership of in excess of 5%
of the Common Stock. A "PERSON" means an individual or corporation,
partnership, trust, incorporated or unincorporated association, joint
venture, limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind.
(d) ISSUANCE OF DEBENTURES AND WARRANT. The Debentures and the
Warrant are duly authorized, and, when issued in accordance with the terms
hereof, shall be validly issued, fully paid and nonassessable, free and clear
of all liens, encumbrances and rights of first refusals of any kind
(collectively, "LIENS"). The Company has and at all times while the
Debentures and the Warrant are outstanding will maintain an adequate reserve
of duly authorized shares of Common Stock to enable it to perform its
conversion, exercise and other obligations under this Agreement, the Warrant
and the Debentures and in no circumstances shall such reserved and available
shares of Common Stock be less than the sum of (i) 200% of (A) the number of
shares of Common Stock as would be issuable upon conversion in full of the
Debentures, assuming such conversion were effected on the Original Issue Date
and (B) the number of shares of Common Stock as are issuable as payment of
interest on the Debentures, and (ii) the number of shares of Common Stock as
are issuable upon exercise in full of the Warrant (the "INITIAL RESERVE").
If at any time the sum of the number of shares of Common Stock issuable (a)
upon conversion in full of the then outstanding Debentures, (b) as the
payment of interest on the Debentures (assuming all such interest is to be
paid in Common Stock) and (c) upon exercise in full of the Warrant exceeds
85% of the Initial Reserve, the Company shall duly reserve 200% of the number
of shares of Common Stock equal to such excess to fulfill such obligations.
The obligation shall similarly apply to successive excesses. The shares of
Common Stock issuable upon conversion of the Debentures, as payment of
interest in respect thereof and upon exercise of the Warrant are sometimes
referred to herein as the "UNDERLYING SHARES," and the Debentures, Warrant
and Underlying Shares are, collectively, the "SECURITIES." When issued in
accordance
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with the terms of the Debentures and the Warrant, the Underlying Shares will
be duly authorized, validly issued, fully paid and nonassessable, and free
and clear of all Liens.
(e) NO CONFLICTS. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of
the transactions contemplated thereby do not and will not (i) conflict with
or violate any provision of its certificate of incorporation, bylaws or other
charter documents (each as amended through the date hereof) or (ii) subject
to obtaining the consents referred to in Section 2.1(f), conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument (evidencing a Company debt or otherwise) to which the Company is a
party or by which any property or asset of the Company is bound or affected,
or (iii) result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental
authority to which the Company is subject (including federal and state
securities laws and regulations), or by which any property or asset of the
Company is bound or affected, except in the case of each of clauses (ii) and
(iii), as could not, individually or in the aggregate, have or result in a
Material Adverse Effect. The business of the Company is not being conducted
in violation of any law, ordinance or regulation of any governmental
authority, except for violations which, individually and in the aggregate,
could not have or result in a Material Adverse Effect.
(f) CONSENTS AND APPROVALS. Except as specifically set forth in
SCHEDULE 2.1(f), neither the Company nor any Subsidiary is required to obtain
any consent, waiver, authorization or order of, or make any filing or
registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents other
than (i) the filing of a registration statement covering the resale of the
Underlying Shares by the Purchaser (the "UNDERLYING SECURITIES REGISTRATION
STATEMENT") with the Securities and Exchange Commission (the "COMMISSION"),
(ii) the application for the listing of the Underlying Shares on the OTC
Bulletin Board (and with any other national securities exchange, market or
trading facility on which the Common Stock is then listed), (iii) state blue
sky laws, and (iv) other than, in all other cases, where the failure to
obtain such consent, waiver, authorization or order, or to give or make such
notice or filing, could not have or result in, individually or in the
aggregate, a Material Adverse Effect (together with the consents, waivers,
authorizations, orders, notices and filings referred to in SCHEDULE 2.1(f),
the "REQUIRED APPROVALS").
(g) LITIGATION; PROCEEDINGS. Except as specifically disclosed in
the Disclosure Materials (as hereinafter defined), there is no action, suit,
notice of violation, proceeding or investigation pending or, to the best
knowledge of the Company, threatened against or affecting the Company or any
of its Subsidiaries or any of their respective properties before or by any
court, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) which (i) adversely affects or
challenges the legality, validity or enforceability of any of the Transaction
Documents or the Securities or (ii) could, individually or in the aggregate,
have or result in a Material Adverse Effect.
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(h) NO DEFAULT OR VIOLATION. Neither the Company nor any
Subsidiary (i) is in default under or in violation of (or has received notice
of a claim that it is in default under or that it is in violation of) any
indenture, promissory note, loan or credit agreement or any other agreement
or instrument to which it is a party or by which it or any of its properties
is bound, (ii) is in violation of any order of any court, arbitrator or
governmental body, or (iii) is in violation of any statute, rule or
regulation of any governmental authority, except as could not individually or
in the aggregate, have or result in, individually or in the aggregate, a
Material Adverse Effect.
(i) PRIVATE OFFERING. Subject in part to the truth and accuracy
of the Purchaser' representations set forth in Section 2.2, the offer, sale
and issuance of the Securities as contemplated by this Agreement are exempt
for the registration requirement of the Securities Act of 1933, as amended
(the "SECURITIES ACT"), and neither the Company nor any Person acting on its
behalf has taken or will take any action which might subject the offering,
issuance or sale of the Securities to the registration requirements of
Section 5 of the Securities Act.
(j) DISCLOSURE MATERIALS. The financial statements of the Company
dated December 31, 1996, July 31, 1997 and any other financial statements
delivered by the Company to the Purchaser (the "FINANCIAL STATEMENTS" and,
together with the Schedules to this Agreement and other documents and
information furnished by or on behalf of the Company at any time prior to the
Closing, the "DISCLOSURE MATERIALS") comply in all material respects with
applicable accounting requirements. Such Financial Statements have been
prepared in accordance with generally accepted accounting principles applied
on a consistent basis during the periods involved, except as may be otherwise
specified in such Financial Statements or the notes thereto, and fairly
present in all material respects the financial position of the Company as of
and for the dates thereof and the results of operations and cash flows for
the periods then ended, subject, in the case of unaudited statements, to
normal year-end audit adjustments. There are no liabilities, contingent or
otherwise, of the Company involving material amounts not disclosed in said
Financial Statements. The Disclosure Materials do not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. Since July
31, 1997, there has been no event, occurrence or development that has had or
that could have or result in a Material Adverse Effect.
(k) INVESTMENT COMPANY. The Company is not, and is not an
"Affiliate person" of, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(l) CERTAIN FEES. Except for fees payable to CDC Consulting,
Inc., no fees or commissions will be payable by the Company to any broker,
financial advisor, finder, investment banker, placement agent, or bank with
respect to the transactions contemplated hereby. The Purchaser shall have no
obligation with respect to such fees or with respect to any claims made by or
on behalf of other Persons for fees of a type contemplated in this Section
that may be due in connection with the transactions contemplated hereby. The
Company shall indemnify and hold harmless the Purchaser, its respective
employees, officers, directors, agents, and partners, and its respective
Affiliates (as such term is defined under Rule 405 promulgated under the
Securities Act), from and against all claims, losses, damages, costs
(including the costs of
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preparation and attorney's fees) and expenses suffered in respect of any such
claimed or existing fees, as and when incurred.
(m) SOLICITATION MATERIALS. The Company has not (i) distributed
any offering materials in connection with the offering and sale of the
Securities other than the Disclosure Materials and any amendments and
supplements thereto or (ii) solicited any offer to buy or sell the Securities
by means of any form of general solicitation or advertising.
(n) FORM SB-2 ELIGIBILITY. The Company is, and at the Closing
Date will be, eligible to register securities for resale with the Commission
under Form SB-2 promulgated under the Securities Act.
(o) EXCLUSIVITY. The Company shall not issue and sell Debentures
to any Person other than the Purchaser.
(p) LISTING AND MAINTENANCE REQUIREMENTS COMPLIANCE. The Company
has not in the two years preceding the date hereof received written notice
from any stock exchange, market or trading facility on which the Common Stock
is or has been listed (or on which it has been quoted) to the effect that the
Company is not in compliance with the listing or maintenance requirements of
such exchange, market or trading facility. The Company has no reason to
believe that it does not now or will not in the future meet any such
maintenance requirements.
(q) PATENTS AND TRADEMARKS. The Company has, or has rights to
use, all patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, licenses and rights which are
necessary for use in connection with its business and which the failure to so
have would have a Material Adverse Effect (collectively, the "INTELLECTUAL
PROPERTY RIGHTS"). To the best knowledge of the Company, there is no
existing infringement on any of the Intellectual Property Rights.
(r) DISCLOSURE. All information relating to or concerning the
Company set forth in the Transaction Documents or provided to the Purchaser
or its respective representatives, agents and counsel in connection with the
transactions contemplated hereby is true and correct in all material respects
and does not fail to state any material fact necessary in order to make the
statements herein or therein, in light of the circumstances under which they
were made, not misleading. The Company confirms that it has not provided to
the Purchaser or any of its representatives or agents any information that
constitutes or might constitute material non-public information other than
information that has specifically been identified to the recipient as
material non-public information in writing. The Company understands and
confirms that the Purchaser shall be relying on the foregoing representation
in effecting transactions in securities of the Company.
(s) REGISTRATION RIGHTS. Except as provided in the Registration
Rights Agreement, the Company has not granted or agreed to grant any
registration rights, including piggy-back registration rights, to any Person.
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2.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
hereby makes the following representations and warranties to the Company.
(a) ORGANIZATION; AUTHORITY. The Purchaser is an entity
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite power and authority to
enter into and to consummate the transactions contemplated by the Transaction
Documents and to carry out its obligations thereunder. The acquisition of
the Securities to be acquired hereunder by the Purchaser has been duly
authorized by all necessary action on the part of the Purchaser. Each of
this Agreement, the Registration Rights Agreement and the Escrow Agreement
has been duly executed by the Purchaser and, when delivered by the Purchaser
in accordance with the terms hereof and the Escrow Agreement constitutes the
valid and legally binding obligation of the Purchaser, enforceable against it
in accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights generally and to
general principles of equity.
(b) INVESTMENT INTENT. The Purchaser is acquiring the Securities
for its own account for investment purposes only and not with a view to or
for distributing or reselling such Securities or any part thereof or interest
therein, without prejudice, however, to the Purchaser's right, subject to the
provisions of this Agreement and the Registration Rights Agreement, at all
times to sell or otherwise dispose of all or any part of such Securities
pursuant to an effective registration statement under the Securities Act and
in compliance with applicable state securities laws or under an exemption
from such registration.
(c) PURCHASER STATUS. At the time the Purchaser was offered the
Securities, it was, at the date hereof, it is, and at the Closing Date, it
will be, an "accredited investor" as defined in Rule 501(a) under the
Securities Act.
(d) EXPERIENCE OF PURCHASER. The Purchaser either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in the
Securities, and has so evaluated the merits and risks of such investment.
(e) ABILITY OF PURCHASER TO BEAR RISK OF INVESTMENT. The
Purchaser acknowledges that an investment in the Securities is speculative
and involves a high degree of risk. The Purchaser is able to bear the
economic risk of an investment in the Securities to be acquired hereunder by
the Purchaser, and, at the present time, is able to afford a complete loss of
such investment.
(f) ACCESS TO INFORMATION. The Purchaser acknowledges receipt of
the Disclosure Materials and further acknowledges that it has been afforded
(i) the opportunity to ask such questions as it has deemed necessary of, and
to receive answers from, representatives of the Company concerning the terms
and conditions of the offering of the Securities, and the merits and risks of
investing in the Securities, (ii) access to information about the Company and
the Company's financial condition, results of operations, business,
properties, management and prospects sufficient to enable it to evaluate its
investment and (iii) the opportunity to obtain such
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additional information which the Company possesses or can acquire without
unreasonable effort or expense that is necessary to make an informed
investment decision with respect to the investment and to verify the accuracy
and completeness of the information contained in the Disclosure Materials.
Neither such inquiries nor any other investigation conducted by or on behalf
of the Purchaser or its representatives, agents or counsel shall modify,
amend or affect the Purchaser's right to rely on the truth, accuracy and
completeness of the Disclosure Materials and the Company's representations
and warranties contained in the Transaction Documents.
(g) RELIANCE. The Purchaser understands and acknowledges that (i)
the Securities are being offered and sold to it without registration under
the Securities Act in a private placement that is exempt from the
registration provisions of the Securities Act and (ii) the availability of
such exemption, depends in part on, and the Company will rely upon the
accuracy and truthfulness of, the foregoing representations and the Purchaser
hereby consents to such reliance.
The Company acknowledges and agrees that the Purchaser makes no
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 TRANSFER RESTRICTIONS. (a) Securities may only be disposed of
pursuant to an effective registration statement under the Securities Act, to
the Company or pursuant to an available exemption from or in a transaction
not subject to the registration requirements thereof. In connection with any
transfer of any Securities other than pursuant to an effective registration
statement or to the Company, the Company may require the transferor thereof
to provide to the Company an opinion of counsel selected by the transferor,
the form and substance of which opinion shall be reasonably satisfactory to
the Company, to the effect that such transfer does not require registration
under the Securities Act. Notwithstanding the foregoing, the Company hereby
consents to and agrees to register on the books and records of the Company or
on the register of any transfer agent for the Securities any transfer by the
Purchaser to an Affiliate (as such term is defined under Rule 405 promulgated
under the Securities Act) of the Purchaser or any transfers among any such
Affiliates provided the transferee certifies to the Company that it is an
"accredited investor" as defined in Rule 501(a) under the Securities Act and
makes the appropriate investment representations. Each such transferee shall
have the rights of the Purchaser under this Agreement and the Registration
Rights Agreement.
(b) The Purchaser agrees to the imprinting, so long as is required
by this Section 3.1(b), of the following legend on the Securities:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] HAVE BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE
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SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS.
[FOR DEBENTURES ONLY] THIS DEBENTURE IS SUBJECT TO CERTAIN RESTRICTIONS
ON CONVERSION SET FORTH IN SECTION 3.8 OF THE CONVERTIBLE DEBENTURE
PURCHASE AGREEMENT, DATED AS OF MARCH 11, 1998, BETWEEN FIX-CORP
INTERNATIONAL, INC. (THE "COMPANY") AND THE ORIGINAL HOLDER HEREOF. A
COPY OF THAT AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY.
Underlying Shares shall not contain any legend if conversion of
Debentures, exercise of Warrant or other issuances of Underlying Shares, as
the case may be, occurs at any time while an Underlying Securities
Registration Statement is effective under the Securities Act or, in the event
there is not an effective Underlying Securities Registration Statement at
such time, if in the opinion of counsel to the Company such legend is not
required under applicable requirements of the Securities Act (including
judicial interpretations and pronouncements issued by the staff of the
Commission). The Company agrees that it will provide the Purchaser, upon
request, with a certificate or certificates representing Underlying Shares,
free from such legend at such time as such legend is no longer required
hereunder. The Company may not make any notation on its records or give
instructions to any transfer agent of the Company which enlarge the
restrictions of transfer set forth in this Section 3.1(b).
3.2 ACKNOWLEDGEMENT OF DILUTION. The Company acknowledges that the
issuance of Underlying Shares upon (i) conversion of the Debentures and as
payment of interest thereon and (ii) exercise of the Warrant may result in
dilution of the outstanding shares of Common Stock, which dilution may be
substantial under certain market conditions. The Company further
acknowledges that its obligation to issue Underlying Shares in accordance
with the terms of the Debentures and the Warrant is unconditional and
absolute regardless of the effect of any such dilution.
3.3 FURNISHING OF INFORMATION. As long as the Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the Filing Date (as defined in the
Registration Rights Agreement) pursuant to Section 13(a) or 15(d) of the
Exchange Act. If at any time prior to the date on which the Purchaser may
resell all of its Underlying Shares without volume restrictions pursuant to
Rule 144(k) promulgated under the Securities Act (as determined by counsel to
the Company pursuant to a written opinion letter to such effect, addressed
and acceptable to the Company's transfer agent for the benefit of and
enforceable by the Purchaser) the Company is not required to file reports
pursuant to such sections, it will prepare and furnish to the Purchaser and
make publicly available in accordance
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with Rule 144(c) promulgated under the Securities Act annual and quarterly
financial statements, together with a discussion and analysis of such
financial statements in form and substance substantially similar to those
that would otherwise be required to be included in reports required by
Section 13(a) or 15(d) of the Exchange Act in the time period that such
filings would have been required to have been made under the Exchange Act.
The Company further covenants that it will take such further action as any
holder of Securities may reasonably request, all to the extent required from
time to time to enable such Person to sell Securities without registration
under the Securities Act within the limitation of the exemptions provided by
Rule 144 promulgated under the Securities Act, including the legal opinion
referenced above in this Section. Upon the request of any such Person, the
Company shall deliver to such Person a written certification of a duly
authorized officer as to whether it has complied with such requirements.
3.4 USE OF DISCLOSURE MATERIALS. The Company consents to the use of
the Disclosure Materials and any information provided by or on behalf of the
Company pursuant to Section 3.3, and any amendments and supplements thereto,
by the Purchaser in connection with resales of the Securities other than
pursuant to an effective registration statement; PROVIDED, THAT the Company
shall have a reasonable opportunity to update such information.
3.5 BLUE SKY LAWS. In accordance with the Registration Rights
Agreement, the Company shall qualify the Underlying Shares under the
securities or Blue Sky laws of such jurisdictions as the Purchaser may
request and shall continue such qualification at all times during the
Effectiveness Period (as defined in the Registration Rights Agreement);
PROVIDED, HOWEVER, that neither the Company nor its Subsidiaries shall be
required in connection therewith to qualify as a foreign corporation where
they are not now so qualified or to take any action that would subject the
Company to general service of process in any such jurisdiction where it is
not then so subject.
3.6 INTEGRATION. The Company shall not and shall use its best efforts
to ensure that no Affiliate shall sell, offer for sale or solicit offers to
buy or otherwise negotiate in respect of any security (as defined in Section
2 of the Securities Act) that would be integrated with the offer or sale of
the Securities in a manner that would require the registration under the
Securities Act of the issue or sale of the Securities to the Purchaser.
3.7 INCREASE IN AUTHORIZED SHARES. At such time as the Company would
be, if a notice of conversion or exercise (as the case may be) were to be
delivered on such date, precluded from (a) converting the full outstanding
principal amount of Debentures (and paying any accrued but unpaid interest in
respect thereof in shares of Common Stock) that remain unconverted at such
date or (b) honoring the exercise in full of the Warrant due to the
unavailability of a sufficient number of shares of authorized but unissued or
re-acquired Common Stock, the Board of Directors of the Company shall
promptly (and in any case within 30 Business Days from such date) prepare and
mail to the shareholders of the Company proxy materials requesting
authorization to amend the Company's restated certificate of incorporation to
increase the number of shares of Common Stock which the Company is authorized
to issue to at least a number of shares equal to the sum of (i) all shares of
Common Stock then outstanding, (ii) the number of shares of Common Stock
issuable on account of all outstanding warrants, options and convertible
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securities (other than the Debentures and the Warrant) and on account of all
shares reserved under any stock option, stock purchase, warrant or similar
plan, (iii) 200% of the number of Underlying Shares as would then be issuable
upon a conversion in full of the then outstanding Debentures and as payment
of all future interest thereon in shares of common Stock in accordance with
the terms of this Agreement and the Debentures and (iv) such number of
Underlying Shares as would then be issuable upon the exercise in full of the
warrants. In connection therewith, the Board of Directors shall (x) adopt
proper resolutions authorizing such increase, (y) recommend to and otherwise
use its best efforts to promptly and duly obtain stockholder approval to
carry out such resolutions (and hold a special meeting of the shareholders no
later than the 60th day after delivery of the proxy materials relating to
such meeting) and (z) within 5 Business Days of obtaining such shareholder
authorization, file an appropriate amendment to the Company's certificate of
incorporation to evidence such increase.
3.8 PURCHASER OWNERSHIP OF COMMON STOCK. In no event shall the
Purchaser be permitted to use its ability to convert Debentures or exercise
its Warrant to the extent that such conversion or exercise would result in
the Purchaser beneficially owning (for purposes of Rule 13d-3 under the
Exchange Act and the rules thereunder) in excess of 4.999% of the then issued
and outstanding shares of Common Stock, including shares issuable upon
conversion of the Debentures held by the Purchaser after application of this
Section. To the extent that the limitation contained in this Section
applies, the determination of whether Debentures are convertible (in relation
to other securities owned by the Purchaser) and of which Debentures are
convertible shall be in the sole discretion of the Purchaser, and the
submission of Debentures for conversion shall be deemed to be the Purchaser's
determination of whether such Debentures are convertible (in relation to
other securities owned by the Purchaser) and of which Debentures are
convertible, in each case subject to such aggregate percentage limitation,
and the Company shall have no obligation to verify or confirm the accuracy of
such determination. Nothing contained herein shall be deemed to restrict
the right of the Purchaser to convert Debentures at such time as such
conversion will not violate the provisions of this Section. Notwithstanding
anything to the contrary contained herein, if ten days have elapsed since the
Purchaser has declared an event of default under any Transaction Document and
such event shall not have been cured to the Purchaser's satisfaction prior to
the expiration of such ten-day period, the provisions of this Section 3.8
shall be null and void AB INITIO.
3.9 LISTING OF UNDERLYING SHARES. If the Common Stock hereafter is
listed for trading on the Nasdaq National Market, Nasdaq SmallCap Market (or
on the American Stock Exchange or New York Stock Exchange, or any other
national securities market or exchange), then the Company shall (1) take all
necessary steps to list the Underlying Shares thereon, including the
preparation of any required additional listing application therefor covering
at least the sum of (i) two times the number of Underlying Shares as would be
issuable upon a conversion in full of the then outstanding principal amount
of Debentures (plus all Underlying Shares issuable as payment of interest
thereon, assuming all such interest were paid in shares of Common Stock) and
upon exercise in full of the then unexercised portion of the Warrant and (2)
provide to the Purchaser evidence of such listing, and the Company shall
thereafter maintain the listing of its Common Stock on such exchange or
market as long as Underlying Shares are issuable and/or outstanding. The
Company will use its commercially reasonable efforts to list the Common
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Stock for trading on either the Nasdaq SmallCap Market or Nasdaq National
Market as soon as possible after the Closing Date.
3.10 CONVERSION PROCEDURES. EXHIBIT E sets forth the procedures with
respect to the conversion of the Debentures, including the form of legal
opinion, if necessary, that shall be rendered to the Company's transfer agent
and such other information and instructions as may be reasonably necessary to
enable the Purchaser to exercise its right of conversion smoothly and
expeditiously which are not set forth in the Debentures.
3.11 PURCHASER' RIGHTS IF TRADING IN COMMON STOCK IS SUSPENDED OR
DELISTED. If at any time while the Purchaser (or any assignee thereof) owns
any Securities, trading in the shares of the Common Stock is suspended on or
delisted from the OTC Bulletin Board or any other principal market or
exchange for such shares (other than as a result of the suspension of trading
in securities on such market or exchange generally, or temporary suspensions
pending the release of material information) for more than three (3) Trading
Days, then, notwithstanding anything to the contrary contained in any
Transaction Document, at the Purchaser's option exercisable by ten Business
Days prior written notice to the Company, the Company shall, PROVIDED, THAT
trading has not been reinstated within such period, repay the entire
principal amount of then outstanding Debentures and redeem all then
outstanding Underlying Shares then held by the Purchaser, at an aggregate
purchase price equal to the sum of (I) the aggregate outstanding principal
amount of Debentures then held by the Purchaser divided by the Conversion
Price on (a) the day prior to the date of such suspension or delisting, (b)
the day of such notice or (c) the date of payment in full of the repurchase
price calculated under this Section, whichever is less, and multiplied by the
Market Price preceding (x) the day prior to the date of such suspension or
delisting, (y) the day of such notice and (z) the date of payment in full of
the repurchase price calculated under this Section, whichever is greater,
(II) the aggregate of all accrued but unpaid interest and other non-principal
amounts (including liquidated damages, if any) then payable in respect of all
Debentures to be repaid, (III) the number of Underlying Shares then held by
the Purchaser multiplied by the Market Price immediately preceding (x) the
day prior to the date of such suspension or delisting, (y) the date of the
notice or (z) the date of payment in full by the Company of the repurchase
price calculated under this Section, whichever is greater, and (IV) interest
on the amounts set forth in I - III above accruing from the 10th Business Day
after such notice until the repurchase price under this Section is paid in
full at the rate of 18% per annum. If after the Original Issue Date the
Common Stock shall be listed for trading or quoted on the Nasdaq SmallCap
Market, Nasdaq National Market or any other national securities exchange or
market, this provision shall similarly apply to any delistings or suspensions
therefrom.
3.12 USE OF PROCEEDS. The Company shall use all of the proceeds from
the sale of the Securities for working capital purposes and not for the
satisfaction of any portion of Company debt or to redeem Company equity or
equity-equivalent securities. Pending application of the proceeds of this
placement in the manner permitted hereby the Company will invest such
proceeds in money market funds, interest bearing accounts and/or short-term,
investment grade interest bearing securities.
3.13 NOTICE OF BREACHES. The Company and the Purchaser shall give
prompt written notice to the other of any breach by it of any representation,
warranty or other agreement
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contained in any Transaction Document, as well as any events or occurrences
arising after the date hereof, which would reasonably be likely to cause any
representation or warranty or other agreement of such party, as the case may
be, contained in the Transaction Document to be incorrect or breached as of
such Closing Date. However, no disclosure by either party pursuant to this
Section shall be deemed to cure any breach of any representation, warranty or
other agreement contained in any Transaction Document.
Notwithstanding the generality of the foregoing, the Company shall
promptly notify the Purchaser of any notice or claim (written or oral) that
it receives from any lender of the Company to the effect that the
consummation of the transactions contemplated by the Transaction Documents
violates or would violate any written agreement or understanding between such
lender and the Company, and the Company shall promptly furnish by facsimile
to the holders of the Debentures a copy of any written statement in support
of or relating to such claim or notice.
3.14 CONVERSION OBLIGATIONS OF THE COMPANY. The Company shall honor
conversions of the Debentures and exercises of the Warrant and shall deliver
Underlying Shares in accordance with the respective terms and conditions and
time periods set forth in the Debentures and the Warrant.
3.15 RIGHT OF FIRST REFUSAL; SUBSEQUENT REGISTRATIONS; CERTAIN CORPORATE
ACTIONS. (a) The Company shall not, directly or indirectly, without the
prior written consent of the Encore Capital Management, L.L.C. ("Encore") on
behalf of the Purchaser, offer, sell, grant any option to purchase, or
otherwise dispose (or announce any offer, sale, grant or any option to
purchase or other disposition) of any of its or its Affiliates equity,
equity-equivalent or derivative securities (a "SUBSEQUENT FINANCING") for a
period of 180 days after the Closing Date, except (i) the granting of options
or warrants to employees, officers and directors, and the issuance of shares
upon exercise of options granted, under any stock option plan heretofore or
hereinafter duly adopted by the Company, (ii) shares issued upon exercise of
any currently outstanding warrants and upon conversion of any currently
outstanding convertible preferred stock in each case disclosed in SCHEDULE
2.1(c), and (iii) shares of Common Stock issued upon conversion of the
Debentures, as payment of interest thereon, or upon exercise of the Warrant
in accordance with their respective terms, unless (A) the Company delivers to
Encore a written notice (the "SUBSEQUENT FINANCING NOTICE") of its intention
to effect such Subsequent Financing, which Subsequent Financing Notice shall
describe in reasonable detail the proposed terms of such Subsequent
Financing, the amount of proceeds intended to be raised thereunder, the
Person with whom such Subsequent Financing shall be affected, and a term
sheet or similar document relating thereto shall be attached to such
Subsequent Financing Notice and (B) Encore shall not have notified the
Company by 5:00 p.m. (New York City Time) on the tenth (10th) Trading Day
after its receipt of the Subsequent Financing Notice of its willingness to
cause the Purchaser to provide (or to cause its sole designee to provide),
subject to completion of mutually acceptable documentation, financing to the
Company on substantially the terms set forth in the Subsequent Financing
Notice. If Encore shall fail to notify the Company of its intention to enter
into such negotiations within such time period, the Company may effect the
Subsequent Financing substantially upon the terms and to the Persons (or
Affiliates of such Persons) set forth in the Subsequent Financing Notice;
PROVIDED, that the Company shall provide Encore with a second Subsequent
Financing Notice, and Encore shall again have the right of first refusal set
forth above in this paragraph (a),
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if the Subsequent Financing subject to the initial Subsequent Financing
Notice shall not have been consummated for any reason on the terms set forth
in such Subsequent Financing Notice within thirty (30) Trading Days after the
date of the initial Subsequent Financing Notice with the Person (or an
Affiliate of such Person) identified in the Subsequent Financing Notice.
(b) Except for Underlying Shares and other "Registrable
Securities" (as such term is defined in the Registration Rights Agreement) to
be registered in accordance with the Registration Rights Agreement,
securities to be registered pursuant to Schedule 6(c) to the Registration
Rights Agreement, and other than Company securities to be registered for
resale in connection with financings permitted pursuant to paragraph (a)(i)
through (iii) of this Section, the Company shall not, without the prior
written consent of Encore, (i) issue or sell any of its or any of its
Affiliates' equity or equity-equivalent securities pursuant to Regulation S
promulgated under the Securities Act, or (ii) register for resale any
securities of the Company for a period of not less than 90 Trading Days after
the date that the Underlying Securities Registration Statement is declared
effective by the Commission. Any days that the Purchaser is not permitted to
sell Underlying Shares under the Underlying Securities Registration Statement
shall be added to such 90 Trading Day period for the purposes of (i) and (ii)
above.
(c) As long as there are Debentures outstanding, the Company shall
not and shall cause the Subsidiaries not to, without the consent of the
holders of the Debentures, (i) amend its certificate of incorporation, bylaws
or other charter documents so as to adversely affect any rights of the
holders of Debentures; (ii) repay, repurchase or offer to repay, repurchase
or otherwise acquire shares of its Common Stock other than as to the
Underlying Shares; or (iii) enter into any agreement with respect to any of
the foregoing.
3.16 THE WARRANT. Prior to the Closing, the Company shall issue and
deliver to the Escrow Agent for delivery at the closing a Common Stock
purchase warrant, in the form of EXHIBIT D and registered in the name of the
Purchaser (the "WARRANT"), pursuant to which the Purchaser shall have the
right at any time and from time to time thereafter through the third
anniversary of the date of issuance thereof, to acquire 126,268 shares of
Common Stock at an exercise price per share equal to $3.31.
3.17 TRANSFER OF INTELLECTUAL PROPERTY RIGHTS. Except in connection
with the sale of all or substantially all of the assets of the Company, the
Company shall not transfer, sell or otherwise dispose of, any Intellectual
Property Rights, or allow the Intellectual Property Rights to become subject
to any Liens, or fail to renew such Intellectual Property Rights (if
renewable and would otherwise expire), without the prior written consent of
the Purchaser.
3.18 FORM SB-2. The Company has filed with the Commission on January
20, 1998 a registration statement on Form SB-2 (the "FORM SB-2") pursuant to
the Exchange Act. The Company shall use its best efforts to amend the Form
SB-2 in order to include the resale of the Underlying Securities thereunder
as soon as possible but in no event later than the 20th day after the Closing
Date and shall take all commercially reasonable steps necessary to cause such
Form SB-2 to be declared effective as soon as possible thereafter but in no
event later than the 50th day after the Closing Date, and shall provide to
the Purchaser evidence of such filing and effectiveness.
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ARTICLE IV
MISCELLANEOUS
4.1 FEES AND EXPENSES. The Company shall pay at the Closing $7,500 to
the Escrow Agent for the legal fees and disbursements incurred by the
Purchaser in connection with the preparation and negotiation of the
Transaction Documents. Other than the amount contemplated by the immediately
preceding sentence and except as set forth in the Registration Rights
Agreement, each party shall pay the fees and expenses of its advisers,
counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement. The Company shall pay all stamp
and other taxes and duties levied in connection with the issuance of the
Debentures pursuant hereto. The Purchaser shall be responsible for its own
respective tax liability that may arise as a result of the investment
hereunder or the transactions contemplated by this Agreement.
4.2 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, together with the
Exhibits and Schedules hereto, the Debentures and the Warrant contain the
entire understanding of the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings, oral or written, with
respect to such matters.
4.3 NOTICES. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall
be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at
the facsimile telephone number specified in this Section prior to 7:00 p.m.
(New York City time) on a Business Day, (ii) the Business Day after the date
of transmission, if such notice or communication is delivered via facsimile
at the facsimile telephone number specified in the Purchase Agreement later
than 7:00 p.m. (New York City time) on any date and earlier than 11:59 p.m.
(New York City time) on such date, (iii) the Business Day following the date
of mailing, if sent by nationally recognized overnight courier service, or
(iv) upon actual receipt by the party to whom such notice is required to be
given. The address for such notices and communications shall be as follows:
If to the Company: Fix-Corp International, Inc.
3637 South Green Road, Suite 201
Beachwood, OH 44122
Facsimile No.: (216) 292-6187
Attn: Chief Financial Officer
With copies to: Bricker & Eckler LLP
100 South Third Street
Columbus, OH 43215
Facsimile No.: (614) 227-2390
Attn: Steven Kerber
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<PAGE>
If to the Purchaser: JNC Strategic Fund Ltd.
Olympia Capital (Cayman) Ltd.
c/o Olympia Capital (Bermuda) Ltd.
Williams House
20 Reid Street
Hamilton HM11
Bermuda
Facsimile No.: (441) 295-2305
Attn: Director
With copies to (for Encore Capital Management, L.L.C.
communications to 12007 Sunrise Valley Drive
either Purchaser): Suite 460
Reston, VA 20191
Facsimile No.: (703) 476-7711
Attn: Neil T. Chau
-and-
Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Eric L. Cohen
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
4.4 AMENDMENTS; WAIVERS. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an
amendment, by both the Company and the Purchaser; or, in the case of a
waiver, by the party against whom enforcement of any such waiver is sought.
No waiver of any default with respect to any provision, condition or
requirement of this Agreement shall be deemed to be a continuing waiver in
the future or a waiver of any other provision, condition or requirement
hereof, nor shall any delay or omission of either party to exercise any right
hereunder in any manner impair the exercise of any such right accruing to it
thereafter.
4.5 HEADINGS. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
4.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted
assigns, including any Persons to whom the Purchaser transfers Debentures or
Warrant. The assignment by a party of this
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Agreement or any rights hereunder shall not affect the obligations of such
party under this Agreement.
4.7 NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and, other than Encore, who is an intended beneficiary of the
provisions of Section 3.15 entitled to enforce such provisions against the
parties hereto, and permitted assignees under Section 4.6, is not for the
benefit of, nor may any provision hereof be enforced by any other Person.
4.8 GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York
without regard to the principles of conflicts of law thereof.
4.9 SURVIVAL. The representations, warranties, agreements and
covenants contained in this Agreement shall survive the Closing and the and
conversion of the Debentures and exercise of the Warrant.
4.10 EXECUTION. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and
the same agreement and shall become effective when counterparts have been
signed by each party and delivered to the other parties, it being understood
that all parties need not sign the same counterpart. In the event that any
signature is delivered by facsimile transmission, such signature shall create
a valid and binding obligation of the party executing (or on whose behalf
such signature is executed) the same with the same force and effect as if
such facsimile signature page were an original thereof.
4.11 PUBLICITY. The Company and the Purchaser shall consult with each
other in issuing any press releases or otherwise making public statements
with respect to the transactions contemplated hereby and no party shall issue
any such press release or otherwise make any such public statement without
the prior written consent of the other, which consent shall not be
unreasonably withheld or delayed, except that no prior consent shall be
required if such disclosure is required by law, in which such case the
disclosing party shall provide the other party with prior notice of such
public statement.
4.12 SEVERABILITY. In case any one or more of the provisions of this
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall
not in any way be affected or impaired thereby and the parties will attempt
to agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
4.13 REMEDIES. Each of the parties to this Agreement acknowledges and
agrees that the other parties would be damaged irreparably in the event any
of the provisions of this Agreement are not performed in accordance with
their specific terms or otherwise are breached. Accordingly, each of the
parties hereto agrees that the other parties shall be entitled to an
injunction or injunctions to prevent breaches of the provisions of this
Agreement and to enforce specifically this Agreement and the terms and
provisions of this Agreement in any action
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instituted in any court of the United States of America or any state thereof
having jurisdiction over the parties to this Agreement and the matter, in
addition to any other remedy to which they may be entitled, at law or in
equity.
4.14 LIQUIDATED DAMAGES. Each of the parties to this Agreement
acknowledges and agrees that the any and all liquidated damage provisions set
forth in the Transaction Documents express a reasonable pre-estimate of the
damages which would be incurred.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this Convertible
Debenture Purchase Agreement to be duly executed by their respective
authorized persons as of the date first indicated above.
FIX-CORP INTERNATIONAL, INC.
By: /s/ Mark Fixler
-----------------------------------
Name: Mark Fixler
Title: President/CEO
JNC STRATEGIC FUND LTD.
By: /s/ Thomas H. Davis
-----------------------------------
Name: Thomas H. Davis
Title: Director
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<PAGE>
EXHIBIT 10.32
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION
OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS.
THIS DEBENTURE IS SUBJECT TO CERTAIN RESTRICTIONS ON CONVERSION SET
FORTH IN SECTION 3.8 OF A CONVERTIBLE DEBENTURE PURCHASE AGREEMENT, DATED AS
OF MARCH 11, 1998, BETWEEN FIX-CORP INTERNATIONAL, INC. (THE "COMPANY") AND
THE ORIGINAL HOLDER HEREOF. A COPY OF THAT AGREEMENT IS ON FILE AT THE
PRINCIPAL OFFICE OF THE COMPANY.
No. A-13 U.S. $1,500,000
FIX-CORP INTERNATIONAL, INC.
4% CONVERTIBLE DEBENTURE DUE MARCH 11, 2001
THIS DEBENTURE is one of a series of duly authorized issued debentures
of Fix-Corp International, Inc., a Delaware corporation having a principal
place of business at 3637 South Green Road, Suite 201, Beachwood, OH 44122
(the "COMPANY"), designated as its 4% Convertible Debentures, due March 11,
2001 (the "DEBENTURES"), in an aggregate principal amount of $1,500,000.
FOR VALUE RECEIVED, the Company promises to pay to JNC Strategic Fund
Ltd., or registered assigns (the "HOLDER"), the principal sum of One Million
Five Hundred Thousand Dollars ($1,500,000), on or prior to March 11, 2001 or
such earlier date as the Debentures are required to be repaid as provided
hereunder (the "MATURITY DATE") and to pay interest to the Holder on the
principal sum at the rate of 4% per annum, payable quarterly in arrears on
March 31, June 30, September 30 and December 31 of each year, commencing
March 31, 1998, and on each Conversion Date (as defined in Section 4(a)).
Interest shall accrue daily commencing on the Original Issue Date (as defined
in Section 6) until payment in full of the principal sum, together with all
accrued and unpaid interest and other amounts which may become due hereunder,
has been made. Interest shall be calculated on the basis of a 360-day year
and for the actual number of days elapsed. Interest hereunder will be paid
to the Person (as defined in Section 6) in whose name this Debenture is
registered on the records of the Company regarding registration and transfers
of the Debentures (the "DEBENTURE REGISTER").
<PAGE>
All overdue, accrued and unpaid interest and other amounts due hereunder
shall bear interest at the rate of 18% per annum and accrue daily from the
date such interest is due hereunder through and including the date of
payment. The principal of, and interest on, this Debenture are payable in
such coin or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts, at the
address of the Holder last appearing on the Debenture Register, except that
interest due on the principal amount (but not overdue interest) may, at the
Company's option, be paid in shares of Common Stock (as defined in Section 6)
calculated based upon the Conversion Price (as defined below) at the time
such interest becomes due. All amounts due hereunder other than interest
shall be paid in cash. Notwithstanding anything to the contrary contained
herein, the Company may not issue shares of the Common Stock in payment of
interest on the principal amount if: (i) the number of shares of Common Stock
at the time authorized, unissued and unreserved for all purposes, or held as
treasury stock, is insufficient to pay interest hereunder in shares of Common
Stock; (ii) such shares are not either registered for resale pursuant to an
Underlying Securities Registration Statement (as defined in Section 6) or
freely transferable without volume restrictions pursuant to Rule 144(k)
promulgated under the Securities Act of 1933, as amended (the "SECURITIES
ACT"), as determined by counsel to the Company pursuant to a written opinion
letter, addressed to and in form and substance acceptable to the Company's
transfer agent or other person or entity performing similar functions
thereto; (iii) such shares are not listed on the OTC Bulletin Board (or the
American Stock Exchange, Nasdaq National Market, Nasdaq SmallCap Market or
The New York Stock Exchange) and any other exchange, market and trading
facility on which the Common Stock is then listed for trading; or (iv) the
issuance of such shares would result in the recipient thereof beneficially
owning more than 4.999% of the issued and outstanding shares of Common Stock
as determined in accordance with Rule 13d-3 under the Securities Exchange Act
of 1934, as amended. Payment of interest on the principal amount in shares
of Common Stock is further subject to the provisions of Section 4(a)(ii).
This Debenture is subject to the following additional provisions:
SECTION 1. This Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holder surrendering the same but shall not be issuable in
denominations of less than integral multiplies of Fifty Thousand Dollars
($50,000) unless such amount represents the full principal balance of
Debentures outstanding to such Holder. No service charge will be made for
such registration of transfer or exchange.
SECTION 2. This Debenture has been issued subject to certain investment
representations of the original Holder set forth in the Purchase Agreement
(as defined in Section 6) and may be transferred or exchanged only in
compliance with the Purchase Agreement. Prior to due presentment to the
Company for transfer of this Debenture, the Company and any agent of the
Company may treat the person in whose name this Debenture is duly registered
on the Debenture Register as the owner hereof for the purpose of receiving
payment as herein provided and for all other purposes, whether or not this
Debenture is overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.
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SECTION 3. EVENTS OF DEFAULT.
(a) "EVENT OF DEFAULT", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment,
decree or order of any court, or any order, rule or regulation of any
administrative or governmental body):
(i) any default in the payment of the principal of, interest on
or liquidated damages in respect of, this Debenture, free of any claim
of subordination, as and when the same shall become due and payable
(whether on the applicable quarterly interest payment date, the
Conversion Date or the Maturity Date or by acceleration or otherwise);
(ii) the Company shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit any
breach of, this Debenture, the Purchase Agreement or the Registration
Rights Agreement (as defined in Section 6), and such failure or breach
shall not have been remedied within 10 days after the date on which
written notice of such failure or breach shall have been given;
(iii) the Company or any of its subsidiaries shall commence, or
there shall be commenced against the Company or any such subsidiary a
case under any applicable bankruptcy or insolvency laws as now or
hereafter in effect or any successor thereto, or the Company commences
any other proceeding under any reorganization, arrangement, adjustment
of debt, relief of debtors, dissolution, insolvency or liquidation or
similar law of any jurisdiction whether now or hereafter in effect
relating to the Company or any subsidiary thereof or there is commenced
against the Company or any subsidiary thereof any such bankruptcy,
insolvency or other proceeding which remains undismissed for a period of
60 days; or the Company or any subsidiary thereof is adjudicated
insolvent or bankrupt; or any order of relief or other order approving
any such case or proceeding is entered; or the Company or any subsidiary
thereof suffers any appointment of any custodian or the like for it or
any substantial part of its property which continues undischarged or
unstayed for a period of 60 days; or the Company or any subsidiary
thereof makes a general assignment for the benefit of creditors; or the
Company shall fail to pay, or shall state that it is unable to pay, or
shall be unable to pay, its debts generally as they become due; or the
Company or any subsidiary thereof shall call a meeting of its creditors
with a view to arranging a composition or adjustment of its debts; or
the Company or any subsidiary thereof shall by any act or failure to act
indicate its consent to, approval of or acquiescence in any of the
foregoing; or any corporate or other action is taken by the Company or
any subsidiary thereof for the purpose of effecting any of the foregoing;
(iv) the Company shall default in any of its obligations or an
event shall occur, or shall fail to occur, which gives (or would give
after the passage of time or giving of notice or both) the payee of any
such obligation the right to accelerate the payment thereof under any
mortgage, credit agreement or other facility, indenture
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agreement, promissory note or other instrument under which there may be
issued, or by which there may be secured or evidenced any indebtedness
of the Company in an amount exceeding one hundred thousand dollars
($100,000), whether such indebtedness now exists or shall hereafter be
created and such default shall result in such indebtedness becoming or
being declared due and payable prior to the date on which it would
otherwise become due and payable;
(v) the Common Stock shall be delisted from the OTC Bulletin
Board or any other national securities exchange or market on which such
Common Stock is then listed for trading or suspended from trading
thereon without being relisted or having such suspension lifted, as the
case may be, within three (3) Trading Days (if after the Original Issue
Date the Common Stock shall be listed for trading or quoted on the
Nasdaq SmallCap Market, Nasdaq National Market or any other national
securities exchange or market, this provision shall apply to any
delistings or suspensions therefrom);
(vi) the Company shall be a party to any merger or consolidation
pursuant to which the Company shall not be the surviving entity or shall
sell, transfer or otherwise dispose of all or substantially all of its
assets in one or more transactions, or shall redeem more than a de
minimis number of shares of Common Stock (other than redemptions of
Underlying Shares);
(vii) an Underlying Securities Registration Statement shall not
have been declared effective by the Securities and Exchange Commission
(the "COMMISSION") on or prior to the 70th day after the Original Issue
Date; or
(viii) an Event (as hereinafter defined) shall not have been cured
to the satisfaction of the Holder prior to the expiration of thirty (30)
days from the Event Date (as hereinafter defined) relating thereto.
(b) If any Event of Default occurs and is continuing, the Holder may,
by notice to the Company, declare the full principal amount of this Debenture
(and, at the Holder's option, all other Debentures then held by such Holder),
together with interest and other amounts owing in respect thereof, to the
date of acceleration, to be, whereupon the same shall become, immediately due
and payable in cash. The aggregate amount payable in respect of the
Debentures shall be equal to the sum of (i) the Mandatory Repayment Amount
plus (ii) the product of (A) the number of Underlying Shares issued in
respect of conversions hereunder and then held by the demanding Holder and
(B) the Per Share Market Value on the date prepayment is demanded or the date
the full prepayment price is paid, whichever is greater. The demanding
Holder need not provide and the Company hereby waives any presentment,
demand, protest or other notice of any kind, and the Holder may immediately
and without expiration of any grace period enforce any and all of its rights
and remedies hereunder and all other remedies available to it under
applicable law. Such declaration may be rescinded and annulled by the Holder
at any time prior to payment hereunder. No such rescission or annulment
shall affect any subsequent Event of Default or impair any right consequent
thereon.
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SECTION 4. CONVERSION.
(a) This Debenture shall be convertible into shares of Common Stock at
the option of the Holder in whole or in part at any time and from time to
time after the Original Issue Date and prior to the close of business on the
Maturity Date. The number of shares of Common Stock as shall be issuable
upon a conversion hereunder shall be determined by dividing the outstanding
principal amount of this Debenture to be converted, plus all accrued but
unpaid interest thereon (which the Company does not elect to pay in cash), by
the Conversion Price (as defined below), each as subject to adjustment as
provided hereunder. The Holder shall effect conversions by surrendering the
Debentures (or such portions thereof) to be converted, together with the form
of conversion notice attached hereto as EXHIBIT A (the "CONVERSION NOTICE")
to the Company. Each Conversion Notice shall specify the principal amount of
Debentures to be converted and the date on which such conversion is to be
effected, which date may not be prior to the date such Conversion Notice is
deemed to have been delivered hereunder (the "CONVERSION DATE"). If no
Conversion Date is specified in a Conversion Notice, the Conversion Date
shall be the date that the Conversion Notice is deemed delivered hereunder.
Subject to Section 4(b) hereof and Section 3.8 of the Purchase Agreement,
each Conversion Notice, once given, shall be irrevocable. If the Holder is
converting less than all of the principal amount represented by the
Debenture(s) tendered by the Holder with the Conversion Notice, or if a
conversion hereunder cannot be effected in full for any reason, the Company
shall honor such conversion to the extent permissible hereunder and shall
promptly deliver to such Holder (in the manner and within the time set forth
in Section 5(b)) a new Debenture for such principal amount as has not been
converted.
(b) Not later than three Trading Days after the Conversion Date, the
Company will deliver to the Holder (i) a certificate or certificates which
shall be free of restrictive legends and trading restrictions (other than
those required by Section 3.1(b) of the Purchase Agreement) representing the
number of shares of the Common Stock being acquired upon the conversion of
Debentures (subject to reduction pursuant to Section 3.8 of the Purchase
Agreement), (ii) Debentures in a principal amount equal to the principal
amount of Debentures not converted; (iii) a bank check in the amount of all
accrued and unpaid interest (if the Company has elected to pay accrued
interest in cash), together with all other amounts then due and payable in
accordance with the terms hereof, in respect of Debentures tendered for
conversion and (iv) if the Company has elected to pay accrued interest in
shares of the Common Stock, certificates, which shall be free of restrictive
legends and trading restrictions (other than those required by Section 3.1(b)
of the Purchase Agreement), representing such number of shares of the Common
Stock as equals such interest divided by the Conversion Price calculated on
the Conversion Date; PROVIDED, HOWEVER, that the Company shall not be
obligated to issue certificates evidencing the shares of the Common Stock
issuable upon conversion of the principal amount of Debentures until
Debentures are delivered for conversion to the Company or the Holder notifies
the Company that such Debenture has been mutilated, lost, stolen or destroyed
and complies with Section 9 hereof. The Company shall, upon request of the
Holder, use its best efforts to deliver any certificate or certificates
required to be delivered by the Company under this Section electronically
through the Depository Trust Corporation or another established clearing
corporation performing similar functions. If in the
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case of any Conversion Notice such certificate or certificates, including for
purposes hereof, any shares of the Common Stock to be issued on the
Conversion Date on account of accrued but unpaid interest hereunder, are not
delivered to or as directed by the applicable Holder by the third Trading Day
after the Conversion Date, the Holder shall be entitled by written notice to
the Company at any time on or before its receipt of such certificate or
certificates thereafter, to rescind such conversion, in which event the
Company shall immediately return the Debentures tendered for conversion. If
the Company fails to deliver to the Holder such certificate or certificates
pursuant to this Section, including for purposes hereof, any shares of the
Common Stock to be issued on the Conversion Date on account of accrued but
unpaid interest hereunder, prior to the third Trading Day after the
Conversion Date, the Company shall pay to such Holder, in cash, as liquidated
damages and not as a penalty, $1,500 for each day thereafter until the
Company delivers such certificates. If the Company fails to deliver to the
Holder such certificate or certificates pursuant to this Section prior to the
20th day after the Conversion Date, the Company shall, at the Holder's option
(i) prepay, from funds legally available therefor at the time of such
prepayment, the aggregate of the principal amount of Debentures then held by
such Holder, as requested by such Holder, and (ii) pay all accrued but unpaid
interest on account of the Debentures for which the Company shall have failed
to issue the Common Stock certificates hereunder, in cash. The prepayment
price shall equal the Mandatory Prepayment Amount for the Debentures to be
prepaid. If the Holder has required the Company to prepay Debentures
pursuant to this Section and the Company fails for any reason to pay the
prepayment price within seven days after such notice is deemed delivered
hereunder, the Company will pay interest on the prepayment price at a rate of
18% per annum (to accrue daily), in cash to such Holder, accruing from such
seventh day until the prepayment price and any accrued interest thereon is
paid in full.
(c) (i) The conversion price (the "CONVERSION PRICE") in effect on
any Conversion Date shall be the lesser of (A) $3.31 (the "INITIAL CONVERSION
PRICE") and (B) 83% multiplied by the average of the five lowest Per Share
Market Values during the ten (10) Trading Days immediately preceding the
Conversion Date; PROVIDED THAT, (a) if an Underlying Securities Registration
Statement is not filed on or prior to the Filing Date (as such term is
defined in the Registration Rights Agreement), or (b) if the Company fails to
file with the Commission a request for acceleration in accordance with Rule
12d1-2 promulgated under the Securities Exchange Act of 1934, as amended,
within five (5) days of the date that the Company is notified (orally or in
writing, whichever is earlier) by the Commission that an Underlying
Securities Registration Statement will not be "reviewed" or is not subject to
further review or comment by the Commission, or (c) if the Underlying
Securities Registration Statement is not declared effective by the Commission
on or prior to the Effectiveness Date (as defined in the Registration Rights
Agreement), or (d) if such Underlying Securities Registration Statement is
filed with and declared effective by the Commission but thereafter ceases to
be effective as to all Registrable Securities (as such term is defined in the
Registration Rights Agreement) at any time prior to the expiration of the
"Effectiveness Period" (as such term as defined in the Registration Rights
Agreement), without being succeeded by a subsequent Underlying Securities
Registration Statement filed with and declared effective by the Commission
within ten (10) days, or (e) if trading in the Common Stock shall be
suspended, or if the Common Stock shall be delisted from trading, on the OTC
Bulletin Board or any other national securities market or exchange on which
the Common Stock is then listed
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or quoted for trading for any reason for more than three (3) Trading Days, or
(f) if the conversion rights of the Holder are suspended for any reason or if
the Holder is not permitted to resell Registrable Securities under the
Underlying Securities Registration Statement, or (g) if an amendment to the
Underlying Securities Registration Statement is not filed by the Company with
the Commission within ten (10) days of the Commission's notifying the Company
that such amendment is required in order for the Underlying Securities
Registration Statement to be declared effective (any such failure being
referred to as an "EVENT," and for purposes of clauses (a), (c) and (f) the
date on which such Event occurs, or for purposes of clause (b) the date on
which such five (5) days period is exceeded, or for purposes of clauses (d)
and (g) the date which such ten (10) day period is exceeded, or for purposes
of clause (e) the date on which such three (3) Trading Day period is
exceeded, being referred to as "EVENT DATE"), the Conversion Price shall be
decreased by 2.5% each month (i.e., the Conversion Price would decrease by
2.5% as of the Event Date and additional 2.5% as of each monthly anniversary
of the Event Date) until the earlier to occur of the second month anniversary
after the Event Date and such time as the applicable Event is cured.
Commencing the second month anniversary after the Event Date, the Company
shall pay to the holders of the Debentures 2.5% of the aggregate principal
amount of Debentures then outstanding (each holder being entitled to receive
such portion of such amount as equals its pro rata portion of the Debentures
then outstanding) in cash as liquidated damages, and not as a penalty on the
first day of each monthly anniversary of the Event Date until such time as
the applicable Event, is cured. Any decrease in the Conversion Price
pursuant to this Section shall continue notwithstanding the fact that the
Event causing such decrease has been subsequently cured. The provisions of
this Section are not exclusive and shall in no way limit the Company's
obligations under the Registration Rights Agreement.
(ii) If the Company, at any time while any Debentures are
outstanding, (a) shall pay a stock dividend or otherwise make a distribution
or distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of the Common Stock, (b) subdivide
outstanding shares of the Common Stock into a larger number of shares, (c)
combine outstanding shares of the Common Stock into a smaller number of
shares, or (d) issue by reclassification of shares of the Common Stock any
shares of capital stock of the Company, the Initial Conversion Price shall be
multiplied by a fraction of which the numerator shall be the number of shares
of the Common Stock (excluding treasury shares, if any) outstanding before
such event and of which the denominator shall be the number of shares of the
Common Stock outstanding after such event. Any adjustment made pursuant to
this Section shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective date
in the case of a subdivision, combination or re-classification.
(iii) If the Company, at any time while any Debentures are
outstanding, shall issue rights or warrants to all holders of the Common
Stock (and not to the Holder) entitling them to subscribe for or purchase
shares of the Common Stock at a price per share less than the Per Share
Market Value of the Common Stock at the record date mentioned below, the
Initial Conversion Price shall be multiplied by a fraction, of which the
denominator shall be the number of shares of the Common Stock (excluding
treasury shares, if any) outstanding on the date of issuance of such rights
or warrants plus the number of additional shares of the Common Stock offered
for subscription or purchase, and of which the numerator shall be the number
of shares of the Common Stock (excluding treasury shares, if any)
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<PAGE>
outstanding on the date of issuance of such rights or warrants plus the
number of shares which the aggregate offering price of the total number of
shares so offered would purchase at such Per Share Market Value. Such
adjustment shall be made whenever such rights or warrants are issued, and
shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants.
However, upon the expiration of any right or warrant to purchase shares of
the Common Stock the issuance of which resulted in an adjustment in the
Initial Conversion Price pursuant to this Section, if any such right or
warrant shall expire and shall not have been exercised, the Initial
Conversion Price shall immediately upon such expiration be recomputed and
effective immediately upon such expiration be increased to the price which it
would have been (but reflecting any other adjustments in the Initial
Conversion Price made pursuant to the provisions of this Section 4 after the
issuance of such rights or warrants) had the adjustment of the Initial
Conversion Price made upon the issuance of such rights or warrants been made
on the basis of offering for subscription or purchase only that number of
shares of the Common Stock actually purchased upon the exercise of such
rights or warrants actually exercised.
(iv) If the Company, at any time while Debentures are
outstanding, shall distribute to all holders of the Common Stock (and not to
the Holder) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security, then in each such case the Initial
Conversion Price at which Debentures shall thereafter be convertible shall be
determined by multiplying the Initial Conversion Price in effect immediately
prior to the record date fixed for determination of stockholders entitled to
receive such distribution by a fraction of which the denominator shall be the
Per Share Market Value of the Common Stock determined as of the record date
mentioned above, and of which the numerator shall be such Per Share Market
Value of the Common Stock on such record date less the then fair market value
at such record date of the portion of such assets or evidence of indebtedness
so distributed applicable to one outstanding share of the Common Stock as
determined by the Board of Directors in good faith; PROVIDED, HOWEVER, that
in the event of a distribution exceeding ten percent (10%) of the net assets
of the Company, such fair market value shall be determined by a nationally
recognized or major regional investment banking firm or firm of independent
certified public accountants of recognized standing (which may be the firm
that regularly examines the financial statements of the Company) (an
"APPRAISER") selected in good faith by the holders of a majority in interest
of Debentures then outstanding; and PROVIDED, FURTHER, that the Company,
after receipt of the determination by such Appraiser shall have the right to
select an additional Appraiser, in good faith, in which case the fair market
value shall be equal to the average of the determinations by each such
Appraiser. In either case the adjustments shall be described in a statement
provided to the holders of Debentures of the portion of assets or evidences
of indebtedness so distributed or such subscription rights applicable to one
share of the Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date mentioned above.
(v) In case of any reclassification of the Common Stock or any
8
<PAGE>
compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property, the Holder of this Debenture shall
have the right thereafter to, at its option, (A) convert the then outstanding
principal amount, together with all accrued but unpaid interest and any other
amounts then owing hereunder in respect of this Debenture only into the
shares of stock and other securities, cash and property receivable upon or
deemed to be held by holders of the Common Stock following such
reclassification or share exchange, and the Holder shall be entitled upon
such event to receive such amount of securities, cash or property as the
shares of the Common Stock of the Company into which the then outstanding
principal amount, together with all accrued but unpaid interest and any other
amounts then owing hereunder in respect of this Debenture could have been
converted immediately prior to such reclassification or share exchange would
have been entitled or (B) require the Company to prepay, from funds legally
available therefor at the time of such prepayment, the aggregate of its
outstanding principal amount of Debentures, plus all interest and other
amounts due and payable thereon, at a price determined in accordance with
Section 3(b). The entire prepayment price shall be paid in cash. This
provision shall similarly apply to successive reclassifications or share
exchanges.
(vi) All calculations under this Section 4 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.
(vii) Whenever the Initial Conversion Price is adjusted pursuant
to any of Section 4(c)(ii) - (v), the Company shall promptly mail to each
Holder of Debentures a notice setting forth the Initial Conversion Price
after such adjustment and setting forth a brief statement of the facts
requiring such adjustment.
(viii) If:
A. the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
B. the Company shall declare a special nonrecurring cash
dividend on or a redemption of its Common Stock; or
C. the Company shall authorize the granting to all holders
of the Common Stock rights or warrants to subscribe for
or purchase any shares of capital stock of any class or
of any rights; or
D. the approval of any stockholders of the Company shall
be required in connection with any reclassification of
the Common Stock of the Company, any consolidation or
merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of
the Company, of any compulsory share of exchange
whereby the Common Stock is converted into other
securities, cash or property; or
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E. the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of
the affairs of the Company;
then the Company shall cause to be filed at each office or agency maintained
for the purpose of conversion of the Debentures, and shall cause to be mailed
to the Holder at its last addresses as they shall appear upon the stock books
of the Company, at least 30 calendar days prior to the applicable record or
effective date hereinafter specified, a notice stating (x) the date on which
a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date
as of which the holders of the Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are to be determined
or (y) the date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or close, and the
date as of which it is expected that holders of the Common Stock of record
shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; PROVIDED, HOWEVER,
that the failure to mail such notice or any defect therein or in the mailing
thereof shall not affect the validity of the corporate action required to be
specified in such notice. The Holder is entitled to convert the Debentures
during the 30-day period commencing the date of such notice to the effective
date of the event triggering such notice.
(d) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of the Common Stock
solely for the purpose of issuance upon conversion of the Debentures and
payment of interest on the Debentures, each as herein provided, free from
preemptive rights or any other actual contingent purchase rights of persons
other than the Holder, not less than such number of shares of the Common
Stock as shall be required by the Purchase Agreement (taking into account the
adjustments and restrictions of Section 4(c).
(e) Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of the Common
Stock, but may if otherwise permitted, make a cash payment in respect of any
final fraction of a share based on the Per Share Market Value at such time.
If the Company elects not, or is unable, to make such a cash payment, the
holder shall be entitled to receive, in lieu of the final fraction of a
share, one whole share of Common Stock.
(f) The issuance of certificates for shares of the Common Stock on
conversion of the Debentures shall be made without charge to the Holder
thereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided that the
Company shall not be required to pay any tax that may be payable in respect
of any transfer involved in the issuance and delivery of any such certificate
upon conversion in a name other than that of the Holder of such Debentures so
converted and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been
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paid.
(g) Any and all notices or other communications or deliveries to be
provided by the Holder, including, without limitation, any Conversion Notice,
shall be in writing and delivered personally, by facsimile, sent by a
nationally recognized overnight courier service or sent by certified or
registered mail, postage prepaid, addressed to the Company, at 3637 South
Green Road, Suite 201, Beachwood, OH 44122 (facsimile number (216) 292-6187),
attention Chief Financial Officer, or such other address or facsimile number
as the Company may specify for such purposes by notice to the Holder
delivered in accordance with this Section. Any and all notices or other
communications or deliveries to be provided by the Company hereunder shall be
in writing and delivered personally, by facsimile, sent by a nationally
recognized overnight courier service or sent by certified or registered mail,
postage prepaid, addressed to each Holder of the Debentures at the facsimile
telephone number or address of such Holder appearing on the books of the
Company, or if no such facsimile telephone number or address appears, at the
principal place of business of the holder. Any notice or other communication
or deliveries hereunder shall be deemed given and effective on the earliest
of (i) the date of transmission, if such notice or communication is delivered
via facsimile at the facsimile telephone number specified in this Section
prior to 7:00 p.m. (New York City time), (ii) the date after the date of
transmission, if such notice or communication is delivered via facsimile at
the facsimile telephone number specified in this Section later than 7:00 p.m.
(New York City time) on any date and earlier than 11:59 p.m. (New York City
time) on such date, (iii) four days after deposit in the United States mail,
(iv) the Business Day following the date of mailing, if send by nationally
recognized overnight courier service, or (v) upon actual receipt by the party
to whom such notice is required to be given. For purposes of Section
4(c)(i), if a Conversion Notice is delivered by facsimile prior to 7:00 p.m.
(New York City time) on any date, then the day prior to such date shall be
the last Trading Day calculated to determine the Conversion Price applicable
to such Conversion Notice, and the date of such delivery shall commence the
counting of days for purposes of Section 4(b).
SECTION 5. OPTIONAL PREPAYMENT.
(a) The Company shall have the right, exercisable at any time upon
twenty (20) Trading Days prior written notice to the Holder (the "OPTIONAL
PREPAYMENT NOTICE"), to prepay, from funds legally available therefor at the
time of such prepayment, all or any portion of the outstanding principal
amount of the Debentures which have not previously been repaid or for which
Conversion Notices have not previously been delivered hereunder, at a price
equal to the Optional Prepayment Price (as defined below). Any such
prepayment by the Company shall be in cash and shall be free of any claim of
subordination. The Holder shall have the right to tender, and the Company
shall honor, Conversion Notices delivered prior to the expiration of the
twentieth (20th) Trading Day after receipt by the Holder of an Optional
Prepayment Notice for such Debentures (such date, the "OPTIONAL PREPAYMENT
DATE").
(b) If any portion of the Optional Prepayment Price shall not be paid
by the Company by the Optional Prepayment Date, the Optional Prepayment Price
shall be increased by 18% per annum (to accrue daily) until paid (which
amount shall be paid as liquidated damages and not as a penalty). In
addition, if any portion of the optional Prepayment Price
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remains unpaid through the expiration of the Optional Prepayment Date, the
Holder subject to such prepayment may elect by written notice to the Company
to either (i) demand conversion in accordance with the formula and the time
period therefor set forth in Section 4 of any portion of the principal amount
of Debentures for which the Optional Prepayment Price (including interest
therefor), plus accrued liquidated damages thereof, has not been paid in full
(the "UNPAID PREPAYMENT PRINCIPAL AMOUNT"), in which event the applicable Per
Share Market Value shall be the lower of the Per Share Market Value
calculated on the Optional Prepayment Date and the Per Share Market Value as
of the Holder's written demand for conversion, or (ii) invalidate AB INITIO
such optional redemption, notwithstanding anything herein contained to the
contrary. If the Holder elects option (i) above, the Company shall within
three (3) Trading Days such election is deemed delivered hereunder to the
Holder the shares of Common Stock issuable upon conversion of the Unpaid
Prepayment Amount subject to such conversion demand and otherwise perform its
obligations hereunder with respect thereto; or, if the Holder elects option
(ii) above, the Company shall promptly, and in any event not later than three
Trading Days from receipt of notice of such election, return to the Holder
new Debentures for the full Unpaid Prepayment Principal Amount. If, upon an
election under option (i) above, the Company fails to deliver the shares of
Common Stock issuable upon conversion of the Unpaid Prepayment Principal
Amount within the time period set forth in this Section, the Company shall
pay to the Holder in cash, as liquidated damages and not as a penalty, $1,500
per day until the Company delivers such Common Stock to the Holder.
(c) The "OPTIONAL PREPAYMENT PRICE" for any Debentures shall equal the
sum of (i) the principal amount of Debentures to be prepaid, plus all accrued
and unpaid interest thereon, divided by the Conversion Price on (x) the
Optional Prepayment Date or (y) the date the Optional Prepayment Price is
paid in full, whichever is less, multiplied by the Average Price on (x) the
Optional Prepayment Date or (y) the date the Optional Prepayment Price is
paid in full, whichever is greater, and (ii) all other amounts and liquidated
damages due in respect of such principal amount.
SECTION 6. DEFINITIONS. For the purposes hereof, the following terms
shall have the following meanings:
"AVERAGE PRICE" on any date means the average Per Share Market Value for
the five (5) Trading Days immediately preceding such date.
"BUSINESS DAY" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the State
of New York are authorized or required by law or other government action to
close.
"COMMON STOCK" means common stock, $.001 par value per share, of the
Company and stock of any other class into which such shares may hereafter
have been reclassified or changed.
"MANDATORY REPAYMENT AMOUNT" for any Debentures shall equal the sum of
(i) the principal amount of Debentures to be prepaid, plus all accrued and
unpaid interest thereon, divided by the Conversion Price on (x) the date the
Mandatory Prepayment Amount is
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demanded or (y) the date the Mandatory Prepayment Amount is paid in full,
whichever is less, multiplied by the Per Share Market Value on (x) the date
the Mandatory Prepayment Amount is demanded or (y) the date the Mandatory
Prepayment Amount is paid in full, whichever is greater, and (ii) all other
amounts, costs, expenses and liquidated damages due in respect of such
Debentures.
"ORIGINAL ISSUE DATE" shall mean the date of the first issuance of any
Debentures regardless of the number of transfers of any Debenture and
regardless of the number of instruments which may be issued to evidence such
Debenture.
"PER SHARE MARKET VALUE" on any particular date means (a) the closing
bid price per share of the Common Stock on such date on the Nasdaq SmallCap
Market or other stock exchange or quotation system on which the Common Stock
is listed for trading, or (b) if the Common Stock is not listed on the Nasdaq
SmallCap Market or any other stock exchange or market, the closing bid price
per share of the Common Stock on such date on the over-the-counter market, as
reported by the OTC Bulletin Board, or (c) if the Common Stock is not quoted
on the OTC Bulletin Board, the closing bid price per share of Common Stock on
such date on the over-the-counter market as reported by the National
Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices), or (d) if the Common Stock is
no longer traded on the over-the-counter market and reported by the National
Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices), such closing bid price shall
be determined by reference to "Pink Sheet" quotes for the relevant conversion
period as determined in good faith by the Holder or (c) if the Common Stock
is not then publicly traded, the fair market value of a share of Common Stock
as determined by an appraiser selected in good faith by the Holders of a
majority in interest of the Debentures (the Company, after receipt of the
determination by such appraiser, shall have the right to select an additional
appraiser, in which case, the fair market value shall be equal to the average
of the determinations by each such appraiser).
"PERSON" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
"PURCHASE AGREEMENT" means the Convertible Debenture Purchase Agreement,
dated as of the Original Issue Date, among the Company and the original
Holder, as amended, modified or supplemented from time to time in accordance
with its terms.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement,
dated as of the Original Issue Date, among the Company and the original
Holder, as amended, modified or supplemented from time to time in accordance
with its terms.
"TRADING DAY" means (a) a day on which the Common Stock is traded on the
Nasdaq Stock Market or other stock exchange or market on which the Common
Stock has been listed, or (b) if the Common Stock is not then listed on the
Nasdaq Stock Market or any stock exchange or market, a day on which the
Common Stock is traded on the over-the-counter market, as reported by the OTC
Bulletin Board, or (c) if the Common Stock is not quoted on
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the OTC Bulletin Board, a day on which the Common Stock is quoted on the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions
of reporting prices).
"UNDERLYING SHARES" means the shares of Common Stock into which the
Debentures, and interest thereon, are convertible in accordance with the
terms hereof and the Purchase Agreement.
"UNDERLYING SECURITIES REGISTRATION STATEMENT" means a registration
statement meeting the requirements set forth in the Registration Rights
Agreement, covering among other things the resale of the Underlying Shares
and naming the Holder as a "selling stockholders" thereunder.
SECTION 7. Except as expressly provided herein, no provision of this
Debenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of, interest and liquidated
damages (if any) on, this Debenture at the time, place, and rate, and in the
coin or currency, herein prescribed. This Debenture is a direct obligation
of the Company. This Debenture ranks PARI PASSU with all other Debentures
now or hereafter issued under the terms set forth herein. The Company may
only voluntarily prepay the outstanding principal amount on the Debentures in
accordance with Section 5 hereof.
SECTION 8. This Debenture shall not entitle the Holder to any of the
rights of a stockholder of the Company, including without limitation, the
right to vote, to receive dividends and other distributions, or to receive
any notice of, or to attend, meetings of stockholders or any other
proceedings of the Company, unless and to the extent converted into shares of
Common Stock in accordance with the terms hereof.
SECTION 9. If this Debenture shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and
substitution for and upon cancellation of a mutilated Debenture, or in lieu
of or in substitution for a lost, stolen or destroyed debenture, a new
Debenture for the principal amount of this Debenture so mutilated, lost,
stolen or destroyed but only upon receipt of evidence of such loss, theft or
destruction of such Debenture, and of the ownership hereof, and indemnity, if
requested, all reasonably satisfactory to the Company.
SECTION 10. This Debenture shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
conflicts of laws thereof. The Company hereby irrevocably submits to the
non-exclusive jurisdiction of the state and federal courts sitting in the
City of New York, borough of Manhattan, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein, and hereby irrevocably waives, and agrees not to
assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, or that such suit, action or
proceeding is improper. The Company hereby irrevocably waives personal
service of process and consents to process being served in any such suit,
action or proceeding by receiving a copy thereof sent to the Company at the
address in effect for notices
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to it under this instrument and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law.
SECTION 11. Any waiver by the Company or the Holder of a breach of any
provision of this Debenture shall not operate as or be construed to be a
waiver of any other breach of such provision or of any breach of any other
provision of this Debenture. The failure of the Company or the Holder to
insist upon strict adherence to any term of this Debenture on one or more
occasions shall not be considered a waiver or deprive that party of the right
thereafter to insist upon strict adherence to that term or any other term of
this Debenture. Any waiver must be in writing.
SECTION 12. If any provision of this Debenture is invalid, illegal or
unenforceable, the balance of this Debenture shall remain in effect, and if
any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances.
SECTION 13. Whenever any payment or other obligation hereunder shall be
due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day (or, if such next succeeding Business Day falls
in the next calendar month, the preceding Business Day in the appropriate
calendar month).
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed by a duly authorized officer as of the date first above indicated.
FIX-CORP INTERNATIONAL, INC.
By: /s/ Mark Fixler
-----------------------------------
Name: Mark Fixler
Title: President/CEO
Attest:
By: /s/ Sherry L. Durst
-------------------------------
Name: Sherry L. Durst
Title: Asst. Secretary
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EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby elects to convert Debenture No. A-13 into shares of
Common Stock, $.001 par value per share (the "Common Stock"), of Fix-Corp
International, Inc. (the "Company") according to the conditions hereof, as of
the date written below. If shares are to be issued in the name of a person
other than undersigned, the undersigned will pay all transfer taxes payable
with respect thereto and is delivering herewith such certificates and
opinions as reasonably requested by the Company in accordance therewith. No
fee will be charged to the holder for any conversion, except for such
transfer taxes, if any.
Conversion calculations:
----------------------------------------------
Date to Effect Conversion
----------------------------------------------
Principal Amount of Debentures to be Converted
----------------------------------------------
Number of shares of Common Stock to be Issued
----------------------------------------------
Applicable Conversion Price
----------------------------------------------
Signature
----------------------------------------------
Name
----------------------------------------------
Address
<PAGE>
EXHIBIT 10.33
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "AGREEMENT") is made and
entered into as of March 11, 1998, between Fix-Corp International, Inc. a
Delaware corporation (the "COMPANY"), and JNC Strategic Fund Ltd., a
corporation organized under the laws of the Cayman Islands (the "PURCHASER").
This Agreement is made pursuant to the Convertible Debenture Purchase
Agreement, dated as of the date hereof between the Company and the Purchaser
(the "PURCHASE AGREEMENT").
The Company and the Purchaser hereby agree as follows:
1. DEFINITIONS
Capitalized terms used and not otherwise defined herein that are
defined in the Purchase Agreement shall have the meanings given such terms in
the Purchase Agreement. As used in this Agreement, the following terms shall
have the following meanings:
"ADVICE" shall have meaning set forth in Section 3(o).
"AFFILIATE" means, with respect to any Person, any other Person that
directly or indirectly controls or is controlled by or under common control
with such Person. For the purposes of this definition, "CONTROL," when used
with respect to any Person, means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms of "AFFILIATED," "CONTROLLING" and "CONTROLLED" have
meanings correlative to the foregoing.
"BUSINESS DAY" means any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
State of New York generally are authorized or required by law or other
government actions to close.
"CLOSING DATE" shall have the meaning set forth in the Purchase
Agreement.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the Company's Common Stock, par value $.001 per
share.
"DEBENTURES" means the Company's 4% Convertible Debentures due
March 11, 2001 issued to the Purchaser pursuant to the Purchase Agreement.
<PAGE>
"EFFECTIVENESS DATE" means the 50th day following the Closing Date.
"EFFECTIVENESS PERIOD" shall have the meaning set forth in
Section 2(a).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FILING DATE" means the 20th day following the Closing Date.
"HOLDER" or "HOLDERS" means the holder or holders, as the case may
be, from time to time of Registrable Securities.
"INDEMNIFIED PARTY" shall have the meaning set forth in Section 5(c).
"INDEMNIFYING PARTY" shall have the meaning set forth in
Section 5(c).
"LOSSES" shall have the meaning set forth in Section 5(a).
"NEW YORK COURTS" shall have the meaning set forth in Section 7(j).
"PERSON" means a corporation, an association, a partnership,
organization, government, a business, an individual, a political subdivision
thereof or a governmental agency.
"PURCHASE AGREEMENT" shall have the meaning set forth in the
recitals to this Agreement.
"PROCEEDING" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"PROSPECTUS" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an
effective registration statement in reliance upon Rule 430A promulgated under
the Securities Act), as amended or supplemented by any prospectus supplement,
with respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments
and supplements to the Prospectus, including post-effective amendments, and
all material incorporated by reference or deemed to be incorporated by
reference in such Prospectus.
"REGISTRABLE SECURITIES" means the shares of Common Stock issuable
upon (a) conversion in full of the Debentures, (b) exercise in full of the
Warrant and (c) payment of interest in respect of the Debentures; PROVIDED,
HOWEVER that in order to account for the fact that the number of shares of
Common Stock that are issuable upon conversion of Debentures is determined in
part upon the market price of the Common Stock at the time of conversion,
Registrable Securities contemplated by clause (a) of this definition shall be
deemed to include not less than 200% of the number of shares of Common Stock
into which the Debentures are
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convertible, assuming such conversion occurred on the Closing Date or the
Filing Date (whichever date yields a lower Conversion Price, as such term is
defined in the Debentures). The initial Registration Statement shall cover
at least such number of shares of Common Stock as equals the sum of (x) 200%
of the number of shares of Common Stock into which the Debentures are
convertible, assuming such conversion occurred on the Closing Date or the
Filing Date (whichever date yields a lower Conversion Price), (y) interest
thereon and (z) 126,268 shares of Common Stock in respect of the Warrant.
The Company shall be required to file additional Registration Statements to
the extent the actual number of shares of Common Stock into which Debentures
are convertible (together with interest thereon) and the Warrant are
exercisable exceeds the number of shares of Common Stock initially registered
in accordance with the immediately prior sentence (the Company shall have 10
Business Days to file such additional Registration Statement after notice of
the requirement thereof, which the Holders may give at such time when the
number of shares of Common Stock as are issuable upon conversion of
Debentures exceeds 185% of the number of shares of Common Stock into which
Debentures are convertible, assuming such conversion occurred on the Closing
Date or the Filing Date (whichever yields a lower Conversion Price.)
"REGISTRATION STATEMENT" means the registration statement, as
amended, pursuant to Section 2(a) (covering such number of Registrable
Securities and any additional Registration Statements contemplated in the
definition of Registrable Securities), including (in each case) the
Prospectus, amendments and supplements to such registration statement or
Prospectus, including pre-and post-effective amendments, all exhibits
thereto, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement, PROVIDED, HOWEVER,
that in the event the Initial Registration Statement (as defined in Section
2(a)) has been declared effective by the Commission on or prior to the Filing
Date, the term "Registration Statement" shall mean the registration statement
contemplated by Section 2(a) (covering such number of Registrable Securities
and any additional Registration Statements contemplated in the definition of
Registrable Securities), including (in each case) the Prospectus, amendments
and supplements to such registration statement or Prospectus, including pre-
and post-effective amendments, all exhibits thereto, and all material
incorporated by reference or deemed to be incorporated by reference in such
registration statement.
"RULE 158" means Rule 158 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"RULE 415" means Rule 415 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SPECIAL COUNSEL" means one law firm acting as counsel to the
Holders, for which the Holders will be reimbursed by the Company pursuant to
Section 4.
"UNDERWRITTEN REGISTRATION OR UNDERWRITTEN OFFERING" means a
registration in
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connection with which securities of the Company are sold to an underwriter
for reoffering to the public pursuant to an effective registration statement.
"WARRANT" means the Common Stock purchase warrant issued to the
Purchaser pursuant to the Purchase Agreement on the Closing Date.
2. AMENDMENT TO SHELF REGISTRATION/NEW REGISTRATION STATEMENT
(a) On or prior to the Filing Date, the Company shall prepare and
file with the Commission a pre-effective amendment to the Company's SB-2
Registration Statement filed with the Commission on January 20, 1998 (the
"INITIAL REGISTRATION STATEMENT"), in order to provide for the resale of the
Registrable Securities, PROVIDED, HOWEVER, that in the event the Initial
Registration Statement has been declared effective by the Commission on or
prior to the Filing Date, the Company shall prepare and file with the
Commission a Registration Statement in order to provide for the resale of the
Registrable Securities. The Company shall use its best efforts to cause the
Registration Statement (as amended) to be declared effective under the
Securities Act as promptly as possible after the filing thereof, but in any
event prior to the Effectiveness Date, and shall use its best efforts to keep
such Registration Statement continuously effective under the Securities Act
until the date which is three years after the date that such Registration
Statement is declared effective by the Commission or such earlier date when
all Registrable Securities covered by such Registration Statement have been
sold or may be sold without volume restrictions pursuant to Rule 144(k)
promulgated under the Securities Act, as determined by the counsel to the
Company pursuant to a written opinion letter to such effect, addressed and
acceptable to the Company's transfer agent (the "EFFECTIVENESS PERIOD");
PROVIDED, HOWEVER, that the Company shall not be deemed to have used its best
efforts to keep the Registration Statement effective during the Effectiveness
Period if it voluntarily takes any action that would result in the Holders
not being able to sell the Registrable Securities covered by such
Registration Statement during the Effectiveness Period, unless such action is
required under applicable law or the Company has filed a post-effective
amendment to the Registration Statement and the Commission has not declared
it effective.
(b) If the Holders of a majority of the Registrable Securities so
elect, an offering of Registrable Securities pursuant to the Registration
Statement may be effected in the form of an Underwritten Offering. In such
event, and if the managing underwriters advise the Company and such Holders
in writing that in their opinion the amount of Registrable Securities
proposed to be sold in such Underwritten Offering exceeds the amount of
Registrable Securities which can be sold in such Underwritten Offering, there
shall be included in such Underwritten Offering the amount of such
Registrable Securities which in the opinion of such managing underwriters can
be sold, and such amount shall be allocated PRO RATA among the Holders
proposing to sell Registrable Securities in such Underwritten Offering.
(c) If any of the Registrable Securities are to be sold in an
Underwritten Offering, the investment banker in interest that will administer
the offering will be selected by the Holders of a majority of the Registrable
Securities included in such offering upon consultation with the Company. No
Holder may participate in any Underwritten Offering hereunder unless such
Person (i) agrees to sell its Registrable Securities on the basis provided in
any underwriting
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agreements approved by the Persons entitled hereunder to approve such
arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such arrangements.
3. REGISTRATION PROCEDURES
In connection with the Company's registration obligations hereunder,
the Company shall:
(a) Prepare and file with the Commission on or prior to the Filing
Date, an amendment to the Registration Statement (and any additional
Registration Statements as may be required) in accordance with Section 2(a),
and cause the Registration Statement (as amended) to become effective and
remain effective as provided herein; PROVIDED, HOWEVER, that not less than
five (5) Business Days prior to the filing of the Registration Statement or
any related Prospectus or any amendment or supplement thereto (including any
document that would be incorporated or deemed to be incorporated therein by
reference), the Company shall (i) furnish to the Holders, their Special
Counsel and any managing underwriters, copies of all such documents proposed
to be filed, which documents (other than those incorporated or deemed to be
incorporated by reference) will be subject to the review of such Holders,
their Special Counsel and such managing underwriters, and (ii) cause its
officers and directors, counsel and independent certified public accountants
to respond to such inquiries as shall be necessary, in the opinion of
respective counsel to such Holders and such underwriters, to conduct a
reasonable investigation within the meaning of the Securities Act. The
Company shall not file the Registration Statement or any such Prospectus or
any amendments or supplements thereto to which the Holders of a majority of
the Registrable Securities, their Special Counsel, or any managing
underwriters, shall reasonably object on a timely basis.
(b) (i) Prepare and file with the Commission such additional
amendments, including post-effective amendments, to the Registration
Statement as may be necessary to keep the Registration Statement continuously
effective as to the applicable Registrable Securities for the Effectiveness
Period and prepare and file with the Commission such additional Registration
Statements in order to register for resale under the Securities Act all of
the Registrable Securities; (ii) cause the related Prospectus to be amended
or supplemented by any required Prospectus supplement, and as so supplemented
or amended to be filed pursuant to Rule 424 (or any similar provisions then
in force) promulgated under the Securities Act; (iii) respond as promptly as
practicable to any comments received from the Commission with respect to the
Registration Statement or any amendment thereto and promptly provide the
Holders true and complete copies of all correspondence from and to the
Commission relating to the Registration Statement; and (iv) comply with the
provisions of the Securities Act and the Exchange Act with respect to the
disposition of all Registrable Securities covered by the Registration
Statement during the applicable period in accordance with the intended
methods of disposition by the Holders thereof set forth in the Registration
Statement as so amended or in such Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities to be sold, their
Special Counsel and any managing underwriters immediately (and, in the case
of (i)(A) below, not less than five (5) days prior to such filing) and (if
requested by any such Person) confirm such notice
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<PAGE>
in writing no later than one (1) Business Day following the day (i)(A) when a
Prospectus or any Prospectus supplement or post-effective amendment to the
Registration Statement is proposed to be filed; (B) when the Commission
notifies the Company whether there will be a "review" of such Registration
Statement and whenever the Commission comments in writing on such
Registration Statement (the Company shall provide true and complete copies
thereof and all written responses thereto to each of the Holders) and (C)
with respect to the Registration Statement or any post-effective amendment,
when the same has become effective; (ii) of any request by the Commission or
any other Federal or state governmental authority for amendments or
supplements to the Registration Statement or Prospectus or for additional
information; (iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for
that purpose; (iv) if at any time any of the representations and warranties
of the Company contained in any agreement (including any underwriting
agreement) contemplated hereby ceases to be true and correct in all material
respects; (v) of the receipt by the Company of any notification with respect
to the suspension of the qualification or exemption from qualification of any
of the Registrable Securities for sale in any jurisdiction, or the initiation
or threatening of any Proceeding for such purpose; and (vi) of the occurrence
of any event that makes any statement made in the Registration Statement or
Prospectus or any document incorporated or deemed to be incorporated therein
by reference untrue in any material respect or that requires any revisions to
the Registration Statement, Prospectus or other documents so that, in the
case of the Registration Statement or the Prospectus, as the case may be, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(d) Use its best efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of (i) any order suspending the effectiveness of the
Registration Statement or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale
in any jurisdiction, at the earliest practicable moment.
(e) If requested by any managing underwriter or the Holders of a
majority in interest of the Registrable Securities to be sold in connection
with an Underwritten Offering, (i) promptly incorporate in a Prospectus
supplement or post-effective amendment to the Registration Statement such
information as such managing underwriters and such Holders reasonably agree
should be included therein and (ii) make all required filings of such
Prospectus supplement or such post-effective amendment as soon as practicable
after the Company has received notification of the matters to be incorporated
in such Prospectus supplement or post-effective amendment; PROVIDED, HOWEVER,
that the Company shall not be required to take any action pursuant to this
Section 3(e) that would, in the opinion of counsel for the Company, violate
applicable law or be materially detrimental to the business prospects of the
Company.
(f) Furnish to each Holder, their Special Counsel and any managing
underwriters, without charge, at least one conformed copy of each
Registration Statement and each amendment thereto, including financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference, and all exhibits to the extent reasonably
requested by such Person (including those previously furnished or
incorporated by reference) promptly after the filing of such documents with
the Commission.
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(g) Promptly deliver to each Holder, their Special Counsel, and any
underwriters, without charge, as many copies of the Prospectus or
Prospectuses (including each form of prospectus) and each amendment or
supplement thereto as such Persons may reasonably request; and the Company
hereby consents to the use of such Prospectus and each amendment or
supplement thereto by each of the selling Holders and any underwriters in
connection with the offering and sale of the Registrable Securities covered
by such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities, use its
best efforts to register or qualify or cooperate with the selling Holders,
any underwriters and their Special Counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions as any Holder or
underwriter requests in writing, to keep each such registration or
qualification (or exemption therefrom) effective during the Effectiveness
Period and to do any and all other acts or things necessary or advisable to
enable the disposition in such jurisdictions of the Registrable Securities
covered by a Registration Statement; PROVIDED, HOWEVER, that the Company
shall not be required to qualify generally to do business in any jurisdiction
where it is not then so qualified or to take any action that would subject it
to general service of process in any such jurisdiction where it is not then
so subject or subject the Company to any material tax in any such
jurisdiction where it is not then so subject.
(i) Cooperate with the Holders and any managing underwriters to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold pursuant to a Registration Statement, which
certificates shall be free of all restrictive legends, and to enable such
Registrable Securities to be in such denominations and registered in such
names as any such managing underwriters or Holders may request at least three
Business Days prior to any sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section
3(c)(vi), as promptly as practicable, prepare a supplement or amendment,
including a post-effective amendment, to the Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed
to be incorporated therein by reference, and file any other required document
so that, as thereafter delivered, neither the Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(k) Use its best efforts to cause all Registrable Securities
relating to such Registration Statement to be listed on the OTC Bulletin
Board and any other securities exchange, quotation system, market or
over-the-counter bulletin board, if any, on which similar securities issued
by the Company are then listed as and when required pursuant to the Purchase
Agreement.
(l) In the case of an Underwritten Offering, enter into such
agreements (including an underwriting agreement in form, scope and substance
as is customary in Underwritten Offerings) and take all such other actions in
connection therewith (including those
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reasonably requested by any managing underwriters and the Holders of a
majority of the Registrable Securities being sold) in order to expedite or
facilitate the disposition of such Registrable Securities, and whether or not
an underwriting agreement is entered into, (i) make such representations and
warranties to such Holders and such underwriters as are customarily made by
issuers to underwriters in underwritten public offerings, and confirm the
same if and when requested; (ii) obtain and deliver copies thereof to each
Holder and the managing underwriters, if any, of opinions of counsel to the
Company and updates thereof addressed to each selling Holder and each such
underwriter, in form, scope and substance reasonably satisfactory to any such
managing underwriters and Special Counsel to the selling Holders covering the
matters customarily covered in opinions requested in Underwritten Offerings
and such other matters as may be reasonably requested by such Special Counsel
and underwriters; (iii) immediately prior to the effectiveness of the
Registration Statement or at the time of delivery of any Registrable
Securities sold pursuant thereto (at the option of the underwriters), obtain
and deliver copies to the Holders and the managing underwriters, if any, of
"cold comfort" letters and updates thereof from the independent certified
public accountants of the Company (and, if necessary, any other independent
certified public accountants of any subsidiary of the Company or of any
business acquired by the Company for which financial statements and financial
data is, or is required to be, included in the Registration Statement),
addressed to each Person and in such form and substance as are customary in
connection with Underwritten Offerings; (iv) if an underwriting agreement is
entered into, the same shall contain indemnification provisions and
procedures no less favorable to the selling Holders and the underwriters, if
any, than those set forth in Section 7 (or such other provisions and
procedures acceptable to the managing underwriters, if any, and holders of a
majority of Registrable Securities participating in such Underwritten
Offering; and (v) deliver such documents and certificates as may be
reasonably requested by the Holders of a majority of the Registrable
Securities being sold, their Special Counsel and any managing underwriters to
evidence the continued validity of the representations and warranties made
pursuant to clause 3(l)(i) above and to evidence compliance with any
customary conditions contained in the underwriting agreement or other
agreement entered into by the Company.
(m) Make available for inspection by the selling Holders, a
representative of such Holders, an underwriter participating in any
disposition of Registrable Securities, and an attorney or accountant retained
by such selling Holders or underwriters, at the offices where normally kept,
during reasonable business hours, all financial and other records, pertinent
corporate documents and properties of the Company and its subsidiaries, and
cause the officers, directors, agents and employees of the Company and its
subsidiaries to supply all information in each case requested by any such
Holder, representative, underwriter, attorney or accountant in connection
with the Registration Statement; PROVIDED, HOWEVER, that any information that
is determined in good faith by the Company in writing to be of a confidential
nature at the time of delivery of such information shall be kept confidential
by such Persons, unless (i) disclosure of such information is required by
court or administrative order or is necessary to respond to inquiries of
regulatory authorities; (ii) disclosure of such information, in the opinion
of counsel to such Person, is required by law; (iii) such information becomes
generally available to the public other than as a result of a disclosure or
failure to safeguard by such Person; or (iv) such information becomes
available to such Person from a source other than the Company and such source
is not known by such Person to be bound by a confidentiality agreement with
8
<PAGE>
the Company.
(n) Comply with all applicable rules and regulations of the
Commission and make generally available to its security holders earning
statements satisfying the provisions of Section 11(a) of the Securities Act
and Rule 158 not later than 45 days after the end of any 12-month period (or
90 days after the end of any 12-month period if such period is a fiscal year)
(i) commencing at the end of any fiscal quarter in which Registrable
Securities are sold to underwriters in a firm commitment or best efforts
Underwritten Offering and (ii) if not sold to underwriters in such an
offering, commencing on the first day of the first fiscal quarter of the
Company after the effective date of the Registration Statement, which
statement shall cover said 12-month period, or end shorter periods as is
consistent with the requirements of Rule 158.
(o) The Company may require each selling Holder to furnish to the
Company such information regarding the distribution of such Registrable
Securities and the beneficial ownership of Common Stock held by such selling
Holder as is required by law to be disclosed in the Registration Statement
and the Company may exclude from such registration the Registrable Securities
of any such Holder who unreasonably fails to furnish such information within
a reasonable time after receiving such request.
If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder
shall have the right to require (if such reference to such Holder by name or
otherwise is not required by the Securities Act or any similar Federal
statute then in force) the deletion of the reference to such Holder in any
amendment or supplement to the Registration Statement filed or prepared
subsequent to the time that such reference ceases to be required.
Each Holder agrees by its acquisition of such Registrable Securities
that (i) it will not offer or sell any Registrable Securities under the
Registration Statement until it has received copies of the Prospectus as then
amended or supplemented as contemplated in Section 3(g) and notice from the
Company that such Registration Statement and any post-effective amendments
thereto have become effective as contemplated by Section 3(c) and (ii) it
will comply with the prospectus delivery requirements of the Securities Act
as applicable to it in connection with sales of Registrable Securities
pursuant to the Registration Statement.
Each Holder agrees by its acquisition of such Registrable Securities
that, upon receipt of a notice from the Company of the occurrence of any
event of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v)
or 3(c)(vi), such Holder will forthwith discontinue disposition of such
Registrable Securities until such Holder's receipt of the copies of the
supplemented Prospectus and/or amended Registration Statement contemplated by
Section 3(j), or until it is advised in writing (the "ADVICE") by the Company
that the use of the applicable Prospectus may be resumed, and, in either
case, has received copies of any additional or supplemental filings that are
incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement.
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<PAGE>
4. REGISTRATION EXPENSES
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall, except as and to the
extent specified in Section 4(b), be borne by the Company whether or not
pursuant to an Underwritten Offering and whether or not the Registration
Statement is filed or becomes effective and whether or not any Registrable
Securities are sold pursuant to the Registration Statement. The fees and
expenses referred to in the foregoing sentence shall include, without
limitation, (i) all registration and filing fees (including, without
limitation, fees and expenses (A) with respect to filings required to be made
with the OTC Bulletin Board and each other securities exchange or market on
which Registrable Securities are required hereunder to be listed and (B) in
compliance with state securities or Blue Sky laws (including, without
limitation, fees and disbursements of counsel for the underwriters or Holders
in connection with Blue Sky qualifications of the Registrable Securities and
determination of the eligibility of the Registrable Securities for investment
under the laws of such jurisdictions as the managing underwriters, if any, or
the Holders of a majority of Registrable Securities may designate)), (ii)
printing expenses (including, without limitation, expenses of printing
certificates for Registrable Securities and of printing prospectuses if the
printing of prospectuses is requested by the managing underwriters, if any,
or by the holders of a majority of the Registrable Securities included in the
Registration Statement), (iii) messenger, telephone and delivery expenses,
(iv) fees and disbursements of counsel for the Company and Special Counsel
for the Holders, in the case of the Special Counsel, to a maximum amount of
$5,000, (v) Securities Act liability insurance, if the Company so desires
such insurance, and (vi) fees and expenses of all other Persons retained by
the Company in connection with the consummation of the transactions
contemplated by this Agreement. In addition, the Company shall be
responsible for all of its internal expenses incurred in connection with the
consummation of the transactions contemplated by this Agreement (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit, the
fees and expenses incurred in connection with the listing of the Registrable
Securities on any securities exchange as required hereunder.
(b) If the Holders require an Underwritten Offering pursuant to the
terms hereof, the Company shall be responsible for all costs, fees and
expenses in connection therewith, except for the fees and disbursements of
the Underwriters (including any underwriting commissions and discounts) and
their legal counsel and accountants. By way of illustration which is not
intended to diminish from the provisions of Section 4(a), the Holders shall
not be responsible for, and the Company shall be required to pay the fees or
disbursements incurred by the Company (including by its legal counsel and
accountants) in connection with, the preparation and filing of a Registration
Statement and related Prospectus for such offering, the maintenance of such
Registration Statement in accordance with the terms hereof, the listing of
the Registrable Securities in accordance with the requirements hereof, and
printing expenses incurred to comply with the requirements hereof.
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<PAGE>
5. INDEMNIFICATION
(a) INDEMNIFICATION BY THE COMPANY. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold
harmless each Holder, the officers, directors, agents (including any
underwriters retained by such Holder in connection with the offer and sale of
Registrable Securities), brokers (including brokers who offer and sell
Registrable Securities as principal as a result of a pledge or any failure to
perform under a margin call of Common Stock), investment advisors and
employees of each of them, each Person who controls any such Holder (within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act) and the officers, directors, agents and employees of each such
controlling Person, to the fullest extent permitted by applicable law, from
and against any and all losses, claims, damages, liabilities, costs
(including, without limitation, costs of preparation and attorneys' fees) and
expenses (collectively, "LOSSES"), as incurred, arising out of or relating to
any untrue or alleged untrue statement of a material fact contained in the
Registration Statement, any Prospectus or any form of prospectus or in any
amendment or supplement thereto or in any preliminary prospectus, or arising
out of or relating to any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein (in
the case of any Prospectus or form of prospectus or supplement thereto, in
light of the circumstances under which they were made) not misleading, except
to the extent, but only to the extent, that such untrue statements or
omissions are based solely upon information regarding such Holder furnished
in writing to the Company by or on behalf of such Holder expressly for use
therein, or to the extent that such information relates to such Holder or
such Holder's proposed method of distribution of Registrable Securities and
was reviewed and expressly approved in writing by such Holder expressly for
use in the Registration Statement, such Prospectus or such form of Prospectus
or in any amendment or supplement thereto. The Company shall notify the
Holders promptly of the institution, threat or assertion of any Proceeding of
which the Company is aware in connection with the transactions contemplated
by this Agreement.
(b) INDEMNIFICATION BY HOLDERS. Each Holder shall, severally and
not jointly, indemnify and hold harmless the Company, its directors,
officers, agents and employees, each Person who controls the Company (within
the meaning of Section 15 of the Securities Act and Section 20 of the
Exchange Act), and the directors, officers, agents or employees of such
controlling Persons, to the fullest extent permitted by applicable law, from
and against all Losses (as determined by a court of competent jurisdiction in
a final judgment not subject to appeal or review) arising solely out of or
based solely upon any untrue statement of a material fact contained in the
Registration Statement, any Prospectus, or any form of prospectus, or arising
solely out of or based solely upon any omission of a material fact required
to be stated therein or necessary to make the statements therein not
misleading to the extent, but only to the extent, that such untrue statement
or omission is contained in any information so furnished in writing by such
Holder to the Company specifically for inclusion in the Registration
Statement or such Prospectus or to the extent that such information relates
to such Holder or such Holder's proposed method of distribution of
Registrable Securities and was reviewed and expressly approved in writing by
such Holder expressly for use in the Registration Statement, such Prospectus
or such form of Prospectus. In no event shall the liability of any selling
Holder hereunder be greater in amount than the dollar amount of the net
proceeds received by such Holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation.
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<PAGE>
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any Proceeding shall
be brought or asserted against any Person entitled to indemnity hereunder (an
"INDEMNIFIED PARTY"), such Indemnified Party promptly shall notify the Person
from whom indemnity is sought (the "INDEMNIFYING PARTY") in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment
of counsel reasonably satisfactory to the Indemnified Party and the payment
of all fees and expenses incurred in connection with defense thereof;
provided, that the failure of any Indemnified Party to give such notice shall
not relieve the Indemnifying Party of its obligations or liabilities pursuant
to this Agreement, except (and only) to the extent that it shall be finally
determined by a court of competent jurisdiction (which determination is not
subject to appeal or further review) that such failure shall have proximately
and materially adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel
in any such Proceeding and to participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of such Indemnified
Party or Parties unless: (1) the Indemnifying Party has agreed in writing to
pay such fees and expenses; or (2) the Indemnifying Party shall have failed
promptly to assume the defense of such Proceeding and to employ counsel
reasonably satisfactory to such Indemnified Party in any such Proceeding; or
(3) the named parties to any such Proceeding (including any impleaded
parties) include both such Indemnified Party and the Indemnifying Party, and
such Indemnified Party shall have been advised by counsel that a conflict of
interest is likely to exist if the same counsel were to represent such
Indemnified Party and the Indemnifying Party (in which case, if such
Indemnified Party notifies the Indemnifying Party in writing that it elects
to employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense thereof and
such counsel shall be at the expense of the Indemnifying Party). The
Indemnifying Party shall not be liable for any settlement of any such
Proceeding effected without its written consent, which consent shall not be
unreasonably withheld. No Indemnifying Party shall, without the prior
written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party,
unless such settlement includes an unconditional release of such Indemnified
Party from all liability on claims that are the subject matter of such
Proceeding.
All fees and expenses of the Indemnified Party (including reasonable
fees and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within 10
Business Days of written notice thereof to the Indemnifying Party (regardless
of whether it is ultimately determined that an Indemnified Party is not
entitled to indemnification hereunder; PROVIDED, that the Indemnifying Party
may require such Indemnified Party to undertake to reimburse all such fees
and expenses to the extent it is finally judicially determined that such
Indemnified Party is not entitled to indemnification hereunder).
(d) CONTRIBUTION. If a claim for indemnification under Section
5(a) or 5(b) is unavailable to an Indemnified Party because of a failure or
refusal of a governmental authority to enforce such indemnification in
accordance with its terms (by reason of public policy or otherwise), then
each Indemnifying Party, in lieu of indemnifying such Indemnified Party,
shall
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<PAGE>
contribute to the amount paid or payable by such Indemnified Party as a
result of such Losses, in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party and Indemnified Party in connection
with the actions, statements or omissions that resulted in such Losses as
well as any other relevant equitable considerations. The relative fault of
such Indemnifying Party and Indemnified Party shall be determined by
reference to, among other things, whether any action in question, including
any untrue or alleged untrue statement of a material fact or omission or
alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and
the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such action, statement or omission. The
amount paid or payable by a party as a result of any Losses shall be deemed
to include, subject to the limitations set forth in Section 5(c), any
reasonable attorneys' or other reasonable fees or expenses incurred by such
party in connection with any Proceeding to the extent such party would have
been indemnified for such fees or expenses if the indemnification provided
for in this Section was available to such party in accordance with its terms.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by PRO RATA
allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 5(d), the
Purchaser shall not be required to contribute, in the aggregate, any amount
in excess of the amount by which the proceeds actually received by the
Purchaser from the sale of the Registrable Securities subject to the
Proceeding exceeds the amount of any damages that the Purchaser have
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section
are in addition to any liability that the Indemnifying Parties may have to
the Indemnified Parties.
6. MISCELLANEOUS
(a) REMEDIES. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of
damages, will be entitled to specific performance of its rights under this
Agreement. The Company and each Holder agree that monetary damages would not
provide adequate compensation for any losses incurred by reason of a breach
by it of any of the provisions of this Agreement and hereby further agrees
that, in the event of any action for specific performance in respect of such
breach, it shall waive the defense that a remedy at law would be adequate.
(b) NO INCONSISTENT AGREEMENTS. Except as and to the extent
specifically set forth in SCHEDULE 6(b) attached hereto, neither the Company
nor any of its subsidiaries has, as of the date hereof, nor shall the Company
or any of its subsidiaries, on or after the date of this
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<PAGE>
Agreement, enter into any agreement with respect to its securities that is
inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. Except as and to the extent
specifically set forth in SCHEDULE 6(b) attached hereto, neither the Company
nor any of its subsidiaries has previously entered into any agreement
granting any registration rights with respect to any of its securities to any
Person. Without limiting the generality of the foregoing, without the
written consent of the Holders of a majority of the then outstanding
Registrable Securities, the Company shall not grant to any Person the right
to request the Company to register any securities of the Company under the
Securities Act unless the rights so granted are subject in all respects to
the prior rights in full of the Holders set forth herein, and are not
otherwise in conflict or inconsistent with the provisions of this Agreement.
(c) NO PIGGYBACK ON REGISTRATIONS. Except as and to the extent
specifically set forth in Schedule 6(b) attached hereto, neither the Company
nor any of its security holders (other than the Holders in such capacity
pursuant hereto) may include securities of the Company in the Registration
Statement other than the Registrable Securities, and the Company shall not
enter into any agreement providing any such right to any of its
securityholders.
(d) PIGGY-BACK REGISTRATIONS. If at any time during the
Effectiveness Period there is not an effective Registration Statement
covering all of the Registrable Securities and the Company shall determine to
prepare and file with the Commission a registration statement relating to an
offering for its own account or the account of others under the Securities
Act of any of its equity securities, other than on Form S-4 or Form S-8 (each
as promulgated under the Securities Act) or their then equivalents relating
to equity securities to be issued solely in connection with any acquisition
of any entity or business or equity securities issuable in connection with
stock option or other employee benefit plans, then the Company shall send to
each holder of Registrable Securities written notice of such determination
and, if within twenty (20) days after receipt of such notice, any such holder
shall so request in writing, the Company shall include in such registration
statement all or any part of the Registrable Securities such holder requests
to be registered. No right to registration of Registrable Securities under
this Section shall be construed to limit any registration otherwise required
hereunder.
(e) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions
hereof may not be given, unless the same shall be in writing and signed by
the Company and the Holders of at least a majority of the then outstanding
Registrable Securities; PROVIDED, HOWEVER, that, for the purposes of this
sentence, Registrable Securities that are owned, directly or indirectly, by
the Company, or an Affiliate of the Company are not deemed outstanding.
Notwithstanding the foregoing, a waiver or consent to depart from the
provisions hereof with respect to a matter that relates exclusively to the
rights of Holders and that does not directly or indirectly affect the rights
of other Holders may be given by Holders of at least a majority of the
Registrable Securities to which such waiver or consent relates; PROVIDED,
HOWEVER, that the provisions of this sentence may not be amended, modified,
or supplemented except in accordance with the provisions of the immediately
preceding sentence.
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<PAGE>
(f) NOTICES. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at
the facsimile telephone number specified in this Section prior to 7:00 p.m.
(New York City time) on a Business Day, (ii) the Business Day after the date
of transmission, if such notice or communication is delivered via facsimile
at the facsimile telephone number specified in the Purchase Agreement later
than 7:00 p.m. (New York City time) on any date and earlier than 11:59 p.m.
(New York City time) on such date, (iii) the Business Day following the date
of mailing, if sent by nationally recognized overnight courier service, or
(iv) upon actual receipt by the party to whom such notice is required to be
given. The address for such notices and communications shall be as follows:
If to the Company: Fix-Corp International, Inc.
3637 South Green Road, Suite 201
Beachwood, OH 44122
Facsimile No.: (216) 292-6187
Attn: Chief Financial Officer
With copies to: Bricker & Eckler LLP
100 South Third Street
Columbus, OH 43215
Facsimile No.: (614) 227-2390
Attn: Steven Kerber
If to the Purchaser: JNC Strategic Fund Ltd.
Olympia Capital (Cayman) Ltd.
c/o Olympia Capital (Bermuda) Ltd.
Williams House
20 Reid Street
Hamilton HM11
Bermuda
Facsimile No.: (441) 295-2305
Attn: Director
With copies to: Encore Capital Management, L.L.C.
12007 Sunrise Valley Drive
Suite 460
Reston, VA 20191
Facsimile No.: (703) 476-7711
Attn: Neil T. Chau
-and-
Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
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<PAGE>
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Eric L. Cohen
If to any other Person who is then the registered Holder:
To the address of such Holder as it appears
in the stock transfer books of the Company
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
(g) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each
of the parties and shall inure to the benefit of each Holder. The Company
may not assign its rights or obligations hereunder without the prior written
consent of each Holder. The Purchaser may assign its rights hereunder in the
manner and to the Persons as permitted under the Purchase Agreement.
(h) ASSIGNMENT OF REGISTRATION RIGHTS. The rights of the Purchaser
hereunder, including the right to have the Company register for resale
Registrable Securities in accordance with the terms of this Agreement, shall
be automatically assignable by the Purchaser to any assignee or transferee
of all or a portion of the Debentures, the Warrant and other Common Stock
warrants referenced in the definition of Registrable Securities or
Registrable Securities without the consent of the Company if: (i) the
Purchaser agrees in writing with the transferee or assignee to assign such
rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (ii) the Company is, within a
reasonable time after such transfer or assignment, furnished with written
notice of (a) the name and address of such transferee or assignee, and (b)
the securities with respect to such registration rights are being transferred
or assigned, (iii) at or before the time the Company receives the written
notice contemplated by clause (ii) of this Section, the transferee or
assignee agrees in writing with the Company to be bound by all of the
provisions of this Agreement, and (iv) such transfer shall have been made in
accordance with the applicable requirements of the Purchase Agreement. The
rights to assignment shall apply to the Purchaser's (and to subsequent)
successors and assigns.
(i) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an
original and, all of which taken together shall constitute one and the same
Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature were the original
thereof.
(j) GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement
shall be governed by and construed in accordance with the laws of the State
of New York, without regard to principles of conflicts of law. Each party
hereby irrevocably submits to the non-exclusive jurisdiction of any New York
state court sitting in the Borough of Manhattan, the state and federal courts
sitting in the City of New York or any federal court sitting in the Borough of
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<PAGE>
Manhattan in the City of New York (collectively, the "NEW YORK COURTS") in
respect of any Proceeding arising out of or relating to this Agreement, and
irrevocably accepts for itself and in respect of its property, generally and
unconditionally, jurisdiction of the New York Courts. The Company
irrevocably waives to the fullest extent it may effectively do so under
applicable law any objection that it may now or hereafter have to the laying
of the venue of any such proceeding brought in any New York Court and any
claim that any such Proceeding brought in any New York Court has been brought
in an inconvenient forum. Nothing herein shall affect the right of any
Holder. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
receiving a copy thereof sent to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to
serve process in any manner permitted by law.
(k) CUMULATIVE REMEDIES. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
(l) SEVERABILITY. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the
parties hereto shall use their reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as
that contemplated by such term, provision, covenant or restriction. It is
hereby stipulated and declared to be the intention of the parties that they
would have executed the remaining terms, provisions, covenants and
restrictions without including any of such that may be hereafter declared
invalid, illegal, void or unenforceable.
(m) HEADINGS. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
(n) SHARES HELD BY THE COMPANY AND ITS AFFILIATES. Whenever the
consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company
or its Affiliates (other than the Purchaser or transferees or successors or
assigns thereof if such Persons are deemed to be Affiliates solely by reason
of their holdings of such Registrable Securities) shall not be counted in
determining whether such consent or approval was given by the Holders of such
required percentage.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
FIX-CORP INTERNATIONAL, INC.
By: /s/ Mark Fixler
-----------------------------------
Name: Mark Fixler
Title: President/CEO
JNC STRATEGIC FUND LTD.
By: /s/ Thomas H. Davis
-----------------------------------
Name: Thomas H. Davis
Title: Director
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EXHIBIT 10.34
NEITHER THIS WARRANT NOR THE SECURITIES INTO WHICH THIS WARRANT IS
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION
OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
FIX-CORP INTERNATIONAL, INC.
WARRANT
Warrant No. 006 Dated March 11, 1998
FIX-CORP INTERNATIONAL, INC., a Delaware corporation (the "Company"),
hereby certifies that, for value received, JNC Strategic Fund Ltd., or its
registered assigns ("Holder"), is entitled, subject to the terms set forth
below, to purchase from the Company up to a total of 126,268 shares of Common
Stock, $.001 par value per share (the "Common Stock"), of the Company (each
such share, a "Warrant Share" and all such shares, the "Warrant Shares") at
an exercise price equal to $3.31 per share (as adjusted from time to time as
provided in Section 8, the "Exercise Price"), at any time and from time to
time from and after the date hereof and through and including March 11, 2001
(the "Expiration Date"), and subject to the following terms and conditions:
1. REGISTRATION OF WARRANT. The Company shall register this Warrant,
upon records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the
absolute owner hereof for the purpose of any exercise hereof or any
distribution to the Holder, and for all other purposes, and the Company shall
not be affected by notice to the contrary.
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2. REGISTRATION OF TRANSFERS AND EXCHANGES.
(a) The Company shall register the transfer of any portion of this
Warrant in the Warrant Register, upon surrender of this Warrant, with the
Form of Assignment attached hereto duly completed and signed, to the Company
at the office specified in or pursuant to Section 3(b). Upon any such
registration or transfer, a new warrant to purchase Common Stock, in
substantially the form of this Warrant (any such new warrant, a "New
Warrant"), evidencing the portion of this Warrant so transferred shall be
issued to the transferee and a New Warrant evidencing the remaining portion
of this Warrant not so transferred, if any, shall be issued to the
transferring Holder. The acceptance of the New Warrant by the transferee
thereof shall be deemed the acceptance of such transferee of all of the
rights and obligations of a holder of a Warrant.
(b) This Warrant is exchangeable, upon the surrender hereof by the
Holder to the office of the Company specified in or pursuant to Section 3(b)
for one or more New Warrants, evidencing in the aggregate the right to
purchase the number of Warrant Shares which may then be purchased hereunder.
Any such New Warrant will be dated the date of such exchange.
3. DURATION AND EXERCISE OF WARRANTS.
(a) This Warrant shall be exercisable by the registered Holder on
any business day before 5:30 P.M., New York City time, at any time and from
time to time on or after the date hereof to and including the Expiration
Date. At 5:30 P.M., New York City time on the Expiration Date, the portion
of this Warrant not exercised prior thereto shall be and become void and of
no value. This Warrant may not be redeemed by the Company.
(b) Subject to Sections 2(b), 6 and 11, upon surrender of this
Warrant, with the Form of Election to Purchase attached hereto duly completed
and signed, to the Company at its address for notice set forth in Section 11
and upon payment of the Exercise Price multiplied by the number of Warrant
Shares that the Holder intends to purchase hereunder, in lawful money of the
United States of America, in cash or by certified or official bank check or
checks, all as specified by the Holder in the Form of Election to Purchase,
the Company shall promptly (but in no event later than 3 business days after
the Date of Exercise (as defined herein)) issue or cause to be issued and
cause to be delivered to or upon the written order of the Holder and in such
name or names as the Holder may designate, a certificate for the Warrant
Shares issuable upon such exercise, free of restrictive legends other than as
required by the Purchase Agreement of even date herewith between the Holder
and the Company. Any person so designated by the Holder to receive Warrant
Shares shall be deemed to have become holder of record of such Warrant Shares
as of the Date of Exercise of this Warrant.
A "Date of Exercise" means the date on which the Company shall have
received (i) this Warrant (or any New Warrant, as applicable), with the Form
of Election to Purchase attached hereto (or attached to such New Warrant)
appropriately completed and duly signed, and (ii) payment of the Exercise
Price for the number of Warrant Shares so indicated by the holder hereof to
be purchased.
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(c) This Warrant shall be exercisable, either in its entirety or,
from time to time, for a portion of the number of Warrant Shares. If less
than all of the Warrant Shares which may be purchased under this Warrant are
exercised at any time, the Company shall issue or cause to be issued, at its
expense, a New Warrant evidencing the right to purchase the remaining number
of Warrant Shares for which no exercise has been evidenced by this Warrant.
4. PIGGYBACK REGISTRATION RIGHTS. During the term of this Warrant,
the Company may not file any registration statement with the Securities and
Exchange Commission (other than registration statements of the Company filed
on Form S-8 or Form S-4, each as promulgated under the Securities Act of
1933, as amended (the "SECURITIES ACT"), pursuant to which the Company is
registering securities pursuant to a Company employee benefit plan or
pursuant to a merger, acquisition or similar transaction including
supplements thereto, but not additionally filed registration statements in
respect of such securities) at any time when there is not an effective
registration statement covering the resale of the Warrant Shares and naming
the Holder as a selling stockholder thereunder, unless the Company provides
the Holder with not less than 20 days notice to each of the Holder and
Robinson Silverman Pearce Aronsohn & Berman LLP, attention Eric L. Cohen,
notice of its intention to file such registration statement and provides the
Holder the option to include any or all of the applicable Warrant Shares
therein. The piggyback registration rights granted to the Holder pursuant to
this Section shall continue until all of the Holder's Warrant Shares have
been sold in accordance with an effective registration statement or upon the
Expiration Date. The Company will pay all registration expenses in
connection therewith.
5. PAYMENT OF TAXES. The Company will pay all documentary stamp taxes
attributable to the issuance of Warrant Shares upon the exercise of this
Warrant; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the
registration of any certificates for Warrant Shares or Warrants in a name
other than that of the Holder, and the Company shall not be required to issue
or cause to be issued or deliver or cause to be delivered the certificates
for Warrant Shares unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or
shall have established to the satisfaction of the Company that such tax has
been paid. The Holder shall be responsible for all other tax liability that
may arise as a result of holding or transferring this Warrant or receiving
Warrant Shares upon exercise hereof.
6. REPLACEMENT OF WARRANT. If this Warrant is mutilated, lost, stolen
or destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and indemnity,
if reasonably satisfactory to it. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.
7. RESERVATION OF WARRANT SHARES. The Company covenants that it will
at all times reserve and keep available out of the aggregate of its
authorized but unissued Common Stock, solely for the purpose of enabling it
to issue Warrant Shares upon exercise of this Warrant
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as herein provided, the number of Warrant Shares which are then issuable and
deliverable upon the exercise of this entire Warrant, free from preemptive
rights or any other actual contingent purchase rights of persons other than
the Holder (taking into account the adjustments and restrictions of Section
8). The Company covenants that all Warrant Shares that shall be so issuable
and deliverable shall, upon issuance and the payment of the applicable
Exercise Price in accordance with the terms hereof, be duly and validly
authorized, issued and fully paid and nonassessable.
8. CERTAIN ADJUSTMENTS. The Exercise Price and number of Warrant
Shares issuable upon exercise of this Warrant are subject to adjustment from
time to time as set forth in this Section 8. Upon each such adjustment of
the Exercise Price pursuant to this Section 8, the Holder shall thereafter
prior to the Expiration Date be entitled to purchase, at the Exercise Price
resulting from such adjustment, the number of Warrant Shares obtained by
multiplying the Exercise Price in effect immediately prior to such adjustment
by the number of Warrant Shares issuable upon exercise of this Warrant
immediately prior to such adjustment and dividing the product thereof by the
Exercise Price resulting from such adjustment.
(a) If the Company, at any time while this Warrant is outstanding,
(i) shall pay a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock (as defined below) or on any
other class of capital stock (and not the Common Stock) payable in shares of
Common Stock, (ii) subdivide outstanding shares of Common Stock into a larger
number of shares, or (iii) combine outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding before such event and of
which the denominator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding after such event. Any
adjustment made pursuant to this Section shall become effective immediately
after the record date for the determination of stockholders entitled to
receive such dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision or combination, and
shall apply to successive subdivisions and combinations.
(b) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person, the sale
or transfer of all or substantially all of the assets of the Company in which
the consideration therefor is equity or equity equivalent securities or any
compulsory share exchange pursuant to which the Common Stock is converted
into other securities or property, then the Holder shall have the right
thereafter to exercise this Warrant only into the shares of stock and other
securities and property receivable upon or deemed to be held by holders of
Common Stock following such reclassification, consolidation, merger, sale,
transfer or share exchange, and the Holder shall be entitled upon such event
to receive such amount of securities or property of the Company's business
combination partner equal to the amount of Warrant Shares such Holder would
have been entitled to had such Holder exercised this Warrant immediately
prior to such reclassification, consolidation, merger, sale, transfer or
share exchange. The terms of any such consolidation, merger, sale, transfer
or share exchange shall include such terms so as to continue to give to the
Holder the right to receive the securities or property set forth in this
Section 8(b) upon any exercise following any such reclassification,
consolidation, merger, sale, transfer or share
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exchange.
(c) If the Company, at any time while this Warrant is outstanding,
shall distribute to all holders of Common Stock (and not to holders of this
Warrant) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security (excluding those referred to in
Sections 8(a), (b) and (d)), then in each such case the Exercise Price shall
be determined by multiplying the Exercise Price in effect immediately prior
to the record date fixed for determination of stockholders entitled to
receive such distribution by a fraction of which the denominator shall be the
Exercise Price determined as of the record date mentioned above, and of which
the numerator shall be such Exercise Price on such record date less the then
fair market value at such record date of the portion of such assets or
evidence of indebtedness so distributed applicable to one outstanding share
of Common Stock as determined by a nationally recognized or major regional
investment banking firm or firm of independent certified public accountants
of recognized standing (which may be the firm that regularly examines the
financial statements of the Company) (an "Appraiser") mutually selected in
good faith by the holders of a majority in interest of the Warrants then
outstanding and the Company. Any determination made by the Appraiser shall
be final.
(d) If, at any time while this Warrant is outstanding, the Company
shall issue or cause to be issued rights or warrants to acquire or otherwise
sell or distribute shares of Common Stock to all holders of Common Stock for
a consideration per share less than the Exercise Price then in effect, then,
forthwith upon such issue or sale, the Exercise Price shall be reduced to the
price (calculated to the nearest cent) determined by dividing (i) an amount
equal to the sum of (A) the number of shares of Common Stock outstanding
immediately prior to such issue or sale multiplied by the Exercise Price, and
(B) the consideration, if any, received or receivable by the Company upon
such issue or sale by (ii) the total number of shares of Common Stock
outstanding immediately after such issue or sale.
(e) For the purposes of this Section 8, the following clauses
shall also be applicable:
(i) RECORD DATE. In case the Company shall take a
record of the holders of its Common Stock for the purpose of entitling
them (A) to receive a dividend or other distribution payable in Common
Stock or in securities convertible or exchangeable into shares of Common
Stock, or (B) to subscribe for or purchase Common Stock or securities
convertible or exchangeable into shares of Common Stock, then such
record date shall be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or
the date of the granting of such right of subscription or purchase, as
the case may be.
(ii) TREASURY SHARES. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or
for the account of the Company, and the disposition of any such shares
shall be considered an issue or sale of Common Stock.
(f) All calculations under this Section 8 shall be made to the
nearest
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<PAGE>
cent or the nearest 1/100th of a share, as the case may be.
(g) If:
(i) the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
(ii) the Company shall declare a special nonrecurring cash
dividend on or a redemption of its Common Stock; or
(iii) the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital stock
of any class or of any rights; or
(iv) the approval of any stockholders of the Company shall
be required in connection with any reclassification
of the Common Stock of the Company, any consolidation
or merger to which the Company is a party, any sale
or transfer of all or substantially all of the assets
of the Company, or any compulsory share exchange
whereby the Common Stock is converted into other
securities, cash or property; or
(v) the Company shall authorize the voluntary
dissolution, liquidation or winding up of the affairs
of the Company,
then the Company shall cause to be mailed to each Holder at their last
addresses as they shall appear upon the Warrant Register, at least 30
calendar days prior to the applicable record or effective date hereinafter
specified, a notice stating (x) the date on which a record is to be taken for
the purpose of such dividend, distribution, redemption, rights or warrants,
or if a record is not to be taken, the date as of which the holders of Common
Stock of record to be entitled to such dividend, distributions, redemption,
rights or warrants are to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer or share exchange is
expected to become effective or close, and the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale,
transfer, share exchange, dissolution, liquidation or winding up; PROVIDED,
HOWEVER, that the failure to mail such notice or any defect therein or in the
mailing thereof shall not affect the validity of the corporate action
required to be specified in such notice.
9. PAYMENT OF EXERCISE PRICE. The Holder may pay the Exercise Price
in one of the following manners:
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(a) CASH EXERCISE. The Holder shall deliver immediately available
funds; or
(b) CASHLESS EXERCISE. The Holder shall surrender this Warrant to
the Company together with a notice of cashless exercise, in which event the
Company shall issue to the Holder the number of Warrant Shares determined as
follows:
X = Y (A-B)/A
where:
X = the number of Warrant Shares to be issued to the Holder.
Y = the number of Warrant Shares with respect to which this
Warrant is being exercised.
A = the average of the closing sale prices of the Common Stock
for the five (5) Trading Days immediately prior to (but not
including) the Date of Exercise.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is
intended, understood and acknowledged that the Warrant Shares issued in a
cashless exercise transaction shall be deemed to have been acquired by the
Holder, and the holding period for the Warrant Shares shall be deemed to have
been commenced, on the issue date.
10. FRACTIONAL SHARES. The Company shall not be required to issue or
cause to be issued fractional Warrant Shares on the exercise of this Warrant.
The number of full Warrant Shares which shall be issuable upon the exercise
of this Warrant shall be computed on the basis of the aggregate number of
Warrant Shares purchasable on exercise of this Warrant so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section
10, be issuable on the exercise of this Warrant, the Company shall, at its
option, (i) pay an amount in cash equal to the Exercise Price multiplied by
such fraction or (ii) round the number of Warrant Shares issuable, up to the
next whole number.
11. NOTICES. Any and all notices or other communications or deliveries
hereunder shall be in writing and shall be deemed given and effective on the
earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section, (ii) the business day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iii) upon actual receipt
by the party to whom such notice is required to be given. The addresses for
such communications shall be: (1) if to the Company, to 3637 South Green
Road, Suite 201, Beachwood, OH 44122, or to Facsimile No.: (216) 292-6187
Attention: Chief Financial Officer, or (ii) if to the Holder, to the Holder
at the address or facsimile number appearing on the Warrant Register or such
other address or facsimile number as the Holder may provide to the Company in
accordance with this Section 11.
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12. WARRANT AGENT.
(a) The Company shall serve as warrant agent under this Warrant.
Upon thirty (30) days' notice to the Holder, the Company may appoint a new
warrant agent.
(b) Any corporation into which the Company or any new warrant
agent may be merged or any corporation resulting from any consolidation to
which the Company or any new warrant agent shall be a party or any
corporation to which the Company or any new warrant agent transfers
substantially all of its corporate trust or shareholders services business
shall be a successor warrant agent under this Warrant without any further
act. Any such successor warrant agent shall promptly cause notice of its
succession as warrant agent to be mailed (by first class mail, postage
prepaid) to the Holder at the Holder's last address as shown on the Warrant
Register.
13. MISCELLANEOUS.
(a) This Warrant shall be binding on and inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
This Warrant may be amended only in writing signed by the Company and the
Holder.
(b) Subject to Section 13(a), above, nothing in this Warrant shall
be construed to give to any person or corporation other than the Company and
the Holder any legal or equitable right, remedy or cause under this Warrant;
this Warrant shall be for the sole and exclusive benefit of the Company and
the Holder.
(c) This Warrant shall be governed by and construed and enforced
in accordance with the internal laws of the State of New York without regard
to the principles of conflicts of law thereof.
(d) The headings herein are for convenience only, do not
constitute a part of this Warrant and shall not be deemed to limit or affect
any of the provisions hereof.
(e) In case any one or more of the provisions of this Warrant
shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall
not in any way be affected or impaired thereby and the parties will attempt
in good faith to agree upon a valid and enforceable provision which shall be
a commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.
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[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.
FIX-CORP INTERNATIONAL, INC.
By: /s/ Mark Fixler
-------------------------------------
Name: Mark Fixler
-----------------------------------
Title: President/CEO
----------------------------------
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FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of
Common Stock under the foregoing Warrant)
To FIX-CORP INTERNATIONAL, INC.:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase [___________]
shares of Common Stock ("Common Stock"), $.001 par value per share, of
Fix-Corp International, Inc. and encloses herewith $________ in cash or
certified or official bank check or checks, which sum represents the
aggregate Exercise Price (as defined in the Warrant) for the number of shares
of Common Stock to which this Form of Election to Purchase relates, together
with any applicable taxes payable by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common
Stock issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
--------------------------------------------------
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If the number of shares of Common Stock issuable upon this exercise
shall not be all of the shares of Common Stock which the undersigned is
entitled to purchase in accordance with the enclosed Warrant, the undersigned
requests that a New Warrant (as defined in the Warrant) evidencing the right
to purchase the shares of Common Stock not issuable pursuant to the exercise
evidenced hereby be issued in the name of and delivered to:
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dated: ________________, __ Name of Holder:
(Print)
---------------------------------
(By:)
-----------------------------------
(Name:)
(Title:)
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
<PAGE>
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of Fix-Corp
International, Inc. to which the within Warrant relates and appoints
________________ attorney to transfer said right on the books of Fix-Corp
International, Inc. with full power of substitution in the premises.
Dated:
_______________, ____
-----------------------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant)
-----------------------------------------
Address of Transferee
-----------------------------------------
-----------------------------------------
In the presence of:
- -------------------------------
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EXHIBIT 10.35
ESCROW AGREEMENT
ESCROW AGREEMENT (this "AGREEMENT"), dated as of March 11, 1998, by and
among Fix-Corp International, Inc. (the "COMPANY"), JNC Strategic Fund Ltd. (the
"PURCHASER") and Robinson Silverman Pearce Aronsohn & Berman LLP (the "ESCROW
AGENT").
RECITALS
A. Simultaneously with the execution of this Agreement, the Company
and the Purchaser have entered into a Convertible Debenture Purchase Agreement,
dated as of the date hereof (the "PURCHASE AGREEMENT"), pursuant to which the
Company is selling to the Purchaser certain of its 4% Convertible Debentures Due
March 11, 2001 (the "DEBENTURES") and a certain common stock purchase warrant
(the "WARRANT"). Capitalized terms that are used but not defined in this
Agreement that are defined in the Purchase Agreement shall have the meanings set
forth in the Purchase Agreement.
B. The Escrow Agent is willing to act as escrow agent pursuant to
the terms of this Agreement with respect to the receipt and then delivery of the
aggregate purchase price (as described in Section 1.1(a) of the Purchase
Agreement) to be paid by the Purchaser for the Debentures and the Warrant (the
"PURCHASE PRICE") and the receipt and then delivery of the Debentures, the
Warrant, the Ancillary Closing Documents (as defined below) and the Purchase
Price, (collectively, the "CONSIDERATION").
C. Upon the closing of the transaction contemplated by the Purchase
Agreement (the "CLOSING") and the occurrence of an event described in Section 2
below, the Escrow Agent shall cause the distribution of the Consideration in
accordance with the terms of this Agreement.
NOW, THEREFORE, IT IS AGREED:
1. DEPOSIT OF CONSIDERATION.
a. Concurrently with the execution hereof, the Purchaser shall
deposit with the Escrow Agent the Purchase Price in accordance with Section
1.1(a)(ii) of the Purchase Agreement, and the Company shall deliver to the
Escrow Agent the Debentures and the Warrant in accordance with Section
1.1(a)(ii) of the Purchase Agreement, and wiring instructions for the transfer
of amounts to be paid to the Company in accordance with Section 2(b). In
addition, the Purchaser and the Company shall each deposit with the Escrow Agent
all other certificates and other documents required under the Purchase Agreement
to be delivered
<PAGE>
by them at the Closing (such certificates and other documents being hereinafter
referred to as the "ANCILLARY CLOSING DOCUMENTS").
(i) The Purchase Price shall be delivered by the Purchaser
to the Escrow Agent by wire transfer to the following account:
Citibank, N.A.
153 East 53rd Street
New York, NY 10043
ABA No.: 021-000-089
For the Account of
Robinson Silverman Pearce Aronsohn
& Berman LLP
Attorney Business Account
Account No.: 37-204-162
Attention: Alexis Laurenceau
Reference: Fix-Corp International (10849-10)
(ii) The Debentures, Warrant and the Ancillary Closing
Documents shall be delivered to the Escrow Agent at its address for notice
indicated in Section 5(a).
b. Until termination of this Agreement as set forth in Section
2, all additional Consideration paid by or which becomes payable between the
Company and the Purchaser shall be deposited with the Escrow Agent.
c. The Purchaser and the Company understand that all
Consideration delivered to the Escrow Agent pursuant to Section 1(a) shall be
held in escrow in the Escrow Agent's interest bearing business account until the
Closing. After the Purchase Price has been received by the Escrow Agent and all
other conditions of Closing are met, the parties hereto hereby authorize and
instruct the Escrow Agent to promptly effect the Closing.
d. At the Closing, the Escrow Agent is authorized and directed
to deduct from the Purchase Price (i) $7,500 which will be retained by the
Escrow Agent pursuant to Section 4.1 of the Purchase Agreement and (ii) $150,000
which will be paid to CDC Consulting, Inc. ("CDC") in accordance with the
engagement letter between the Company and CDC relating to the transactions
contemplated by the Purchase Agreement (the "ENGAGEMENT LETTER"). In addition,
the portion of the Purchase Price released to the Company hereunder shall be
reduced by all wire transfer fees incurred thereupon.
<PAGE>
2. TERMS OF ESCROW.
a. The Escrow Agent shall hold the Consideration in escrow
until the earlier to occur of (i) the receipt by the Escrow Agent of the
Purchase Price, the Debentures, the Warrant and the Ancillary Closing Documents
and a writing instructing the Closing and (ii) the receipt by the Escrow Agent
of a written notice, executed by the Company or the Purchaser, stating that the
Purchase Agreement has been terminated in accordance with its terms and
instructing the Escrow Agent with respect to the Purchase Price, the Debentures,
the Warrant and the Ancillary Closing Documents.
b. If the Escrow Agent receives the items referenced in clause
(i) of Section 2(a) prior to its receipt of the notice referenced in clause (ii)
of Section 2(a), then, promptly thereafter, the Escrow Agent shall deliver (i)
to the Purchaser (A) Debentures in aggregate principal amount of $1,500,000, (B)
the Warrant, and (C) any interest earned on account of the Purchase Price that
shall have accrued through the Closing; (ii) to the Company the Purchase Price
(net of amounts described under Section 1(d)) to the Company; (iii) to or as
directed by CDC, $150,000 in accordance with the Engagement Letter; and (iv) to
the appropriate party, the Ancillary Closing Documents. In addition, the Escrow
Agent shall retain $7,500 of the Purchase Price on account of its fees pursuant
to the Purchase Agreement and Section 1(d).
c. If the Escrow Agent receives the notice referenced in clause
(ii) of Section 2(a) prior to its receipt of the items referenced in clause (i)
of Section 2(a), then the Escrow Agent shall promptly upon receipt of such
notice return (i) the Purchase Price (together with any interest earned thereon
through such date) to the Purchaser in such amounts as shall have been delivered
to and received by prior thereto, (ii) the Debentures and Warrant to the Company
and (iii) the Ancillary Closing Documents to the party that delivered the same.
d. If the Escrow Agent, prior to delivering or causing to be
delivered the Consideration in accordance herewith, receives notice of
objection, dispute, or other assertion in accordance with any of the provisions
of this Agreement, the Escrow Agent shall continue to hold the Consideration
until such time as the Escrow Agent shall receive (i) written instructions
jointly executed by the Purchaser and the Company, directing distribution of
such Consideration, or (ii) a certified copy of a judgment, order or decree of a
court of competent jurisdiction, final beyond the right of appeal, directing the
Escrow Agent to distribute said Consideration to any party hereto or as such
judgment, order or decree shall otherwise specify (including any such order
directing the Escrow Agent to deposit the Consideration into the court rendering
such order, pending determination of any dispute between any of the parties).
In addition, the Escrow Agent shall have the right to deposit any of the
Consideration with a court of competent jurisdiction pursuant to Section 1006 of
the New York Civil Practice Law and Rules without liability to any party if said
dispute is not resolved within 30 days of receipt of any such notice of
objection, dispute or otherwise.
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3. DUTIES AND OBLIGATIONS OF THE ESCROW AGENT.
a. The parties hereto agree that the duties and obligations of
the Escrow Agent are only such as are herein specifically provided and no other.
The Escrow Agent's duties are as a depositary only, and the Escrow Agent shall
incur no liability whatsoever, except as a direct result of its willful
misconduct.
b. The Escrow Agent may consult with counsel of its choice, and
shall not be liable for any action taken, suffered or omitted by it in
accordance with the advice of such counsel.
c. The Escrow Agent shall not be bound in any way by the terms
of any other agreement to which the Purchaser and the Company are parties,
whether or not it has knowledge thereof, and the Escrow Agent shall not in any
way be required to determine whether or not any other agreement has been
complied with by the Purchaser and the Company, or any other party thereto. The
Escrow Agent shall not be bound by any modification, amendment, termination,
cancellation, rescission or supersession of this Agreement unless the same shall
be in writing and signed by each of the Purchaser and the Company, and agreed to
in writing by the Escrow Agent.
d. In the event that the Escrow Agent shall be uncertain as to
its duties or rights hereunder or shall receive instructions, claims or demands
which, in its opinion, are in conflict with any of the provisions of this
Agreement, it shall be entitled to refrain from taking any action, other than to
keep safely, all Considerations held in escrow until it shall jointly be
directed otherwise in writing by the Purchaser and the Company or by a final
judgment of a court of competent jurisdiction.
e. The Escrow Agent shall be fully protected in relying upon
any written notice, demand, certificate or document which it, in good faith,
believes to be genuine. The Escrow Agent shall not be responsible for the
sufficiency or accuracy of the form, execution, validity or genuineness of
documents or securities now or hereafter deposited hereunder, or of any
endorsement thereon, or for any lack of endorsement thereon, or for any
description therein; nor shall the Escrow Agent be responsible or liable in any
respect on account of the identity, authority or rights of the persons executing
or delivering or purporting to execute or deliver any such document, security or
endorsement.
f. The Escrow Agent shall not be required to institute legal
proceedings of any kind and shall not be required to defend any legal
proceedings which may be instituted against it or in respect of the
Consideration.
g. If the Escrow Agent at any time, in its sole discretion,
deems it necessary or advisable to relinquish custody of the Consideration, it
may do so by giving five
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<PAGE>
(5) days written notice to the parties of its intention and thereafter
delivering the consideration to any other escrow agent mutually agreeable to the
Purchaser and the Company and, if no such escrow agent shall be selected within
three days of the Escrow Agent's notification to the Purchaser and the Company
of its desire to so relinquish custody of the Consideration, then the Escrow
Agent may do so by delivering the Consideration (a) to any bank or trust company
in the Borough of Manhattan, City and State of New York, which is willing to act
as escrow agent thereunder in place and instead of the Escrow Agent, or (b) to
the clerk or other proper officer of a court of competent jurisdiction as may be
permitted by law within the State, County and City of New York. The fee of any
such bank or trust company or court officer shall be borne one-half by the
Purchaser and one-half by the Company. Upon such delivery, the Escrow Agent
shall be discharged from any and all responsibility or liability with respect to
the Consideration and the Company and the Purchaser shall promptly pay to the
Escrow Agent all monies which may be owed it for its services hereunder,
including, but not limited to, reimbursement of its out-of-pocket expenses
pursuant to paragraph (i) below.
h. This Agreement shall not create any fiduciary duty on the
Escrow Agent's part to the Purchaser or the Company, nor disqualify the Escrow
Agent from representing either party hereto in any dispute with the other,
including any dispute with respect to the Consideration. The Company
understands that the Escrow Agent has acted and will continue to act as counsel
to the Purchaser.
i. The reasonable out-of-pocket expenses paid or incurred by
the Escrow Agent in the administration of its duties hereunder, including, but
not limited to, all counsel and advisors' and agents' fees and all taxes or
other governmental charges, if any, shall be paid by one-half by the Purchaser
and one-half by the Company.
4. INDEMNIFICATION. The Purchaser and the Company, jointly and
severally, hereby indemnify and hold the Escrow Agent harmless from and against
any and all losses, damages, taxes, liabilities and expenses that may be
incurred, directly or indirectly, by the Escrow Agent, arising out of or in
connection with its acceptance of appointment as the Escrow Agent hereunder
and/or the performance of its duties pursuant to this Agreement, including, but
not limited to, all legal costs and expenses of the Escrow Agent incurred
defending itself against any claim or liability in connection with its
performance hereunder and the costs of recovery of amounts pursuant to this
Section 4.
5. MISCELLANEOUS.
a. All notices, requests, demands and other communications
hereunder shall be in writing, with copies to all the other parties hereto, and
shall be deemed to have been duly given when (i) if delivered by hand, upon
receipt, (ii) if sent by facsimile, upon receipt of proof of sending thereof,
(iii) if sent by nationally recognized overnight delivery service (receipt
requested), the next business day or (iv) if mailed by first-class registered or
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certified mail, return receipt requested, postage prepaid, four days after
posting in the U.S. mails, in each case if delivered to the following addresses:
If to the Company: Fix-Corp International, Inc.
3637 South Green Road, Suite 201
Beachwood, OH 44122
Facsimile No.: (216) 292-6187
Attn: Chief Financial Officer
With copies to: Bricker & Eckler, LLP
100 South Third Street
Columbus, OH 43215
Facsimile No.: (614) 227-2390
Attn: Steven Kerber
If to the Purchaser: JNC Strategic Fund Ltd.
Olympia Capital (Cayman) Ltd.
c/o Olympia Capital (Bermuda) Ltd.
Williams House
20 Reid Street
Hamilton HM11
Bermuda
Facsimile No.: (441) 295-2305
Attn: Director
With copies to: Encore Capital Management, L.L.C.
12007 Sunrise Valley Drive
Suite 460
Reston, VA 20191
Facsimile No.: (703) 476-7711
Attn: Neil T. Chau
If to the Escrow Agent Robinson Silverman Pearce Aronsohn
(the Escrow Agent shall & Berman LLP
receive copies of all 1290 Avenue of the Americas
communications under New York, NY 10104
this Agreement) Facsimile No.: (212) 541-4630
Attn: Eric L. Cohen, Esq.
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<PAGE>
or at such other address as any of the parties to this Agreement may hereafter
designate in the manner set forth above to the others.
(b) This Agreement shall be construed and enforced in accordance
with the law of the State of New York applicable to contracts entered into and
performed entirely within New York.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this Escrow
Agreement to be signed the day and year first above written.
FIX-CORP INTERNATIONAL, INC.
By: /s/ Mark Fixler
-------------------------
Name: Mark Fixler
Title: President/CEO
JNC STRATEGIC FUND LTD.
By: /s/ Thomas H. Davis
-------------------------
Name: Thomas H. Davis
Title: Director
ROBINSON SILVERMAN PEARCE
ARONSOHN & BERMAN LLP
By: /s/ Kenneth L. Henderson
-------------------------
A Member of the Firm
<PAGE>
EXHIBIT 10.36
- --------------------------------------------------------------------------------
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
Between
FIX-CORP INTERNATIONAL, INC.,
and
JNC STRATEGIC FUND LTD.
-----------------------------
April 8, 1998
------------------------------
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<PAGE>
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT, dated as of April 8, 1998 (this
"AGREEMENT"), between Fix-Corp International, Inc., a Delaware corporation (the
"COMPANY"), and JNC Strategic Fund Ltd., a corporation organized under the laws
of the Cayman Islands (the "PURCHASER").
WHEREAS, subject to the terms and conditions set forth in this Agreement,
the Company desires to issue and sell to the Purchaser and the Purchaser desires
to purchase an aggregate principal amount of $3,000,000 of the Company's 4%
Convertible Debentures, due April 8, 2001 (the "DEBENTURES"), which are
convertible into shares of the Company's common stock, par value $.001 per share
(the "COMMON STOCK").
IN CONSIDERATION of the mutual covenants and agreements set forth herein
and for good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF DEBENTURES; CLOSING
1.1 THE CLOSING.
(a) THE CLOSING. (i) Subject to the terms and conditions set forth
in this Agreement, the Company shall issue and sell to the Purchaser and the
Purchaser shall purchase the Debentures for an aggregate purchase price of
$3,000,000. The closing of the purchase and sale of the Debentures (the
"CLOSING") shall take place at the offices of Robinson Silverman Pearce Aronsohn
& Berman LLP (the "ESCROW AGENT"), 1290 Avenue of the Americas, New York, New
York 10104, immediately following the execution hereof or such later date as the
parties shall agree. The date of the Closing is hereinafter referred to as the
"CLOSING DATE."
(ii) Prior to the Closing the parties shall deliver to the
Escrow Agent such items as are required to be delivered by them in accordance
with and subject to the terms and conditions of the Escrow Agreement, dated as
of the date hereof, by and among the Company, the Purchaser and the Escrow Agent
(the "ESCROW AGREEMENT"), including, the following: (i) the Company shall
deliver or cause to be delivered (A) Debentures in aggregate principal amount
equal to $3,000,000, registered in the name of the Purchaser, (B) the Warrant
(as defined in Section 3.16), and (C) the legal opinion of Bricker & Eckler LLP
substantially in the form of EXHIBIT C ("LEGAL OPINION") addressed to the
Purchaser; (ii) the Purchaser shall deliver or cause to be delivered $3,000,000
in United States dollars; and (iii) each party hereto shall deliver or cause to
be delivered all other executed instruments, agreements and certificates as are
required to be delivered by or on their behalf at the Closing.
1.2 FORM OF DEBENTURES. The Debentures shall be in the form of
EXHIBIT A.
<PAGE>
1.3 CERTAIN DEFINITIONS. For purposes of this Agreement, "CONVERSION
PRICE," "ORIGINAL ISSUE DATE," "CONVERSION DATE", "TRADING DAY", "BUSINESS DAY "
and "PER SHARE MARKET VALUE" shall have the meanings set forth in the
Debentures; and "MARKET PRICE" as at any date shall mean the average Per Share
Market Value for the five (5) Trading Days immediately preceding such date.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The
Company hereby makes the following representations and warranties to the
Purchaser:
(a) ORGANIZATION AND QUALIFICATION. The Company is a corporation,
duly incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, with the requisite corporate power and
authority to own and use its properties and assets and to carry on its business
as currently conducted. The Company has no subsidiaries other than as set forth
in SCHEDULE 2.1(a) attached hereto (collectively, the "SUBSIDIARIES"). Each of
the Subsidiaries is a corporation, duly incorporated, validly existing and in
good standing under the laws of the jurisdiction of its incorporation, with the
full corporate power and authority to own and use its properties and assets and
to carry on its business as currently conducted. Each of the Company and the
Subsidiaries is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the case may be,
could not, individually or in the aggregate, (x) adversely affect the legality,
validity or enforceability of this Agreement, the Debentures, the Escrow
Agreement, the Warrant or the Registration Rights Agreement, dated the date
hereof, among the Company and the Purchaser (the "REGISTRATION RIGHTS AGREEMENT"
and, together with this Agreement, the Debentures and the Warrant, the
"TRANSACTION DOCUMENTS"), (y) have a material adverse effect on the results of
operations, assets, prospects, or condition (financial or otherwise) of the
Company and the Subsidiaries, taken as a whole, or (z) adversely impair the
Company's ability to perform fully on a timely basis its obligations under any
Transaction Document (any of the foregoing, a "MATERIAL ADVERSE EFFECT").
(b) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary action on the
part of the Company. Each of the Transaction Documents has been duly executed
by
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<PAGE>
the Company and when delivered in accordance with the terms hereof shall
constitute the legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application. Neither the Company nor any Subsidiary is in violation of any of
the provisions of its respective certificate of incorporation, by-laws or other
charter documents.
(c) CAPITALIZATION. The authorized, issued and outstanding capital
stock of the Company is set forth in SCHEDULE 2.1(c). No shares of Common Stock
are entitled to preemptive or similar rights, nor is any holder of the Common
Stock entitled to preemptive or similar rights arising out of any agreement or
understanding with the Company by virtue of any of the Transaction Documents.
Except as disclosed in SCHEDULE 2.1(c), there are no outstanding options,
warrants, script rights to subscribe to, calls or commitments of any character
whatsoever relating to, or, except as a result of the purchase and sale of the
Debentures and Warrant hereunder, securities, rights or obligations convertible
into or exchangeable for, or giving any person any right to subscribe for or
acquire any shares of Common Stock, or contracts, commitments, understandings,
or arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock. To the knowledge of the Company,
except as specifically disclosed in the Disclosure Materials (as defined below)
or SCHEDULE 2.1(c), no Person (as defined below) beneficially owns (as
determined pursuant to Rule 13d-3 promulgated under the Securities Exchange Act
of 1934, as amended (the "EXCHANGE ACT")) or has the right to acquire by
agreement with or by obligation binding upon the Company, beneficial ownership
of in excess of 5% of the Common Stock. A "PERSON" means an individual or
corporation, partnership, trust, incorporated or unincorporated association,
joint venture, limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind.
(d) ISSUANCE OF DEBENTURES AND WARRANT. The Debentures and the
Warrant are duly authorized, and, when issued in accordance with the terms
hereof, shall be validly issued, fully paid and nonassessable, free and clear of
all liens, encumbrances and rights of first refusals of any kind (collectively,
"LIENS"). The Company has and at all times while the Debentures and the Warrant
are outstanding will maintain an adequate reserve of duly authorized shares of
Common Stock to enable it to perform its conversion, exercise and other
obligations under this Agreement, the Warrant and the Debentures and in no
circumstances shall such reserved and available shares of Common Stock be less
than the sum of (i) 200% of (A) the number of shares of Common Stock as would be
issuable upon conversion in full of the Debentures, assuming such conversion
were effected on the Original Issue Date and (B) the number of shares of Common
Stock as are issuable as payment of interest on the Debentures, and (ii) the
number of shares of Common Stock as are issuable upon exercise in full of the
Warrant (the "INITIAL RESERVE"). If at any time the sum of the number of shares
of Common Stock issuable (a) upon conversion in full of the then outstanding
Debentures, (b) as the
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payment of interest on the Debentures (assuming all such interest is to be paid
in Common Stock) and (c) upon exercise in full of the Warrant exceeds 85% of the
Initial Reserve, the Company shall duly reserve 200% of the number of shares of
Common Stock equal to such excess to fulfill such obligations. The obligation
shall similarly apply to successive excesses. The shares of Common Stock
issuable upon conversion of the Debentures, as payment of interest in respect
thereof and upon exercise of the Warrant are sometimes referred to herein as the
"UNDERLYING SHARES," and the Debentures, Warrant and Underlying Shares are,
collectively, the "SECURITIES." When issued in accordance with the terms of the
Debentures and the Warrant, the Underlying Shares will be duly authorized,
validly issued, fully paid and nonassessable, and free and clear of all Liens.
(e) NO CONFLICTS. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of its certificate of incorporation, bylaws or other
charter documents (each as amended through the date hereof) or (ii) subject to
obtaining the consents referred to in Section 2.1(f), conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument (evidencing a Company debt or otherwise) to which the Company is a
party or by which any property or asset of the Company is bound or affected, or
(iii) result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental authority
to which the Company is subject (including federal and state securities laws and
regulations), or by which any property or asset of the Company is bound or
affected, except in the case of each of clauses (ii) and (iii), as could not,
individually or in the aggregate, have or result in a Material Adverse Effect.
The business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental authority, except for violations
which, individually and in the aggregate, could not have or result in a Material
Adverse Effect.
(f) CONSENTS AND APPROVALS. Except as specifically set forth in
SCHEDULE 2.1(f), neither the Company nor any Subsidiary is required to obtain
any consent, waiver, authorization or order of, or make any filing or
registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents other than
(i) the filing of a registration statement covering the resale of the Underlying
Shares by the Purchaser (the "UNDERLYING SECURITIES REGISTRATION STATEMENT")
with the Securities and Exchange Commission (the "COMMISSION"), (ii) the
application for the listing of the Underlying Shares on the OTC Bulletin Board
(and with any other national securities exchange, market or trading facility on
which the Common Stock is then listed), (iii) state blue sky laws, and (iv)
other than, in all other cases, where the failure to obtain such consent,
waiver, authorization or order, or to give or make such notice or filing, could
not have or result in, individually or in the aggregate, a Material Adverse
Effect (together with the consents, waivers, authorizations, orders, notices and
filings referred to in SCHEDULE 2.1(f), the "REQUIRED APPROVALS").
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<PAGE>
(g) LITIGATION; PROCEEDINGS. Except as specifically disclosed in the
Disclosure Materials (as hereinafter defined), there is no action, suit, notice
of violation, proceeding or investigation pending or, to the best knowledge of
the Company, threatened against or affecting the Company or any of its
Subsidiaries or any of their respective properties before or by any court,
governmental or administrative agency or regulatory authority (federal, state,
county, local or foreign) which (i) adversely affects or challenges the
legality, validity or enforceability of any of the Transaction Documents or the
Securities or (ii) could, individually or in the aggregate, have or result in a
Material Adverse Effect.
(h) NO DEFAULT OR VIOLATION. Neither the Company nor any Subsidiary
(i) is in default under or in violation of (or has received notice of a claim
that it is in default under or that it is in violation of) any indenture,
promissory note, loan or credit agreement or any other agreement or instrument
to which it is a party or by which it or any of its properties is bound, (ii) is
in violation of any order of any court, arbitrator or governmental body, or
(iii) is in violation of any statute, rule or regulation of any governmental
authority, except as could not individually or in the aggregate, have or result
in, individually or in the aggregate, a Material Adverse Effect.
(i) PRIVATE OFFERING. Subject in part to the truth and accuracy of
the Purchaser' representations set forth in Section 2.2, the offer, sale and
issuance of the Securities as contemplated by this Agreement are exempt for the
registration requirement of the Securities Act of 1933, as amended (the
"SECURITIES ACT"), and neither the Company nor any Person acting on its behalf
has taken or will take any action which might subject the offering, issuance or
sale of the Securities to the registration requirements of Section 5 of the
Securities Act.
(j) DISCLOSURE MATERIALS. The financial statements of the Company
dated December 31, 1996, July 31, 1997 and any other financial statements
delivered by the Company to the Purchaser (the "FINANCIAL STATEMENTS" and,
together with the Schedules to this Agreement and other documents and
information furnished by or on behalf of the Company at any time prior to the
Closing, the "DISCLOSURE MATERIALS") comply in all material respects with
applicable accounting requirements. Such Financial Statements have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis during the periods involved, except as may be otherwise
specified in such Financial Statements or the notes thereto, and fairly present
in all material respects the financial position of the Company as of and for the
dates thereof and the results of operations and cash flows for the periods then
ended, subject, in the case of unaudited statements, to normal year-end audit
adjustments. There are no liabilities, contingent or otherwise, of the Company
involving material amounts not disclosed in said Financial Statements. The
Disclosure Materials do not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. Since July 31, 1997, there has been no event,
occurrence or development that has had or that could have or result in a
Material Adverse Effect.
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<PAGE>
(k) INVESTMENT COMPANY. The Company is not, and is not an "Affiliate
person" of, an "investment company" within the meaning of the Investment Company
Act of 1940, as amended.
(l) CERTAIN FEES. Except for fees payable to CDC Consulting, Inc.,
no fees or commissions will be payable by the Company to any broker, financial
advisor, finder, investment banker, placement agent, or bank with respect to the
transactions contemplated hereby. The Purchaser shall have no obligation with
respect to such fees or with respect to any claims made by or on behalf of other
Persons for fees of a type contemplated in this Section that may be due in
connection with the transactions contemplated hereby. The Company shall
indemnify and hold harmless the Purchaser, its respective employees, officers,
directors, agents, and partners, and its respective Affiliates (as such term is
defined under Rule 405 promulgated under the Securities Act), from and against
all claims, losses, damages, costs (including the costs of preparation and
attorney's fees) and expenses suffered in respect of any such claimed or
existing fees, as and when incurred.
(m) SOLICITATION MATERIALS. The Company has not (i) distributed any
offering materials in connection with the offering and sale of the Securities
other than the Disclosure Materials and any amendments and supplements thereto
or (ii) solicited any offer to buy or sell the Securities by means of any form
of general solicitation or advertising.
(n) FORM SB-2 ELIGIBILITY. The Company is, and at the Closing Date
will be, eligible to register securities for resale with the Commission under
Form SB-2 promulgated under the Securities Act.
(o) EXCLUSIVITY. The Company shall not issue and sell Debentures to
any Person other than the Purchaser.
(p) LISTING AND MAINTENANCE REQUIREMENTS COMPLIANCE. The Company has
not in the two years preceding the date hereof received written notice from any
stock exchange, market or trading facility on which the Common Stock is or has
been listed (or on which it has been quoted) to the effect that the Company is
not in compliance with the listing or maintenance requirements of such exchange,
market or trading facility. The Company has no reason to believe that it does
not now or will not in the future meet any such maintenance requirements.
(q) PATENTS AND TRADEMARKS. The Company has, or has rights to use,
all patents, patent applications, trademarks, trademark applications, service
marks, trade names, copyrights, licenses and rights which are necessary for use
in connection with its business and which the failure to so have would have a
Material Adverse Effect (collectively, the "INTELLECTUAL PROPERTY RIGHTS"). To
the best knowledge of the Company, there is no existing infringement on any of
the Intellectual Property Rights.
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(r) DISCLOSURE. All information relating to or concerning the
Company set forth in the Transaction Documents or provided to the Purchaser or
its respective representatives, agents and counsel in connection with the
transactions contemplated hereby is true and correct in all material respects
and does not fail to state any material fact necessary in order to make the
statements herein or therein, in light of the circumstances under which they
were made, not misleading. The Company confirms that it has not provided to the
Purchaser or any of its representatives or agents any information that
constitutes or might constitute material non-public information other than
information that has specifically been identified to the recipient as material
non-public information in writing. The Company understands and confirms that
the Purchaser shall be relying on the foregoing representation in effecting
transactions in securities of the Company.
(s) REGISTRATION RIGHTS. Except as provided in the Registration
Rights Agreement, the Company has not granted or agreed to grant any
registration rights, including piggy-back registration rights, to any Person.
2.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser hereby
makes the following representations and warranties to the Company.
(a) ORGANIZATION; AUTHORITY. The Purchaser is an entity organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization with the requisite power and authority to enter into and to
consummate the transactions contemplated by the Transaction Documents and to
carry out its obligations thereunder. The acquisition of the Securities to be
acquired hereunder by the Purchaser has been duly authorized by all necessary
action on the part of the Purchaser. Each of this Agreement, the Registration
Rights Agreement and the Escrow Agreement has been duly executed by the
Purchaser and, when delivered by the Purchaser in accordance with the terms
hereof and the Escrow Agreement constitutes the valid and legally binding
obligation of the Purchaser, enforceable against it in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights generally and to general principles of equity.
(b) INVESTMENT INTENT. The Purchaser is acquiring the Securities for
its own account for investment purposes only and not with a view to or for
distributing or reselling such Securities or any part thereof or interest
therein, without prejudice, however, to the Purchaser's right, subject to the
provisions of this Agreement and the Registration Rights Agreement, at all times
to sell or otherwise dispose of all or any part of such Securities pursuant to
an effective registration statement under the Securities Act and in compliance
with applicable state securities laws or under an exemption from such
registration.
(c) PURCHASER STATUS. At the time the Purchaser was offered the
Securities, it was, at the date hereof, it is, and at the Closing Date, it will
be, an "accredited investor" as
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defined in Rule 501(a) under the Securities Act.
(d) EXPERIENCE OF PURCHASER. The Purchaser either alone or together
with its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Securities, and has so evaluated the
merits and risks of such investment.
(e) ABILITY OF PURCHASER TO BEAR RISK OF INVESTMENT. The Purchaser
acknowledges that an investment in the Securities is speculative and involves a
high degree of risk. The Purchaser is able to bear the economic risk of an
investment in the Securities to be acquired hereunder by the Purchaser, and, at
the present time, is able to afford a complete loss of such investment.
(f) ACCESS TO INFORMATION. The Purchaser acknowledges receipt of the
Disclosure Materials and further acknowledges that it has been afforded (i) the
opportunity to ask such questions as it has deemed necessary of, and to receive
answers from, representatives of the Company concerning the terms and conditions
of the offering of the Securities, and the merits and risks of investing in the
Securities, (ii) access to information about the Company and the Company's
financial condition, results of operations, business, properties, management and
prospects sufficient to enable it to evaluate its investment and (iii) the
opportunity to obtain such additional information which the Company possesses or
can acquire without unreasonable effort or expense that is necessary to make an
informed investment decision with respect to the investment and to verify the
accuracy and completeness of the information contained in the Disclosure
Materials. Neither such inquiries nor any other investigation conducted by or
on behalf of the Purchaser or its representatives, agents or counsel shall
modify, amend or affect the Purchaser's right to rely on the truth, accuracy and
completeness of the Disclosure Materials and the Company's representations and
warranties contained in the Transaction Documents.
(g) RELIANCE. The Purchaser understands and acknowledges that (i)
the Securities are being offered and sold to it without registration under the
Securities Act in a private placement that is exempt from the registration
provisions of the Securities Act and (ii) the availability of such exemption,
depends in part on, and the Company will rely upon the accuracy and truthfulness
of, the foregoing representations and the Purchaser hereby consents to such
reliance.
The Company acknowledges and agrees that the Purchaser makes no
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
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3.1 TRANSFER RESTRICTIONS. (a) Securities may only be disposed of
pursuant to an effective registration statement under the Securities Act, to the
Company or pursuant to an available exemption from or in a transaction not
subject to the registration requirements thereof. In connection with any
transfer of any Securities other than pursuant to an effective registration
statement or to the Company, the Company may require the transferor thereof to
provide to the Company an opinion of counsel selected by the transferor, the
form and substance of which opinion shall be reasonably satisfactory to the
Company, to the effect that such transfer does not require registration under
the Securities Act. Notwithstanding the foregoing, the Company hereby consents
to and agrees to register on the books and records of the Company or on the
register of any transfer agent for the Securities any transfer by the Purchaser
to an Affiliate (as such term is defined under Rule 405 promulgated under the
Securities Act) of the Purchaser or any transfers among any such Affiliates
provided the transferee certifies to the Company that it is an "accredited
investor" as defined in Rule 501(a) under the Securities Act and makes the
appropriate investment representations. Each such transferee shall have the
rights of the Purchaser under this Agreement and the Registration Rights
Agreement.
(b) The Purchaser agrees to the imprinting, so long as is required by
this Section 3.1(b), of the following legend on the Securities:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] HAVE BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN
A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
[FOR DEBENTURES ONLY] THIS DEBENTURE IS SUBJECT TO CERTAIN RESTRICTIONS ON
CONVERSION SET FORTH IN SECTION 3.8 OF THE CONVERTIBLE DEBENTURE PURCHASE
AGREEMENT, DATED AS OF APRIL 8, 1998, BETWEEN FIX-CORP INTERNATIONAL, INC.
(THE "COMPANY") AND THE ORIGINAL HOLDER HEREOF. A COPY OF THAT AGREEMENT
IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY.
Underlying Shares shall not contain any legend if conversion of
Debentures, exercise of Warrant or other issuances of Underlying Shares, as the
case may be, occurs at any time while an Underlying Securities Registration
Statement is effective under the Securities Act
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or, in the event there is not an effective Underlying Securities Registration
Statement at such time, if in the opinion of counsel to the Company such legend
is not required under applicable requirements of the Securities Act (including
judicial interpretations and pronouncements issued by the staff of the
Commission). The Company agrees that it will provide the Purchaser, upon
request, with a certificate or certificates representing Underlying Shares, free
from such legend at such time as such legend is no longer required hereunder.
The Company may not make any notation on its records or give instructions to any
transfer agent of the Company which enlarge the restrictions of transfer set
forth in this Section 3.1(b).
3.2 ACKNOWLEDGEMENT OF DILUTION. The Company acknowledges that the
issuance of Underlying Shares upon (i) conversion of the Debentures and as
payment of interest thereon, and (ii) exercise of the Warrant may result in
dilution of the outstanding shares of Common Stock, which dilution may be
substantial under certain market conditions. The Company further acknowledges
that its obligation to issue Underlying Shares in accordance with the terms of
the Debentures and the Warrant is unconditional and absolute regardless of the
effect of any such dilution.
3.3 FURNISHING OF INFORMATION. As long as the Purchaser owns Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the Filing Date (as defined in the Registration Rights
Agreement) pursuant to Section 13(a) or 15(d) of the Exchange Act. If at any
time prior to the date on which the Purchaser may resell all of its Underlying
Shares without volume restrictions pursuant to Rule 144(k) promulgated under the
Securities Act (as determined by counsel to the Company pursuant to a written
opinion letter to such effect, addressed and acceptable to the Company's
transfer agent for the benefit of and enforceable by the Purchaser) the Company
is not required to file reports pursuant to such sections, it will prepare and
furnish to the Purchaser and make publicly available in accordance with Rule
144(c) promulgated under the Securities Act annual and quarterly financial
statements, together with a discussion and analysis of such financial statements
in form and substance substantially similar to those that would otherwise be
required to be included in reports required by Section 13(a) or 15(d) of the
Exchange Act in the time period that such filings would have been required to
have been made under the Exchange Act. The Company further covenants that it
will take such further action as any holder of Securities may reasonably
request, all to the extent required from time to time to enable such Person to
sell Securities without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144 promulgated under the
Securities Act, including the legal opinion referenced above in this Section.
Upon the request of any such Person, the Company shall deliver to such Person a
written certification of a duly authorized officer as to whether it has complied
with such requirements.
3.4 USE OF DISCLOSURE MATERIALS. The Company consents to the use of the
Disclosure Materials and any information provided by or on behalf of the Company
pursuant to Section 3.3, and any amendments and supplements thereto, by the
Purchaser in connection
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with resales of the Securities other than pursuant to an effective registration
statement; PROVIDED, THAT the Company shall have a reasonable opportunity to
update such information.
3.5 BLUE SKY LAWS. In accordance with the Registration Rights Agreement,
the Company shall qualify the Underlying Shares under the securities or Blue Sky
laws of such jurisdictions as the Purchaser may request and shall continue such
qualification at all times during the Effectiveness Period (as defined in the
Registration Rights Agreement); PROVIDED, HOWEVER, that neither the Company nor
its Subsidiaries shall be required in connection therewith to qualify as a
foreign corporation where they are not now so qualified or to take any action
that would subject the Company to general service of process in any such
jurisdiction where it is not then so subject.
3.6 INTEGRATION. The Company shall not and shall use its best efforts to
ensure that no Affiliate shall sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in Section 2 of the
Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the issue or sale of the Securities to the Purchaser.
3.7 INCREASE IN AUTHORIZED SHARES. At such time as the Company would be,
if a notice of conversion or exercise (as the case may be) were to be delivered
on such date, precluded from (a) converting the full outstanding principal
amount of Debentures (and paying any accrued but unpaid interest in respect
thereof in shares of Common Stock) that remain unconverted at such date or (b)
honoring the exercise in full of the Warrant due to the unavailability of a
sufficient number of shares of authorized but unissued or re-acquired Common
Stock, the Board of Directors of the Company shall promptly (and in any case
within 30 Business Days from such date) prepare and mail to the shareholders of
the Company proxy materials requesting authorization to amend the Company's
restated certificate of incorporation to increase the number of shares of Common
Stock which the Company is authorized to issue to at least a number of shares
equal to the sum of (i) all shares of Common Stock then outstanding, (ii) the
number of shares of Common Stock issuable on account of all outstanding
warrants, options and convertible securities (other than the Debentures and the
Warrant) and on account of all shares reserved under any stock option, stock
purchase, warrant or similar plan, (iii) 200% of the number of Underlying Shares
as would then be issuable upon a conversion in full of the then outstanding
Debentures and as payment of all future interest thereon in shares of common
Stock in accordance with the terms of this Agreement and the Debentures and (iv)
such number of Underlying Shares as would then be issuable upon the exercise in
full of the warrants. In connection therewith, the Board of Directors shall (x)
adopt proper resolutions authorizing such increase, (y) recommend to and
otherwise use its best efforts to promptly and duly obtain stockholder approval
to carry out such resolutions (and hold a special meeting of the shareholders no
later than the 60th day after delivery of the proxy materials relating to such
meeting) and (z) within 5 Business Days of obtaining such shareholder
authorization, file an appropriate amendment to the Company's certificate of
incorporation to evidence such increase.
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3.8 PURCHASER OWNERSHIP OF COMMON STOCK. In no event shall the Purchaser
be permitted to use its ability to convert Debentures or exercise its Warrant to
the extent that such conversion or exercise would result in the Purchaser
beneficially owning (for purposes of Rule 13d-3 under the Exchange Act and the
rules thereunder) in excess of 4.999% of the then issued and outstanding shares
of Common Stock, including shares issuable upon conversion of the Debentures
held by the Purchaser after application of this Section. To the extent that the
limitation contained in this Section applies, the determination of whether
Debentures are convertible (in relation to other securities owned by the
Purchaser) and of which Debentures are convertible shall be in the sole
discretion of the Purchaser, and the submission of Debentures for conversion
shall be deemed to be the Purchaser's determination of whether such Debentures
are convertible (in relation to other securities owned by the Purchaser) and of
which Debentures are convertible, in each case subject to such aggregate
percentage limitation, and the Company shall have no obligation to verify or
confirm the accuracy of such determination. Nothing contained herein shall be
deemed to restrict the right of the Purchaser to convert Debentures at such time
as such conversion will not violate the provisions of this Section.
Notwithstanding anything to the contrary contained herein, if ten days have
elapsed since the Purchaser has declared an event of default under any
Transaction Document and such event shall not have been cured to the Purchaser's
satisfaction prior to the expiration of such ten-day period, the provisions of
this Section 3.8 shall be null and void AB INITIO.
3.9 LISTING OF UNDERLYING SHARES. If the Common Stock hereafter is listed
for trading on the Nasdaq National Market, Nasdaq SmallCap Market (or on the
American Stock Exchange or New York Stock Exchange, or any other national
securities market or exchange), then the Company shall (1) take all necessary
steps to list the Underlying Shares thereon, including the preparation of any
required additional listing application therefor covering at least the sum of
two times the number of Underlying Shares as would be issuable upon a conversion
in full of the then outstanding principal amount of Debentures (plus all
Underlying Shares issuable as payment of interest thereon, assuming all such
interest were paid in shares of Common Stock) and upon exercise in full of the
then unexercised portion of the Warrant, and (2) provide to the Purchaser
evidence of such listing, and the Company shall thereafter maintain the listing
of its Common Stock on such exchange or market as long as Underlying Shares are
issuable and/or outstanding. The Company will use its commercially reasonable
efforts to list the Common Stock for trading on either the Nasdaq SmallCap
Market or Nasdaq National Market as soon as possible after the Closing Date.
3.10 CONVERSION PROCEDURES. EXHIBIT E sets forth the procedures with
respect to the conversion of the Debentures, including the form of legal
opinion, if necessary, that shall be rendered to the Company's transfer agent
and such other information and instructions as may be reasonably necessary to
enable the Purchaser to exercise its right of conversion smoothly and
expeditiously which are not set forth in the Debentures.
3.11 PURCHASER' RIGHTS IF TRADING IN COMMON STOCK IS SUSPENDED OR DELISTED.
If at
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any time while the Purchaser (or any assignee thereof) owns any Securities,
trading in the shares of the Common Stock is suspended on or delisted from the
OTC Bulletin Board or any other principal market or exchange for such shares
(other than as a result of the suspension of trading in securities on such
market or exchange generally, or temporary suspensions pending the release of
material information) for more than three (3) Trading Days, then,
notwithstanding anything to the contrary contained in any Transaction Document,
at the Purchaser's option exercisable by ten Business Days prior written notice
to the Company, the Company shall, PROVIDED, THAT trading has not been
reinstated within such period, repay the entire principal amount of then
outstanding Debentures and redeem all then outstanding Underlying Shares then
held by the Purchaser, at an aggregate purchase price equal to the sum of
(I) the aggregate outstanding principal amount of Debentures then held by the
Purchaser divided by the Conversion Price on (a) the day prior to the date of
such suspension or delisting, (b) the day of such notice or (c) the date of
payment in full of the repurchase price calculated under this Section, whichever
is less, and multiplied by the Market Price preceding (x) the day prior to the
date of such suspension or delisting, (y) the day of such notice and (z) the
date of payment in full of the repurchase price calculated under this Section,
whichever is greater, (II) the aggregate of all accrued but unpaid interest and
other non-principal amounts (including liquidated damages, if any) then payable
in respect of all Debentures to be repaid, (III) the number of Underlying Shares
then held by the Purchaser multiplied by the Market Price immediately preceding
(x) the day prior to the date of such suspension or delisting, (y) the date of
the notice or (z) the date of payment in full by the Company of the repurchase
price calculated under this Section, whichever is greater, and (IV) interest on
the amounts set forth in I - III above accruing from the 10th Business Day after
such notice until the repurchase price under this Section is paid in full at the
rate of 18% per annum. If after the Original Issue Date the Common Stock shall
be listed for trading or quoted on the Nasdaq SmallCap Market, Nasdaq National
Market or any other national securities exchange or market, this provision shall
similarly apply to any delistings or suspensions therefrom.
3.12 USE OF PROCEEDS. The Company shall use all of the proceeds from the
sale of the Securities for working capital purposes and not for the satisfaction
of any portion of Company debt or to redeem Company equity or equity-equivalent
securities. Pending application of the proceeds of this placement in the manner
permitted hereby the Company will invest such proceeds in money market funds,
interest bearing accounts and/or short-term, investment grade interest bearing
securities.
3.13 NOTICE OF BREACHES. The Company and the Purchaser shall give prompt
written notice to the other of any breach by it of any representation, warranty
or other agreement contained in any Transaction Document, as well as any events
or occurrences arising after the date hereof, which would reasonably be likely
to cause any representation or warranty or other agreement of such party, as the
case may be, contained in the Transaction Document to be incorrect or breached
as of such Closing Date. However, no disclosure by either party pursuant to
this Section shall be deemed to cure any breach of any representation, warranty
or other agreement contained in any Transaction Document.
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Notwithstanding the generality of the foregoing, the Company shall promptly
notify the Purchaser of any notice or claim (written or oral) that it receives
from any lender of the Company to the effect that the consummation of the
transactions contemplated by the Transaction Documents violates or would violate
any written agreement or understanding between such lender and the Company, and
the Company shall promptly furnish by facsimile to the holders of the Debentures
a copy of any written statement in support of or relating to such claim or
notice.
3.14 CONVERSION OBLIGATIONS OF THE COMPANY. The Company shall honor
conversions of the Debentures and exercises of the Warrant and shall deliver
Underlying Shares in accordance with the respective terms and conditions and
time periods set forth in the Debentures and the Warrant.
3.15 RIGHT OF FIRST REFUSAL; SUBSEQUENT REGISTRATIONS; CERTAIN CORPORATE
ACTIONS. (a) The Company shall not, directly or indirectly, without the prior
written consent of the Encore Capital Management, L.L.C. ("Encore") on behalf of
the Purchaser, offer, sell, grant any option to purchase, or otherwise dispose
(or announce any offer, sale, grant or any option to purchase or other
disposition) of any of its or its Affiliates equity, equity-equivalent or
derivative securities (a "SUBSEQUENT FINANCING") for a period of 180 days after
the Closing Date, except (i) the granting of options or warrants to employees,
officers and directors, and the issuance of shares upon exercise of options
granted, under any stock option plan heretofore or hereinafter duly adopted by
the Company, (ii) shares issued upon exercise of any currently outstanding
warrants and upon conversion of any currently outstanding convertible preferred
stock in each case disclosed in SCHEDULE 2.1(c), and (iii) shares of Common
Stock issued upon conversion of the Debentures, as payment of interest thereon,
or upon exercise of the Warrant in accordance with their respective terms,
unless (A) the Company delivers to Encore a written notice (the "SUBSEQUENT
FINANCING NOTICE") of its intention to effect such Subsequent Financing, which
Subsequent Financing Notice shall describe in reasonable detail the proposed
terms of such Subsequent Financing, the amount of proceeds intended to be raised
thereunder, the Person with whom such Subsequent Financing shall be affected,
and a term sheet or similar document relating thereto shall be attached to such
Subsequent Financing Notice and (B) Encore shall not have notified the Company
by 5:00 p.m. (New York City Time) on the tenth (10th) Trading Day after its
receipt of the Subsequent Financing Notice of its willingness to cause the
Purchaser to provide (or to cause its sole designee to provide), subject to
completion of mutually acceptable documentation, financing to the Company on
substantially the terms set forth in the Subsequent Financing Notice. If Encore
shall fail to notify the Company of its intention to enter into such
negotiations within such time period, the Company may effect the Subsequent
Financing substantially upon the terms and to the Persons (or Affiliates of such
Persons) set forth in the Subsequent Financing Notice; PROVIDED, that the
Company shall provide Encore with a second Subsequent Financing Notice, and
Encore shall again have the right of first refusal set forth above in this
paragraph (a), if the Subsequent Financing subject to the initial Subsequent
Financing Notice shall not have been consummated for any reason on
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the terms set forth in such Subsequent Financing Notice within thirty (30)
Trading Days after the date of the initial Subsequent Financing Notice with the
Person (or an Affiliate of such Person) identified in the Subsequent Financing
Notice.
(b) Except for Underlying Shares and other "Registrable Securities"
(as such term is defined in the Registration Rights Agreement) to be registered
in accordance with the Registration Rights Agreement, securities to be
registered pursuant to Schedule 6(c) to the Registration Rights Agreement, and
other than Company securities to be registered for resale in connection with
financings permitted pursuant to paragraph (a)(i) through (iii) of this Section,
the Company shall not, without the prior written consent of Encore, (i) issue or
sell any of its or any of its Affiliates' equity or equity-equivalent securities
pursuant to Regulation S promulgated under the Securities Act, or (ii) register
for resale any securities of the Company for a period of not less than 90
Trading Days after the date that the Underlying Securities Registration
Statement is declared effective by the Commission. Any days that the Purchaser
is not permitted to sell Underlying Shares under the Underlying Securities
Registration Statement shall be added to such 90 Trading Day period for the
purposes of (i) and (ii) above.
(c) As long as there are Debentures outstanding, the Company
shall not and shall cause the Subsidiaries not to, without the consent of the
holders of the Debentures, (i) amend its certificate of incorporation, bylaws or
other charter documents so as to adversely affect any rights of the holders of
Debentures; (ii) repay, repurchase or offer to repay, repurchase or otherwise
acquire shares of its Common Stock other than as to the Underlying Shares; or
(iii) enter into any agreement with respect to any of the foregoing.
3.16 THE WARRANT. Prior to the Closing, the Company shall issue and
deliver to the Escrow Agent for delivery at the closing a Common Stock purchase
warrant, in the form of EXHIBIT D and registered in the name of the Purchaser
(the "WARRANT"), pursuant to which the Purchaser shall have the right at any
time and from time to time thereafter through the third anniversary of the date
of issuance thereof, to acquire 192,542 shares of Common Stock at an exercise
price per share equal to $4.22.
3.17 TRANSFER OF INTELLECTUAL PROPERTY RIGHTS. Except in connection with
the sale of all or substantially all of the assets of the Company, the Company
shall not transfer, sell or otherwise dispose of, any Intellectual Property
Rights, or allow the Intellectual Property Rights to become subject to any
Liens, or fail to renew such Intellectual Property Rights (if renewable and
would otherwise expire), without the prior written consent of the Purchaser.
3.18 FORM SB-2. The Company has filed with the Commission on January 20,
1998 a registration statement on Form SB-2 (the "FORM SB-2") pursuant to the
Exchange Act. The Company shall use its best efforts to amend the Form SB-2 in
order to include the resale of the Underlying Securities thereunder as soon as
possible but in no event later than the 20th day after the Closing Date and
shall take all commercially reasonable steps necessary to cause such
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Form SB-2 to be declared effective as soon as possible thereafter but in no
event later than the 50th day after the Closing Date, and shall provide to the
Purchaser evidence of such filing and effectiveness.
ARTICLE IV
MISCELLANEOUS
4.1 FEES AND EXPENSES. The Company shall pay at the Closing $7,500
to the Escrow Agent for the legal fees and disbursements incurred by the
Purchaser in connection with the preparation and negotiation of the Transaction
Documents. Other than the amount contemplated by the immediately preceding
sentence and except as set forth in the Registration Rights Agreement, each
party shall pay the fees and expenses of its advisers, counsel, accountants and
other experts, if any, and all other expenses incurred by such party incident to
the negotiation, preparation, execution, delivery and performance of this
Agreement. The Company shall pay all stamp and other taxes and duties levied in
connection with the issuance of the Debentures pursuant hereto. The Purchaser
shall be responsible for its own respective tax liability that may arise as a
result of the investment hereunder or the transactions contemplated by this
Agreement.
4.2 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, together with the
Exhibits and Schedules hereto, the Debentures and the Warrant contain the entire
understanding of the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral or written, with respect
to such matters.
4.3 NOTICES. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 7:00 p.m. (New
York City time) on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in the Purchase Agreement later than 7:00
p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City
time) on such date, (iii) the Business Day following the date of mailing, if
sent by nationally recognized overnight courier service, or (iv) upon actual
receipt by the party to whom such notice is required to be given. The address
for such notices and communications shall be as follows:
If to the Company: Fix-Corp International, Inc.
3637 South Green Road, Suite 201
Beachwood, OH 44122
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Facsimile No.: (216) 292-6187
Attn: Chief Financial Officer
With copies to: Bricker & Eckler LLP
100 South Third Street
Columbus, OH 43215
Facsimile No.: (614) 227-2390
Attn: Steven Kerber
If to the Purchaser: JNC Strategic Fund Ltd.
Olympia Capital (Cayman) Ltd.
c/o Olympia Capital (Bermuda) Ltd.
Williams House
20 Reid Street
Hamilton HM11
Bermuda
Facsimile No.: (441) 295-2305
Attn: Director
With copies to (for Encore Capital Management, L.L.C.
communications to 12007 Sunrise Valley Drive
the Purchaser): Suite 460
Reston, VA 20191
Facsimile No.: (703) 476-7711
Attn: Neil T. Chau
-and-
Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Eric L. Cohen
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
4.4 AMENDMENTS; WAIVERS. No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by both the Company and the Purchaser; or, in the case of a waiver,
by the party against whom enforcement of any such waiver is sought. No waiver
of any default with respect to any provision,
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condition or requirement of this Agreement shall be deemed to be a continuing
waiver in the future or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right accruing
to it thereafter.
4.5 HEADINGS. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
4.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns,
including any Persons to whom the Purchaser transfers Debentures or Warrant.
The assignment by a party of this Agreement or any rights hereunder shall not
affect the obligations of such party under this Agreement.
4.7 NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and, other than Encore, who is an intended beneficiary of the provisions
of Section 3.15 entitled to enforce such provisions against the parties hereto,
and permitted assignees under Section 4.6, is not for the benefit of, nor may
any provision hereof be enforced by any other Person.
4.8 GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York
without regard to the principles of conflicts of law thereof.
4.9 SURVIVAL. The representations, warranties, agreements and
covenants contained in this Agreement shall survive the Closing and the and
conversion of the Debentures and exercise of the Warrant.
4.10 EXECUTION. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other parties, it being understood that all
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
4.11 PUBLICITY. The Company and the Purchaser shall consult with each
other in issuing any press releases or otherwise making public statements with
respect to the transactions contemplated hereby and no party shall issue any
such press release or otherwise make any such public statement without the prior
written consent of the other, which consent shall not be unreasonably withheld
or delayed, except that no prior consent shall be required if
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such disclosure is required by law, in which such case the disclosing party
shall provide the other party with prior notice of such public statement.
4.12 SEVERABILITY. In case any one or more of the provisions of this
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affected or impaired thereby and the parties will attempt to agree
upon a valid and enforceable provision which shall be a reasonable substitute
therefor, and upon so agreeing, shall incorporate such substitute provision in
this Agreement.
4.13 REMEDIES. Each of the parties to this Agreement acknowledges and
agrees that the other parties would be damaged irreparably in the event any of
the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the parties
hereto agrees that the other parties shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically this Agreement and the terms and provisions of this
Agreement in any action instituted in any court of the United States of America
or any state thereof having jurisdiction over the parties to this Agreement and
the matter, in addition to any other remedy to which they may be entitled, at
law or in equity.
4.14 LIQUIDATED DAMAGES. Each of the parties to this Agreement
acknowledges and agrees that the any and all liquidated damage provisions set
forth in the Transaction Documents express a reasonable pre-estimate of the
damages which would be incurred.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this Convertible
Debenture Purchase Agreement to be duly executed by their respective authorized
persons as of the date first indicated above.
FIX-CORP INTERNATIONAL, INC.
By: /s/ Mark Fixler
------------------------------
Name: Mark Fixler
Title: President/CEO
JNC STRATEGIC FUND LTD.
By: /s/ Thomas H. Davis
------------------------------
Name: Thomas H. Davis
Title: Director
<PAGE>
EXHIBIT 10.37
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.
THIS DEBENTURE IS SUBJECT TO CERTAIN RESTRICTIONS ON CONVERSION SET FORTH
IN SECTION 3.8 OF A CONVERTIBLE DEBENTURE PURCHASE AGREEMENT, DATED AS OF APRIL
8, 1998, BETWEEN FIX-CORP INTERNATIONAL, INC. (THE "COMPANY") AND THE ORIGINAL
HOLDER HEREOF. A COPY OF THAT AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF
THE COMPANY.
No. A-14 U.S. $3,000,000
FIX-CORP INTERNATIONAL, INC.
4% CONVERTIBLE DEBENTURE DUE APRIL 8, 2001
THIS DEBENTURE is one of a series of duly authorized issued debentures of
Fix-Corp International, Inc., a Delaware corporation having a principal place of
business at 3637 South Green Road, Suite 201, Beachwood, OH 44122 (the
"COMPANY"), designated as its 4% Convertible Debentures, due April 8, 2001 (the
"DEBENTURES"), in an aggregate principal amount of $3,000,000.
FOR VALUE RECEIVED, the Company promises to pay to JNC Strategic Fund Ltd.,
or registered assigns (the "HOLDER"), the principal sum of Three Million Dollars
($3,000,000), on or prior to April 8, 2001 or such earlier date as the
Debentures are required to be repaid as provided hereunder (the "MATURITY DATE")
and to pay interest to the Holder on the principal sum at the rate of 4% per
annum, payable quarterly in arrears on March 31, June 30, September 30 and
December 31 of each year, commencing June 30, 1998, and on each Conversion Date
(as defined in Section 4(a)). Interest shall accrue daily commencing on the
Original Issue Date (as defined in Section 6) until payment in full of the
principal sum, together with all accrued and unpaid interest and other amounts
which may become due hereunder, has been made. Interest shall be calculated on
the basis of a 360-day year and for the actual number of days elapsed. Interest
hereunder will be paid to the Person (as defined in Section 6) in whose name
this Debenture is registered on the records of the Company regarding
registration and transfers of the Debentures (the "DEBENTURE REGISTER"). All
<PAGE>
overdue, accrued and unpaid interest and other amounts due hereunder shall bear
interest at the rate of 18% per annum and accrue daily from the date such
interest is due hereunder through and including the date of payment. The
principal of, and interest on, this Debenture are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts, at the address of the Holder
last appearing on the Debenture Register, except that interest due on the
principal amount (but not overdue interest) may, at the Company's option, be
paid in shares of Common Stock (as defined in Section 6) calculated based upon
the Conversion Price (as defined below) at the time such interest becomes due.
All amounts due hereunder other than interest shall be paid in cash.
Notwithstanding anything to the contrary contained herein, the Company may not
issue shares of the Common Stock in payment of interest on the principal amount
if: (i) the number of shares of Common Stock at the time authorized, unissued
and unreserved for all purposes, or held as treasury stock, is insufficient to
pay interest hereunder in shares of Common Stock; (ii) such shares are not
either registered for resale pursuant to an Underlying Securities Registration
Statement (as defined in Section 6) or freely transferable without volume
restrictions pursuant to Rule 144(k) promulgated under the Securities Act of
1933, as amended (the "SECURITIES ACT"), as determined by counsel to the Company
pursuant to a written opinion letter, addressed to and in form and substance
acceptable to the Company's transfer agent or other person or entity performing
similar functions thereto; (iii) such shares are not listed on the OTC Bulletin
Board (or the American Stock Exchange, Nasdaq National Market, Nasdaq SmallCap
Market or The New York Stock Exchange) and any other exchange, market and
trading facility on which the Common Stock is then listed for trading; or (iv)
the issuance of such shares would result in the recipient thereof beneficially
owning more than 4.999% of the issued and outstanding shares of Common Stock as
determined in accordance with Rule 13d-3 under the Securities Exchange Act of
1934, as amended. Payment of interest on the principal amount in shares of
Common Stock is further subject to the provisions of Section 4(a)(ii).
This Debenture is subject to the following additional provisions:
SECTION 1. This Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holder surrendering the same but shall not be issuable in
denominations of less than integral multiplies of Fifty Thousand Dollars
($50,000) unless such amount represents the full principal balance of Debentures
outstanding to such Holder. No service charge will be made for such
registration of transfer or exchange.
SECTION 2. This Debenture has been issued subject to certain
investment representations of the original Holder set forth in the Purchase
Agreement (as defined in Section 6) and may be transferred or exchanged only in
compliance with the Purchase Agreement. Prior to due presentment to the Company
for transfer of this Debenture, the Company and any agent of the Company may
treat the person in whose name this Debenture is duly registered on the
Debenture Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Debenture is
overdue, and neither the Company nor any such agent shall be affected by notice
to the contrary.
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<PAGE>
SECTION 3. EVENTS OF DEFAULT.
(a) "EVENT OF DEFAULT", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):
(i) any default in the payment of the principal of, interest on or
liquidated damages in respect of, this Debenture, free of any claim of
subordination, as and when the same shall become due and payable (whether
on the applicable quarterly interest payment date, the Conversion Date or
the Maturity Date or by acceleration or otherwise);
(ii) the Company shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit any
breach of, this Debenture, the Purchase Agreement or the Registration
Rights Agreement (as defined in Section 6), and such failure or breach
shall not have been remedied within 10 days after the date on which written
notice of such failure or breach shall have been given;
(iii) the Company or any of its subsidiaries shall commence, or
there shall be commenced against the Company or any such subsidiary a case
under any applicable bankruptcy or insolvency laws as now or hereafter in
effect or any successor thereto, or the Company commences any other
proceeding under any reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar law of
any jurisdiction whether now or hereafter in effect relating to the Company
or any subsidiary thereof or there is commenced against the Company or any
subsidiary thereof any such bankruptcy, insolvency or other proceeding
which remains undismissed for a period of 60 days; or the Company or any
subsidiary thereof is adjudicated insolvent or bankrupt; or any order of
relief or other order approving any such case or proceeding is entered; or
the Company or any subsidiary thereof suffers any appointment of any
custodian or the like for it or any substantial part of its property which
continues undischarged or unstayed for a period of 60 days; or the Company
or any subsidiary thereof makes a general assignment for the benefit of
creditors; or the Company shall fail to pay, or shall state that it is
unable to pay, or shall be unable to pay, its debts generally as they
become due; or the Company or any subsidiary thereof shall call a meeting
of its creditors with a view to arranging a composition or adjustment of
its debts; or the Company or any subsidiary thereof shall by any act or
failure to act indicate its consent to, approval of or acquiescence in any
of the foregoing; or any corporate or other action is taken by the Company
or any subsidiary thereof for the purpose of effecting any of the
foregoing;
(iv) the Company shall default in any of its obligations or an
event shall
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<PAGE>
occur, or shall fail to occur, which gives (or would give after the passage
of time or giving of notice or both) the payee of any such obligation the
right to accelerate the payment thereof under any mortgage, credit
agreement or other facility, indenture agreement, promissory note or other
instrument under which there may be issued, or by which there may be
secured or evidenced any indebtedness of the Company in an amount exceeding
one hundred thousand dollars ($100,000), whether such indebtedness now
exists or shall hereafter be created and such default shall result in such
indebtedness becoming or being declared due and payable prior to the date
on which it would otherwise become due and payable;
(v) the Common Stock shall be delisted from the OTC Bulletin Board
or any other national securities exchange or market on which such Common
Stock is then listed for trading or suspended from trading thereon without
being relisted or having such suspension lifted, as the case may be, within
three (3) Trading Days (if after the Original Issue Date the Common Stock
shall be listed for trading or quoted on the Nasdaq SmallCap Market, Nasdaq
National Market or any other national securities exchange or market, this
provision shall apply to any delistings or suspensions therefrom);
(vi) the Company shall be a party to any merger or consolidation
pursuant to which the Company shall not be the surviving entity or shall
sell, transfer or otherwise dispose of all or substantially all of its
assets in one or more transactions, or shall redeem more than a de minimis
number of shares of Common Stock (other than redemptions of Underlying
Shares);
(vii) an Underlying Securities Registration Statement shall not have
been declared effective by the Securities and Exchange Commission (the
"COMMISSION") on or prior to the 70th day after the Original Issue Date; or
(viii) an Event (as hereinafter defined) shall not have been cured to
the satisfaction of the Holder prior to the expiration of thirty (30) days
from the Event Date (as hereinafter defined) relating thereto.
(b) If any Event of Default occurs and is continuing, the Holder
may, by notice to the Company, declare the full principal amount of this
Debenture (and, at the Holder's option, all other Debentures then held by such
Holder), together with interest and other amounts owing in respect thereof, to
the date of acceleration, to be, whereupon the same shall become, immediately
due and payable in cash. The aggregate amount payable in respect of the
Debentures shall be equal to the sum of (i) the Mandatory Repayment Amount plus
(ii) the product of (A) the number of Underlying Shares issued in respect of
conversions hereunder and then held by the demanding Holder and (B) the Per
Share Market Value on the date prepayment is demanded or the date the full
prepayment price is paid, whichever is greater. The demanding Holder need not
provide and the Company hereby waives any presentment, demand, protest or other
notice of any kind, and the Holder may immediately and without expiration of any
grace period enforce any and all of its rights and remedies hereunder and all
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<PAGE>
other remedies available to it under applicable law. Such declaration may be
rescinded and annulled by the Holder at any time prior to payment hereunder. No
such rescission or annulment shall affect any subsequent Event of Default or
impair any right consequent thereon.
SECTION 4. CONVERSION.
(a) This Debenture shall be convertible into shares of Common Stock at
the option of the Holder in whole or in part at any time and from time to time
after the Original Issue Date and prior to the close of business on the Maturity
Date. The number of shares of Common Stock as shall be issuable upon a
conversion hereunder shall be determined by dividing the outstanding principal
amount of this Debenture to be converted, plus all accrued but unpaid interest
thereon (which the Company does not elect to pay in cash), by the Conversion
Price (as defined below), each as subject to adjustment as provided hereunder.
The Holder shall effect conversions by surrendering the Debentures (or such
portions thereof) to be converted, together with the form of conversion notice
attached hereto as EXHIBIT A (the "CONVERSION NOTICE") to the Company. Each
Conversion Notice shall specify the principal amount of Debentures to be
converted and the date on which such conversion is to be effected, which date
may not be prior to the date such Conversion Notice is deemed to have been
delivered hereunder (the "CONVERSION DATE"). If no Conversion Date is specified
in a Conversion Notice, the Conversion Date shall be the date that the
Conversion Notice is deemed delivered hereunder. Subject to Section 4(b) hereof
and Section 3.8 of the Purchase Agreement, each Conversion Notice, once given,
shall be irrevocable. If the Holder is converting less than all of the
principal amount represented by the Debenture(s) tendered by the Holder with the
Conversion Notice, or if a conversion hereunder cannot be effected in full for
any reason, the Company shall honor such conversion to the extent permissible
hereunder and shall promptly deliver to such Holder (in the manner and within
the time set forth in Section 5(b)) a new Debenture for such principal amount as
has not been converted.
(b) Not later than three Trading Days after the Conversion Date,
the Company will deliver to the Holder (i) a certificate or certificates which
shall be free of restrictive legends and trading restrictions (other than those
required by Section 3.1(b) of the Purchase Agreement) representing the number of
shares of the Common Stock being acquired upon the conversion of Debentures
(subject to reduction pursuant to Section 3.8 of the Purchase Agreement), (ii)
Debentures in a principal amount equal to the principal amount of Debentures not
converted; (iii) a bank check in the amount of all accrued and unpaid interest
(if the Company has elected to pay accrued interest in cash), together with all
other amounts then due and payable in accordance with the terms hereof, in
respect of Debentures tendered for conversion and (iv) if the Company has
elected to pay accrued interest in shares of the Common Stock, certificates,
which shall be free of restrictive legends and trading restrictions (other than
those required by Section 3.1(b) of the Purchase Agreement), representing such
number of shares of the Common Stock as equals such interest divided by the
Conversion Price calculated on the Conversion Date; PROVIDED, HOWEVER, that the
Company shall not be obligated to issue certificates evidencing the shares of
the Common Stock issuable upon conversion of the principal amount of Debentures
until Debentures are delivered for conversion to the Company or the Holder
notifies the Company that such Debenture has been
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<PAGE>
mutilated, lost, stolen or destroyed and complies with Section 9 hereof. The
Company shall, upon request of the Holder, use its best efforts to deliver any
certificate or certificates required to be delivered by the Company under this
Section electronically through the Depository Trust Corporation or another
established clearing corporation performing similar functions. If in the case
of any Conversion Notice such certificate or certificates, including for
purposes hereof, any shares of the Common Stock to be issued on the Conversion
Date on account of accrued but unpaid interest hereunder, are not delivered to
or as directed by the applicable Holder by the third Trading Day after the
Conversion Date, the Holder shall be entitled by written notice to the Company
at any time on or before its receipt of such certificate or certificates
thereafter, to rescind such conversion, in which event the Company shall
immediately return the Debentures tendered for conversion. If the Company fails
to deliver to the Holder such certificate or certificates pursuant to this
Section, including for purposes hereof, any shares of the Common Stock to be
issued on the Conversion Date on account of accrued but unpaid interest
hereunder, prior to the third Trading Day after the Conversion Date, the Company
shall pay to such Holder, in cash, as liquidated damages and not as a penalty,
$1,500 for each day thereafter until the Company delivers such certificates. If
the Company fails to deliver to the Holder such certificate or certificates
pursuant to this Section prior to the 20th day after the Conversion Date, the
Company shall, at the Holder's option (i) prepay, from funds legally available
therefor at the time of such prepayment, the aggregate of the principal amount
of Debentures then held by such Holder, as requested by such Holder, and (ii)
pay all accrued but unpaid interest on account of the Debentures for which the
Company shall have failed to issue the Common Stock certificates hereunder, in
cash. The prepayment price shall equal the Mandatory Prepayment Amount for the
Debentures to be prepaid. If the Holder has required the Company to prepay
Debentures pursuant to this Section and the Company fails for any reason to pay
the prepayment price within seven days after such notice is deemed delivered
hereunder, the Company will pay interest on the prepayment price at a rate of
18% per annum (to accrue daily), in cash to such Holder, accruing from such
seventh day until the prepayment price and any accrued interest thereon is paid
in full.
(c) (i) The conversion price (the "CONVERSION PRICE") in
effect on any Conversion Date shall be the lesser of (A) $4.22 (the "INITIAL
CONVERSION PRICE") and (B) 83% multiplied by the average of the five lowest
Per Share Market Values during the ten (10) Trading Days immediately
preceding the Conversion Date; PROVIDED THAT, (a) if an Underlying Securities
Registration Statement is not filed on or prior to the Filing Date (as such
term is defined in the Registration Rights Agreement), or (b) if the Company
fails to file with the Commission a request for acceleration in accordance
with Rule 12d1-2 promulgated under the Securities Exchange Act of 1934, as
amended, within five (5) days of the date that the Company is notified
(orally or in writing, whichever is earlier) by the Commission that an
Underlying Securities Registration Statement will not be "reviewed" or is not
subject to further review or comment by the Commission, or (c) if the
Underlying Securities Registration Statement is not declared effective by the
Commission on or prior to the Effectiveness Date (as defined in the
Registration Rights Agreement), or (d) if such Underlying Securities
Registration Statement is filed with and declared effective by the Commission
but thereafter ceases to be effective as to all Registrable Securities (as
such term is defined in the Registration Rights Agreement) at any time prior
to the expiration of the "Effectiveness Period" (as such
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<PAGE>
term as defined in the Registration Rights Agreement), without being
succeeded by a subsequent Underlying Securities Registration Statement filed
with and declared effective by the Commission within ten (10) days, or (e) if
trading in the Common Stock shall be suspended, or if the Common Stock shall
be delisted from trading, on the OTC Bulletin Board or any other national
securities market or exchange on which the Common Stock is then listed or
quoted for trading for any reason for more than three (3) Trading Days, or
(f) if the conversion rights of the Holder are suspended for any reason or if
the Holder is not permitted to resell Registrable Securities under the
Underlying Securities Registration Statement, or (g) if an amendment to the
Underlying Securities Registration Statement is not filed by the Company with
the Commission within ten (10) days of the Commission's notifying the Company
that such amendment is required in order for the Underlying Securities
Registration Statement to be declared effective (any such failure being
referred to as an "EVENT," and for purposes of clauses (a), (c) and (f) the
date on which such Event occurs, or for purposes of clause (b) the date on
which such five (5) days period is exceeded, or for purposes of clauses (d)
and (g) the date which such ten (10) day period is exceeded, or for purposes
of clause (e) the date on which such three (3) Trading Day period is
exceeded, being referred to as "EVENT DATE"), the Conversion Price shall be
decreased by 2.5% each month (i.e., the Conversion Price would decrease by
2.5% as of the Event Date and additional 2.5% as of each monthly anniversary
of the Event Date) until the earlier to occur of the second month anniversary
after the Event Date and such time as the applicable Event is cured.
Commencing the second month anniversary after the Event Date, the Company
shall pay to the holders of the Debentures 2.5% of the aggregate principal
amount of Debentures then outstanding (each holder being entitled to receive
such portion of such amount as equals its pro rata portion of the Debentures
then outstanding) in cash as liquidated damages, and not as a penalty on the
first day of each monthly anniversary of the Event Date until such time as
the applicable Event, is cured. Any decrease in the Conversion Price
pursuant to this Section shall continue notwithstanding the fact that the
Event causing such decrease has been subsequently cured. The provisions of
this Section are not exclusive and shall in no way limit the Company's
obligations under the Registration Rights Agreement.
(ii) If the Company, at any time while any Debentures are
outstanding, (a) shall pay a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of the Common Stock, (b) subdivide
outstanding shares of the Common Stock into a larger number of shares, (c)
combine outstanding shares of the Common Stock into a smaller number of shares,
or (d) issue by reclassification of shares of the Common Stock any shares of
capital stock of the Company, the Initial Conversion Price shall be multiplied
by a fraction of which the numerator shall be the number of shares of the Common
Stock (excluding treasury shares, if any) outstanding before such event and of
which the denominator shall be the number of shares of the Common Stock
outstanding after such event. Any adjustment made pursuant to this Section
shall become effective immediately after the record date for the determination
of stockholders entitled to receive such dividend or distribution and shall
become effective immediately after the effective date in the case of a
subdivision, combination or re-classification.
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<PAGE>
(iii) If the Company, at any time while any Debentures are
outstanding, shall issue rights or warrants to all holders of the Common Stock
(and not to the Holder) entitling them to subscribe for or purchase shares of
the Common Stock at a price per share less than the Per Share Market Value of
the Common Stock at the record date mentioned below, the Initial Conversion
Price shall be multiplied by a fraction, of which the denominator shall be the
number of shares of the Common Stock (excluding treasury shares, if any)
outstanding on the date of issuance of such rights or warrants plus the number
of additional shares of the Common Stock offered for subscription or purchase,
and of which the numerator shall be the number of shares of the Common Stock
(excluding treasury shares, if any) outstanding on the date of issuance of such
rights or warrants plus the number of shares which the aggregate offering price
of the total number of shares so offered would purchase at such Per Share Market
Value. Such adjustment shall be made whenever such rights or warrants are
issued, and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants.
However, upon the expiration of any right or warrant to purchase shares of the
Common Stock the issuance of which resulted in an adjustment in the Initial
Conversion Price pursuant to this Section, if any such right or warrant shall
expire and shall not have been exercised, the Initial Conversion Price shall
immediately upon such expiration be recomputed and effective immediately upon
such expiration be increased to the price which it would have been (but
reflecting any other adjustments in the Initial Conversion Price made pursuant
to the provisions of this Section 4 after the issuance of such rights or
warrants) had the adjustment of the Initial Conversion Price made upon the
issuance of such rights or warrants been made on the basis of offering for
subscription or purchase only that number of shares of the Common Stock actually
purchased upon the exercise of such rights or warrants actually exercised.
(iv) If the Company, at any time while Debentures are
outstanding, shall distribute to all holders of the Common Stock (and not to the
Holder) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security, then in each such case the Initial
Conversion Price at which Debentures shall thereafter be convertible shall be
determined by multiplying the Initial Conversion Price in effect immediately
prior to the record date fixed for determination of stockholders entitled to
receive such distribution by a fraction of which the denominator shall be the
Per Share Market Value of the Common Stock determined as of the record date
mentioned above, and of which the numerator shall be such Per Share Market Value
of the Common Stock on such record date less the then fair market value at such
record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of the Common Stock as
determined by the Board of Directors in good faith; PROVIDED, HOWEVER, that in
the event of a distribution exceeding ten percent (10%) of the net assets of the
Company, such fair market value shall be determined by a nationally recognized
or major regional investment banking firm or firm of independent certified
public accountants of recognized standing (which may be the firm that regularly
examines the financial statements of the Company) (an "APPRAISER") selected in
good faith by the holders of a majority in interest of Debentures then
outstanding; and PROVIDED, FURTHER, that the Company, after receipt of the
determination by such Appraiser shall have the right to select an additional
Appraiser, in good faith, in which case the fair market value shall be equal to
the average of the determinations by each such Appraiser. In either case the
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<PAGE>
adjustments shall be described in a statement provided to the holders of
Debentures of the portion of assets or evidences of indebtedness so distributed
or such subscription rights applicable to one share of the Common Stock. Such
adjustment shall be made whenever any such distribution is made and shall become
effective immediately after the record date mentioned above.
(v) In case of any reclassification of the Common Stock or
any compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property, the Holder of this Debenture shall have
the right thereafter to, at its option, (A) convert the then outstanding
principal amount, together with all accrued but unpaid interest and any other
amounts then owing hereunder in respect of this Debenture only into the shares
of stock and other securities, cash and property receivable upon or deemed to be
held by holders of the Common Stock following such reclassification or share
exchange, and the Holder shall be entitled upon such event to receive such
amount of securities, cash or property as the shares of the Common Stock of the
Company into which the then outstanding principal amount, together with all
accrued but unpaid interest and any other amounts then owing hereunder in
respect of this Debenture could have been converted immediately prior to such
reclassification or share exchange would have been entitled or (B) require the
Company to prepay, from funds legally available therefor at the time of such
prepayment, the aggregate of its outstanding principal amount of Debentures,
plus all interest and other amounts due and payable thereon, at a price
determined in accordance with Section 3(b). The entire prepayment price shall
be paid in cash. This provision shall similarly apply to successive
reclassifications or share exchanges.
(vi) All calculations under this Section 4 shall be made to
the nearest cent or the nearest 1/100th of a share, as the case may be.
(vii) Whenever the Initial Conversion Price is adjusted
pursuant to any of Section 4(c)(ii) - (v), the Company shall promptly mail to
each Holder of Debentures a notice setting forth the Initial Conversion Price
after such adjustment and setting forth a brief statement of the facts requiring
such adjustment.
(viii) If:
A. the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
B. the Company shall declare a special nonrecurring
cash dividend on or a redemption of its Common
Stock; or
C. the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital
stock of any class or of any rights; or
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D. the approval of any stockholders of the Company
shall be required in connection with any
reclassification of the Common Stock of the
Company, any consolidation or merger to which the
Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, of
any compulsory share of exchange whereby the
Common Stock is converted into other securities,
cash or property; or
E. the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up
of the affairs of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of the Debentures, and shall cause to be mailed to the
Holder at its last addresses as they shall appear upon the stock books of the
Company, at least 30 calendar days prior to the applicable record or effective
date hereinafter specified, a notice stating (x) the date on which a record is
to be taken for the purpose of such dividend, distribution, redemption, rights
or warrants, or if a record is not to be taken, the date as of which the holders
of the Common Stock of record to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined or (y) the date on which
such reclassification, consolidation, merger, sale, transfer or share exchange
is expected to become effective or close, and the date as of which it is
expected that holders of the Common Stock of record shall be entitled to
exchange their shares of the Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer or
share exchange; PROVIDED, HOWEVER, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice. The Holder is
entitled to convert the Debentures during the 30-day period commencing the date
of such notice to the effective date of the event triggering such notice.
(d) The Company covenants that it will at all times reserve and
keep available out of its authorized and unissued shares of the Common Stock
solely for the purpose of issuance upon conversion of the Debentures and payment
of interest on the Debentures, each as herein provided, free from preemptive
rights or any other actual contingent purchase rights of persons other than the
Holder, not less than such number of shares of the Common Stock as shall be
required by the Purchase Agreement (taking into account the adjustments and
restrictions of Section 4(c).
(e) Upon a conversion hereunder the Company shall not be required
to issue stock certificates representing fractions of shares of the Common
Stock, but may if otherwise permitted, make a cash payment in respect of any
final fraction of a share based on the Per Share Market Value at such time. If
the Company elects not, or is unable, to make such a cash payment, the holder
shall be entitled to receive, in lieu of the final fraction of a share, one
whole share of Common Stock.
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(f) The issuance of certificates for shares of the Common Stock on
conversion of the Debentures shall be made without charge to the Holder thereof
for any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate, provided that the Company shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion in a name
other than that of the Holder of such Debentures so converted and the Company
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
(g) Any and all notices or other communications or deliveries to
be provided by the Holder, including, without limitation, any Conversion Notice,
shall be in writing and delivered personally, by facsimile, sent by a nationally
recognized overnight courier service or sent by certified or registered mail,
postage prepaid, addressed to the Company, at 3637 South Green Road, Suite 201,
Beachwood, OH 44122 (facsimile number (216) 292-6187), attention Chief Financial
Officer, or such other address or facsimile number as the Company may specify
for such purposes by notice to the Holder delivered in accordance with this
Section. Any and all notices or other communications or deliveries to be
provided by the Company hereunder shall be in writing and delivered personally,
by facsimile, sent by a nationally recognized overnight courier service or sent
by certified or registered mail, postage prepaid, addressed to each Holder of
the Debentures at the facsimile telephone number or address of such Holder
appearing on the books of the Company, or if no such facsimile telephone number
or address appears, at the principal place of business of the holder. Any
notice or other communication or deliveries hereunder shall be deemed given and
effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section prior to 7:00 p.m. (New York City time), (ii) the date
after the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section later than
7:00 p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York
City time) on such date, (iii) four days after deposit in the United States
mail, (iv) the Business Day following the date of mailing, if send by nationally
recognized overnight courier service, or (v) upon actual receipt by the party to
whom such notice is required to be given. For purposes of Section 4(c)(i), if a
Conversion Notice is delivered by facsimile prior to 7:00 p.m. (New York City
time) on any date, then the day prior to such date shall be the last Trading Day
calculated to determine the Conversion Price applicable to such Conversion
Notice, and the date of such delivery shall commence the counting of days for
purposes of Section 4(b).
SECTION 5. OPTIONAL PREPAYMENT.
(a) The Company shall have the right, exercisable at any time upon
twenty (20) Trading Days prior written notice to the Holder (the "OPTIONAL
PREPAYMENT NOTICE"), to prepay, from funds legally available therefor at the
time of such prepayment, all or any portion of the outstanding principal amount
of the Debentures which have not previously been repaid or for which Conversion
Notices have not previously been delivered hereunder, at a price
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equal to the Optional Prepayment Price (as defined below). Any such prepayment
by the Company shall be in cash and shall be free of any claim of subordination.
The Holder shall have the right to tender, and the Company shall honor,
Conversion Notices delivered prior to the expiration of the twentieth (20th)
Trading Day after receipt by the Holder of an Optional Prepayment Notice for
such Debentures (such date, the "OPTIONAL PREPAYMENT DATE").
(b) If any portion of the Optional Prepayment Price shall not be paid
by the Company by the Optional Prepayment Date, the Optional Prepayment Price
shall be increased by 18% per annum (to accrue daily) until paid (which amount
shall be paid as liquidated damages and not as a penalty). In addition, if any
portion of the optional Prepayment Price remains unpaid through the expiration
of the Optional Prepayment Date, the Holder subject to such prepayment may elect
by written notice to the Company to either (i) demand conversion in accordance
with the formula and the time period therefor set forth in Section 4 of any
portion of the principal amount of Debentures for which the Optional Prepayment
Price (including interest therefor), plus accrued liquidated damages thereof,
has not been paid in full (the "UNPAID PREPAYMENT PRINCIPAL AMOUNT"), in which
event the applicable Per Share Market Value shall be the lower of the Per Share
Market Value calculated on the Optional Prepayment Date and the Per Share Market
Value as of the Holder's written demand for conversion, or (ii) invalidate AB
INITIO such optional redemption, notwithstanding anything herein contained to
the contrary. If the Holder elects option (i) above, the Company shall within
three (3) Trading Days such election is deemed delivered hereunder to the Holder
the shares of Common Stock issuable upon conversion of the Unpaid Prepayment
Amount subject to such conversion demand and otherwise perform its obligations
hereunder with respect thereto; or, if the Holder elects option (ii) above, the
Company shall promptly, and in any event not later than three Trading Days from
receipt of notice of such election, return to the Holder new Debentures for the
full Unpaid Prepayment Principal Amount. If, upon an election under option (i)
above, the Company fails to deliver the shares of Common Stock issuable upon
conversion of the Unpaid Prepayment Principal Amount within the time period set
forth in this Section, the Company shall pay to the Holder in cash, as
liquidated damages and not as a penalty, $1,500 per day until the Company
delivers such Common Stock to the Holder.
(c) The "OPTIONAL PREPAYMENT PRICE" for any Debentures shall equal the
sum of (i) the principal amount of Debentures to be prepaid, plus all accrued
and unpaid interest thereon, divided by the Conversion Price on (x) the Optional
Prepayment Date or (y) the date the Optional Prepayment Price is paid in full,
whichever is less, multiplied by the Average Price on (x) the Optional
Prepayment Date or (y) the date the Optional Prepayment Price is paid in full,
whichever is greater, and (ii) all other amounts and liquidated damages due in
respect of such principal amount.
SECTION 6. DEFINITIONS. For the purposes hereof, the following
terms shall have the following meanings:
"AVERAGE PRICE" on any date means the average Per Share Market Value
for the five (5) Trading Days immediately preceding such date.
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"BUSINESS DAY" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the State of
New York are authorized or required by law or other government action to close.
"COMMON STOCK" means common stock, $.001 par value per share, of the
Company and stock of any other class into which such shares may hereafter have
been reclassified or changed.
"MANDATORY REPAYMENT AMOUNT" for any Debentures shall equal the sum of
(i) the principal amount of Debentures to be prepaid, plus all accrued and
unpaid interest thereon, divided by the Conversion Price on (x) the date the
Mandatory Prepayment Amount is demanded or (y) the date the Mandatory Prepayment
Amount is paid in full, whichever is less, multiplied by the Per Share Market
Value on (x) the date the Mandatory Prepayment Amount is demanded or (y) the
date the Mandatory Prepayment Amount is paid in full, whichever is greater, and
(ii) all other amounts, costs, expenses and liquidated damages due in respect of
such Debentures.
"ORIGINAL ISSUE DATE" shall mean the date of the first issuance of any
Debentures regardless of the number of transfers of any Debenture and regardless
of the number of instruments which may be issued to evidence such Debenture.
"PER SHARE MARKET VALUE" on any particular date means (a) the closing
bid price per share of the Common Stock on such date on the Nasdaq SmallCap
Market or other stock exchange or quotation system on which the Common Stock is
listed for trading, or (b) if the Common Stock is not listed on the Nasdaq
SmallCap Market or any other stock exchange or market, the closing bid price per
share of the Common Stock on such date on the over-the-counter market, as
reported by the OTC Bulletin Board, or (c) if the Common Stock is not quoted on
the OTC Bulletin Board, the closing bid price per share of Common Stock on such
date on the over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions of
reporting prices), or (d) if the Common Stock is no longer traded on the
over-the-counter market and reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions of
reporting prices), such closing bid price shall be determined by reference to
"Pink Sheet" quotes for the relevant conversion period as determined in good
faith by the Holder or (c) if the Common Stock is not then publicly traded, the
fair market value of a share of Common Stock as determined by an appraiser
selected in good faith by the Holders of a majority in interest of the
Debentures (the Company, after receipt of the determination by such appraiser,
shall have the right to select an additional appraiser, in which case, the fair
market value shall be equal to the average of the determinations by each such
appraiser).
"PERSON" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"PURCHASE AGREEMENT" means the Convertible Debenture Purchase
Agreement,
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dated as of the Original Issue Date, among the Company and the original Holder,
as amended, modified or supplemented from time to time in accordance with its
terms.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of the Original Issue Date, among the Company and the
original Holder, as amended, modified or supplemented from time to time in
accordance with its terms.
"TRADING DAY" means (a) a day on which the Common Stock is traded on
the Nasdaq Stock Market or other stock exchange or market on which the Common
Stock has been listed, or (b) if the Common Stock is not then listed on the
Nasdaq Stock Market or any stock exchange or market, a day on which the Common
Stock is traded on the over-the-counter market, as reported by the OTC Bulletin
Board, or (c) if the Common Stock is not quoted on the OTC Bulletin Board, a day
on which the Common Stock is quoted on the over-the-counter market as reported
by the National Quotation Bureau Incorporated (or any similar organization or
agency succeeding its functions of reporting prices).
"UNDERLYING SHARES" means the shares of Common Stock into which the
Debentures, and interest thereon, are convertible in accordance with the terms
hereof and the Purchase Agreement.
"UNDERLYING SECURITIES REGISTRATION STATEMENT" means a registration
statement meeting the requirements set forth in the Registration Rights
Agreement, covering among other things the resale of the Underlying Shares and
naming the Holder as a "selling stockholders" thereunder.
SECTION 7. Except as expressly provided herein, no provision of
this Debenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of, interest and liquidated
damages (if any) on, this Debenture at the time, place, and rate, and in the
coin or currency, herein prescribed. This Debenture is a direct obligation of
the Company. This Debenture ranks PARI PASSU with all other Debentures now or
hereafter issued under the terms set forth herein. The Company may only
voluntarily prepay the outstanding principal amount on the Debentures in
accordance with Section 5 hereof.
SECTION 8. This Debenture shall not entitle the Holder to any of
the rights of a stockholder of the Company, including without limitation, the
right to vote, to receive dividends and other distributions, or to receive any
notice of, or to attend, meetings of stockholders or any other proceedings of
the Company, unless and to the extent converted into shares of Common Stock in
accordance with the terms hereof.
SECTION 9. If this Debenture shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution
for and upon cancellation of a mutilated Debenture, or in lieu of or in
substitution for a lost, stolen or destroyed debenture, a new Debenture for the
principal amount of this Debenture so mutilated, lost, stolen or destroyed but
only upon receipt of evidence of such loss, theft or destruction of such
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<PAGE>
Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.
SECTION 10. This Debenture shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
conflicts of laws thereof. The Company hereby irrevocably submits to the
non-exclusive jurisdiction of the state and federal courts sitting in the City
of New York, borough of Manhattan, for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or
discussed herein, and hereby irrevocably waives, and agrees not to assert in any
suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, or that such suit, action or proceeding is
improper. The Company hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
receiving a copy thereof sent to the Company at the address in effect for
notices to it under this instrument and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law.
SECTION 11. Any waiver by the Company or the Holder of a breach of
any provision of this Debenture shall not operate as or be construed to be a
waiver of any other breach of such provision or of any breach of any other
provision of this Debenture. The failure of the Company or the Holder to insist
upon strict adherence to any term of this Debenture on one or more occasions
shall not be considered a waiver or deprive that party of the right thereafter
to insist upon strict adherence to that term or any other term of this
Debenture. Any waiver must be in writing.
SECTION 12. If any provision of this Debenture is invalid, illegal
or unenforceable, the balance of this Debenture shall remain in effect, and if
any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances.
SECTION 13. Whenever any payment or other obligation hereunder
shall be due on a day other than a Business Day, such payment shall be made on
the next succeeding Business Day (or, if such next succeeding Business Day falls
in the next calendar month, the preceding Business Day in the appropriate
calendar month).
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed by a duly authorized officer as of the date first above indicated.
FIX-CORP INTERNATIONAL, INC.
By: /s/ Mark Fixler
------------------------------------
Name: Mark Fixler
Title: President/CEO
Attest:
By: /s/ Sherry L. Durst
--------------------------
Name: Sherry L. Durst
Title: Asst. Secretary
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby elects to convert Debenture No. A-14 into shares of
Common Stock, $.001 par value per share (the "Common Stock"), of Fix-Corp
International, Inc. (the "Company") according to the conditions hereof, as of
the date written below. If shares are to be issued in the name of a person
other than undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates and opinions as
reasonably requested by the Company in accordance therewith. No fee will be
charged to the holder for any conversion, except for such transfer taxes, if
any.
Conversion calculations:
-------------------------------------------------------
Date to Effect Conversion
-------------------------------------------------------
Principal Amount of Debentures to be Converted
--------------------------------------------------
Number of shares of Common Stock to be Issued
-------------------------------------------------------
Applicable Conversion Price
-------------------------------------------------------
Signature
-------------------------------------------------------
Name
-------------------------------------------------------
Address
<PAGE>
EXHIBIT 10.38
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "AGREEMENT") is made and
entered into as of April 8, 1998, between Fix-Corp International, Inc. a
Delaware corporation (the "COMPANY"), and JNC Strategic Fund Ltd., a corporation
organized under the laws of the Cayman Islands (the "PURCHASER").
This Agreement is made pursuant to the Convertible Debenture Purchase
Agreement, dated as of the date hereof between the Company and the Purchaser
(the "PURCHASE AGREEMENT").
The Company and the Purchaser hereby agree as follows:
1. DEFINITIONS
Capitalized terms used and not otherwise defined herein that are
defined in the Purchase Agreement shall have the meanings given such terms in
the Purchase Agreement. As used in this Agreement, the following terms shall
have the following meanings:
"ADVICE" shall have meaning set forth in Section 3(o).
"AFFILIATE" means, with respect to any Person, any other Person that
directly or indirectly controls or is controlled by or under common control with
such Person. For the purposes of this definition, "CONTROL," when used with
respect to any Person, means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms of "AFFILIATED," "CONTROLLING" and "CONTROLLED" have meanings
correlative to the foregoing.
"BUSINESS DAY" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the State of
New York generally are authorized or required by law or other government actions
to close.
"CLOSING DATE" shall have the meaning set forth in the Purchase
Agreement.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the Company's Common Stock, par value $.001 per
share.
<PAGE>
"DEBENTURES" means the Company's 4% Convertible Debentures due April
8, 2001 issued to the Purchaser pursuant to the Purchase Agreement.
"EFFECTIVENESS DATE" means the 50th day following the Closing Date.
"EFFECTIVENESS PERIOD" shall have the meaning set forth in Section
2(a).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FILING DATE" means the 20th day following the Closing Date.
"HOLDER" or "HOLDERS" means the holder or holders, as the case may be,
from time to time of Registrable Securities.
"INDEMNIFIED PARTY" shall have the meaning set forth in Section 5(c).
"INDEMNIFYING PARTY" shall have the meaning set forth in Section 5(c).
"LOSSES" shall have the meaning set forth in Section 5(a).
"NEW YORK COURTS" shall have the meaning set forth in Section 7(j).
"PERSON" means a corporation, an association, a partnership,
organization, government , a business, an individual, a political subdivision
thereof or a governmental agency.
"PURCHASE AGREEMENT" shall have the meaning set forth in the recitals
to this Agreement.
"PROCEEDING" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
"PROSPECTUS" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.
"REGISTRABLE SECURITIES" means the shares of Common Stock issuable
upon (a)
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conversion in full of the Debentures, (b) exercise in full of the Warrant and
(c) payment of interest in respect of the Debentures; PROVIDED, HOWEVER that in
order to account for the fact that the number of shares of Common Stock that are
issuable upon conversion of Debentures is determined in part upon the market
price of the Common Stock at the time of conversion, Registrable Securities
contemplated by clause (a) of this definition shall be deemed to include not
less than 200% of the number of shares of Common Stock into which the Debentures
are convertible, assuming such conversion occurred on the Closing Date or the
Filing Date (whichever date yields a lower Conversion Price, as such term is
defined in the Debentures). The initial Registration Statement shall cover at
least such number of shares of Common Stock as equals the sum of (x) 200% of the
number of shares of Common Stock into which the Debentures are convertible,
assuming such conversion occurred on the Closing Date or the Filing Date
(whichever date yields a lower Conversion Price), (y) interest thereon, and (z)
192,542 shares of Common Stock in respect of the Warrant. The Company shall be
required to file additional Registration Statements to the extent the actual
number of shares of Common Stock into which Debentures are convertible (together
with interest thereon) and the Warrant are exercisable exceeds the number of
shares of Common Stock initially registered in accordance with the immediately
prior sentence (the Company shall have 10 Business Days to file such additional
Registration Statement after notice of the requirement thereof, which the
Holders may give at such time when the number of shares of Common Stock as are
issuable upon conversion of Debentures exceeds 185% of the number of shares of
Common Stock into which Debentures are convertible, assuming such conversion
occurred on the Closing Date or the Filing Date (whichever yields a lower
Conversion Price.)
"REGISTRATION STATEMENT" means the registration statement, as amended,
pursuant to Section 2(a) (covering such number of Registrable Securities and any
additional Registration Statements contemplated in the definition of Registrable
Securities), including (in each case) the Prospectus, amendments and supplements
to such registration statement or Prospectus, including pre- and post-effective
amendments, all exhibits thereto, and all material incorporated by reference or
deemed to be incorporated by reference in such registration statement, PROVIDED,
HOWEVER, that in the event the Initial Registration Statement (as defined in
Section 2(a)) has been declared effective by the Commission on or prior to the
Filing Date, the term "Registration Statement" shall mean the registration
statement contemplated by Section 2(a) (covering such number of Registrable
Securities and any additional Registration Statements contemplated in the
definition of Registrable Securities), including (in each case) the Prospectus,
amendments and supplements to such registration statement or Prospectus,
including pre- and post-effective amendments, all exhibits thereto, and all
material incorporated by reference or deemed to be incorporated by reference in
such registration statement.
"RULE 158" means Rule 158 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
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<PAGE>
"RULE 415" means Rule 415 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SPECIAL COUNSEL" means one law firm acting as counsel to the Holders,
for which the Holders will be reimbursed by the Company pursuant to Section 4.
"UNDERWRITTEN REGISTRATION OR UNDERWRITTEN OFFERING" means a
registration in connection with which securities of the Company are sold to an
underwriter for reoffering to the public pursuant to an effective registration
statement.
"WARRANT" means the Common Stock purchase warrant issued to the
Purchaser pursuant to the Purchase Agreement on the Closing Date.
2. AMENDMENT TO SHELF REGISTRATION/NEW REGISTRATION STATEMENT
(a) On or prior to the Filing Date, the Company shall prepare and
file with the Commission a pre-effective amendment to the Company's SB-2
Registration Statement filed with the Commission on January 20, 1998 (the
"INITIAL REGISTRATION STATEMENT"), in order to provide for the resale of the
Registrable Securities, PROVIDED, HOWEVER, that in the event the Initial
Registration Statement has been declared effective by the Commission on or prior
to the Filing Date, the Company shall prepare and file with the Commission a
Registration Statement in order to provide for the resale of the Registrable
Securities. The Company shall use its best efforts to cause the Registration
Statement (as amended) to be declared effective under the Securities Act as
promptly as possible after the filing thereof, but in any event prior to the
Effectiveness Date, and shall use its best efforts to keep such Registration
Statement continuously effective under the Securities Act until the date which
is three years after the date that such Registration Statement is declared
effective by the Commission or such earlier date when all Registrable Securities
covered by such Registration Statement have been sold or may be sold without
volume restrictions pursuant to Rule 144(k) promulgated under the Securities
Act, as determined by the counsel to the Company pursuant to a written opinion
letter to such effect, addressed and acceptable to the Company's transfer agent
(the "EFFECTIVENESS PERIOD"); PROVIDED, HOWEVER, that the Company shall not be
deemed to have used its best efforts to keep the Registration Statement
effective during the Effectiveness Period if it voluntarily takes any action
that would result in the Holders not being able to sell the Registrable
Securities covered by such Registration Statement during the Effectiveness
Period, unless such action is required under applicable law or the Company has
filed a post-effective amendment to the Registration Statement and the
Commission has not declared it effective.
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(b) If the Holders of a majority of the Registrable Securities so
elect, an offering of Registrable Securities pursuant to the Registration
Statement may be effected in the form of an Underwritten Offering. In such
event, and if the managing underwriters advise the Company and such Holders in
writing that in their opinion the amount of Registrable Securities proposed to
be sold in such Underwritten Offering exceeds the amount of Registrable
Securities which can be sold in such Underwritten Offering, there shall be
included in such Underwritten Offering the amount of such Registrable Securities
which in the opinion of such managing underwriters can be sold, and such amount
shall be allocated PRO RATA among the Holders proposing to sell Registrable
Securities in such Underwritten Offering.
(c) If any of the Registrable Securities are to be sold in an
Underwritten Offering, the investment banker in interest that will administer
the offering will be selected by the Holders of a majority of the Registrable
Securities included in such offering upon consultation with the Company. No
Holder may participate in any Underwritten Offering hereunder unless such Person
(i) agrees to sell its Registrable Securities on the basis provided in any
underwriting agreements approved by the Persons entitled hereunder to approve
such arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such arrangements.
3. REGISTRATION PROCEDURES
In connection with the Company's registration obligations hereunder,
the Company shall:
(a) Prepare and file with the Commission on or prior to the Filing
Date, an amendment to the Registration Statement (and any additional
Registration Statements as may be required) in accordance with Section 2(a), and
cause the Registration Statement (as amended) to become effective and remain
effective as provided herein; PROVIDED, HOWEVER, that not less than five (5)
Business Days prior to the filing of the Registration Statement or any related
Prospectus or any amendment or supplement thereto (including any document that
would be incorporated or deemed to be incorporated therein by reference), the
Company shall (i) furnish to the Holders, their Special Counsel and any managing
underwriters, copies of all such documents proposed to be filed, which documents
(other than those incorporated or deemed to be incorporated by reference) will
be subject to the review of such Holders, their Special Counsel and such
managing underwriters, and (ii) cause its officers and directors, counsel and
independent certified public accountants to respond to such inquiries as shall
be necessary, in the opinion of respective counsel to such Holders and such
underwriters, to conduct a reasonable investigation within the meaning of the
Securities Act. The Company shall not file the Registration Statement or any
such Prospectus or any amendments or supplements thereto to which the Holders of
a majority of the Registrable Securities, their Special Counsel, or any managing
underwriters, shall reasonably object on a timely basis.
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(b) (i) Prepare and file with the Commission such additional
amendments, including post-effective amendments, to the Registration Statement
as may be necessary to keep the Registration Statement continuously effective as
to the applicable Registrable Securities for the Effectiveness Period and
prepare and file with the Commission such additional Registration Statements in
order to register for resale under the Securities Act all of the Registrable
Securities; (ii) cause the related Prospectus to be amended or supplemented by
any required Prospectus supplement, and as so supplemented or amended to be
filed pursuant to Rule 424 (or any similar provisions then in force) promulgated
under the Securities Act; (iii) respond as promptly as practicable to any
comments received from the Commission with respect to the Registration Statement
or any amendment thereto and promptly provide the Holders true and complete
copies of all correspondence from and to the Commission relating to the
Registration Statement; and (iv) comply with the provisions of the Securities
Act and the Exchange Act with respect to the disposition of all Registrable
Securities covered by the Registration Statement during the applicable period in
accordance with the intended methods of disposition by the Holders thereof set
forth in the Registration Statement as so amended or in such Prospectus as so
supplemented.
(c) Notify the Holders of Registrable Securities to be sold, their
Special Counsel and any managing underwriters immediately (and, in the case of
(i)(A) below, not less than five (5) days prior to such filing) and (if
requested by any such Person) confirm such notice in writing no later than one
(1) Business Day following the day (i)(A) when a Prospectus or any Prospectus
supplement or post-effective amendment to the Registration Statement is proposed
to be filed; (B) when the Commission notifies the Company whether there will be
a "review" of such Registration Statement and whenever the Commission comments
in writing on such Registration Statement (the Company shall provide true and
complete copies thereof and all written responses thereto to each of the
Holders) and (C) with respect to the Registration Statement or any
post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other Federal or state governmental authority
for amendments or supplements to the Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) if at any time any of the representations and warranties of the
Company contained in any agreement (including any underwriting agreement)
contemplated hereby ceases to be true and correct in all material respects; (v)
of the receipt by the Company of any notification with respect to the suspension
of the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of any
Proceeding for such purpose; and (vi) of the occurrence of any event that makes
any statement made in the Registration Statement or Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in any
material respect or that requires any revisions to the Registration Statement,
Prospectus or other documents so that, in the case of the Registration Statement
or the Prospectus, as the case may be, it will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
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circumstances under which they were made, not misleading.
(d) Use its best efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of (i) any order suspending the effectiveness of the
Registration Statement or (ii) any suspension of the qualification (or exemption
from qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment.
(e) If requested by any managing underwriter or the Holders of a
majority in interest of the Registrable Securities to be sold in connection with
an Underwritten Offering, (i) promptly incorporate in a Prospectus supplement or
post-effective amendment to the Registration Statement such information as such
managing underwriters and such Holders reasonably agree should be included
therein and (ii) make all required filings of such Prospectus supplement or such
post-effective amendment as soon as practicable after the Company has received
notification of the matters to be incorporated in such Prospectus supplement or
post-effective amendment; PROVIDED, HOWEVER, that the Company shall not be
required to take any action pursuant to this Section 3(e) that would, in the
opinion of counsel for the Company, violate applicable law or be materially
detrimental to the business prospects of the Company.
(f) Furnish to each Holder, their Special Counsel and any managing
underwriters, without charge, at least one conformed copy of each Registration
Statement and each amendment thereto, including financial statements and
schedules, all documents incorporated or deemed to be incorporated therein by
reference, and all exhibits to the extent reasonably requested by such Person
(including those previously furnished or incorporated by reference) promptly
after the filing of such documents with the Commission.
(g) Promptly deliver to each Holder, their Special Counsel, and any
underwriters, without charge, as many copies of the Prospectus or Prospectuses
(including each form of prospectus) and each amendment or supplement thereto as
such Persons may reasonably request; and the Company hereby consents to the use
of such Prospectus and each amendment or supplement thereto by each of the
selling Holders and any underwriters in connection with the offering and sale of
the Registrable Securities covered by such Prospectus and any amendment or
supplement thereto.
(h) Prior to any public offering of Registrable Securities, use its
best efforts to register or qualify or cooperate with the selling Holders, any
underwriters and their Special Counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of such
Registrable Securities for offer and sale under the securities or Blue Sky laws
of such jurisdictions as any Holder or underwriter requests in writing, to keep
each such registration or qualification (or exemption therefrom) effective
during the Effectiveness Period and to do any and all other acts or things
necessary or advisable to enable the disposition in such jurisdictions of the
Registrable Securities covered by a Registration Statement; PROVIDED, HOWEVER,
that the Company shall not be required to qualify
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generally to do business in any jurisdiction where it is not then so qualified
or to take any action that would subject it to general service of process in any
such jurisdiction where it is not then so subject or subject the Company to any
material tax in any such jurisdiction where it is not then so subject.
(i) Cooperate with the Holders and any managing underwriters to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold pursuant to a Registration Statement, which
certificates shall be free of all restrictive legends, and to enable such
Registrable Securities to be in such denominations and registered in such names
as any such managing underwriters or Holders may request at least three Business
Days prior to any sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section
3(c)(vi), as promptly as practicable, prepare a supplement or amendment,
including a post-effective amendment, to the Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither the Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(k) Use its best efforts to cause all Registrable Securities relating
to such Registration Statement to be listed on the OTC Bulletin Board and any
other securities exchange, quotation system, market or over-the-counter bulletin
board, if any, on which similar securities issued by the Company are then listed
as and when required pursuant to the Purchase Agreement.
(l) In the case of an Underwritten Offering, enter into such
agreements (including an underwriting agreement in form, scope and substance as
is customary in Underwritten Offerings) and take all such other actions in
connection therewith (including those reasonably requested by any managing
underwriters and the Holders of a majority of the Registrable Securities being
sold) in order to expedite or facilitate the disposition of such Registrable
Securities, and whether or not an underwriting agreement is entered into, (i)
make such representations and warranties to such Holders and such underwriters
as are customarily made by issuers to underwriters in underwritten public
offerings, and confirm the same if and when requested; (ii) obtain and deliver
copies thereof to each Holder and the managing underwriters, if any, of opinions
of counsel to the Company and updates thereof addressed to each selling Holder
and each such underwriter, in form, scope and substance reasonably satisfactory
to any such managing underwriters and Special Counsel to the selling Holders
covering the matters customarily covered in opinions requested in Underwritten
Offerings and such other matters as may be reasonably requested by such Special
Counsel and underwriters; (iii) immediately prior to the effectiveness of the
Registration Statement or at the time of delivery of any Registrable Securities
sold pursuant thereto (at the option of the underwriters),
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obtain and deliver copies to the Holders and the managing underwriters, if any,
of "cold comfort" letters and updates thereof from the independent certified
public accountants of the Company (and, if necessary, any other independent
certified public accountants of any subsidiary of the Company or of any business
acquired by the Company for which financial statements and financial data is, or
is required to be, included in the Registration Statement), addressed to each
Person and in such form and substance as are customary in connection with
Underwritten Offerings; (iv) if an underwriting agreement is entered into, the
same shall contain indemnification provisions and procedures no less favorable
to the selling Holders and the underwriters, if any, than those set forth in
Section 7 (or such other provisions and procedures acceptable to the managing
underwriters, if any, and holders of a majority of Registrable Securities
participating in such Underwritten Offering; and (v) deliver such documents and
certificates as may be reasonably requested by the Holders of a majority of the
Registrable Securities being sold, their Special Counsel and any managing
underwriters to evidence the continued validity of the representations and
warranties made pursuant to clause 3(l)(i) above and to evidence compliance with
any customary conditions contained in the underwriting agreement or other
agreement entered into by the Company.
(m) Make available for inspection by the selling Holders, a
representative of such Holders, an underwriter participating in any disposition
of Registrable Securities, and an attorney or accountant retained by such
selling Holders or underwriters, at the offices where normally kept, during
reasonable business hours, all financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries, and cause the
officers, directors, agents and employees of the Company and its subsidiaries to
supply all information in each case requested by any such Holder,
representative, underwriter, attorney or accountant in connection with the
Registration Statement; PROVIDED, HOWEVER, that any information that is
determined in good faith by the Company in writing to be of a confidential
nature at the time of delivery of such information shall be kept confidential by
such Persons, unless (i) disclosure of such information is required by court or
administrative order or is necessary to respond to inquiries of regulatory
authorities; (ii) disclosure of such information, in the opinion of counsel to
such Person, is required by law; (iii) such information becomes generally
available to the public other than as a result of a disclosure or failure to
safeguard by such Person; or (iv) such information becomes available to such
Person from a source other than the Company and such source is not known by such
Person to be bound by a confidentiality agreement with the Company.
(n) Comply with all applicable rules and regulations of the
Commission and make generally available to its security holders earning
statements satisfying the provisions of Section 11(a) of the Securities Act and
Rule 158 not later than 45 days after the end of any 12-month period (or 90 days
after the end of any 12-month period if such period is a fiscal year) (i)
commencing at the end of any fiscal quarter in which Registrable Securities are
sold to underwriters in a firm commitment or best efforts Underwritten Offering
and (ii) if not sold to underwriters in such an offering, commencing on the
first day of the first fiscal quarter of the Company after the effective date of
the Registration Statement, which statement shall cover
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said 12-month period, or end shorter periods as is consistent with the
requirements of Rule 158.
(o) The Company may require each selling Holder to furnish to the
Company such information regarding the distribution of such Registrable
Securities and the beneficial ownership of Common Stock held by such selling
Holder as is required by law to be disclosed in the Registration Statement and
the Company may exclude from such registration the Registrable Securities of any
such Holder who unreasonably fails to furnish such information within a
reasonable time after receiving such request.
If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (if such reference to such Holder by name or otherwise
is not required by the Securities Act or any similar Federal statute then in
force) the deletion of the reference to such Holder in any amendment or
supplement to the Registration Statement filed or prepared subsequent to the
time that such reference ceases to be required.
Each Holder agrees by its acquisition of such Registrable Securities
that (i) it will not offer or sell any Registrable Securities under the
Registration Statement until it has received copies of the Prospectus as then
amended or supplemented as contemplated in Section 3(g) and notice from the
Company that such Registration Statement and any post-effective amendments
thereto have become effective as contemplated by Section 3(c) and (ii) it will
comply with the prospectus delivery requirements of the Securities Act as
applicable to it in connection with sales of Registrable Securities pursuant to
the Registration Statement.
Each Holder agrees by its acquisition of such Registrable Securities
that, upon receipt of a notice from the Company of the occurrence of any event
of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v) or
3(c)(vi), such Holder will forthwith discontinue disposition of such Registrable
Securities until such Holder's receipt of the copies of the supplemented
Prospectus and/or amended Registration Statement contemplated by Section 3(j),
or until it is advised in writing (the "ADVICE") by the Company that the use of
the applicable Prospectus may be resumed, and, in either case, has received
copies of any additional or supplemental filings that are incorporated or deemed
to be incorporated by reference in such Prospectus or Registration Statement.
4. REGISTRATION EXPENSES
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall, except as and to the extent
specified in Section 4(b), be borne by the Company whether or not pursuant to an
Underwritten Offering and whether or not the Registration Statement is filed or
becomes effective and whether or not any Registrable Securities are sold
pursuant to the Registration Statement. The fees and expenses referred to in
the foregoing sentence shall include, without limitation, (i) all registration
and filing fees
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(including, without limitation, fees and expenses (A) with respect to filings
required to be made with the OTC Bulletin Board and each other securities
exchange or market on which Registrable Securities are required hereunder to be
listed and (B) in compliance with state securities or Blue Sky laws (including,
without limitation, fees and disbursements of counsel for the underwriters or
Holders in connection with Blue Sky qualifications of the Registrable Securities
and determination of the eligibility of the Registrable Securities for
investment under the laws of such jurisdictions as the managing underwriters, if
any, or the Holders of a majority of Registrable Securities may designate)),
(ii) printing expenses (including, without limitation, expenses of printing
certificates for Registrable Securities and of printing prospectuses if the
printing of prospectuses is requested by the managing underwriters, if any, or
by the holders of a majority of the Registrable Securities included in the
Registration Statement), (iii) messenger, telephone and delivery expenses, (iv)
fees and disbursements of counsel for the Company and Special Counsel for the
Holders, in the case of the Special Counsel, to a maximum amount of $5,000, (v)
Securities Act liability insurance, if the Company so desires such insurance,
and (vi) fees and expenses of all other Persons retained by the Company in
connection with the consummation of the transactions contemplated by this
Agreement. In addition, the Company shall be responsible for all of its
internal expenses incurred in connection with the consummation of the
transactions contemplated by this Agreement (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit, the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder.
(b) If the Holders require an Underwritten Offering pursuant to the
terms hereof, the Company shall be responsible for all costs, fees and expenses
in connection therewith, except for the fees and disbursements of the
Underwriters (including any underwriting commissions and discounts) and their
legal counsel and accountants. By way of illustration which is not intended to
diminish from the provisions of Section 4(a), the Holders shall not be
responsible for, and the Company shall be required to pay the fees or
disbursements incurred by the Company (including by its legal counsel and
accountants) in connection with, the preparation and filing of a Registration
Statement and related Prospectus for such offering, the maintenance of such
Registration Statement in accordance with the terms hereof, the listing of the
Registrable Securities in accordance with the requirements hereof, and printing
expenses incurred to comply with the requirements hereof.
5. INDEMNIFICATION
(a) INDEMNIFICATION BY THE COMPANY. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents (including any underwriters
retained by such Holder in connection with the offer and sale of Registrable
Securities), brokers (including brokers who offer and sell Registrable
Securities as principal as a result of a pledge or any failure to perform under
a margin call of Common Stock), investment advisors and employees of each of
them, each
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<PAGE>
Person who controls any such Holder (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) and the officers, directors,
agents and employees of each such controlling Person, to the fullest extent
permitted by applicable law, from and against any and all losses, claims,
damages, liabilities, costs (including, without limitation, costs of preparation
and attorneys' fees) and expenses (collectively, "LOSSES"), as incurred, arising
out of or relating to any untrue or alleged untrue statement of a material fact
contained in the Registration Statement, any Prospectus or any form of
prospectus or in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or relating to any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in light of the circumstances under which they were made)
not misleading, except to the extent, but only to the extent, that such untrue
statements or omissions are based solely upon information regarding such Holder
furnished in writing to the Company by or on behalf of such Holder expressly for
use therein, or to the extent that such information relates to such Holder or
such Holder's proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder expressly for use in
the Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto. The Company shall notify the Holders promptly
of the institution, threat or assertion of any Proceeding of which the Company
is aware in connection with the transactions contemplated by this Agreement.
(b) INDEMNIFICATION BY HOLDERS. Each Holder shall, severally and not
jointly, indemnify and hold harmless the Company, its directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review) arising solely out of or based solely upon any untrue
statement of a material fact contained in the Registration Statement, any
Prospectus, or any form of prospectus, or arising solely out of or based solely
upon any omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading to the extent, but only to the
extent, that such untrue statement or omission is contained in any information
so furnished in writing by such Holder to the Company specifically for inclusion
in the Registration Statement or such Prospectus or to the extent that such
information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Holder expressly for use in the Registration Statement, such
Prospectus or such form of Prospectus. In no event shall the liability of any
selling Holder hereunder be greater in amount than the dollar amount of the net
proceeds received by such Holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any Proceeding shall
be brought or asserted against any Person entitled to indemnity hereunder (an
"INDEMNIFIED
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PARTY"), such Indemnified Party promptly shall notify the Person from whom
indemnity is sought (the "INDEMNIFYING PARTY") in writing, and the Indemnifying
Party shall assume the defense thereof, including the employment of counsel
reasonably satisfactory to the Indemnified Party and the payment of all fees and
expenses incurred in connection with defense thereof; provided, that the failure
of any Indemnified Party to give such notice shall not relieve the Indemnifying
Party of its obligations or liabilities pursuant to this Agreement, except (and
only) to the extent that it shall be finally determined by a court of competent
jurisdiction (which determination is not subject to appeal or further review)
that such failure shall have proximately and materially adversely prejudiced the
Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel
in any such Proceeding and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Party
or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses; or (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall have been advised by counsel that a conflict of interest is likely to
exist if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall,
without the prior written consent of the Indemnified Party, effect any
settlement of any pending Proceeding in respect of which any Indemnified Party
is a party, unless such settlement includes an unconditional release of such
Indemnified Party from all liability on claims that are the subject matter of
such Proceeding.
All fees and expenses of the Indemnified Party (including reasonable
fees and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within 10 Business
Days of written notice thereof to the Indemnifying Party (regardless of whether
it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; PROVIDED, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).
(d) CONTRIBUTION. If a claim for indemnification under Section 5(a)
or 5(b) is unavailable to an Indemnified Party because of a failure or refusal
of a governmental authority to enforce such indemnification in accordance with
its terms (by reason of public policy or
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otherwise), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 5(c), any reasonable attorneys' or other
reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was available to
such party in accordance with its terms.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by PRO RATA
allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 5(d), the Purchaser
shall not be required to contribute, in the aggregate, any amount in excess
of the amount by which the proceeds actually received by the Purchaser from
the sale of the Registrable Securities subject to the Proceeding exceeds the
amount of any damages that the Purchaser have otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
The indemnity and contribution agreements contained in this Section
are in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
6. MISCELLANEOUS
(a) REMEDIES. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement.
The Company and each Holder agree that monetary damages would not provide
adequate compensation for any losses incurred by reason of a breach by it of any
of the provisions of this Agreement and hereby further agrees that, in the event
of any action for specific performance in respect of such breach, it shall waive
the defense that a remedy at law would be adequate.
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(b) NO INCONSISTENT AGREEMENTS. Except as and to the extent
specifically set forth in SCHEDULE 6(b) attached hereto, neither the Company nor
any of its subsidiaries has, as of the date hereof, nor shall the Company or any
of its subsidiaries, on or after the date of this Agreement, enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. Except as and to the extent specifically set forth in
SCHEDULE 6(b) attached hereto, neither the Company nor any of its subsidiaries
has previously entered into any agreement granting any registration rights with
respect to any of its securities to any Person. Without limiting the generality
of the foregoing, without the written consent of the Holders of a majority of
the then outstanding Registrable Securities, the Company shall not grant to any
Person the right to request the Company to register any securities of the
Company under the Securities Act unless the rights so granted are subject in all
respects to the prior rights in full of the Holders set forth herein, and are
not otherwise in conflict or inconsistent with the provisions of this Agreement.
(c) NO PIGGYBACK ON REGISTRATIONS. Except as and to the extent
specifically set forth in SCHEDULE 6(b) attached hereto, neither the Company nor
any of its security holders (other than the Holders in such capacity pursuant
hereto) may include securities of the Company in the Registration Statement
other than the Registrable Securities, and the Company shall not enter into any
agreement providing any such right to any of its securityholders.
(d) PIGGY-BACK REGISTRATIONS. If at any time during the
Effectiveness Period there is not an effective Registration Statement covering
all of the Registrable Securities and the Company shall determine to prepare and
file with the Commission a registration statement relating to an offering for
its own account or the account of others under the Securities Act of any of its
equity securities, other than on Form S-4 or Form S-8 (each as promulgated under
the Securities Act) or their then equivalents relating to equity securities to
be issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, then the Company shall send to each holder of Registrable
Securities written notice of such determination and, if within twenty (20) days
after receipt of such notice, any such holder shall so request in writing, the
Company shall include in such registration statement all or any part of the
Registrable Securities such holder requests to be registered. No right to
registration of Registrable Securities under this Section shall be construed to
limit any registration otherwise required hereunder.
(e) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and the Holders of at least a majority of the then outstanding Registrable
Securities; PROVIDED, HOWEVER, that, for the purposes of this sentence,
Registrable Securities that are owned, directly or indirectly, by the Company,
or an Affiliate of the Company are not deemed outstanding. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with respect
to a matter that relates exclusively to the
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rights of Holders and that does not directly or indirectly affect the rights of
other Holders may be given by Holders of at least a majority of the Registrable
Securities to which such waiver or consent relates; PROVIDED, HOWEVER, that the
provisions of this sentence may not be amended, modified, or supplemented except
in accordance with the provisions of the immediately preceding sentence.
(f) NOTICES. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 7:00 p.m. (New
York City time) on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in the Purchase Agreement later than 7:00
p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City
time) on such date, (iii) the Business Day following the date of mailing, if
sent by nationally recognized overnight courier service, or (iv) upon actual
receipt by the party to whom such notice is required to be given. The address
for such notices and communications shall be as follows:
If to the Company: Fix-Corp International, Inc.
3637 South Green Road, Suite 201
Beachwood, OH 44122
Facsimile No.: (216) 292-6187
Attn: Chief Financial Officer
With copies to: Bricker & Eckler LLP
100 South Third Street
Columbus, OH 43215
Facsimile No.: (614) 227-2390
Attn: Steven Kerber
If to the Purchaser: JNC Strategic Fund Ltd.
Olympia Capital (Cayman) Ltd.
c/o Olympia Capital (Bermuda) Ltd.
Williams House
20 Reid Street
Hamilton HM11
Bermuda
Facsimile No.: (441) 295-2305
Attn: Director
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With copies to: Encore Capital Management, L.L.C.
12007 Sunrise Valley Drive
Suite 460
Reston, VA 20191
Facsimile No.: (703) 476-7711
Attn: Neil T. Chau
-and-
Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Eric L. Cohen
If to any other Person who is then the registered Holder:
To the address of such Holder as it appears in the
stock transfer books of the Company
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
(g) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each Holder. The Company may not
assign its rights or obligations hereunder without the prior written consent of
each Holder. The Purchaser may assign its rights hereunder in the manner and to
the Persons as permitted under the Purchase Agreement.
(h) ASSIGNMENT OF REGISTRATION RIGHTS. The rights of the Purchaser
hereunder, including the right to have the Company register for resale
Registrable Securities in accordance with the terms of this Agreement, shall be
automatically assignable by the Purchaser to any assignee or transferee of all
or a portion of the Debentures, the Warrant and other Common Stock warrants
referenced in the definition of Registrable Securities or Registrable Securities
without the consent of the Company if: (i) the Purchaser agrees in writing with
the transferee or assignee to assign such rights, and a copy of such agreement
is furnished to the Company within a reasonable time after such assignment, (ii)
the Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (a) the name and address of such transferee or
assignee, and (b) the securities with respect to such registration rights are
being transferred or assigned, (iii) at or before the time the Company receives
the written notice contemplated by clause (ii) of this Section, the transferee
or
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assignee agrees in writing with the Company to be bound by all of the provisions
of this Agreement, and (iv) such transfer shall have been made in accordance
with the applicable requirements of the Purchase Agreement. The rights to
assignment shall apply to the Purchaser's (and to subsequent) successors and
assigns.
(i) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement.
In the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.
(j) GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement shall
be governed by and construed in accordance with the laws of the State of New
York, without regard to principles of conflicts of law. Each party hereby
irrevocably submits to the non-exclusive jurisdiction of any New York state
court sitting in the Borough of Manhattan, the state and federal courts sitting
in the City of New York or any federal court sitting in the Borough of Manhattan
in the City of New York (collectively, the "NEW YORK COURTS") in respect of any
Proceeding arising out of or relating to this Agreement, and irrevocably accepts
for itself and in respect of its property, generally and unconditionally,
jurisdiction of the New York Courts. The Company irrevocably waives to the
fullest extent it may effectively do so under applicable law any objection that
it may now or hereafter have to the laying of the venue of any such proceeding
brought in any New York Court and any claim that any such Proceeding brought in
any New York Court has been brought in an inconvenient forum. Nothing herein
shall affect the right of any Holder. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by receiving a copy thereof sent to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.
(k) CUMULATIVE REMEDIES. The remedies provided herein are cumulative
and not exclusive of any remedies provided by law.
(l) SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid,
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illegal, void or unenforceable.
(m) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(n) SHARES HELD BY THE COMPANY AND ITS AFFILIATES. Whenever the
consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
its Affiliates (other than the Purchaser or transferees or successors or assigns
thereof if such Persons are deemed to be Affiliates solely by reason of their
holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.
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[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
FIX-CORP INTERNATIONAL, INC.
By: /s/ Mark Fixler
--------------------------------
Name: Mark Fixler
Title: President/CEO
JNC STRATEGIC FUND LTD.
By: /s/ Thomas H. Davis
--------------------------------
Name: Thomas H. Davis
Title: Director
<PAGE>
EXHIBIT 10.39
NEITHER THIS WARRANT NOR THE SECURITIES INTO WHICH THIS WARRANT IS
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION
OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
FIX-CORP INTERNATIONAL, INC.
WARRANT
Warrant No. 007 Dated: April 8, 1998
FIX-CORP INTERNATIONAL, INC., a Delaware corporation (the "Company"),
hereby certifies that, for value received, JNC Strategic Fund Ltd., or its
registered assigns ("Holder"), is entitled, subject to the terms set forth
below, to purchase from the Company up to a total of 192,542 shares of Common
Stock, $.001 par value per share (the "Common Stock"), of the Company (each such
share, a "Warrant Share" and all such shares, the "Warrant Shares") at an
exercise price equal to $4.22 per share (as adjusted from time to time as
provided in Section 8, the "Exercise Price"), at any time and from time to time
from and after the date hereof and through and including April 8, 2001 (the
"Expiration Date"), and subject to the following terms and conditions:
1. REGISTRATION OF WARRANT. The Company shall register this
Warrant, upon records to be maintained by the Company for that purpose (the
"Warrant Register"), in the name of the record Holder hereof from time to time.
The Company may deem and treat the registered Holder of this Warrant as the
absolute owner hereof for the purpose of any exercise hereof or any distribution
to the Holder, and for all other purposes, and the Company shall not be affected
by notice to the contrary.
2. REGISTRATION OF TRANSFERS AND EXCHANGES.
(a) The Company shall register the transfer of any portion of
this Warrant in the Warrant Register, upon surrender of this Warrant, with the
Form of Assignment attached hereto duly completed and signed, to the Company at
the office specified
<PAGE>
in or pursuant to Section 3(b). Upon any such registration or transfer, a new
warrant to purchase Common Stock, in substantially the form of this Warrant (any
such new warrant, a "New Warrant"), evidencing the portion of this Warrant so
transferred shall be issued to the transferee and a New Warrant evidencing the
remaining portion of this Warrant not so transferred, if any, shall be issued to
the transferring Holder. The acceptance of the New Warrant by the transferee
thereof shall be deemed the acceptance of such transferee of all of the rights
and obligations of a holder of a Warrant.
(b) This Warrant is exchangeable, upon the surrender hereof by
the Holder to the office of the Company specified in or pursuant to Section 3(b)
for one or more New Warrants, evidencing in the aggregate the right to purchase
the number of Warrant Shares which may then be purchased hereunder. Any such
New Warrant will be dated the date of such exchange.
3. DURATION AND EXERCISE OF WARRANTS.
(a) This Warrant shall be exercisable by the registered Holder
on any business day before 5:30 P.M., New York City time, at any time and from
time to time on or after the date hereof to and including the Expiration Date.
At 5:30 P.M., New York City time on the Expiration Date, the portion of this
Warrant not exercised prior thereto shall be and become void and of no value.
This Warrant may not be redeemed by the Company.
(b) Subject to Sections 2(b), 6 and 11, upon surrender of this
Warrant, with the Form of Election to Purchase attached hereto duly completed
and signed, to the Company at its address for notice set forth in Section 11 and
upon payment of the Exercise Price multiplied by the number of Warrant Shares
that the Holder intends to purchase hereunder, in lawful money of the United
States of America, in cash or by certified or official bank check or checks, all
as specified by the Holder in the Form of Election to Purchase, the Company
shall promptly (but in no event later than 3 business days after the Date of
Exercise (as defined herein)) issue or cause to be issued and cause to be
delivered to or upon the written order of the Holder and in such name or names
as the Holder may designate, a certificate for the Warrant Shares issuable upon
such exercise, free of restrictive legends other than as required by the
Purchase Agreement of even date herewith between the Holder and the Company.
Any person so designated by the Holder to receive Warrant Shares shall be deemed
to have become holder of record of such Warrant Shares as of the Date of
Exercise of this Warrant.
A "Date of Exercise" means the date on which the Company shall
have received (i) this Warrant (or any New Warrant, as applicable), with the
Form of Election to Purchase attached hereto (or attached to such New Warrant)
appropriately completed and duly signed, and (ii) payment of the Exercise Price
for the number of Warrant Shares so indicated by the holder hereof to be
purchased.
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(c) This Warrant shall be exercisable, either in its entirety
or, from time to time, for a portion of the number of Warrant Shares. If less
than all of the Warrant Shares which may be purchased under this Warrant are
exercised at any time, the Company shall issue or cause to be issued, at its
expense, a New Warrant evidencing the right to purchase the remaining number of
Warrant Shares for which no exercise has been evidenced by this Warrant.
4. PIGGYBACK REGISTRATION RIGHTS. During the term of this Warrant,
the Company may not file any registration statement with the Securities and
Exchange Commission (other than registration statements of the Company filed on
Form S-8 or Form S-4, each as promulgated under the Securities Act of 1933, as
amended (the "SECURITIES ACT"), pursuant to which the Company is registering
securities pursuant to a Company employee benefit plan or pursuant to a merger,
acquisition or similar transaction including supplements thereto, but not
additionally filed registration statements in respect of such securities) at any
time when there is not an effective registration statement covering the resale
of the Warrant Shares and naming the Holder as a selling stockholder thereunder,
unless the Company provides the Holder with not less than 20 days notice to each
of the Holder and Robinson Silverman Pearce Aronsohn & Berman LLP, attention
Eric L. Cohen, notice of its intention to file such registration statement and
provides the Holder the option to include any or all of the applicable Warrant
Shares therein. The piggyback registration rights granted to the Holder
pursuant to this Section shall continue until all of the Holder's Warrant Shares
have been sold in accordance with an effective registration statement or upon
the Expiration Date. The Company will pay all registration expenses in
connection therewith.
5. PAYMENT OF TAXES. The Company will pay all documentary stamp
taxes attributable to the issuance of Warrant Shares upon the exercise of this
Warrant; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Warrant Shares or Warrants in a name other than that of
the Holder, and the Company shall not be required to issue or cause to be issued
or deliver or cause to be delivered the certificates for Warrant Shares unless
or until the person or persons requesting the issuance thereof shall have paid
to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid. The Holder shall be
responsible for all other tax liability that may arise as a result of holding or
transferring this Warrant or receiving Warrant Shares upon exercise hereof.
6. REPLACEMENT OF WARRANT. If this Warrant is mutilated, lost,
stolen or destroyed, the Company shall issue or cause to be issued in exchange
and substitution for and upon cancellation hereof, or in lieu of and
substitution for this Warrant, a New Warrant, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
indemnity, if reasonably satisfactory to it. Applicants for a New Warrant under
such circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.
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<PAGE>
7. RESERVATION OF WARRANT SHARES. The Company covenants that it
will at all times reserve and keep available out of the aggregate of its
authorized but unissued Common Stock, solely for the purpose of enabling it to
issue Warrant Shares upon exercise of this Warrant as herein provided, the
number of Warrant Shares which are then issuable and deliverable upon the
exercise of this entire Warrant, free from preemptive rights or any other actual
contingent purchase rights of persons other than the Holder (taking into account
the adjustments and restrictions of Section 8). The Company covenants that all
Warrant Shares that shall be so issuable and deliverable shall, upon issuance
and the payment of the applicable Exercise Price in accordance with the terms
hereof, be duly and validly authorized, issued and fully paid and nonassessable.
8. CERTAIN ADJUSTMENTS. The Exercise Price and number of Warrant
Shares issuable upon exercise of this Warrant are subject to adjustment from
time to time as set forth in this Section 8. Upon each such adjustment of the
Exercise Price pursuant to this Section 8, the Holder shall thereafter prior to
the Expiration Date be entitled to purchase, at the Exercise Price resulting
from such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(a) If the Company, at any time while this Warrant is
outstanding, (i) shall pay a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock (as defined below) or on any other
class of capital stock (and not the Common Stock) payable in shares of Common
Stock, (ii) subdivide outstanding shares of Common Stock into a larger number of
shares, or (iii) combine outstanding shares of Common Stock into a smaller
number of shares, the Exercise Price shall be multiplied by a fraction of which
the numerator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding before such event and of which the denominator shall
be the number of shares of Common Stock (excluding treasury shares, if any)
outstanding after such event. Any adjustment made pursuant to this Section
shall become effective immediately after the record date for the determination
of stockholders entitled to receive such dividend or distribution and shall
become effective immediately after the effective date in the case of a
subdivision or combination, and shall apply to successive subdivisions and
combinations.
(b) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person, the sale or
transfer of all or substantially all of the assets of the Company in which the
consideration therefor is equity or equity equivalent securities or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities or property, then the Holder shall have the right thereafter to
exercise this Warrant only into the shares of stock and other securities and
property receivable upon or deemed to be held by holders of Common Stock
following such reclassification, consolidation, merger, sale, transfer or share
exchange, and the Holder shall
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<PAGE>
be entitled upon such event to receive such amount of securities or property of
the Company's business combination partner equal to the amount of Warrant Shares
such Holder would have been entitled to had such Holder exercised this Warrant
immediately prior to such reclassification, consolidation, merger, sale,
transfer or share exchange. The terms of any such consolidation, merger, sale,
transfer or share exchange shall include such terms so as to continue to give to
the Holder the right to receive the securities or property set forth in this
Section 8(b) upon any exercise following any such reclassification,
consolidation, merger, sale, transfer or share exchange.
(c) If the Company, at any time while this Warrant is
outstanding, shall distribute to all holders of Common Stock (and not to holders
of this Warrant) evidences of its indebtedness or assets or rights or warrants
to subscribe for or purchase any security (excluding those referred to in
Sections 8(a), (b) and (d)), then in each such case the Exercise Price shall be
determined by multiplying the Exercise Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Exercise Price
determined as of the record date mentioned above, and of which the numerator
shall be such Exercise Price on such record date less the then fair market value
at such record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined by
a nationally recognized or major regional investment banking firm or firm of
independent certified public accountants of recognized standing (which may be
the firm that regularly examines the financial statements of the Company) (an
"Appraiser") mutually selected in good faith by the holders of a majority in
interest of the Warrants then outstanding and the Company. Any determination
made by the Appraiser shall be final.
(d) If, at any time while this Warrant is outstanding, the
Company shall issue or cause to be issued rights or warrants to acquire or
otherwise sell or distribute shares of Common Stock to all holders of Common
Stock for a consideration per share less than the Exercise Price then in effect,
then, forthwith upon such issue or sale, the Exercise Price shall be reduced to
the price (calculated to the nearest cent) determined by dividing (i) an amount
equal to the sum of (A) the number of shares of Common Stock outstanding
immediately prior to such issue or sale multiplied by the Exercise Price, and
(B) the consideration, if any, received or receivable by the Company upon such
issue or sale by (ii) the total number of shares of Common Stock outstanding
immediately after such issue or sale.
(e) For the purposes of this Section 8, the following clauses
shall also be applicable:
(i) RECORD DATE. In case the Company shall take a record
of the holders of its Common Stock for the purpose of entitling them (A) to
receive a dividend or other distribution payable in Common Stock or in
securities convertible or exchangeable into shares of Common Stock, or (B) to
subscribe for or purchase Common Stock or securities convertible or exchangeable
into shares of Common Stock, then such record date shall be
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<PAGE>
deemed to be the date of the issue or sale of the shares of Common Stock deemed
to have been issued or sold upon the declaration of such dividend or the making
of such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(ii) TREASURY SHARES. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock.
(f) All calculations under this Section 8 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.
(g) If:
(i) the Company shall declare a dividend (or any
other distribution) on its Common Stock; or
(ii) the Company shall declare a special
nonrecurring cash dividend on or a redemption
of its Common Stock; or
(iii) the Company shall authorize the granting to all
holders of the Common Stock rights or warrants
to subscribe for or purchase any shares of
capital stock of any class or of any rights; or
(iv) the approval of any stockholders of the Company
shall be required in connection with any
reclassification of the Common Stock of the
Company, any consolidation or merger to which
the Company is a party, any sale or transfer of
all or substantially all of the assets of the
Company, or any compulsory share exchange
whereby the Common Stock is converted into
other securities, cash or property; or
(v) the Company shall authorize the voluntary
dissolution, liquidation or winding up of the
affairs of the Company,
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least 30 calendar days prior
to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be
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<PAGE>
taken for the purpose of such dividend, distribution, redemption, rights or
warrants, or if a record is not to be taken, the date as of which the holders of
Common Stock of record to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined or (y) the date on which
such reclassification, consolidation, merger, sale, transfer or share exchange
is expected to become effective or close, and the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities, cash or other property deliverable
upon such reclassification, consolidation, merger, sale, transfer, share
exchange, dissolution, liquidation or winding up; PROVIDED, HOWEVER, that the
failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice.
9. PAYMENT OF EXERCISE PRICE. The Holder may pay the Exercise Price
in one of the following manners:
(a) CASH EXERCISE. The Holder shall deliver immediately
available funds; or
(b) CASHLESS EXERCISE. The Holder shall surrender this Warrant
to the Company together with a notice of cashless exercise, in which event the
Company shall issue to the Holder the number of Warrant Shares determined as
follows:
X = Y (A-B)/A
where:
X = the number of Warrant Shares to be issued
to the Holder.
Y = the number of Warrant Shares with respect to which this
Warrant is being exercised.
A = the average of the closing sale prices of the Common
Stock for the five (5) Trading Days immediately prior to
(but not including) the Date of Exercise.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date.
10. FRACTIONAL SHARES. The Company shall not be required to issue or
cause to be issued fractional Warrant Shares on the exercise of this Warrant.
The number of full
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<PAGE>
Warrant Shares which shall be issuable upon the exercise of this Warrant shall
be computed on the basis of the aggregate number of Warrant Shares purchasable
on exercise of this Warrant so presented. If any fraction of a Warrant Share
would, except for the provisions of this Section 10, be issuable on the exercise
of this Warrant, the Company shall, at its option, (i) pay an amount in cash
equal to the Exercise Price multiplied by such fraction or (ii) round the number
of Warrant Shares issuable, up to the next whole number.
11. NOTICES. Any and all notices or other communications or
deliveries hereunder shall be in writing and shall be deemed given and effective
on the earliest of (i) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified in this
Section, (ii) the business day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iii) upon actual receipt by
the party to whom such notice is required to be given. The addresses for such
communications shall be: (1) if to the Company, to 3637 South Green Road, Suite
201, Beachwood, OH 44122, or to Facsimile No.: (216) 292-6187 Attention: Chief
Financial Officer, or (ii) if to the Holder, to the Holder at the address or
facsimile number appearing on the Warrant Register or such other address or
facsimile number as the Holder may provide to the Company in accordance with
this Section 11.
12. WARRANT AGENT.
(a) The Company shall serve as warrant agent under this Warrant.
Upon thirty (30) days' notice to the Holder, the Company may appoint a new
warrant agent.
(b) Any corporation into which the Company or any new warrant
agent may be merged or any corporation resulting from any consolidation to which
the Company or any new warrant agent shall be a party or any corporation to
which the Company or any new warrant agent transfers substantially all of its
corporate trust or shareholders services business shall be a successor warrant
agent under this Warrant without any further act. Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holder's last
address as shown on the Warrant Register.
13. MISCELLANEOUS.
(a) This Warrant shall be binding on and inure to the benefit of
the parties hereto and their respective successors and permitted assigns. This
Warrant may be amended only in writing signed by the Company and the Holder.
(b) Subject to Section 13(a), above, nothing in this Warrant
shall be construed to give to any person or corporation other than the Company
and the Holder any legal or equitable right, remedy or cause under this Warrant;
this Warrant shall be for the sole and exclusive benefit of the Company and the
Holder.
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(c) This Warrant shall be governed by and construed and enforced
in accordance with the internal laws of the State of New York without regard to
the principles of conflicts of law thereof.
(d) The headings herein are for convenience only, do not
constitute a part of this Warrant and shall not be deemed to limit or affect any
of the provisions hereof.
(e) In case any one or more of the provisions of this Warrant
shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall not
in any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.
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[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.
FIX-CORP INTERNATIONAL, INC.
By: /s/ Mark Fixler
-------------------------------
Name: Mark Fixler
-----------------------------
Title: President/CEO
----------------------------
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To FIX-CORP INTERNATIONAL, INC.:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase [___________]
shares of Common Stock ("Common Stock"), $.001 par value per share, of Fix-Corp
International, Inc. and encloses herewith $________ in cash or certified or
official bank check or checks, which sum represents the aggregate Exercise Price
(as defined in the Warrant) for the number of shares of Common Stock to which
this Form of Election to Purchase relates, together with any applicable taxes
payable by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common Stock
issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
---------------------------------------
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If the number of shares of Common Stock issuable upon this exercise shall
not be all of the shares of Common Stock which the undersigned is entitled to
purchase in accordance with the enclosed Warrant, the undersigned requests that
a New Warrant (as defined in the Warrant) evidencing the right to purchase the
shares of Common Stock not issuable pursuant to the exercise evidenced hereby be
issued in the name of and delivered to:
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dated: , Name of Holder:
---------- -----
(Print)
-----------------------
(By:)
-------------------------
(Name:)
(Title:)
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant)
<PAGE>
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of Fix-Corp
International, Inc. to which the within Warrant relates and appoints
________________ attorney to transfer said right on the books of Fix-Corp
International, Inc. with full power of substitution in the premises.
Dated:
,
- --------------- ----
---------------------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant)
---------------------------------------
Address of Transferee
---------------------------------------
---------------------------------------
In the presence of:
- --------------------------
<PAGE>
EXHIBIT 10.40
ESCROW AGREEMENT
ESCROW AGREEMENT (this "AGREEMENT"), dated as of April 8, 1998, by and
among Fix-Corp International, Inc. (the "COMPANY"), JNC Strategic Fund Ltd. (the
"PURCHASER") and Robinson Silverman Pearce Aronsohn & Berman LLP (the "ESCROW
AGENT").
RECITALS
A. Simultaneously with the execution of this Agreement, the Company
and the Purchaser have entered into a Convertible Debenture Purchase Agreement,
dated as of the date hereof (the "PURCHASE AGREEMENT"), pursuant to which the
Company is selling to the Purchaser certain of its 4% Convertible Debentures Due
April 8, 2001 (the "DEBENTURES") and a certain common stock purchase warrant
(the "WARRANT"). Capitalized terms that are used but not defined in this
Agreement that are defined in the Purchase Agreement shall have the meanings set
forth in the Purchase Agreement.
B. The Escrow Agent is willing to act as escrow agent pursuant to
the terms of this Agreement with respect to the receipt and then delivery of the
aggregate purchase price (as described in Section 1.1(a) of the Purchase
Agreement) to be paid by the Purchaser for the Debentures and the Warrant (the
"PURCHASE PRICE") and the receipt and then delivery of the Debentures, the
Warrant, the Ancillary Closing Documents (as defined below) and the Purchase
Price, (collectively, the "CONSIDERATION").
C. Upon the closing of the transaction contemplated by the Purchase
Agreement (the "CLOSING") and the occurrence of an event described in Section 2
below, the Escrow Agent shall cause the distribution of the Consideration in
accordance with the terms of this Agreement.
NOW, THEREFORE, IT IS AGREED:
1. DEPOSIT OF CONSIDERATION.
a. Concurrently with the execution hereof, the Purchaser shall
deposit with the Escrow Agent the Purchase Price in accordance with Section
1.1(a)(ii) of the Purchase Agreement, and the Company shall deliver to the
Escrow Agent the Debentures and the Warrant in accordance with Section
1.1(a)(ii) of the Purchase Agreement, and wiring instructions for the transfer
of amounts to be paid to the Company in accordance with Section 2(b). In
addition, the Purchaser and the Company shall each deposit with the Escrow Agent
all other certificates and other documents required under the Purchase Agreement
to be delivered by them at the Closing (such certificates and other documents
being hereinafter referred to as the "ANCILLARY CLOSING DOCUMENTS").
<PAGE>
(i) The Purchase Price shall be delivered by the Purchaser
to the Escrow Agent by wire transfer to the following account:
Citibank, N.A.
153 East 53rd Street
New York, NY 10043
ABA No.: 021-000-089
For the Account of
Robinson Silverman Pearce Aronsohn
& Berman LLP
Attorney Business Account
Account No.: 37-204-162
Attention: Alexis Laurenceau
Reference: Fix-Corp International (10849-10)
(ii) The Debentures, Warrant and the Ancillary Closing
Documents shall be delivered to the Escrow Agent at its address for notice
indicated in Section 5(a).
b. Until termination of this Agreement as set forth in Section
2, all additional Consideration paid by or which becomes payable between the
Company and the Purchaser shall be deposited with the Escrow Agent.
c. The Purchaser and the Company understand that all
Consideration delivered to the Escrow Agent pursuant to Section 1(a) shall be
held in escrow in the Escrow Agent's interest bearing business account until the
Closing. After the Purchase Price has been received by the Escrow Agent and all
other conditions of Closing are met, the parties hereto hereby authorize and
instruct the Escrow Agent to promptly effect the Closing.
d. At the Closing, the Escrow Agent is authorized and directed
to deduct from the Purchase Price (i) $7,500 which will be retained by the
Escrow Agent pursuant to Section 4.1 of the Purchase Agreement and (ii) $300,000
which will be paid to CDC Consulting, Inc. ("CDC") in accordance with the
engagement letter between the Company and CDC relating to the transactions
contemplated by the Purchase Agreement (the "ENGAGEMENT LETTER"). In addition,
the portion of the Purchase Price released to the Company hereunder shall be
reduced by all wire transfer fees incurred thereupon.
2. TERMS OF ESCROW.
a. The Escrow Agent shall hold the Consideration in escrow
until the earlier to occur of (i) the receipt by the Escrow Agent of the
Purchase Price, the Debentures, the Warrant and the Ancillary Closing Documents
and a writing instructing the
<PAGE>
Closing and (ii) the receipt by the Escrow Agent of a written notice, executed
by the Company or the Purchaser, stating that the Purchase Agreement has been
terminated in accordance with its terms and instructing the Escrow Agent with
respect to the Purchase Price, the Debentures, the Warrant and the Ancillary
Closing Documents.
b. If the Escrow Agent receives the items referenced in clause
(i) of Section 2(a) prior to its receipt of the notice referenced in clause (ii)
of Section 2(a), then, promptly thereafter, the Escrow Agent shall deliver (i)
to the Purchaser (A) Debentures in aggregate principal amount of $3,000,000, (B)
the Warrant, and (C) any interest earned on account of the Purchase Price that
shall have accrued through the Closing; (ii) to the Company the Purchase Price
(net of amounts described under Section 1(d)) to the Company; (iii) to or as
directed by CDC, $300,000 in accordance with the Engagement Letter; and (iv) to
the appropriate party, the Ancillary Closing Documents. In addition, the Escrow
Agent shall retain $7,500 of the Purchase Price on account of its fees pursuant
to the Purchase Agreement and Section 1(d).
c. If the Escrow Agent receives the notice referenced in clause
(ii) of Section 2(a) prior to its receipt of the items referenced in clause (i)
of Section 2(a), then the Escrow Agent shall promptly upon receipt of such
notice return (i) the Purchase Price (together with any interest earned thereon
through such date) to the Purchaser in such amounts as shall have been delivered
to and received by prior thereto, (ii) the Debentures and Warrant to the Company
and (iii) the Ancillary Closing Documents to the party that delivered the same.
d. If the Escrow Agent, prior to delivering or causing to be
delivered the Consideration in accordance herewith, receives notice of
objection, dispute, or other assertion in accordance with any of the provisions
of this Agreement, the Escrow Agent shall continue to hold the Consideration
until such time as the Escrow Agent shall receive (i) written instructions
jointly executed by the Purchaser and the Company, directing distribution of
such Consideration, or (ii) a certified copy of a judgment, order or decree of a
court of competent jurisdiction, final beyond the right of appeal, directing the
Escrow Agent to distribute said Consideration to any party hereto or as such
judgment, order or decree shall otherwise specify (including any such order
directing the Escrow Agent to deposit the Consideration into the court rendering
such order, pending determination of any dispute between any of the parties).
In addition, the Escrow Agent shall have the right to deposit any of the
Consideration with a court of competent jurisdiction pursuant to Section 1006 of
the New York Civil Practice Law and Rules without liability to any party if said
dispute is not resolved within 30 days of receipt of any such notice of
objection, dispute or otherwise.
3. DUTIES AND OBLIGATIONS OF THE ESCROW AGENT.
a. The parties hereto agree that the duties and obligations of
the Escrow Agent are only such as are herein specifically provided and no other.
The Escrow Agent's duties are as a depositary only, and the Escrow Agent shall
incur no liability
-3-
<PAGE>
whatsoever, except as a direct result of its willful misconduct.
b. The Escrow Agent may consult with counsel of its choice, and
shall not be liable for any action taken, suffered or omitted by it in
accordance with the advice of such counsel.
c. The Escrow Agent shall not be bound in any way by the terms
of any other agreement to which the Purchaser and the Company are parties,
whether or not it has knowledge thereof, and the Escrow Agent shall not in any
way be required to determine whether or not any other agreement has been
complied with by the Purchaser and the Company, or any other party thereto. The
Escrow Agent shall not be bound by any modification, amendment, termination,
cancellation, rescission or supersession of this Agreement unless the same shall
be in writing and signed by each of the Purchaser and the Company, and agreed to
in writing by the Escrow Agent.
d. In the event that the Escrow Agent shall be uncertain as to
its duties or rights hereunder or shall receive instructions, claims or demands
which, in its opinion, are in conflict with any of the provisions of this
Agreement, it shall be entitled to refrain from taking any action, other than to
keep safely, all Considerations held in escrow until it shall jointly be
directed otherwise in writing by the Purchaser and the Company or by a final
judgment of a court of competent jurisdiction.
e. The Escrow Agent shall be fully protected in relying upon
any written notice, demand, certificate or document which it, in good faith,
believes to be genuine. The Escrow Agent shall not be responsible for the
sufficiency or accuracy of the form, execution, validity or genuineness of
documents or securities now or hereafter deposited hereunder, or of any
endorsement thereon, or for any lack of endorsement thereon, or for any
description therein; nor shall the Escrow Agent be responsible or liable in any
respect on account of the identity, authority or rights of the persons executing
or delivering or purporting to execute or deliver any such document, security or
endorsement.
f. The Escrow Agent shall not be required to institute legal
proceedings of any kind and shall not be required to defend any legal
proceedings which may be instituted against it or in respect of the
Consideration.
g. If the Escrow Agent at any time, in its sole discretion,
deems it necessary or advisable to relinquish custody of the Consideration, it
may do so by giving five (5) days written notice to the parties of its intention
and thereafter delivering the consideration to any other escrow agent mutually
agreeable to the Purchaser and the Company and, if no such escrow agent shall be
selected within three days of the Escrow Agent's notification to the Purchaser
and the Company of its desire to so relinquish custody of the Consideration,
then the Escrow Agent may do so by delivering the Consideration (a) to any bank
or trust company in the Borough of Manhattan, City and State of New York, which
is willing to act as escrow
-4-
<PAGE>
agent thereunder in place and instead of the Escrow Agent, or (b) to the clerk
or other proper officer of a court of competent jurisdiction as may be permitted
by law within the State, County and City of New York. The fee of any such bank
or trust company or court officer shall be borne one-half by the Purchaser and
one-half by the Company. Upon such delivery, the Escrow Agent shall be
discharged from any and all responsibility or liability with respect to the
Consideration and the Company and the Purchaser shall promptly pay to the Escrow
Agent all monies which may be owed it for its services hereunder, including, but
not limited to, reimbursement of its out-of-pocket expenses pursuant to
paragraph (i) below.
h. This Agreement shall not create any fiduciary duty on the
Escrow Agent's part to the Purchaser or the Company, nor disqualify the Escrow
Agent from representing either party hereto in any dispute with the other,
including any dispute with respect to the Consideration. The Company
understands that the Escrow Agent has acted and will continue to act as counsel
to the Purchaser.
i. The reasonable out-of-pocket expenses paid or incurred by
the Escrow Agent in the administration of its duties hereunder, including, but
not limited to, all counsel and advisors' and agents' fees and all taxes or
other governmental charges, if any, shall be paid by one-half by the Purchaser
and one-half by the Company.
4. INDEMNIFICATION. The Purchaser and the Company, jointly and
severally, hereby indemnify and hold the Escrow Agent harmless from and against
any and all losses, damages, taxes, liabilities and expenses that may be
incurred, directly or indirectly, by the Escrow Agent, arising out of or in
connection with its acceptance of appointment as the Escrow Agent hereunder
and/or the performance of its duties pursuant to this Agreement, including, but
not limited to, all legal costs and expenses of the Escrow Agent incurred
defending itself against any claim or liability in connection with its
performance hereunder and the costs of recovery of amounts pursuant to this
Section 4.
5. MISCELLANEOUS.
a. All notices, requests, demands and other communications
hereunder shall be in writing, with copies to all the other parties hereto, and
shall be deemed to have been duly given when (i) if delivered by hand, upon
receipt, (ii) if sent by facsimile, upon receipt of proof of sending thereof,
(iii) if sent by nationally recognized overnight delivery service (receipt
requested), the next business day or (iv) if mailed by first-class registered or
certified mail, return receipt requested, postage prepaid, four days after
posting in the U.S. mails, in each case if delivered to the following addresses:
-5-
<PAGE>
If to the Company: Fix-Corp International, Inc.
3637 South Green Road, Suite 201
Beachwood, OH 44122
Facsimile No.: (216) 292-6187
Attn: Chief Financial Officer
With copies to: Bricker & Eckler, LLP
100 South Third Street
Columbus, OH 43215
Facsimile No.: (614) 227-2390
Attn: Steven Kerber
If to the Purchaser: JNC Strategic Fund Ltd.
Olympia Capital (Cayman) Ltd.
c/o Olympia Capital (Bermuda) Ltd.
Williams House
20 Reid Street
Hamilton HM11
Bermuda
Facsimile No.: (441) 295-2305
Attn: Director
With copies to: Encore Capital Management, L.L.C.
12007 Sunrise Valley Drive
Suite 460
Reston, VA 20191
Facsimile No.: (703) 476-7711
Attn: Neil T. Chau
If to the Escrow Agent Robinson Silverman Pearce Aronsohn
(the Escrow Agent & Berman LLP
shall receive copies 1290 Avenue of the Americas
of all communications New York, NY 10104
under this Agreement) Facsimile No.: (212) 541-4630
Attn: Eric L. Cohen, Esq.
or at such other address as any of the parties to this Agreement may hereafter
designate in the manner set forth above to the others.
-6-
<PAGE>
(b) This Agreement shall be construed and enforced in accordance
with the law of the State of New York applicable to contracts entered into and
performed entirely within New York.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Escrow
Agreement to be signed the day and year first above written.
FIX-CORP INTERNATIONAL, INC.
By: /s/ Mark Fixler
---------------------------
Name: Mark Fixler
Title: President/CEO
JNC STRATEGIC FUND LTD.
By: /s/ Thomas H. Davis
---------------------------
Name: Thomas H. Davis
Title: Director
ROBINSON SILVERMAN PEARCE
ARONSOHN & BERMAN LLP
By: /s/ Kenneth L. Henderson
---------------------------
A Member of the Firm
<PAGE>
STANDARD INDUSTRIAL LEASE
Date of Lease: April 17, 1998
Landlord: B-K-N Corporation, an Ohio corporation
Tenant: Fix-Corp International, Inc., a Delaware corporation
Premises: As shown on EXHIBIT "A", which Premises include a parking area
and that certain building (the "Building") located at 120
Northeast 179th Street, North Miami Beach, Florida
Rentable Area of Premises: 65,000 square feet which is stipulated and agreed by
the parties.
Commencement Date: The date Landlord obtains fee simple title to the Premises
evidenced by a fully executed Closing Statement. Landlord
shall deliver possession of the Premises to Tenant on the
Commencement Date.
Expiration Date: 10 years after Commencement Date
Lease Term: 10 years
Base Rent
<TABLE>
<CAPTION>
-----------------------------------------------------------
PERIOD $/PSF ANNUAL MONTHLY
<S> <C> <C> <C>
Entire Lease Term $4.50 $292,500.00 $24,375.00
-----------------------------------------------------------
-----------------------------------------------------------
</TABLE>
Security Deposit: $ 48,750.00, payable within 120 days of demand pursuant to the
Promissory Note in the form attached hereto as EXHIBIT "D".
Permitted Use of Premises: Manufacture of vertical blinds and plastic pallets
in a closed loop injection molding process or any other business purpose
provided that such use does not violate any applicable laws or regulations
("Permitted Use")
Tenant's Address for Notices:
Tenant: Fix-Corp International, Inc.
The Premises
Landlord's Address for Notices:
B-K-N Corporation
The Spectrum Building, Suite 219
6060 Rockside Woods Boulevard
Independence, OH 44131
With copies to:
Holland & Knight LLP
One East Broward Blvd.
Fort Lauderdale, Florida 33301
ATTENTION : Lori R. Hartglass Esq.
Amount of General Comprehensive Liability Insurance: $ 1,850, 000.00
Tenant's Real Estate Broker: Yeckel and Janus Insurance Agency
<PAGE>
Tenant's Real Estate Broker:
-------------------------------------------------
Landlord's Real Estate Broker: Cushman & Wakefield of Florida, Inc.
IF THIS LEASE IS NOT EXECUTED BY LANDLORD AND TENANT ON OR BEFORE APRIL 17,
1998, IT SHALL BE NULL, VOID AND OF NO FORCE AND EFFECT.
IN WITNESS WHEREOF, Landlord and Tenant have signed this Lease
and agree to the attached Lease Terms
as of this 17th day of April, 1998.
WITNESSES: "LANDLORD"
/s/ Alan Curtis B-K-N CORPORATION, an Ohio corporation
- -----------------------------------
/s/ A. Flamm By: /s/ S. Darwin Noll
- ----------------------------------- -----------------------------------
(As to Landlord) Name:
----------------------------
Title: Chairman
---------------------------
(SEAL)
WITNESSES: "TENANT"
/s/ Sherry L. Durst FIX-CORP International, Inc., an
- ----------------------------------- Delaware corporation
/s/ Bill Buckholtz By: /s/ Gary M. DeLaurentiis
- ----------------------------------- -----------------------------------
(As to Tenant) Name: Gary M. DeLaurentiis
----------------------------
Title: Vice President
---------------------------
(SEAL)
<PAGE>
LEASE TERMS
1. PREMISES
Landlord leases to Tenant and Tenant leases from Landlord the Premises
described herein, and attached hereto as EXHIBIT "A" and by this reference
incorporated herein ("Premises"). The Premises is leased and Tenant accepts the
Premises in its "as-is" condition. Tenant acknowledges that Landlord has no
obligation to repair or improve the Premises or contribute to the cost of same.
Notwithstanding the foregoing, Landlord agrees to pay Tenant the amount of any
credits designated for maintenance and repair of the Building, which Landlord
receives from the Seller of the Premises ("Seller") at the time of Landlord's
purchase of the Property. Tenant agrees to immediately perform all such repairs
and maintenance not performed by Seller and described in the Purchase and Sale
Agreement between Seller and Landlord. It is hereby agreed by both parties that
security of the Premises is the sole responsibility of the Tenant and that the
Landlord has no liability for breach of security to the Premises.
2. RENT
A. RENT. Commencing with the ninth month of the Lease Term, and
until the Expiration Date, Tenant will pay as the base rent for the Premises
("Base Rent") the amounts set forth above, with same being payable without
demand, setoff or deduction, in advance, on or before the first day of each
month, in equal monthly installments of the amounts set forth above plus
applicable sales and other such taxes as are now or later enacted. Base Rent
also includes all non-controllable expenses for the Premises, except that all
non-controllable expenses shall be paid when due, commencing with the
Commencement Date, through the Expiration Date. Non-controllable expenses means
real estate taxes and assessments, insurance costs, utility costs and any other
costs regarding the Premises. The term "Rent" shall refer collectively to Base
Rent and Additional Rent. The term "Additional Rent" is sometimes used herein to
refer to any and all other sums payable by Tenant hereunder. Any Rent payable
for a portion of a month shall be prorated based upon the number of days in the
applicable calendar month.
B. LATE CHARGE. Tenant covenants and agrees to pay a liquidated
late charge in the amount of ten percent (10%) of the amount due for any payment
not paid within 3 days of its due date.
3. SECURITY DEPOSIT
Tenant, concurrently with the execution of this Lease, has delivered
to Landlord a Promissory Note for the Security Deposit in the form attached
hereto as EXHIBIT "D". If Tenant fails to faithfully perform the terms and
conditions of this Lease, Landlord, at Landlord's option, may at any time apply
the Security Deposit or any part thereof toward the payment of the Rent and/or
Additional Rent and/or toward the performance of Tenant's obligations under this
Lease; in such event, within five (5) days after notice, Tenant will deposit
with Landlord cash sufficient to restore the Security Deposit to its original
amount. The Security Deposit is not liquidated damages. Landlord will return the
unused portion of the Security Deposit to Tenant within thirty (30) days after
the Expiration Date if Tenant is not in violation of any of the provisions of
this Lease. Landlord may (but is not obligated to) exhaust any or all rights and
remedies against Tenant before resorting to the Security Deposit. Landlord will
not be required to pay Tenant any interest on the Security Deposit nor hold same
in a separate account.
4. USE
Tenant will use and occupy the Premises solely for a Permitted Use, as
defined herein. Tenant will not commit waste upon the Premises nor suffer or
permit the Premises or any part of them to be used in any manner, or suffer or
permit anything to be done in or brought into or kept in the Premises or the
Building, which would: (i) violate any law or requirement of public
authorities, (ii) annoy or offend other tenants or their patrons or interfere
with the normal operations of plumbing or other mechanical or electrical systems
of the Building or (iii) constitute a public or private nuisance.
5. UTILITY SERVICES
A. GENERAL. The Tenant shall pay directly all charges for electric,
telephone and any other utilities used or consumed in the Premises. If Tenant
requires utility services in addition to or in excess of those currently
provided to the Premises, Tenant shall pay all costs of bringing such services
to the Premises and for the use of such services, but Tenant shall not bring
additional utilities or utility services to the Premises without the express
written consent of Landlord.
B. INTERRUPTION OF SERVICES. It is understood and agreed that
Landlord does not warrant that any of the services referred to above will be
free from interruption. Tenant acknowledges that any one or more of such
services may be
<PAGE>
suspended by reason of accident or repairs, alterations or improvements
necessary to be made, or by reason of operation of law, or other causes beyond
the control of Landlord. No such interruption at discontinuance of service will
be deemed an eviction or a disturbance of Tenant's use and possession of the
Premises or any part thereof, or render Landlord liable to Tenant for damages or
abatement of Rent or relieve Tenant from the responsibility of performing any of
Tenant's obligations under this Lease.
6. TENANT'S REPAIRS AND MAINTENANCE
During the Lease Term, Tenant will repair, maintain, and replace, if
necessary, the entire Premises including any equipment outside of and
exclusively serving the Premises. Tenant agrees to promptly perform, at Tenant's
cost, all repairs, abatement, remediation and improvements to correct all
matters, outlined in the inspection report ("Inspection Report") attached as
EXHIBIT "B", and in the Phase I ("Phase I") attached as EXHIBIT "C" and
undertake to bring the Premises into compliance with all applicable laws and
regulations to Landlord's satisfaction.
7. TENANT'S ALTERATIONS
During the Lease Term, Tenant will make no alterations, additions or
improvements in or to the Premises of any kind of nature (any and all of such
alterations, additions or improvements are collectively referred to in this
Lease as the "Alteration(s)"), without the prior written comment of Landlord,
which consent shall not be unreasonably withheld. At Landlord's option, Landlord
may, at the expiration of the Lease Term, require Tenant, at Tenant's expense,
to remove Alterations made by or on behalf of Tenant and to restore the Premises
to their original condition.
8. ASSIGNMENT AND SUBLETTING
A. Except as provided below with respect to assignment of this Lease
following Tenant's bankruptcy, Tenant will not assign this Lease, nor sublet all
of the Premises, nor license concessions or lease departments therein, nor
pledge or encumber by mortgage or other instruments its interest in this Lease
(each individually and collectively referred to in this Section as a "transfer")
without first obtaining the consent of Landlord, which consent Landlord may
withhold in its sole and absolute discretion, except as provided below. This
prohibition includes, without limitation, any subletting or assignment which
would otherwise occur by operation of law, merger, consolidation,
reorganization, transfer or other change of Tenant's corporate, partnership or
propriety structure. Any transfer to or by a receiver or trustee in any federal
or state, bankruptcy, insolvency, or similar proceeding shall be subject to, and
in accordance with, the provisions described below. Consent by Landlord to any
transfer shall not constitute a waiver of the requirement for such consent to
any subsequent transfer.
B. Landlord shall be entitled to arbitrarily withhold its consent to
any transfer described in 8(A) above, unless all of the following conditions are
satisfied, in which event, Landlord agrees that it shall not unreasonably
withhold its consent to the transfer in question:
(i) In Landlord's reasonable judgment, the proposed
assignee or subtenant or occupant is engaged in a business or activity, which is
a Permitted Use;
(ii) The proposed assignee or subtenant or occupant is a
reputable person/entity of good character and with sufficient financial worth to
meet its obligations under the sublease or lease, and Landlord has been
furnished with reasonable proof thereof;
(iii) The form of the proposed sublease or instrument of
assignment or occupancy shall be reasonably satisfactory to Landlord, and shall
comply with the applicable provisions of this Paragraph; and
(iv) The proposed subtenant or assignee or occupant shall
not be entitled, directly or indirectly, to diplomatic or sovereign immunity and
shall be subject to the service of process in, and the jurisdiction of the
courts of the State of Florida.
(v) Such transferee shall assume in writing, in a form
acceptable to Landlord, all of Tenant's obligations hereunder and Tenant shall
provide Landlord with a copy of such assumption/transfer document;
(vi) Tenant to which the Premises were initially leased
shall continue to remain liable under this Lease for the performance of all
terms, including but not limited to, payment of Rent due under this Lease; and
2
<PAGE>
(vii) Tenant shall give notice of a requested transfer to
Landlord, which notice shall be accompanied by (a) a conformed or photostatic
copy of the proposed assignment or sublease, the effective or commencement date
of which shall be at least 60 days after the giving of such notice, (b) a
statement setting forth in reasonable detail the identity of the proposed
assignee or subtenant, the nature of its business and its proposed use of the
Premises, (c) current financial information with respect to the proposed
assignee or subtenant, including, without limitation, its most recent financial
report and (d) such other information as Landlord may reasonably request.
C. Notwithstanding anything contained herein to the contrary,
Tenant may sublease portions of the Premises pursuant to commercially
reasonable subleases and uses which are not prejudicial to Landlord, with the
consent of Landlord, which consent shall not be unreasonably withheld.
9. TENANT'S INSURANCE COVERAGE
A. GENERAL. Tenant agrees that, at all times during the Lease Term
(as well as prior and subsequent thereto if Tenant or any of Tenant's Agents
should then use or occupy any portion of the Premises), it will keep in force,
with an insurance, company licensed to do business in the State of Florida, and
at least A-rated in the most current edition of Best's Insurance Reports and
acceptable to Landlord, (i) without deductible, comprehensive general liability
insurance, including coverage for bodily injury and death, property damage and
personal injury and contractual liability as referred to below, in the amount of
not less than the amount set forth at the beginning of this Lease, combined
single limit per occurrence for injury (or death) and damages to property, (ii)
with deductible of not more than Five Thousand Dollars ($5,000.00), insurance on
an "All Risk or Physical Loss" basis, including sprinkler leakage vandalism,
malicious mischief, fire and extended coverage, covering all of the Premises and
all improvements to the Premises, fixtures, furnishings, removable floor
coverings, equipment, signs and all other decoration or stock in trade, in the
amounts of not less than the full replacement value thereof, and (iii) workmen's
compensation and employer's liability insurance, if required by statute. Such
policies will: (i) include Landlord and such other parties as Landlord may
reasonably designate as additional insureds, (ii) be considered primary
insurance, (iii) include within the terms of the policy or by contractual
liability endorsement coverage insuring Tenant's indemnity obligations under
paragraphs 12 and 25H, and (v) provide that it may not be cancelled or changed
without at least thirty (30) days prior written notice from the company
providing such insurance to each party insured thereunder. Tenant will also
maintain throughout the Lease Term worker's compensation insurance with not less
than the maximum statutory limits of coverage.
B. EVIDENCE. The insurance coverages to be provided by Tenant will
be for a period of not less than one year. At least fifteen (15) days prior to
the Commencement Date, Tenant will deliver to Landlord original certificates of
all such paid-up insurance; thereafter, at least fifteen (15) days prior to the
expiration of any policy Tenant will deliver to Landlord such original
certificates as will evidence a paid-up renewal or new policy to take the place
of the one expiring.
10. WAIVER OF RIGHT OF RECOVERY
Except as provided in paragraphs 6, 12 and 25, neither Landlord nor
Tenant shall be liable to the other for any damage to any building, structure or
other tangible property, or any resulting loss of income, or losses under
worker's compensation laws and benefits, even though such loss or damage might
have been occasioned by the negligence of such party, its agents or employees.
The provisions of this paragraph shall not limit the indemnification for
liability to third parties pursuant to Section 12. As used in this paragraph
10, "damage" refers to any loss, destruction or other damage.
11. DAMAGE OR DESTRUCTION BY CASUALTY OR EMINENT DOMAIN
If by fire or other casualty or by eminent domain the Premises are
damaged or destroyed, Landlord will have the option of terminating this Lease or
any renewal thereof by serving written notice upon Tenant within one hundred and
eighty (180) days from the date of the casualty or taking and any prepaid Rent
or Additional Rent will be prorated as of the date of the destruction or taking
and the unearned portion of such Rent will be refunded to Tenant without
interest. If Landlord elects to restore the Premises, all Base Rent paid in
advance shall be apportioned as of the date of damage or destruction and all
such Base Rent as above described thereafter accruing shall be equitably and
proportionately adjusted according to the nature and extent of the destruction
or damage, pending substantial completion of rebuilding, restoration or repair.
Tenant will have no claim to the condemnation award. Landlord shall not be
liable for interruption to Tenant's business or for damage to or replacement or
repair of Tenant's personal property (including, without limitation, inventory,
trade fixtures, floor coverings, furniture and other property removable by
Tenant under the provisions of this Lease) or to any leasehold improvements
installed in the Premises by or on behalf of Tenant, all of which damage,
replacement or repair shall be undertaken and completed by Tenant promptly.
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12. LIMITATION OF LANDLORD'S LIABILITY; INDEMNIFICATION
A. PERSONAL PROPERTY. All personal property placed or moved into
the Building will be at the sole risk of Tenant or other owner. Landlord will
not be liable to Tenant or others for any damage to person or property arising
from Environmental Defaults, as hereafter defined, theft, vandalism, HVAC
malfunction, the bursting or leaking of water pipes, any act or omission of any
cotenant or occupant of the Building or of any other person, or otherwise.
B. LIMITATIONS. Notwithstanding any contrary provision of this
Lease: (i) Tenant will look solely (to the "extent insurance coverage is not
applicable or available) to the interest of Landlord (or its successor as
Landlord hereunder) in the Premises for the satisfaction of any judgment or
other judicial process requiring the payment of money as a result of any
negligence or breach of this Lease by Landlord or its successor or of Landlord's
managing agent (including any beneficial owners, partners, corporations and/or
others affiliated or in any way related to Landlord or such successor or
managing agent) and Landlord has no personal liability hereunder of any kind,
and (ii) Tenant's sole right and remedy in any action or proceeding concerning
Landlord's reasonableness (where the same is required under this Lease) will be
an action for declaratory judgment and/or specific performance.
C. INDEMNITY. Tenant agrees to indemnify, defend and hold harmless
Landlord and its agents from and against all claims, causes of actions,
liabilities, judgments, damages, losses, costs and expenses, including
reasonable attorneys' fees and costs, including appellate proceedings and
bankruptcy proceedings, incurred or suffered by Landlord and arising from or in
any way connected with the Premises or the use thereof or any acts, omissions,
neglect or fault of Tenant or any of Tenant's Agents, including, but not limited
to, any breach of this Lease or any death, personal injury or property damage
occurring in or about the Premises or the Building or arising from Environmental
Defaults, as hereafter defined. Tenant will reimburse Landlord upon request for
all costs incurred by Landlord in the interpretation and enforcement of any
provisions of this Lease and/or the collection of any sums due to Landlord under
this Lease, including collection of agency fees, and reasonable attorneys' fees
and costs, regardless of whether litigation is commenced, and through all
appellate actions and proceedings, including bankruptcy proceedings, if
litigation is commenced. The foregoing claims, causes of actions, liabilities,
judgments, damages, losses, costs and expenses shall include but not be limited
to any of same arising from Tenant's failure to comply with any of the
requirements of Americans with Disabilities Act ("ADA") within the Premises.
This indemnification shall survive termination of the Lease.
13. COMPLIANCE WITH LAWS AND PROCEDURES
Tenant, at its sole cost, will promptly comply and promptly cause the
Premises and Building to come into compliance with all applicable laws,
guidelines, rules, regulations and requirements, whether of federal, state, or
local origin, applicable to the Premises and the Building, including, but not
limited to, Environmental Laws as defined herein and the Americans with
Disabilities Act, 42 U.S.C. Section 12101 et seq, and Tenant shall indemnify,
defend, and hold harmless Landlord from, and against any and all claims, costs,
losses, damages, expenses or liability arising from its failure to comply with
same.
14. RIGHT OF ENTRY
Upon not less than 24 hours verbal notice to Tenant, Landlord and its
agents will have the right to enter the Premises during all reasonable hours to
make necessary repairs to the Premises. In the event of an emergency, Landlord
or its agents may enter the Premises at any time, without notice, to appraise
and correct the emergency condition. Said right of entry will, after reasonable
notice, likewise exist for the purpose of removing placards, signs, fixtures,
alterations, or additions which do not conform to this Lease. Landlord or its
agents will have the right to exhibit the Premises at any time to prospective
tenants within one hundred and eighty days (180) before the Expiration Date of
the Lease.
15. DEFAULT
A. EVENTS OF DEFAULT BY TENANT. If (1) Tenant vacates, abandons or
surrenders all or any part of the Premises prior to the Expiration Date, or (2)
Tenant fails to fulfill any of the terms or conditions of this Lease or (3) the
appointment of a trustee or a receiver to take possession of all or
substantially all of Tenant's assets occurs, or if the attachment, execution or
other judicial seizure of all or substantially all of Tenant's assets located at
the Premises, or of Tenant's interest in this Lease, occurs, or (4) Tenant or
any of its successors or assigns or any guarantor of this Lease ("Guarantor")
should file any voluntary petition in bankruptcy, reorganization or arrangement,
or an assignment for the benefit of creditors or for similar relief under any
present or future statute, law or regulation relating to relief of debtors, or
(5) Tenant or any of its successors or assigns or any Guarantor should be
adjudicated bankrupt or have an involuntary petition in bankruptcy,
reorganization or arrangement filed against it, or (6) Tenant shall permit,
allow or suffer to exist any lien, judgment, writ, assessment, charge,
attachment or execution upon Landlord's or Tenant's
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interest in this Lease or to the Premises, and/or the fixtures, improvements and
furnishings located thereon; then, Tenant shall be in default hereunder.
B. TENANT'S GRACE PERIODS. If (1) Tenant fails to pay Rent,
Additional Rent on the date due or (2) Tenant fails to cure any other default
within thirty (30) days after notice from Landlord specifying the nature of such
default (unless such default is of a nature that it cannot be completely cured
within said thirty (30) day period and steps have been diligently commenced to
cure. or remedy it within such thirty (30) day period and are thereafter pursued
with reasonable diligence and in good faith, in which case Tenant shall have up
to another thirty (30) days to cure), then Landlord shall have such remedies as
are provided under this Lease and/or under the laws of the State of Florida.
C. REPEATED LATE PAYMENT. Regardless of the number of times of
Landlord's prior acceptance of late payments and/or late charges, (i) if
Landlord notifies Tenant twice in any 6-month period that Base Rent or any
Additional Rent has not been paid when due, then any other late payment within
such 6-month period shall automatically constitute a default hereunder and (ii)
the mere acceptance by Landlord of late payments in the past shall not,
regardless of any applicable laws to the contrary, thereafter be deemed to waive
Landlord's right to strictly enforce this Lease, including Tenant's obligation
to make payment of Rent on the exact day same is due, against Tenant.
D. LANDLORD'S DEFAULT. If Tenant asserts that Landlord has failed
to meet any of its obligations under this Lease, Tenant shall provide written
notice ("Notice of Default") to Landlord specifying the alleged failure to
perform, and Tenant shall send by certified mail, return receipt requested, a
copy of such Notice of Default to any and all mortgage holders, provided the
Tenant has been previously advised of the address(es) of such mortgage
holder(s). Landlord shall have a thirty (30) day period after receipt of the
Notice of Default in which to commence curing any non-performance by Landlord,
and Landlord shall have as much time thereafter to complete such cure as is
necessary so long as Landlord's cure efforts are diligent and continuous. If
Landlord has not begun the cure within thirty (30) days of receipt of the Notice
of Default, or Landlord does not thereafter diligently and continuously attempt
to cure then Landlord shall be in default under this Lease. If Landlord is in
default under this Lease, then the mortgage holder(s) shall have an additional
thirty (30) days, after receipt of a second written notice from Tenant, within
which to cure such default or, if such default cannot be cured within that time,
then such additional time as may be necessary so long as their efforts am
diligent and continuous.
16. LANDLORD'S REMEDIES FOR TENANT'S DEFAULT
A. LANDLORDS OPTIONS. If Tenant is in default of this Lease,
Landlord may, at its option, in addition to such other remedies as may be
available under Florida law:
(1) terminate this Lease and Tenant's right of possession; or
(2) terminate Tenant's right to possession but not the Lease
and/or proceed in accordance with any and all provisions of paragraph B below.
B. LANDLORD'S REMEDIES.
(1) Landlord may without further notice reenter the Premises
either by force or otherwise and dispossess Tenant by summary proceedings or
otherwise, as well as the legal representative(s) of Tenant and/or other
occupant(s) of the Premises, and remove their effects and hold the Premises as
if this Lease had not been made, and Tenant hereby waives the service of notice
of intention to re-enter or to institute legal proceedings to that end; and/or
at Landlord's option,
(2) All Rent and Additional Rent for the balance of the Term
will, at the election of Landlord, be accelerated and the present worth of same
for the balance of the Lease Term, net of amounts actually collected by
Landlord, shall become immediately due thereupon and be paid, together with all
expenses of every nature which Landlord may incur such as (by way of
illustration and not limitation) those for attorneys' fees, brokerage,
advertising, and refurbishing the Premises in good order or preparing them for
re-rental; and/or at Landlord's option,
(3) Landlord may re-let the Premises or any part thereof, either
in the name of Landlord or otherwise, for a term or terms which may at
Landlord's option be less than or exceed the period which would otherwise have
constituted the balance of the Lease Term, and may grant concessions or free
rent or charge a higher rental than that reserved in this Lease; and/or at
Landlord's option,
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(4) Tenant or its legal representative(s) will also pay to
Landlord as liquidated damages any deficiency between the Rent and all
Additional Rent hereby reserved and/or agreed to be paid and the net amount, if
any, of the rents collected on amount of the lease or leases of the Premises for
each month of the period which would otherwise have constituted the balance of
the Lease Term.
C. LANDLORD'S REMEDIES IN BANKRUPTCY.
(1) Anything contained herein to the contrary notwithstanding,
if termination of this Lease shall be stayed by order of any court having
jurisdiction over any proceeding described in subparagraph A. of this Paragraph,
or by federal or state statute, then, following the expiration of any such stay,
or if Tenant or Tenant as debtor-in possession or the trustee appointed in any
such proceeding (being collectively referred to as "Tenant" only for the
purposes of this Paragraph) shall fail to assume Tenant's obligations under this
Lease within the period prescribed therefor by law or within fifteen (15) days
after entry of the order for relief or as may be allowed by the Court, or if
Tenant shall fail to provide adequate protection of Landlord's right, title and
interest in and to the Premises or adequate assurance of the complete and
continuous future performance of Tenant's obligations under this Lease,
Landlord, to the extent permitted by law or by leave of the court having
jurisdiction over such proceeding, shall have the right, at its election, to
terminate this Lease on fifteen (15) days' notice to Tenant and upon the
expiration of said fifteen (15) day period this Lease shall cease and expire as
aforesaid and Tenant shall immediately quit and surrender the Premises as
aforesaid. Upon the termination of this Lease as provided above, Landlord,
without notice, may re-enter and repossess the Premises using such force for
that purpose as may be necessary without being liable to indictment, prosecution
or damages therefor and may dispossess Tenant by summary proceedings or
otherwise.
(2) For purposes of the preceding paragraph (1), adequate
protection of Landlord's right, title and interest in and to the Premises, and
adequate assurance of the complete and continuous future performance of Tenant's
obligations under this Lease shall include, without limitation, the following
requirements:
(i) that Tenant comply with all of its obligations under
this Lease;
(ii) that Tenant pay to Landlord, on the first day of
each month occurring subsequent to the entry of such order, or the effective
date of such stay, a sum equal to the amount by which the Premises diminished in
value during the immediately proceeding monthly period, but, in no event, an
amount which is less than the aggregate Rent payable for such monthly period;
(iii) that Tenant continue to use the Premises in the
manner originally required by this Lease;
(iv) that Landlord be permitted to supervise the
performance of Tenant's obligations under this Lease;
(v) that Tenant pay to Landlord within fifteen (15) days
after entry of such order or the effective date of such stay, as partial
adequate protection against future diminution in value of the Premises and
adequate assurance of the complete and continuous future performance of Tenant's
obligations under this Lease, an additional security deposit in an amount
acceptable to Landlord;
(vi) that Tenant has and will continue to have
unencumbered assets after the payment of all secured obligations and
administrative expenses to assure Landlord that sufficient funds will be
available to fulfill the obligations of Tenant under this Lease;
(vii) that if Tenant assumes this Lease and proposes to
assign the same (pursuant to Title 11 U.S.C. Section 365, or as the same may be
amended) to any person who shall have made a bona fide offer to accept an
assignment of this Lease on terms acceptable to such court having competent
jurisdiction over Tenant's estate, then notice of such proposed assignment,
setting forth (x) the name and address of such person, (y) all of the terms and
conditions of such offer, and (z) the adequate assurance to be provided Landlord
to assure such person's future performance under this Lease, including, without
limitation, the assurance referred to in Title 11 U.S.C. Section 365(b) (3), as
it may be amended, shall be given to Landlord by Tenant no later than fifteen
(15) days after receipt by Tenant of such offer, but in any event no later than
thirty (30) days prior to the date that Tenant shall make application to such
court for authority and approval to enter into such assignment, and assumption,
and Landlord shall thereupon have the prior right and option, to be exercised by
notice to Tenant given at any time prior to the effective date of such proposed
assignment to accept, or to cause Landlord's designee to accept, an assignment
of this Lease upon the same terms and conditions and for the same
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consideration, if any, as the bona fide offer made by such person less any
brokerage commissions which may be payable out of the commission to be paid by
such person for the assignment of this Lease; and
(viii) that if Tenant assumes this Lease and proposes to
assign the same, and Landlord does not exercise its option pursuant to Paragraph
(vii) of this Paragraph, Tenant hereby agrees that:
(A) such assignee shall have a net worth not less
than the net worth of Tenant as of the Commencement Date, or such Tenant's
obligations under this Lease shall be unconditionally guaranteed by a person
having a net worth equal to Tenant's net worth as of the Commencement Date;
(B) such assignee shall not use the Premises
except subject to all the restrictions contained in this Lease;
(C) such assignee shall assume in writing all of
the terms, covenants and conditions of this Lease including, without limitation,
all of such terms, covenants and conditions respecting the Permitted Use and
payment of Rent;
(D) such assignee shall indemnify Landlord
against, and pay to Landlord the amount of, any payments which Landlord may be
obligated to make to any Mortgagee by virtue of such assignment; and
(E) if such assignee makes any payment to Tenant,
or for Tenant's account, for the right to assume this Lease (including, without
limitation, any lump sum payment, installment payment or payment in the nature
of rent over and above the Rent payable under this Lease), Tenant shall pay
over to Landlord one-half of any such payment.
17. LIENS
A. GENERAL. In accordance with the applicable provisions of the
Florida Mechanic's Lien Law and specifically Florida Statutes, Section 713. 10,
no interest of Landlord whether personally or in the Premises, or in the
underlying land or Building of which the Premises are a part or the leasehold
interest aforesaid shall be subject to liens for improvements made by Tenant or
caused to be made by Tenant hereunder. Further, Tenant acknowledges that
Tenant, with respect to improvements or alterations made by Tenant or caused to
be made by Tenant hereunder, shall promptly notify the contractor making such
improvements to the Premises of this provision exculpating Landlord's liability
for such liens.
B. DEFAULT. Notwithstanding the foregoing, if any mechanic's lien
or other lien, attachment, judgment, execution, writ, charge or encumbrance is
filed against the Building or the Premises or this leasehold, or any
alterations, fixtures or improvements therein or thereto, as a result of any
work action or inaction done by or at the direction of Tenant or any of Tenant's
Agents, Tenant will discharge same of record (by statutory bond or otherwise)
within ten (10) days after the filing thereof, failing which Tenant will be in
default under this Lease. In such event, without waiving Tenant's default,
Landlord, in addition to all other available rights and remedies, without
further notice may discharge the same of record by payment, bonding or
otherwise, as Landlord may elect, and upon request Tenant will reimburse
Landlord for all costs and expenses so incurred by Landlord plus interest
thereon at the rate of eighteen percent (18%) per annum.
18. NOTICES
Notices to Tenant under this Lease will be addressed to Tenant and
mailed or delivered to the Premises. Notices to Landlord under this Lease (as
well as the required copies thereof) will be addressed to Landlord (and its
agents) and mailed or delivered to the address set forth above. Notices will be
personally delivered or given by registered or certified mail, return receipt
requested. As used herein, personal delivery includes delivery by overnight
courier. Notices delivered personally will be deemed to have been given as of
the date of delivery and notices given by mail will be deemed to have been given
forty-eight (48) hours after the time said properly addressed notice is placed
in the mail. Each party may change its address from time to time by written
notice given to the other as specified above.
19. MORTGAGE; ESTOPPEL CERTIFICATE; SUBORDINATION; ATTORNMENT
Landlord has the unrestricted right to convey, mortgage and refinance
the Premises, or any part thereof. Tenant agrees, within seven (7) days after
notice, to execute and deliver to Landlord or its mortgagee or designee, such
instruments as Landlord or its mortgagee may require, certifying the amount of
the Security Deposit and whether this Lease is in full force and
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effect, and listing any modifications. This estoppel certificate is intended to
be for the benefit of Landlord, any purchaser or mortgagee of Landlord, or any
purchaser or assignee of Landlord's mortgage. The estoppel certificate will
also contain such other information as Landlord or its designee may request.
This Lease is and at all times will be subject and subordinate to all present
and future mortgages or ground leases which my affect the Premises, and to all
recastings, renewals, modifications, consolidations, replacements, and
extensions of any such mortgage(s), and to all increases and voluntary and
involuntary advances made thereunder. If any mortgagee of the Premises comes
into possession or ownership of the Premises, or acquires Landlord's interest by
foreclosure of the mortgage or otherwise, upon the mortgagee's request Tenant
will attorn to the mortgagee. The foregoing will be self-operative and no
further instrument of subordination will be required.
20. TRANSFER BY LANDLORD
If Landlord's interest in the Premises terminates by reason of a bona
fide sale or other transfer, Landlord will, upon transfer of the Security
Deposit to the new owner, thereupon be released from all further liability to
Tenant under this Lease.
21. SURRENDER OF PREMISES; HOLDING OVER
A. SURRENDER. Tenant agrees to surrender the Premises to Landlord
on the Expiration Date (or sooner termination, of the Lease Term pursuant to
other applicable provisions hereof) in as good condition as they were at the
commencement of Tenant's occupancy, ordinary wear and tear, and damage by fire
and windstorm excepted.
B. RESTORATION. In all events, Tenant will promptly restore all
damage caused in connection with any removal of Tenant's personal property.
Tenant will pay to Landlord, upon request, all damages that Landlord may suffer
on account of Tenant's failure to surrender possession as and when aforesaid and
will indemnify Landlord against all liabilities, costs and expenses (including
all reasonable attorneys' fees and costs if any) arising out of Tenant's delay
in so delivering possession, including claim of any succeeding tenant.
C. HOLDOVER. If Tenant shall be in possession of the Premises after
the expiration of the Term,, in the absence of any agreement extending the Term,
the tenancy under this Lease shall become one from month to month, terminable by
either party on thirty (30) days' prior notice, and shall be subject to all of
the terms and conditions of this Lease as though the Term had been extended from
month to month, except that the Base Rent payable hereunder for each month
during said holdover period shall be equal to twice the monthly installment of
Base Rent payable during the last month of the Term.
D. NO SURRENDER. No offer of surrender of the Premises, by delivery
to Landlord or its agent of keys to the Premises or otherwise, will be binding
on Landlord unless accepted by Landlord, in writing, specifying the effective
surrender of the Premises. At the expiration or termination of the Lease Term,
Tenant shall deliver to Landlord all keys to the Premises and make known to
Landlord the location and combinations of all locks, safes and similar items.
No receipt of money by Landlord from Tenant after the Expiration Date (or sooner
termination) shall reinstate, continue or extend the Lease Term, unless Landlord
specifically agrees to same in writing signed by Landlord at the time such
payment is made by Tenant.
22. MANDATORY ARBITRATION.
ANY CONTROVERSY OR CLAIM BETWEEN THE PARTIES HERETO, INCLUDING, BUT
NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS LEASE, INCLUDING ANY
CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING
ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT
APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR
THE ARBITRATION OF COMMERCIAL DISPUTES OF JUDICIAL ARBITRATION AND MEDIATION
SERVICES, INC. (J.A.M.S.), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE
EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY
ARBITATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO
THIS LEASE MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO
COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS LEASE APPLIES IN
ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN MIAMI-DADE
COUNTY, FLORIDA, AND ADMINISTERED BY ENDISPUTE, INC., D/B/A/J.M.S./ENDISPUTE WHO
WILL APPOINT AN ARBITRATOR; IF J.A.M.S./ENDISPUTE IS UNABLE OR LEGALLY PRECLUDED
FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION
WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE
DEMAND FOR ARBITRATION; FURTHER THE ARBITRATOR SHALL
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ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH
HEARING FOR UP TO AN ADDITIONAL 60 DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS LEASE SHALL BE DEEMED TO
LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF LIMITATION OR
REPOSE AND ANY WAIVERS CONTAINED IN THIS LEASE OR TO LIMIT THE RIGHT OF LANDLORD
TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT
LIMITED TO) INJUNCTIVE RELIEF. LANDLORD MAY OBTAIN SUCH PROVISIONAL OR
ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION
PROCEEDING BROUGHT PURSUANT TO THIS LEASE. THE INSTITUTION OR MAINTENANCE OF AN
ACTION FOR PROVISIONAL OR ANCILLARY REMEDIES SHALL NOT CONSTITUTE A WAIVER OF
THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE
THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
23. QUIET ENJOYMENT
In accordance with and subject to the terms and provision of this
Lease, Landlord warrants that it has full right to execute and to perform under
this Lease and to grant the estate demised and that Tenant, upon Tenant's
payment of the Rent and performing all of the terms, conditions, covenants, and
agreements contained in this Lease, shall peaceably and quietly have, hold and
enjoy the Premises during the full Lease Term.
24. ENTIRE AGREEMENT
This Lease, together with its exhibits fully incorporated into this
Lease by this reference, contains the entire agreement between the parties
hereto regarding the subject matters referenced herein and supersedes all prior
and written agreements between them regarding such matters. This Lease may be
modified only by an agreement in writing dated and signed by Landlord and Tenant
after the date hereof.
25. HAZARDOUS MATERIALS
A. REPRESENTATIONS. Tenant represents, warrants and covenants that
(1) the Premises will not be used for any dangerous, noxious or offensive trade
or business and that it will not cause or maintain a public or private nuisance
there, (2) it will not bring, suffer, allow, generate, beat, store, use or
dispose of Hazardous Substances at the Premises, (3) it shall insure that its
operations at all times comply with all Environmental Laws (as hereinafter
defined), (4) it shall cause the Premises to come into compliance and shall
maintain compliance with all applicable Environmental Laws and (5) Tenant will
keep the Premises free of any lien imposed pursuant to any Environmental Laws.
B. REPORTING REQUIREMENTS. Tenant warrants that it will promptly
deliver to the Landlord, (i) copies of any documents received from the United
States Environmental Protection Agency and/or any state, county or municipal
environmental or health agency concerning the condition of the Premises or
Tenant's operations upon the Premises; (ii) copies of any documents submitted
by the Tenant to the United States Environmental Protection Agency or any state,
county or municipal environmental or health agency concerning the condition of
the Premises or its operations on the Premises, including but not limited to
copies of permits, licenses, annual filings, registration forms and, (iii) upon
the request of Landlord, Tenant shall provide Landlord with evidence of
compliance with Environmental Laws.
C. TERMINATION, CANCELLATION, SURRENDER. At the expiration or
earlier termination of this Lease, Tenant shall surrender the Premises to
Landlord free of any and all Hazardous Substances and in compliance with all
Environmental Laws and to the complete satisfaction of Landlord. Landlord may
require at Tenant's sole expense at the end of the term, a clean-site
certification, environmental audit or site assessment. Tenant's obligations
under paragraphs 6, 13 and paragraph 25 herein extend to any and all Hazardous
Substances in, on or under the Premises regardless of source and irrespective of
whether the Hazardous Substances pre-dated Tenant's occupancy of the Premises.
D. ACCESS AND INSPECTION. Landlord shall have the right but not the
obligation, at all times during the term of this Lease to (i) enter upon and
inspect the Premises, (ii) conduct tests and investigations and take samples to
determine whether Tenant is in compliance with the provisions of this Article,
and (ii) request lists of all Hazardous Substances used, stored or located on
the Premises; the cost of all such inspections, tests and investigations to be
borne by Tenant. Promptly upon the written request of Landlord, from time to
time, Tenant shall provide Landlord, at Tenant's expense, with an environmental
site assessment or environmental audit report prepared by an environmental
engineering firm acceptable to Landlord to assess with a reasonable degree
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of certainty the presence or absence of any Hazardous Substances and the
potential costs in connection with abatement, cleanup, or removal of any
Hazardous Substances found on, under, at, or within the Premises. Tenant will
cooperate with Landlord and allow Landlord and Landlord's representatives access
to any and all parts of the Premises and to the records of Tenant with respect
to the Premises for environmental inspection purposes at any time. In
connection therewith, Tenant hereby agrees that Landlord or Landlord's
representatives may perform any testing upon or of the Premises that Landlord
deems reasonably necessary for the evaluation of environmental risks, costs, or
procedures, including soils or other sampling or coring.
E. VIOLATIONS - ENVIRONMENTAL DEFAULTS. Tenant shall give to
Landlord immediate verbal and follow-up written notice of any actual or
threatened spills, releases or discharges of Hazardous Substances on the
Premises, caused by the acts or omissions of Tenant or its agents, employees,
representatives, invitees, licensees, subtenants, customers or contractors.
Tenant covenants to promptly investigate, clean up and otherwise remediate any
spill, release or discharge of Hazardous Substances caused by the acts of
omissions of Tenant or its agents, employees, representatives, invitees,
licensees, subtenants, customers or contractors at Tenant's sole cost and
expense; such investigation, clean up and remediation to be performed to the
satisfaction of Landlord and after Tenant has obtained Landlord's written
consent. Tenant shall return the Premises to the condition existing prior to
the introduction of any such Hazardous Substances. Landlord reserves the right
to require the cleanup of Hazardous Substances to levels beyond that required by
Environmental Laws.
(1) In the event of (a) a violation of an Environmental Law, (b)
a release, spill or discharge of a Hazardous Substance on or from the Premises,
or (c) the discovery of an environmental condition requiring response, or (d) an
emergency environmental condition (collectively "Environmental Defaults"),
Landlord shall have the right, but not the obligation, to immediately enter the
Premises, to supervise and approve any actions taken by Tenant to address the
violation release or environmental condition; and in the event Tenant fails to
immediately address such violation, release, or environmental condition, or if
the Landlord deems it necessary, then Landlord may perform, at Tenant's expense,
any lawful actions deemed necessary by Landlord to address or cure to Landlord's
satisfaction the violation, release, or environmental condition.
(2) Landlord has the right, but not the obligation to cure any
Environmental Defaults, has the right to suspend some or all of the operations
of the Tenant until it has determined to its sole satisfaction that appropriate
measures have been taken, and has the right to terminate this Lease upon the
occurrence of an Environmental Default.
F. ADDITIONAL RENT. Any expenses which the Landlord incurs, which
are to be at Tenant's expense pursuant to this Article, will be considered
Additional Rent under this Lease and shall be paid by Tenant on demand by
Landlord.
G. ASSIGNMENT AND SUBLETTING. Notwithstanding anything to the
contrary in this Lease, the Landlord may condition its approval of any
assignment or subletting by Tenant to an Assignee or Subtenant that in the sole
judgment of the Landlord does not create any additional environmental exposure.
H. INDEMNIFICATION. Tenant shall indemnify, defend (with counsel
approved by Landlord) and hold Landlord and Landlord's affiliates, shareholders,
directors, officers, employee's and agents harmless from and against any and all
claims, judgments, damages (including consequential damages), penalties, fines,
liabilities, losses, suits, administrative proceedings, costs and expenses of
any kind or nature, known or unknown, contingent or otherwise, which arise out
of or in anyway related to (1) Hazardous Substances in, on or under the
Premises, (2) the acts or omissions of Tenant, its agents, employees,
representatives, invitees, licensees, subtenants, customers or contractors
during or after the term of this Lease (including, but not limited to,
attorneys', consultant, laboratory and expert fees and including without
limitation, diminution in the value of the Premises, damages for the loss or
restriction on use of rentable or usable space or any amenity of the Premises
and damages arising from any adverse impact on marketing of space), arising from
or related to the use, presence, transportation, storage, disposal, spill,
release or discharge of Hazardous Substances on or about the Premises and (3)
breach of any condition, obligation or representation under paragraph 25
herein. This indemnification shall survive the termination of the Lease.
I. DEFINITIONS.
(1) "Hazardous Substance" means, (i) asbestos and any asbestos
containing material and any substance that is then defined or listed in, or
otherwise classified pursuant to, any Environmental Laws or any applicable laws
or regulations as a "hazardous substance", "hazardous material", "hazardous
waste", "infectious waste", "toxic substances", "toxic pollutant" of any other
formulation intended to define, list, or classify substances by reason of
deleterious properties such as ignitability, corrosivity, reactivity,
carcinogenicity, toxicity, reproductive toxicity, or Toxicity Characteristic
Leaching Procedure (TCLP) toxicity, (ii) any petroleum and drilling fluids,
produced waters, and other wastes associated with the exploration,
10
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development or production of crude oil, natural gas, or geothermal resources and
(iii) petroleum products, polychlorinated biphenyls, urea formaldehyde, radon
gas, radioactive material (including any source, special nuclear, or by-product
material), and medical waste.
(2) "Environmental Laws" collectively means and includes all
present and future laws and any amendments (whether common law, statute, rule,
order, regulation or otherwise), permits and other requirements or guidelines of
governmental authorities applicable to the Premises and relating to the
environment and environmental conditions or to any Hazardous Substance
(including, without limitation, CERCLA, 42 U.S.C. Section 9601, et. seq, the
Resource Conservation and Recovery Act of 1976, 42 U.S.C. Section 6901, et seq.,
the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the
Federal Water Pollution Control Act, 33 U.S.C. Section 1251, et seq., the Clean
Air Act, 33 U.S.C. Section 7401, et seq., the Clear Air Act, 42 U.S.C. Section
741, et seq., the Toxic Substances Control Act, 15 U.S.C. Section 2601-2629, the
Safe Drinking Water Act, 42 U.S.C. Section 300f-300j, the Emergency Planning and
Community Right-To-Know Act, 42 U.S.C. Section 1101, et seq., and any so-called
"Super Fund" or "Super Lien" law, or any law requiring the filing of reports and
notices relating to hazardous substances, environmental laws administered by the
Environmental Protection Agency, and any similar state and local laws and
regulations, all amendments thereto and all regulations, orders, decisions, and
decrees now or hereafter promulgated thereunder concerning the environment,
industrial hygiene or public health or safety.)
J. RADON. RADON GAS: Radon is a naturally occurring radioactive gas
that, when it has accumulated in a building in sufficient quantities, may
present health risk to persons, who are exposed to it over time. Levels of
radon that exceed Federal and State Guidelines have been found in buildings in
Florida. Additional information regarding radon and radon testing may be
obtained from your county public health unit.
26. PURCHASE OPTION
A. GRANT OF OPTION. Landlord grants to Tenant an option to purchase
the Premises under the terms set forth herein (the "Option").
B. PURCHASE PRICE. Tenant shall have the option to purchase the
Premises at the fixed price of U.S. $2,127,500.00 cash payable at closing. The
total purchase price, adjusted as set forth herein, is payable as follows:
(1) Tenant shall deposit the sum of Two Hundred Thousand Dollars
($200,000) with Landlord with its written notice of the exercise of the Option
(the "Option Deposit").
(2) At closing, Tenant shall deliver to Landlord (or the
designated escrow agent for the closing) the remainder of the purchase price,
together with all other funds required from Tenant hereunder, by certified wire
transfer.
Notwithstanding the foregoing, if Landlord obtains a written offer to
purchase the Premises during the Exercise Period from a third party unaffiliated
with Tenant for a purchase price less than $2,127,500.00 on terms and conditions
which Landlord would like to accept, then Landlord shall give Tenant notice
("Landlord's Notice") of the terms and conditions of such proposed sale. If
Tenant fails to notify Landlord within three (3) business days from the date of
Landlord's Notice that Tenant wishes to purchase the Premises on such terms and
conditions, Tenant shall have waived any and all rights it may have under this
paragraph to purchase the Premises. If Tenant notifies Landlord within three
(3) business days from the date of Landlord's Notice that Tenant accepts such
terms and conditions, then Tenant shall be deemed to have exercised its Option
hereunder and Tenant shall immediately deliver the Option Deposit to Landlord
and otherwise comply with this paragraph.
C. OPTION TERM. This Option shall commence an the Commencement Date
and shall continue until 90 days prior to the expiration of the fifth (5th) year
of the Lease Term (the "Exercise Period"). So long as no default exists
hereunder, Tenant may exercise its option at any time during the Exercise Period
by executing and delivering to Landlord written notice of Tenant's exercise of
the Option together with the Option Deposit. If Tenant fails to deliver such
notice and Option Deposit to Landlord within the Exercise Period, this Option
shall terminate. If after proper exercise of this Option, Tenant defaults in
its further obligations under this Paragraph 26, Landlord shall retain the
Option Deposit as its exclusive remedy hereunder and this Agreement shall
thereafter immediately terminate.
D. TITLE. Within fifteen (15) days after Tenant's exercise of this
Option, Tenant shall obtain at Tenant's cost, a binder or commitment of a
reputable title insurance company for a fee title insurance policy in favor of
Tenant, which commitment shall be in the standard form customarily used by such
title insurance company, shall be in the face amount equal to the purchase
price, and shall contain no exceptions other than exceptions to Landlord's title
existing on the Commencement Date or created by Tenant's sets or failure to
perform its obligations under this Lease. Landlord shall provide affidavits and
assurances required by the
11
<PAGE>
title insurance company for deleting the mechanics' lien and parties in
possession exceptions. Tenant shall have ten (10) days after receipt of the
title insurance commitment in which to examine the same and to notify Landlord
that title is or is not acceptable, and if not acceptable, to describe the title
defects and encumbrances. If the title to the Premises is acceptable, closing
shall take place as provided herein. If the title is not acceptable, Landlord
shall have a period of time not to exceed sixty (60) days from the delivery of
the notice in which to remove the title defects and encumbrances, and Landlord
shall in good faith exercise all reasonable diligence and efforts to do so,
except that Landlord shall not be obligated to prosecute a quiet title action,
or institute any type of legal proceedings, or any defects caused by Tenant.
Tenant may waive any title defects and encumbrances not removed within the
sixty-day period. When all unwaived title defects and encumbrances have been
removed or cured, and Landlord has given Tenant proof thereof within the time
specified above or extended, closing shall take place within ten (10) days
thereafter. If Landlord does not remove the unwaived title defects and
encumbrances after the exercise of all reasonable diligence and efforts to do so
within the time specified above or extended, Landlord shall notify Tenant in
writing, stating the reasons therefor, and within ten (10) days thereafter
Tenant either shall, (1) waive the title defects and encumbrances and proceed
with closing or (2) withdraw from the transaction, release Landlord and
terminate the obligations of the parties hereunder.
E. CLOSING. Subject to Landlord's obligation to convey acceptable
title, closing shall take place forty-five (45) days after Tenant's exercise of
the Option at the law offices of Holland & Knight LLP, One East Broward
Boulevard, Fort Lauderdale, Florida 33301, or at such other place as the parties
may agree. Tenant shall pay the Florida documentary stamp tax required by law
with respect to the deed. Tenant shall pay all real estate taxes accrued during
the time of Landlord's ownership of the Premises for the year of closing.
Landlord shall convey by special warranty deed in recordable form.
F. SURVEY. After exercise of the Option, Tenant, at its sole cost,
may obtain a survey of the Premises. Any encroachment, setback violation, or
other violation shown thereon shall constitute a title defect and shall be
subject to the title corrective responsibilities of Landlord as provided in the
Section entitled "TITLE".
G. FIRPTA COMPLIANCE. Landlord represents to Tenant that Landlord
is not a "foreign person" as that term is defined in Section 7701 of the
Internal Revenue Code of 1954, as amended. Landlord will deliver to Tenant, at
closing, an affidavit attesting to that fact and showing Landlord's federal
taxpayer identification number.
27. MISCELLANEOUS
A. If any term or condition of this Lease or the application thereof
to any person or circumstance is, to any extent, invalid or unenforceable, the
remainder of this Lease, or the application of such term or condition to persons
or circumstances other than those as to which it is held invalid or
unenforceable, is not to be affected thereby and each term and condition of this
Lease is to be valid and enforceable to the fullest extent permitted by law.
B. Submission of this Lease to Tenant does not constitute an offer,
and this Lease becomes effective only upon execution and delivery by both
Landlord and Tenant. Tenant acknowledges that this Lease is specifically
conditioned upon Landlord obtaining a fee title interest in the Premises.
C. Tenant acknowledges that it has not relied upon any statement,
representation, prior or contemporaneous written or oral promises, agreements or
warranties, except such as are expressed herein.
D. Each party represents and warrants that it has not dealt with any
agent or broker in connection with this transaction except for the agents or
brokers specifically set forth above with respect to each Landlord and Tenant.
If either party's representation and warranty proves to be untrue, such party
will indemnify the other party against all resulting liabilities, costs,
expenses, claims, demands and causes of action, including reasonable attorneys'
fees and costs through all appellate actions and proceedings, if any. The
foregoing will survive the end of the Lease Term.
E. Neither this Lease nor any memorandum hereof will be recorded by
Tenant.
F. This Lease does not create, nor will Tenant have, any express or
implied easement for or other rights to air, light or view over or about the
Premises or any part thereof.
G. Landlord reserves the right, but has no obligation, to use,
install, monitor, and repair pipes, ducts and conduits within the walls,
columns, and ceilings of the Premises.
12
<PAGE>
H. It is acknowledged that each of the parties hereto has been fully
represented by legal counsel and that each of such legal counsel has contributed
substantially to the content of this Lease. Accordingly, this Lease shall not
be more strictly construed against either party hereto by reason of the fact
that one party may have drafted or prepared any or all of the terms and
provisions hereof.
I. Landlord makes no representations (express or implied) concerning
the Premises, including but not limited to, (i) the availability or
unavailability of licenses, permits or utilities for Tenant's Permitted Use;
(ii) the suitability of the Premises for Tenant's Permitted Use; and (iii)
whether the Premises comply with and Tenant's Permitted Use of the Premises are
permitted under all applicable laws and regulations, including applicable zoning
and land use laws and regulations (including but not limited to parking
requirements) and ADA. In all cases, Tenant shall be obligated to comply with
applicable laws and regulations and this Lease shall nevertheless remain in full
force and effect. Tenant acknowledges and agrees that Tenant is solely
responsible for performing all due diligence relating to the Premises, that
Tenant is satisfied with the Premises, and Tenant is not relying on any
statements or disclosures by Landlord relating to the Premises.
J. Notwithstanding anything to the contrary in this Lease, if
Landlord cannot perform any of its obligations due to events beyond the
Landlord's control, the time provided for performing such obligations shall be
extended by a period of time equal to the duration of such events. Events
beyond Landlord's control include, but are not limited to, hurricanes and floods
and other acts of God, war, civil commotion, labor disputes, strikes, fire,
flood or other casualty, shortages of labor or material, government regulation
or restriction and weather conditions.
K. Tenant agrees to pay, before delinquency, all taxes assessed
during the Lease Term agreement (i) all personal property, trade fixtures, and
improvements located in or upon the Premises and (ii) the occupancy interest of
Tenant in the Premises.
L. No waiver of any provision of this Lease by either party will be
deemed to imply or constitute a further waiver by such party of the same or any
other provision hereof. The rights and remedies of Landlord under this Lease or
otherwise are cumulative and are not intended to be exclusive and the use of one
will not be taken to exclude or waive the use of another, and Landlord will be
entitled to pursue all rights and remedies available to landlords under the laws
of the State of Florida. Landlord, in addition to all other rights which it may
have under this Lease, hereby expressly reserves all rights in connection with
the Building or the Premises not expressly and specifically granted to Tenant
under this Lease and Tenant hereby waives all claim for damages, loss, expense,
liability, eviction or abatement it has or may have against Landlord on account
of Landlord's exercise of its reserved rights.
M. No receipt of money by Landlord from Tenant at any time, or any
act, or thing done by, Landlord or its agent shall be deemed a release of Tenant
from any liability whatsoever to pay Rent, Additional Rent, or any other sums
due hereunder, unless such release is in writing, subscribed by a duly
authorized officer or agent of Landlord and refers expressly to this Section.
Any payment by Tenant or receipt by Landlord of less than the entire amount due
at such time shall be deemed to be on account of the earliest sum due. No
endorsement or statement on any check or any letter accompanying any check or
payment shall be deemed an accord and satisfaction. In the case of such a
partial payment or endorsement, Landlord may accept such payment, check or
letter without prejudice to its right to collect all remaining sums due and
pursue all of its remedies under the Lease.
13
<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> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<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> 9,514,500 20,488,496
<DEPRECIATION> (6,428) (680,310)
<TOTAL-ASSETS> 10,894,116 33,490,098
<CURRENT-LIABILITIES> 3,660,325 7,907,543
<BONDS> 0 11,280,489
0 0
0 0
<COMMON> 20,974 30,058
<OTHER-SE> 7,212,817 14,272,008
<TOTAL-LIABILITY-AND-EQUITY> 10,894,116 33,490,098
<SALES> 232,824 8,020,304
<TOTAL-REVENUES> 510,779 435,004
<CGS> (419,914) (6,992,829)
<TOTAL-COSTS> (491,383) (2,045,767)
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (32,730) (340,707)
<INCOME-PRETAX> (200,423) (954,984)
<INCOME-TAX> (52,850) (407,900)
<INCOME-CONTINUING> (147,573) (547,084)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (147,573) (547,084)
<EPS-PRIMARY> (0.011) (0.021)
<EPS-DILUTED> (0.008) (0.018)
</TABLE>
