FORM 8-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
June 23, 1997
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Date of Report (Date of earliest event reported)
ILX Incorporated
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(Exact name of Registrant as specified in its charter)
ARIZONA
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(State or other
jurisdiction of
incorporation)
33-16122 86-0564171
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(Commission File (I.R.S. Employer
Number) Identification No.)
2111 E. Highland, Suite 210, Phoenix, AZ 85016
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(Address of principal executive offices) (Zip Code)
(602) 957-2777
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Registrant's telephone number, including area code
<PAGE>
Item 5. Other Events.
Effective June 23, 1997, ILX Incorporated ("ILX") and EVEREN
Securities, Inc. ("ESI") entered into a Letter Agreement regarding financial
advisory services (the "Letter Agreement"). The Letter Agreement, which was
accepted and agreed to by ILX on June 23, 1997, will take effect commencing July
1, 1997. The Letter Agreement is attached to this Form 8-K as Exhibit 10.
Under the terms of the Letter Agreement, ESI is to act as ILX's
exclusive financial advisor, investment banker and agent with respect to the
evaluation of various alternatives to position ILX for long-term growth and
evaluation of various strategic alternatives that may enhance shareholder value.
The services, which are more fully described in the Letter Agreement, may
include: evaluating third party entities that ILX may seek to acquire or with
which ILX may seek to merge; evaluating capital raising strategies and providing
access to the capital markets; and other investment banking and related services
on which ESI and ILX may agree. The Letter Agreement has no fixed term, although
the parties have expressed their intentions that the Letter Agreement remain in
effect for at least one year. However, 30 days after ILX executes the Letter
Agreement it may be terminated by either party on 10-days' written notice to the
other party, although ILX would have certain ongoing obligations to ESI
including to compensate ESI for previously earned fees, to reimburse ESI for
accrued expenses, to honor a right of first refusal held by ESI, and to
indemnify ESI for certain matters.
In exchange for the above services under the Letter Agreement, in
addition to other compensation that may be payable to ESI as "success fees", ILX
agreed to transfer to ESI 60,000 shares of ILX's common stock (the "Common
Stock") on each of August 1, 1997 and February 1, 1998 and to cause those shares
to be registered under an appropriate registration statement.
The above descriptions of the Letter Agreement is qualified in its
entirety by reference to that Agreement, attached hereto as Exhibit 10.
Item 7. Financial Statements and Exhibits.
The Exhibits required by Item 601 of Regulation S-K have been supplied
as follows:
Exhibit
Numbers Description of Exhibit Page No.
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10 Letter Agreement 4
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ILX Incorporated,
an Arizona corporation
/s/ Nancy J. Stone
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Nancy J. Stone
President
Date: July 1, 1997
<PAGE>
June 11, 1997
Member of the Board of Directors
ILX Incorporated
2111 East Highland Road, Suite 210
Phoenix, AZ 85016
ATTN: Mr. Joseph P. Martori
Chairman of the Board
Members of the Board:
We are pleased to set out terms and conditions for the retention of EVEREN
Securities, Inc. ("EVEREN") by ILX Incorporated (the "Company") to act as the
Company's exclusive financial advisor, investment banker, and agent in
connection with the evaluation of various alternatives to position the Company
for long-term growth. This Agreement will confirm EVEREN's engagement by the
Company under the following terms and conditions:
1. Description of Engagement. The Company hereby retains EVEREN and EVEREN
agrees to act as the Company's exclusive financial advisor, investment
banker, and agent with respect to the evaluation of various strategic
alternatives which may enhance shareholder value. We understand that
the Company is currently in discussions with a potential Strategic
Partner (as defined below), but that the Company intends to evaluate
all options open to it.
In connection with its role, EVEREN will provide advice to the Company
on a broad range of matters relating to future growth. It is presently
anticipated that EVEREN's services may include: evaluating third party
entities that the Company may seek to acquire or merge with, evaluating
capital raising strategies and providing access to the capital markets,
as well as such other investment banking and related services as many
be mutually agreed upon by EVEREN and the Company. Services by EVEREN
may include, but are not limited to, the following based on
circumstances as they evolve with the Company:
(a) providing the Company and its Board with advisory services
including general business and financial analysis;
(b) developing a list of prospective Strategic Partners and a
strategy for generating interest in the Company;
(c) assisting the Company in preparing a descriptive Memorandum
(as defined below) that details the Company's properties,
operations, management, results of operations, financial
condition, and other appropriate information;
(d) advising the Company on negotiations with prospective
Strategic Partners;
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ILX Incorporated
June 11, 1997
Page 2
(e) reviewing and analyzing the terms, conditions, and forms of
consideration associated with proposals from prospective
Strategic Partners;
(f) serving as the Company's exclusive agent for any private
placement of debt or equity securities or lead managing
underwriter for any public offering of debt or equity
securities; and
(g) rendering a fairness opinion at the request of, and for the
benefit of, the Board of Directors as to the fairness, from a
financial point of view, of any Transaction to the Company's
shareholders except for a financing in which it is not
customary practice to render such a fairness opinion.
2. Definition of a Transaction. EVEREN may assist the Company in
identifying, working with, and evaluating a person, group of persons,
investment fund, partnership, joint venture, corporation, or other
entity, or any combination of the foregoing, including those already
identified by the Company (each, together with its affiliates, a
"Strategic Partner") who is interested in entering into a Transaction
with the Company. As used in this Agreement, the term "Transaction"
shall mean:
(a) (i) any merger, consolidation, reorganization,
recapitalization, business combination or other transaction
pursuant to which a Strategic Partner is acquired by or
combined with the Company, or (ii) the acquisition, directly
or indirectly, by the Company (or by one or more persons
acting together with the Company pursuant to a written
agreement or otherwise) in a single transaction or a series of
transactions, of (a) all or substantially all of the assets or
operations of a Strategic Partner or (b) fifty percent or more
of the equity interests of a Strategic Partner (whether by way
of tender or exchange offer, open market purchases, negotiated
purchases or otherwise); or
(b) (i) any merger, consolidation, reorganization,
recapitalization, business combination or other transaction
pursuant to which the Company is acquired by or combined with
a Strategic Partner (or by one or more persons acting together
with a Strategic Partner pursuant to a written agreement or
otherwise), or (ii) the acquisition, directly or indirectly,
by a Strategic Partner in a single transaction or a series of
transactions, of (a) all or substantially all of the assets or
operations of the Company or (b) fifty percent or more of the
equity interests of the Company (whether by way of tender or
exchange offer, open market purchases, negotiated purchase or
otherwise).
3. Definition of a Financing. EVEREN may assist the Company in
identifying, working with and evaluating a person, group of persons,
investment fund, partnership, joint venture, corporation or other
entity, or any combination of the foregoing, (each, together with its
affiliates, a "Financing Partner") who is interested in entering into a
Financing with the Company. As used in this Agreement, the term
"Financing" shall mean any Financing pursuant to which the Company
issues equity or debt securities or a combination thereof to any
Financing Partner for any purpose.
<PAGE>
ILX Incorporated
June 11, 1997
Page 3
4. Information. In connection with EVEREN's activities on the Company's
behalf, EVEREN will, to the extent it deems appropriate, familiarize
itself with the business, operations, properties, financial condition
and prospects of the Company. The Company will cooperate with EVEREN
and will furnish EVEREN with all information and data, including
audited financial statements (as soon as available), concerning the
Company, any Transaction, any Financing and, to the extent available to
the Company, any Strategic Partner or Financing Partner, and such other
information which EVEREN deems appropriate (the "Information") and will
provide EVEREN with access to the Company's officers, directors,
employees, agents, representatives, independent accountants and legal
counsel. To the extent the Company has access to the officers,
directors, employees, independent accountants and legal counsel of any
Strategic Partner or Financing Partner, it will provide such access to
EVEREN. The Company warrants and represents that all Information (a)
provided or otherwise made available by the Company to EVEREN or (b)
contained in any descriptive memorandum mutually prepared by EVEREN and
the Company (the "Memorandum") will, at all times during the period of
the engagement of EVEREN hereunder, be complete and correct in all
material respects and will not contain any untrue statement or material
fact or omit to state a material fact necessary in order to make the
statements therein not misleading in the light of the circumstances
under which such statements are made. The Company further warrants and
represents that any projections provided by it to EVEREN or contained
in the Memorandum will have been prepared in good faith and will be
based upon assumptions which, in light of the circumstances under which
they are made, are reasonable. The Company acknowledges and agrees that
in rendering its services hereunder, EVEREN will be using and relying
upon the Information (and information available from public sources and
other sources deemed reliable by EVEREN) without independent
verification thereof or independent appraisal of any of the Company's
assets by EVEREN. EVEREN assumes no responsibility for the accuracy or
completeness of the Information or any other information regarding the
Company, any Strategic Partner, any Financing Partner, any Transaction
or any Financing. Any advice rendered by EVEREN pursuant to this
Agreement may not be publicly disclosed or otherwise utilized without
the express prior written consent of EVEREN and the Company and
execution of [sic] necessary confidentiality agreement.
5. No Assurances. EVEREN makes no representations, express or implied,
that its efforts on behalf of the Company to identify a Strategic
Partner and negotiate a Transaction or identify a Financing Partner and
negotiate a Financing will be successful.
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ILX Incorporated
June 11, 1997
Page 4
6. Compensation. In consideration of the services to be rendered by EVEREN
to the Company pursuant to this Agreement, EVEREN shall be entitled to
receive, and the Company shall pay EVEREN, the following compensation:
(a) Upon execution of this Agreement, the Company shall pay to
EVEREN in two installments of $75,000 each, first on August 1,
1997 and second on February 1, 1998, in common stock of the
Company valued at $1.25 per share. The shares received on
August 1, 1997 will be fully registered under the Company's
existing registration statement. For the shares received on
February 1, 1998, the Company agrees to use its best efforts
to file a registration statement within 30 days of receipt of
demand for such registration by EVEREN.
In the event that a Transaction or a Financing is undertaken,
compensation to EVEREN will be negotiated at that time but
will not be below the compensation parameters listed below.
One hundred percent of the original value of shares issued
under the above retainer shall be credited against the total
compansation due EVEREN as the result of a Transaction or
Financing.
(b) The Company will pay to EVEREN upon the first closing of any
portion of the Transaction an additional cash fee of 1.0% of
the Transaction Value, as defined in Paragraph 7. Such fee
shall not be less than $400,000. If a Transaction is
consummated with either the Kosmas Group [ILX to provide legal
name] or Pahio Resorts [ILX to provide legal name], with whom
the Company already has established communications, the cash
fee paid to EVEREN shall be $300,000. Fees paid upon the
closing of a Transaction include fees for rendering a fairness
opinion, subject to EVEREN's fairness opinion committee
approval, as well as for financial advisory services provided
by EVEREN to the Company in conjunctions with a Transaction.
(c) If EVEREN undertakes a Financing for the Company, the Company
shall pay to EVEREN the following compensation upon the first
closing of any part of the Financing:
(i) a cash fee equal to 4.0%-6.0% of any equity portion
of the Financing, including common stock, preferred
stock or any portion of the Financing that is
convertible into common stock or preferred stock of
the Company;
(ii) a cash fee equal to 2.5%-3.5% for any subordinated
debt; and
(iii) a cash fee equal to 1.5%-2.0% for any senior debt.
Regular, recurring debt financings that the Company obtains
from its existing lenders in the course of its ordinary
business are excluded from the computation of any fees to be
paid to EVEREN, except in situations where more favorable
terms are obtained due to EVEREN's efforts to raise equity
and/or obtain more competitive debt financing (after taking
into account the customary fees of EVEREN), whereupon EVEREN
will be entitled to its customary fees as listed
<PAGE>
ILX Incorporated
June 11, 1997
Page 5
above. The Company's existing lenders for purposes of this
Agreement include: Banc One, Litchfield Financial Corp.,
Tammack Financial Corp., Resort Funding Int'l., and Steele
Foundation.
(d) EVEREN shall be entitled to the fees enumerated in any
preceding subparagraphs of this Paragraph 6 upon the
occurrence during the term of this Agreement, or within two
years after the date of termination of this Agreement, of any
event specified in any such subparagraph if EVEREN provided
the Company with an Introduction to a Financing Partner or
Strategic Partner who ultimately consummates a Transaction or
Financing with the Company.
(e) If a Transaction is not consummated, but the Company receives
a "breakup" fee or any other payment as a result of the
termination or cancellation of the Strategic Partners' efforts
to effect a Transaction, a judgment for damages, or an amount
in settlement of any dispute relating to a Transaction, then
the Company shall pay EVEREN a cash fee equal to 25% of such
fee, payment, judgment or amount.
(f) The fees set forth in the preceding subparagraphs of this
Paragraph 6 shall be in addition to any other fees that the
Company may be required to pay directly to any Financing
Partner to secure a financing commitment. This Agreement does
not constitute a commitment or undertaking on the part of
EVEREN or any of its affiliates to provide any part of a
Financing.
7. Calculation of Transaction Value. For the foregoing purposes, the
"Transaction Value" will be calculated as the sum of the following
values at closing:
(a) In the case of a Transaction whereby the Company acquires the
assets of, and/or acquires or combines with, a Strategic
Partner:
(i) cash and cash equivalents paid to a Strategic Partner
or its shareholders;
(ii) market value of any common stock issued to a
Strategic Partner or its shareholders;
(iii) the par value of any preferred stock issued to a
Strategic Partner or its shareholders, unless market
value is easily determinable;
(iv) the face value of any notes issued to a Strategic
Partner or its shareholders, unless market value is
easily determinable;
(v) the face value of any debt owed or preferred stock
issued by the Strategic Partner or its shareholders
which is assumed and/or forgiven by the Company,
unless market value is easily determinable;
(vi) consideration paid for any minority shares of any
subsidiaries of the Strategic Partner;
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ILX Incorporated
June 11, 1997
Page 6
(vii) consideration paid or payable by the Company to a
Strategic Partner or its shareholders under any
earn-outs, covenants not to compete and consulting
agreements (such terms not to encompass standard
employment agreements); and
(viii) the difference between the exercise price of any
stock options and the purchase price, even though
such differences may be paid to the option holder in
cash rather than through exercise of options.
(b) In the case of a Transaction whereby the Company or its assets
are acquired by a Strategic Partner:
(i) cash and cash equivalents paid to the Company or
shareholders of the Company;
(ii) market value of any common stock issued to the
Company or shareholders of the Company;
(iii) the par value of any preferred stock issued to the
Company or shareholders of the Company, unless market
value is easily determinable;
(iv) the face value of any notes issued to the Company or
shareholders of the Company, unless market value is
easily determinable;
(v) the face value of any debt owed or preferred stock
issued by the Company or the shareholders of the
Company which is assumed and/or forgiven unless
market value is easily determinable;
(vi) consideration paid for any minority shares of any
subsidiaries of the Company;
(vii) consideration paid or payable to the Company or the
Company's shareholders by a Strategic Partner under
any earn-outs, covenants not to compete, and
consulting agreements (such terms not to encompass
standard employment agreements); and
(viii) the difference between the exercise price of any
stock options and the purchase price, even though
such differences may be paid to the option holder in
cash rather than through exercise of options.
8. Right of First Refusal. If, at any time during the term of this
Agreement or during the one-year period following the termination, for
whatever reason, of this Agreement, the Company determines to retain a
financial adviser, investment banker, or other similar agent in
connection with any financial advisory, investment banking or related
service engagement on behalf of the Company, the Company shall first
offer to retain EVEREN as its exclusive financial adviser, investment
banker or agent, as the case may be, for the provision of such services
on the basis of EVEREN's usual and customary terms, conditions, and
fees; provided such terms, conditions, and fees are not less favorable
than those generally available
<PAGE>
ILX Incorporated
June 11, 1997
Page 7
to the Company from another comparable financial adviser, investment
banker, or similar agent. The Right of First Refusal shall not apply if
EVEREN fails to provide a Strategic Partner (or effect a Transaction
with Kosmas Group or Pahio Resorts [ILX to provide legal names] or a
Financing Partner, during the term of this Agreement, to the Company
for the purposes of effecting a reasonable Transaction or Financing.
9. Expenses. In addition to the fees described in the paragraph herein
entitled "Compensation," the Company agrees to promptly reimburse
EVEREN, upon request from time to time, for all out-of-pocket expenses
incurred by EVEREN (including fees and disbursements of counsel and of
other consultants and advisors retained by EVEREN) in connection with
matters contemplated by this Agreement. EVEREN agrees that such expense
reimbursement will not exceed $25,000, subject to increase and approval
by the Company.
10. Indemnification. The Company hereby agrees to separately indemnify
EVEREN in accordance with the indemnification provisions (the
"Indemnification Provisions") attached to this Agreement, which
Indemnification provisions are incorporated herein and made a part
hereof.
11. Termination; Survival. Either party hereto may terminate this Agreement
after 30 days from the date this Agreement is accepted by the Company
upon 10 days written notice, without liability or continuing obligation
except as set forth in this Paragraph 11. Neither the termination of
this Agreement nor the completion of the engagement contemplated hereby
shall affect: (i) any compensation earned by EVEREN up to the date of
termination or completion, including shares received under Paragraph 6,
or after termination, as the case may be, pursuant to the paragraph
herein entitled "Compensation"; (ii) the reimbursement of expenses
incurred by EVEREN up to the date of termination or completion, as the
case may be, pursuant to subparagraphs (d) and (e) of the paragraph
herein entitled "Expenses"; (iii) the right of first refusal set forth
in the paragraph herein entitled "Right of First Refusal"; (iv) the
attached Indemnification Provisions; and (v) the provisions of the
paragraph herein entitled "Successors and Assigns", all of which shall
remain operative and in full force and effect.
12. Successors and Assigns. This Agreement shall inure to the benefit of
the respective successors and assigns of the parties hereto and of the
indemnified parties hereunder and their successors and assigns and
representatives, and the obligations and liabilities assumed in this
Agreement by the parties hereto shall be binding upon their respective
successors and assigns.
13. Public Notice. EVEREN may publish, at its own expense, an advertisement
announcing its role as the Company's exclusive financial advisor at the
completion of the Agreement. The Company shall have the right to pre-
approve the form and content of such advertisement.
The Company may publish, at its expense, such announcements and/or
notices as are necessary, appropriate, or desirable to comply with
Federal and/or State securities laws. EVEREN shall have the right to
pre-approve the form and content of any such announcements or notices.
<PAGE>
ILX Incorporated
June 11, 1997
Page 8
14. Counterparts; Amendments. For the convenience of the parties, any
numbers of counterparts of this Agreement may be executed by the
parties hereto. Each such counterpart shall be, and shall be deemed to
be, an original instrument, but all such counterparts taken together
shall constitute one and the same Agreement. This Agreement may not be
modified or amended except in writing signed by the parties hereto.
If the foregoing correctly sets forth our Agreement, please sign the enclosed
copy of this letter in the space provided and return it to us.
Sincerely,
EVEREN Securities, Inc.
/s/ Jon K. Haths
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Jon K. Haths
Managing Director
Accepted and Agreed to this
23rd day of June , 1997.
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ILX Incorporated
/s/ Joseph P. Martori
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Joseph P. Martori
Chairman of the Board
<PAGE>
ILX Incorporated
June 11, 1997
Page 9
INDEMNIFICATION PROVISIONS
The Company (as such term is defined in the attached Agreement (the
"Agreement") agrees to indemnify and hold harmless EVEREN Securities, Inc.
("EVEREN") from and against any and all losses, claims, damages, obligations,
penalties, judgments, awards, liabilities, costs, expenses and disbursements
(including without limitation fees and disbursements of counsel), and any and
all actions, suits, proceedings, and investigations in respect thereof and any
and all legal and other costs, expenses and disbursements, whether in giving
testimony, furnishing documents in response to a subpoena or otherwise,
including, without limitation, the costs, expenses and disbursements, as and
when incurred, of investigating, preparing, or defending any such action, suit,
proceeding or investigation (whether or not in connection with litigation to
which EVEREN is a party), directly or indirectly caused by, relating to, based
upon, arising out of, or in connection with any transactions or services
contemplated by, referred to in or in any manner otherwise arising out of the
Agreement and/or any act or omission of EVEREN under or pursuant to the
Agreement; provided, however, such indemnity agreement shall not apply to any
portion of any such loss, claim, damage, obligation, penalty, judgment, award,
liability, cost, expense or disbursement to the extent it is found in a final
judgment by a court of competent jurisdiction (not subject to further appeal) to
have resulted primarily and directly from the gross negligence or willful
misconduct of EVEREN. The Company also agrees that EVEREN shall not have any
liability (whether direct or indirect, in contract or tort or otherwise) to the
Company or to any person (including, with limitation, Company shareholders)
claiming by or through the Company for or in connection with the engagement of
EVEREN pursuant to the Agreement, except to the extent that any such liability
is found in a final judgment by a court of competent jurisdiction (not subject
to further appeal) to have resulted primarily and directly from the gross
negligence or willful misconduct of EVEREN.
This indemnification shall be in addition to any liability which the
Company may otherwise have to EVEREN or the persons indemnified below in this
sentence and shall extend to the following: EVEREN Capital Corporation, EVEREN
Securities, Inc., their respective affiliated entities, directors, officers,
employees, legal counsel, agents, and any other person that directly or
indirectly controls or is controlled by or is under common control with any
person referred to above (within the meaning of the federal securities laws).
All references to EVEREN in these Indemnification Provisions shall be understood
to include any and all of the foregoing.
If any action, suit, proceeding, or investigation is commenced, as to
which EVEREN proposes to demand indemnification, it shall notify the Company
with reasonable promptness; provided, however, that any failure by EVEREN to
notify the Company shall not relieve the Company from its obligations hereunder.
EVEREN shall have the right to retain counsel of its own choice to represent it,
and the Company shall pay the fees, expenses and disbursements of such counsel;
and such counsel shall, to the extent consistent with it professional
responsibilities, cooperate with the Company and any counsel designated by the
Company. The Company shall be liable for any settlement of any claim against
EVEREN made with the Company's written consent, which consent shall not be
unreasonably withheld. The Company shall not, without the prior written consent
of EVEREN, settle or compromise any claim, or permit a default or consent to the
entry of any judgment in respect thereof, unless such settlement, compromise or
consent includes, as an unconditional term thereof, the giving by the claimant
to EVEREN of an unconditional release from any and all liability in respect of
such claim.
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ILX Incorporated
June 11, 1997
Page 9
In order to provide for just and equitable contribution, if a claim for
indemnification pursuant to this Indemnification Agreement is made, but it is
found in a final judgment by a court of competent jurisdiction (not subject to
further appeal) that such indemnification may not be enforced in such case, even
though the express provisions hereof provide for indemnification in such case,
then the Company, on the one hand, and EVEREN, on the other hand, shall
contribute to the losses, claims, damages, obligations, penalties, judgments,
awards, liabilities, costs, expenses and disbursements to which the indemnified
persons may be subject in accordance with the (i) the relative benefits received
by the Company, on the one hand, and EVEREN, on the other hand; (ii) the
relative fault of the Company on the one hand and EVEREN on the other hand, in
connection with the statements, acts, or omissions, as the case may be, which
resulted in such losses, claims, damages, obligations, penalties, judgments,
awards, liabilities, costs, expenses or disbursements; and (iii) consideration
of relevant equitable principles. No person found liable for a fraudulent
misrepresentation shall be entitled to contribution from any person who is not
also found liable for such fraudulent misrepresentation. Notwithstanding the
foregoing, EVEREN shall not be obligated to contribute any amount hereunder that
exceeds the amount of fees previously received by EVEREN pursuant to the
Agreement.
Neither the termination nor completion of the Agreement or of the
engagement of EVEREN referred to therein shall affect the indemnification
provided for hereunder, which shall remain operative and in full force and
effect.
