[TYPE] 424b(2)
PROSPECTUS OF JJFN SERVICES, INC.
INFORMATION STATEMENT FOR SHAREHOLDERS OF JJFN
HOLDINGS, INC.
This Prospectus and Information Statement relates to the acquisition of
JJFN Holdings, Inc. (formerly known as J. W. Gant Financial, Inc.), a Delaware
corporation ("JJFN"), by JJFN Services, Inc., a Delaware corporation (the
"Company") by means of a merger (the "Merger") of JJFN with Priority
Financial, Inc., a Delaware corporation and wholly owned subsidiary of the
Company (the "Acquisition Sub"), pursuant to the terms of an Agreement and
Plan of Merger (the "Merger Agreement"), dated December 29, 1995 among the
Company, JJFN and Acquisition Sub. The Merger Agreement is attached hereto as
Appendix A and is incorporated herein by reference.
This Prospectus and Information Statement is being furnished to the
holders of JJFN's Common Stock and Preferred Stock, which are to be canceled
in the Merger in exchange for shares of the Company's Common Stock. The
Merger was not submitted to a vote of the public stockholders of JJFN but has
already been approved by written consents of the holders of a majority of the
Company's outstanding shares, all of whom are affiliates of the Company listed
in "Information Concerning the Company Principal Shareholders" and by the
written consents of the holders of a majority of the outstanding shares of
JJFN, who are affiliates of the Company. These written consents approving the
Merger are in accordance with the provisions of the Delaware General
Corporation Law. Pursuant to that law and applicable regulations of the
Securities and Exchange Commission (the "Commission") promulgated under the
Securities Exchange Act of 1934 (the "Exchange Act"), this Prospectus and
Information Statement is being delivered to the JJFN shareholders to give them
information with respect to the transaction.
WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY ANY STATE REGULATORY AUTHORITY NOR HAS THE
COMMISSION OR ANY SUCH AUTHORITY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
In the Merger, the Company will issue a total of 3,584,990 shares of its
Common Stock to JJFN shareholders in exchange for the 3,584,990 shares of JJFN
Common Stock now outstanding. Of these shares, Tarlton Financial, Ltd.
("Tarlton") will own 3,000,000 shares, which it acquired on exercise of an
option from JJFN. In addition to the shares being issued in the Merger by the
Company, the Company is assuming the obligations of JJFN to issue shares to
Tarlton and two warrant holders who hold rights to acquire shares of JJFN
Common Stock (these warrant holders and Tarlton are called herein the "JJFN
Affiliates") who will, following completion of the Merger, have the right to
acquire an additional 4,450,000 shares of the Company's Common Stock. On
exercise of these options the JJFN Affiliates will own a total of 7,450,000
shares (or approximately 40%) of the Company's Common Stock, of which Tarlton
will own 6,250,000 shares. All shares of the Company's Common Stock to be
owned by or subject to the option and warrants held by the JJFN Affiliates have
been registered under the Securities Act of 1993 (The "Securities Act") by the
Registration Statement of which this Prospectus and Information Statement is a
part. The JJFN Affiliates may, following the completion of the Merger, sell
their Common Stock in the public market only with the use of this Prospectus.
See "Selling Shareholders".
There is presently no public market for the Company's Common Stock. The
Company has applied to have its Common Stock approved for inclusion in the
NASDAQ SmallCap Market upon official notice of issuance, using the symbol
"JJFN". The Company believes that the market price for its Common Stock when
trading commences will be not less than $2.00 per share. See "The Merger",
for a description of the factors considered in estimating this market price.
THE SHARES OFFERED HEREBY OFFER A HIGH DEGREE OF RISK. See "RISK FACTORS"
BEGINNING ON PAGE 11.
The costs of completing the Merger and the registration of the Company's
Common Stock to be issued in connection therewith (including legal, accounting,
printing and other miscellaneous expenses), are estimated at $75,000. These
expenses will be paid by the Company.
THE DATE OF THIS PROSPECTUS AND INFORMATION STATEMENT
IS MAY 7, 1996.
AVAILABLE INFORMATION
The Company is not currently a reporting company pursuant to the Exchange
Act but will become a reporting company upon completion of the Merger. The
Company, which has a June 30th fiscal year, intends to furnish its
shareholders with annual reports containing audited financial information and,
for the first three quarters of each fiscal year, quarterly reports containing
unaudited financial information.
The Company will provide without charge to each person who receives this
Prospectus, upon the written or oral request of that person, a copy of any
information that is incorporated in this Prospectus by reference (not
including exhibits unless such exhibits themselves are specifically
incorporated by reference). Such requests should be directed to the attention
of the Company's Assistant Secretary, Joan E. Kushay, 100 Quentin Roosevelt
Blvd., Suite 202, Garden City, New York 11530 [(516) 683-8116].
JJFN is subject to the informational requirements of the Exchange Act and,
following completion of the Merger, the Company's Common Stock will be
registered pursuant to Section 12(g) of the Exchange Act and become subject to
its informational requirements. In accordance with the Exchange Act, JJFN has
filed, and the Company will file, reports, proxy statements and other
information with the Commission. These reports, proxy statements and other
information may be inspected and copied at the Commission's Public Reference
Section, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W. Washington, D.C.
20549, and at the Company's regional offices located at Suite 1300, 7 World
Trade Center, New York, New York 10048 and Suite 1400, Citicorp Center, 500
West Madison Street, Chicago, Illinois 60661. Copies of all such materials
may be obtained from the Commission's Public Reference Section, Judiciary
Plaza, 450 Fifth Street, N.W. Washington, D.C. 20549, at prescribed rates.
Reports, proxy statements and other information concerning the Company may
also be inspected at the offices of the National Association of Securities
Dealers Inc., 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the SEC a Registration Statement on Form S-4
(which, together with any amendments thereto, is called herein the
"Registration Statement") under the Securities Act with respect to the
Company's Common Stock to be issued pursuant to the Merger described herein.
This Prospectus and Information Statement does not contain all the information
set forth in the Registration Statement and the exhibits thereto. Such
additional information may be obtained from the Commission's principal office
in Washington, D.C. Any statement contained in this Prospectus and
Information Statement as to the contents of any contract or other document
referred to herein is not necessarily complete and, in each instance where a
copy of such contract or other document is filed as an exhibit to the
Registration Statement, such statement is qualified in all respects by such
reference.
TABLE OF CONTENTS Page
Summary Information. . . . . . . . . . . . . . . . . . . . . . . . . . .5
Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Parties to Merger . . . . . . . . . . . . . . . . . . . . . . . . .5
The Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Pro Forma Per Share Data. . . . . . . . . . . . . . . . . . . . . .6
Valuation of Securities . . . . . . . . . . . . . . . . . . . . . .7
Material Tax Consequences . . . . . . . . . . . . . . . . . . . . .8
Dissenters' Rights. . . . . . . . . . . . . . . . . . . . . . . . .8
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Terms of Merger . . . . . . . . . . . . . . . . . . . . . . . . . 12
Description of Stock. . . . . . . . . . . . . . . . . . . . . . . 14
Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . 15
Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . 15
Determination of Value. . . . . . . . . . . . . . . . . . . . . . 16
Dissenters' Rights. . . . . . . . . . . . . . . . . . . . . . . . 16
Pro Forma Financial Information. . . . . . . . . . . . . . . . . . . . 17
Selling Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . 20
Information Concerning the Company . . . . . . . . . . . . . . . . . . 21
Description of Business . . . . . . . . . . . . . . . . . . . . . 21
Capital Transactions. . . . . . . . . . . . . . . . . . . . . . . 24
The Company's Stock . . . . . . . . . . . . . . . . . . . . . . . 26
Principal Shareholders. . . . . . . . . . . . . . . . . . . . . . 26
Financial Statements. . . . . . . . . . . . . . . . . . . . . . . 27
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . 28
Executive Officers and Directors. . . . . . . . . . . . . . . . . 29
Key Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Executive Compensation. . . . . . . . . . . . . . . . . . . . . . 31
Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . 31
Information Concerning JJFN. . . . . . . . . . . . . . . . . . . . . . 32
Description of Business . . . . . . . . . . . . . . . . . . . . . 32
Outstanding Options . . . . . . . . . . . . . . . . . . . . . . . 34
Principal Shareholders. . . . . . . . . . . . . . . . . . . . . . 34
Financial Statements. . . . . . . . . . . . . . . . . . . . . . . 35
Executive Officers and Directors. . . . . . . . . . . . . . . . . 35
Transactions with Related Parties. . . . . . . . . . . . . . . . . . . 35
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 38
Appendices
A. Agreement and Plan of Merger
B. Section 262 of Delaware General Corporation Law
No person has been authorized to give any information or make any
representation not contained in this Prospectus and Information Statement in
connection with the Company Common Stock to be issued in connection with the
Merger. Any such information or representation, if given or made, must not be
relied upon as having been authorized by the Company. This Prospectus and
Information Statement does not constitute a solicitation or offering of any
securities other than the registered securities to which it relates or in any
jurisdiction to any person to whom it would be unlawful to make such offer or
solicitation in such jurisdiction. The delivery of this Prospectus and
Information Statement at any time does not imply that any information herein
is correct as of any time subsequent to its date.
SUMMARY INFORMATION
The following summary is qualified in its entirety by the detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus and Information Statement. Unless otherwise indicated, all
share and per share information is given assuming no exercise of the JJFN's
outstanding options and warrants described in "Information Concerning JJFN".
Introduction
This Prospectus and Information Statement relates to the acquisition
by the Company of JJFN by means of the Merger of JJFN with Acquisition Sub,
pursuant to the terms of the Merger Agreement. Upon consummation of the
Merger, JJFN will be a wholly owned subsidiary of the Company and Acquisition
Sub will cease to exist as a separate entity. The full text of the Merger
Agreement is attached hereto as Appendix A.
Parties to Merger
The Company is a newly formed Delaware corporation engaged in the
financial services industry, including purchase and lease-back of model homes.
It is presently financing, through purchase and lease-back contracts, model
homes in housing developments in Florida owned and operated by K. Hovnanian
Company of Florida Inc. ("Hovnanian") and Engle Homes, Inc. ("Engle"). At
December 31, 1995, the Company had assets of $3,512,090 and shareholders
equity of $2,490,328. Its principal executive offices are located at 2500
North Military Trail, Boca Raton, Florida 33431 [(407) 995-0043)]. The
Company has outstanding 400,000 shares of Preferred Stock, held by one owner,
and 10,000,000 shares of Common Stock held by 15 owners. Its directors,
executive officers and their affiliates, who own 1,550,000 shares or 15.5% of
the Common Stock, have all consented to the Merger.
JJFN (formerly known as J. W. Gant Financial, Inc.) is a Delaware
corporation organized in 1987 as a holding company to engage in the securities,
investment banking and related businesses, almost exclusively through J. W.
Gant & Associates Inc. ("J. W. Gant Associates"), a wholly owned subsidiary.
On June 30, 1992, J. W. Gant Associates ceased operations as a licensed
securities broker and dealer, closed its offices and terminated its entire
sales force and most of its administrative personnel. J.W. Gant Associates
declared bankruptcy on May 24, 1994, leaving JJFN without any significant
sources of revenue. In 1992, JJFN transferred all of its assets to its
principal secured creditor and has had no operations from that time until
December 29, 1995 when it acquired Iron Eagle Contracting & Mechanical, Inc.
("IECM"). Present management of JJFN assumed their respective positions with
JJFN in November, 1995 for the purpose of implementing a business plan which
includes the Merger. At December 31, 1995, JJFN had assets of $1,502,165 and
shareholder equity of $378,680. It has 3,566,898 shares of Common Stock and
904,585 shares of Preferred Stock outstanding owned by approximately 260
record holders and 1,500 beneficial owners. The Common Stock of JJFN was the
subject of a reverse stock split on November 29, 1995 in which each 50 shares
of JJFN Common Stock were combined into one share of its Common Stock. As
used in this Prospectus and Information Statement, the term "JJFN Common Stock"
means the Common Stock of JJFN following this reverse stock split. JJFN's
principal place of business is 100 Quentin Roosevelt Blvd., Garden City, New
York 11530 (516) 683-8116. JJFN's present officers and directors and their
affiliates, who own 15,865 shares (or .4%) of JJFN Common Stock, have all
consented to the Merger.
The Merger
Pursuant to the terms of the Merger Agreement, JJFN and Acquisition Sub
will merge on the effective date of the Registration Statement, with JJFN
remaining as the surviving corporation, thus becoming a wholly-owned
subsidiary of the Company. In the Merger, each outstanding share of JJFN
Common Stock and each 50 shares of its Preferred Stock held by JJFN
shareholders who do not exercise their dissenters' rights of appraisal shall,
by virtue of the Merger and without any further action on their part, be
converted into and exchanged for one share of the Company's Common Stock. The
JJFN shareholders will be entitled to receive certificates representing their
Company Common Stock upon surrender of their JJFN stock certificates to the
Company's transfer agent. As a result of the Merger, JJFN will possess all
the rights and powers and assume all of the obligations of Acquisition Sub,
which has been created solely for the purpose of engaging in the Merger and
has no significant assets or liabilities. All JJFN outstanding Common and
Preferred Stock will be extinguished as a result of the Merger.
The Merger Agreement and the Merger have already been approved by the
Company's shareholders by unanimous written consent and by the JJFN
shareholders by the written consents of the holders of a majority of the
issued and outstanding JJFN Common Stock. Other shareholders of JJFN have no
rights to vote on the Merger but may exercise rights of appraisal granted to
them by Delaware law. See "The Merger - Dissenters' Rights". There are no
Federal or state regulations to be complied with and the approval of any
Federal or state authorities is not required in order to effectuate the
Merger. The only act required to complete the Merger, other than the delivery
of this Prospectus and Information Statement to the JJFN shareholders, is the
filing of a Certificate of Merger with the Delaware Secretary of State.
Pro Forma Per Share Data
The following list contains historical and pro forma per share data of the
Company as of December 31, 1995 and for the period November 2, 1995 (the date
of incorporation) through December 31, 1995 and historical per share data of
JJFN as of December 31, 1995 and for the period from November 2, 1995 through
December 31, 1995, adjusted to reflect the issuance and sale of 3,000,000
shares of JJFN Common Stock in January and February, 1996 for a price of
$3,750,000.
<TABLE>
<S> <C> <C>
<C> <C>
Item Company Company Common
JJFN JJFN
Common Stock Stock, Adjusted for
Common Preferred
Merger
Stock Stock
Book Value per
Share $.15 $.51 $3.81
$.08
Income (Loss) per
Share $.00 ($.02) ($.50)
$.00
</TABLE>
Neither the Company nor JJFN has declared or paid any dividends for any
period for which financial data is presented in this Prospectus and Information
Statement. On February 1, 1996 and May 1, 1996, the Company declared and paid
a preferred distribution of $15,000 (or $.0375 per share) on its 400,000
outstanding shares of 6% Participating Convertible Stock, the only series of
its authorized Preferred Stock presently outstanding. It is not the intention
of the Company management to pay any dividends on its Common Stock for the
foreseeable future, but it does intend to pay preferred distributions on its
6% Participating Convertible Preferred Stock. See "The Merger - The
Company's Stock".
Valuation of Securities
The Common Stock of the Company has never been publicly traded, all
issuances and sales having been made privately at negotiated prices. For more
than three years prior to December, 1995, neither the Common nor the Preferred
Stock of JJFN traded in any public market. Since the week ended December 11,
1995, JJFN Common Stock has been traded on the OTC Electronic Bulletin Board.
For the 114 day period through March 31, 1996, the total volume of trading
was approximately 635,000 shares and the range of bid and ask prices for JJFN
Common Stock on the Bulletin Board was $1.50 bid and $6.00 asked. On December
19, 1995, the last day on which trades were made on the Bulletin Board before
the signing of the Merger Agreement, the range for JJFN Common Stock was
$2.00 bid and $3.50 asked. The ability to trade securities through the
Bulletin Board is very limited, and may not provide investors with a true
reflection of the market value of their shares or the ability to readily
dispose of them. See "Risk Factors-Risks of Low Priced Stocks."
The share-for-share exchange ratio used in the Merger, which was not
reviewed or approved by any independent financial advisor to either JJFN or the
Company, was determined by the directors of the Company (who are also the
directors of JJFN), based upon their evaluation of the assets and business of
the Company and the benefits to be derived to the Company by its acquisition
of JJFN. As more fully explained in "The Merger - Determination of Value", the
factors taken into consideration in determining this exchange ratio included
the book value of the Company's Common Stock, the negotiated price at which
JJFN Common Stock had been issued to Damill Capital Corporation and Tarlton
Financial Ltd. and the value to the Company of adding JJFN's Common and
Preferred Stockholders to its shareholder list, thus putting the Company in a
position to start public trading in its Common Stock while avoiding the
prolonged delay and expense of registering the stock for sale under the
Securities Act in an initial public offering. The Board of Directors of both
Companies (who are identical) believe that this valuation is fair and in the
best interest of the shareholders of JJFN (whose securities were worthless
prior to the intervention of the Company) and to the shareholders of the
Company. Neither the present market price for JJFN Common Stock nor the
exchange ratio bears any necessary relationship to the assets, earnings or
other known criteria of value of either company, and there can be no
assurance that the market price for the Company's Common Stock following the
Merger will remain at or rise above the present market price for JJFN, the
value used by the directors in determining the exchange ratio, or the price
at which the Company shares have been privately sold.
Material Tax Consequences
The terms of the Merger are designed so that no gain or loss will be
recognized for federal income tax purposes by the holders of JJFN Common and
Preferred Stock who receive shares of the Company's Common Stock in the
Merger. Any holder of JJFN Common or Preferred Stock who perfects his
dissenters' rights of appraisal and receives cash will recognize taxable gain
or loss based upon such holder's cost basis in his JJFN shares. Because tax
consequences to the JJFN shareholders may vary depending upon their particular
circumstances, it is recommended that JJFN shareholders consult their own tax
advisors concerning the federal (and any state, local or foreign) tax
consequences to them arising from the Merger.
Dissenters' Rights
Holders of JJFN Common and Preferred Stock who comply with the
requirements of Section 262 of the Delaware General Corporation Law will be
entitled to appraisal rights in connection with the Merger. For a description
of these rights, see "The Merger - Dissenters' Rights".
RISK FACTORS
In addition to the other information in this Prospectus and Information
Statement, the following factors should be carefully considered by JJFN
shareholders and by any persons who contemplate purchasing shares of the
Company's Common Stock in the public market following the Merger.
Limited Operating History
The Company was incorporated on November 2, 1995 and to date has engaged
in material operations only for a period of approximately four months. Through
December 31, 1995 it generated revenues of $33,116 and at December 31, 1995 it
had retained earnings of $328. The Company's future success will be
dependent upon its ability to find clients for its financing services and to
enter into profitable financing transactions with them. No assurance can be
given that the Company will be able to do so. To date, the transactions with
its only clients, Hovnanian and Engle, have been negotiated on a deal-by-deal
basis, and there is no assurance that further financing transactions with
these developers or others can be successfully concluded.
Dependence on Key Personnel
The business and success of the Company will depend upon the services of
certain key personnel, including Susan Schlapkohl, its president, and David
Miller, its principal financial consultant. For a description of the
qualifications and experience of these persons and other key personnel, see
"Information Concerning the Company - Key Personnel." The loss of the
services of the Company's key personnel may have a material adverse effect
upon its future prospects.
Capital Requirements
The financing services which the Company intends to conduct are capital
intensive, and its future success will be dependent upon its ability to attract
equity and debt financing on terms which permit it to earn a profit without
unduly diluting the equity of its shareholders. To date, the Company has had
capital contributions of approximately $2,500,000 and $955,457 in loans from
its stockholders and their affiliates. On January 24, 1996, the Company
entered into a loan from Capital Bank of Miami, Florida of $2,100,000. The
proceeds from this loan have been used to acquire six additional model homes
from Hovnanian and replenish working capital. Capital Bank has since made an
additional loan to the Company in the amount of $2,300,000 and, the Company
has negotiated an initial line of credit from Colorado State Bank of Denver,
Colorado for $2.5 million which will close on May 2, 1996 (see "Information
Concerning the Company - Business"). In the Merger, the Company will assume
JJFN's outstanding option and warrants from the exercise of which it hopes to
raise an additional $3,762,000 in equity. It expects that the option will be
fully exercised, but no assurance can be given that such will be the case.
Competition
The financial services industry is highly competitive, and the Company
will be competing with many banks, financial subsidiaries of industrial
companies, insurance companies and other financial institutions for the
business of favored customers such as Hovnanian and Engle. Almost all
competing financial institutions have substantially greater financial factors
and far longer operating histories than the Company and these resources will
make them formidable competitors to the Company in its attempt to attract
capital and clients.
No Public Market
There is no public market for the Company's Common Stock. The value of
the Company's Common Stock determined by its Directors for purposes of the
Merger, was $2.00 per share. This alue does not necessarily bear any direct
relationship to the assets, earnings or other known criteria of value of the
Company. It is expected that following completion of the Merger, the
Company's Common Stock will commence trading on the NASDAQ SmallCap Market,
but there is no assurance that an active trading market will develop or that
the market price for the Common Stock will remain at or rise above the value
determined by the directors in formulating the terms of the Merger. In
addition, economic, political and market conditions, such as a recession in
the home building industry or increases in the interest rate at which the
Company borrows to finance its activities, may adversely affect the price of
the stock.
Dilution
Purchasers of the Company's Common Stock in the public market following
the Merger may suffer an immediate and substantial dilution in the net tangible
book value of the shares from the price at which they are able to purchase the
stock. At December 31, 1995, the net tangible book value of the Company was
$2,490,328, or $.15 per share of Common Stock. Giving effect to the Merger
and adjusted to reflect the proceeds from the sale of JJFN stock in January
and February 1996, the pro forma net tangible book value of the Company's
Common Stock at December 31, 1995 would have been $.51 per share, as opposed
to $2.00 per share, the value used by the Company directors for purposes of
fixing the terms of the Merger. Any amount paid for the stock in the public
market following the Merger over and above its net tangible book value per
share will represent dilution of the purchasers' net tangible equity in the
stock they acquire.
Absence of Dividends
The Company has not paid any dividends and its management does not intend
to pay any dividends in the foreseeable future. However, it does intend to pay
preferential distributions on its 6% Participating Convertible Preferred
Stock. Preferred Distributions of $15,000 were declared and paid on the
Preferred Stock on February 1 and May 1, 1996.
Control
Upon completion of the Merger, the Company's officers, directors,
consultants and their families and affiliates and other principal stockholders
will own beneficially 8,963,615 shares or 66% of the Company's Common Stock.
When and if JJFN's outstanding option and warrants (which the Company is
assuming in the Merger) are exercised, this group's interest in the Company's
Common Stock will be 48%. They will together be able to effectively control
the outcome of matters requiring shareholder votes, including the right to
elect all of the Company's directors, since there is no cumulative voting of
the Company's Common Stock. When and if the existing JJFN option and
warrants are exercised, the JJFN Affiliates will own 7,450,000 shares, or 40%
of the Company's Common Stock.
Shares Eligible For Future Sale
On completion of the Merger, the Company will have 1,084,990 shares of
Common Stock freely tradeable in the public market; an additional 7,450,000
shares will be saleable by the JJFN Affiliates with the use of this
Prospectus, assuming full exercise of the existing JJFN option and warrants.
See "Selling Shareholders" and "Information Concerning JJFN - Outstanding
Options". Any sale of significant number of these shares in the public market
following the completion of the Merger could adversely affect the market price
for the Company's Common Stock.
Risks of Low-Priced Stocks; Possible Adverse Effect of "Penny Stock" Rules on
Liquidity for the Company's Securities
On completion of the Merger, the Company's Common Stock will be listed on
the NASDAQ SmallCap Market. If for any reason the stock does not remain
qualified for listing in the NASDAQ System, it may be traded in the
over-the-counter market through the OTC Electronic Bulletin Board. The
ability to trade securities through the OTC Electronic Bulletin Board is very
limited and may not provide investors with the ability to readily dispose of
their shares. If traded on the Bulletin Board, trading of the Company's
securities will be subject to the Exchange Act and the Rules thereunder,
which impose additional sales practice requirements on brokers and dealers
who sell such securities to persons other than established customers and
"accredited investors" (generally individuals with a net worth in excess of
$1,000,000 or an annual income exceeding $200,000, or $300,000 together with
their spouses). Under these Rules a broker-dealer must make a special
suitability determination of each purchaser and receive the purchaser's
written consent to the transaction prior to the sale. Consequently, the Rules
may effect the ability of broker-dealers to sell the Company's Common Stock
for their customers, including the JJFN shareholders who will receive shares
of such Common Stock in the Merger.
The Commission has also adopted rules that regulate broker-dealer
practices in connection with transactions in "penny stocks", which are equity
securities with a market price of less than $5.00 (unless they are registered
on a national securities exchange or quoted on the NASDAQ System and current
price and volume information with respect to transactions in such securities
is provided by such exchange or System). The penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt
from the rules, to deliver a standardized risk disclosure document prepared by
the Commission that provides information about penny stocks and the nature and
level of risks in the penny stock market. The broker-dealer also must provide
the customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its sales-person in the transaction, and
monthly account statements showing the market value of each penny stock held
in the customer's account. In addition, the penny stock rules require that
prior to a transaction in a penny stock not otherwise exempt from such rules
the broker-dealer must make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser's
written agreement to the transaction. These disclosure requirements may have
the effect of reducing the level of trading activity, if any, in the
secondary market for a stock that becomes subject to the penny stock rules.
If the Company's Common Stock becomes subject to the penny stock rules, the
market liquidity for the Common Stock could be adversely affected, and its
holders (including the JJFN shareholders who acquire shares in the Merger)
may find it more difficult to sell their shares.
THE MERGER
General
Described below are certain aspects of the Merger, including the principal
provisions of the Merger Agreement. This information is qualified in its
entirety by reference to the Merger Agreement, which is contained as Appendix
A to this Prospectus and Information Statement and is incorporated herein by
reference. All JJFN shareholders and other prospective investors in the
Company's Common Stock are urged to read the Merger Agreement in its entirety.
As a newly formed company engaged in the financial services industry, the
Company has a large and continuing need to raise, through debt and equity
financings, capital with which to operate and expand its business. Company
management has concluded that access to the public market for its stock will
provide an important means by which these capital requirements may be met.
The Merger is intended to bring to the Company many new beneficial owners of
its Common Stock and an immediate public market for the Stock, with the
prospect of additional capital contributions through the exercise of the
existing JJFN options and warrants. By this means, the Company expects that
it will be able to attract the capital needed to meet its presently
anticipated requirements for the next 12 months. No assurance can be given,
however, that an active trading market will in fact be commenced for the
Common Stock or that the existing JJFN options will ever be exercised.
For its part, JJFN, whose business operations through J. W. Gant
Associates were closed down in June 1992, had no assets or business and little
prospect of acquiring either as recently as November, 1995. At that time,
JJFN's prior management agreed to turn over control of JJFN to the Company's
officers, directors and key personnel through the issuance of 400,000 shares
of JJFN's Common Stock to Damill Capital Corporation and its assignees in
conversion of $200,000 in loans made to JJFN by Damill. Following this
issuance, the present officers and directors of JJFN, who are also the
officers and directors of the Company, were elected, took control of JJFN and
negotiated the issuance and sale of stock and borrowings from shareholders
which have provided JJFN with its working capital. See "Information
Concerning JJFN".
The Merger has been approved by the Company's shareholders by unanimous
written consent and by the JJFN shareholders by the written consents of the
holders of a majority of the issued and outstanding Common Stock. The other
shareholders of JJFN have no right to vote on the Merger but may exercise
rights of appraisal granted to them by Delaware law. See "The Merger -
Dissenters' Rights". There are no Federal or state regulations to be complied
with or the approval of any Federal or state authorities necessary to
effectuate the Merger. The only act required, other than the delivery of
this Prospectus and Information Statement to the JJFN shareholders and the
filing of a Certificate of Merger with the Delaware Secretary of State. This
will be done when the Registration Statement is declared effective.
Terms of Merger
A total of 8,534,990 shares of the Company's Common Stock, which are to be
issued in connection with the Merger, are being registered under the Securities
Act by the Registration Statement of which this Prospectus and Information
Statement is a part. Of these shares, 1,084,950 are being issued to existing
JJFN shareholders other than certain persons described herein (the "JJFN
Affiliates") who hold the right to acquire or who have already acquired shares
of JJFN Common Stock pursuant to the option and warrants heretofore granted by
JJFN.
On the effective date of the Merger, JJFN and Acquisition Sub will be
merged together with JJFN being the surviving corporation. Each issued and
outstanding share of JJFN Common Stock and each 50 shares of JJFN Preferred
Stock held by JJFN shareholders who do not exercise their dissenters' rights
will, by virtue of the Merger and without any further action on their part, be
converted into and exchanged for, and each such holder shall be entitled to
receive, one share of the Company's Common Stock. Each JJFN shareholder will
be entitled to receive a certificate for his Company Common Stock upon
surrender of the certificate for his JJFN shares to the Transfer Agent for
the Company's Common Stock, The Trust Company of New Jersey, 35 Journal
Square, Jersey City, New Jersey 07306 [201-420-2621] at any time following the
effective date of the Merger. It is a condition of such issuance that each
JJFN shareholder pay to the Transfer Agent any transfer fees or taxes owing on
issuance of his Company Common Stock. On the effective date of the Merger,
the stock transfer books of JJFN will be closed and no transfer of shares of
JJFN Common or Preferred Stock will be made thereafter.
In the Merger, the Company will assume JJFN's rights and obligations under
the existing JJFN option and warrants, described in "Information Concerning
JJFN - Outstanding Options," pursuant to which the optionee and warrant
holders will, following the Merger, have the right to acquire up to 4,450,000
shares of Company Common Stock for a total price of $3,762,000. These shares
and 3,000,000 other shares of the Company's Common Stock to be issued to the
optionee in the Merger are being registered in the Registration Statement of
which this Prospectus and Information Statement is a part.
The Merger will become effective immediately after the Registration
Statement is declared effective. At that time, a Certificate of Merger will be
filed with the Secretary of State of Delaware setting forth the terms of the
Plan of Merger and other matters required by law to complete the Merger of
JJFN and Acquisition Sub.
The effectiveness of the Merger is subject to certain conditions,
including the condition that no material adverse change shall have occurred in
the assets, liabilities or business of either the Company or JJFN and that the
Registration Statement shall have been declared effective and no action shall
have been taken by the Commission to rescind or suspend such effectiveness.
The Merger Agreement contains various representations and warranties made
by each party to the other including, among other things, (i) its due
organization and good standing, (ii) its capitalization, (iii) its due
authorization and execution of the Merger Agreement, (iv) the presentation in
accordance with generally accepted accounting principals, applied on a
consistent basis, of its financial statements appearing in this Prospectus and
Information Statement, (v) the absence of material adverse changes since the
date of those financial statements, (vi) the title to its properties, (vii)
the absence of litigation pertaining to it and its business and properties,
and (viii) complete listings of all material contracts to which it is a party
and transactions between it and its affiliates.
Description of Stock
Description of the Company's Stock. The Company is presently authorized
to issue 50,000,000 shares of Common Stock, $.001 par value per share, of
which 10,000,000 shares are issued and outstanding, and 25,000,000 shares of
Preferred Stock, $.01 per value, of which 400,000 shares, designated 6%
Participating Convertible Preferred Stock, are issued and outstanding. With
the approval of a majority of the Company's directors then in office, it may
issue additional shares of Common or Preferred Stock without the prior
approval of stockholders. The shares of the Company's Common Stock to be
issued in the Merger, and shares reserved for issuance on exercise of the
existing JJFN option and warrants, will, upon their issuance in the Merger or
on exercise of such option and warrants be validly issued, fully paid and non-
assessable. The holders of the Company's 6% Participating Convertible
Preferred Stock and Common Stock have the following rights:
Transferability of Shares. The Stock is issued in registered form and is
freely transferrable, subject to applicable securities laws.
Preemptive Rights. The holders of the Stock have no preemptive or other
preferential rights to purchase or subscribe for any authorized but unissued
shares of capital stock or securities convertible into capital stock.
Dividend Rights. The holders of the 6% Participating Convertible
Preferred Stock are entitled to share pro rata in preferential distributions
equal to 50% of the net revenues received from rental of the Company's model
homes, up to $60,000 per year. The holders of the Common Stock are entitled
to share pro rata in all other dividends declared by the Company's directors
out of funds legally available. The Company has paid and expects to continue
to pay preferential distributions on its Preferred Stock but has paid no
dividends on its Common Stock to date and does not expect to do so in the
foreseeable future.
Voting of Shares. The holder of the 6% Participating Convertible
Preferred Stock is not entitled to vote, except to the extent that the right
to vote on certain matters is given to them as a class under the Delaware
General Corporation Law. The holders of the Common Stock are entitled to one
vote for each share held by them with respect to all matters subject to
shareholder vote. There is no cumulative voting for the election of directors
or for any other purpose, and persons holding a majority of shares voted in
the election of directors will be able to elect all directors.
Conversion. Commencing on December 1, 1996, the 6% Participating
Convertible Preferred Stock is convertible into Common Stock, share for share,
at the election of its holders. The Stock may also be converted for a period
of 30 days following notice of its redemption, if such notice is given prior
to December 1, 1996.
Redemption. The 6% Participating Convertible Preferred Stock is
redeemable at the option of the Company at the following redemption prices:
(i) through June 30, 1996 at $2.625 per share; (ii) from July 1, 1996 through
December 31, 1996 at $2.60 per share; (iii) from January 1, 1997 through June
30, 1997 at $2.575 per share; (iv) from July 1, 1997 through December 31, 1997
at $2.55 per share; (v) from January 1, 1998 through June 30, 1998 at $2.525
per share; and (vi) following June 30, 1998 at $2.50 per share; plus, in each
case, unpaid dividends accrued through the date of redemption. The Common
Stock is not redeemable.
Description of JJFN Stock. JJFN is authorized to issue 50,000,000 shares
of Common Stock, $.001 par value, of which 3,566,898 shares are outstanding,
and 25,000,000 shares of Preferred Stock, $.01 par value, of which 904,585
shares are issued and outstanding. The rights pertaining to ownership of the
JJFN Common Stock are identical to the rights set forth above with respect to
the Company's Common Stock. Each share of JJFN Preferred Stock is treated as
one-fiftieth of a share of JJFN Common Stock for purposes of sharing in
dividends and in liquidation. It is not redeemable or convertible and is not
eligible to vote.
Accounting Treatment
The Merger will be treated for accounting purposes as a "purchase". Under
this treatment, the Company will record the assets of JJFN in the Company's
consolidated financial statements at their fair market value and all JJFN
liabilities at their full amount as of the effective date of Merger. JJFN's
results of operations and cash flows for the periods prior to the Merger will
not be reflected in the Company's consolidated statements of results of
operations and cash flow.
Income Tax Consequences
The following discussion is a summary of the material federal income tax
consequences of the Merger to holders of JJFN Preferred and Common Stock who
hold their shares as capital assets. This summary deals only with holders who
are citizens or residents of the United States, or domestic corporations or
who are otherwise subject to United States federal income tax. It does not
address the rules applicable to certain classes of taxpayers (including
financial institutions, dealers in securities or foreign persons), or any
state, local or foreign tax consequences. The Company recommends that JJFN
shareholders consult their own tax advisors as to the specific tax
consequences of the Merger pertaining to them.
This summary is based on current law and the opinion of Samuel G. Weiss,
Esq., Secretary and General Counsel to the Company. Legislative, judicial or
administrative changes or interpretations may be forthcoming that could alter
or modify the statements and conclusions set forth herein. Mr. Weiss' opinion
summarized herein is based upon certain assumptions relating to facts and
circumstances of, and the intentions of parties to, the Merger which have been
made with the consent of the parties.
In the opinion of Mr. Weiss, the Merger will constitute a "reorganization"
within the meaning of Section 368(a) of the Internal Revenue Code, and the
following will be the material federal income tax consequences of the Merger
to the JJFN shareholders: 1) no gain or loss will be recognized by them; 2)
the aggregate adjusted tax basis of their shares of the Company's Common Stock
will be the same as the aggregate adjusted tax basis of their shares of JJFN
Common or Preferred Stock; 3) the holding period of their shares of the
Company's Common Stock received by each JJFN shareholder will include the
holding period of his JJFN Common or Preferred Stock; and 4) any JJFN
shareholder who exercises his rights of appraisal and receives cash for his
JJFN shares will recognize taxable gain or loss based upon such holder's cost
basis in his JJFN shares.
Determination of Value
In setting the terms of the Merger, the Directors of the Company, who are
also the Directors of JJFN, have used a figure of $2.00 as a measure of value
of each share of the Company's Common Stock to be issued for each share of
JJFN Common Stock and each 50 shares of JJFN Preferred Stock to be exchanged
for cancellation in the Merger. This amount has been based upon several
factors, including the assets and business and prospects of the Company, the
price at which JJFN Common Stock was issued to Damill Capital Corporation in
extinguishment of debt and the price at which JJFN shares have been sold to
other recent purchasers; the exercise price of existing JJFN options; and the
value to the Company of adding over 1,500 new beneficial stockholders and its
consequent ability to commence public trading immediately in its Common Stock
(as opposed to the expense in registering stock for sale in a public
offering). This value does not necessarily bear any relationship to the
assets, earnings or other known criteria of value of either company. There
can be no assurance that the market price for the Company's Common Stock
following the Merger will remain at or rise above the value assigned to it by
the directors for purposes of determining the terms of Merger.
No report, opinion or appraisal relating to the Merger has been solicited
or received by the Company's Directors from any independent investment banking
or financial advisory firm. However, the Directors of both companies (who are
identical) believe that this valuation is fair and in the best interest of the
shareholders of JJFN (whose securities were worthless prior to the
intervention of the Company) and to the shareholders of the Company.
Dissenters' Rights
Holders of record of JJFN Common Stock and Preferred Stock on the date of
this Prospectus and Information Statement have the right, upon the delivery of
a demand in writing therefor, made to the Company within 20 days after the
date of this Prospectus, to an appraisal by the Delaware Court of Chancery of
the fair value of their shares of JJFN stock. Any demand made by any JJFN
shareholder wishing to exercise this right shall be mailed to the Company, 2500
North Military Trail, Boca Raton, Florida 33421. The demand must identify the
shareholder and state that he intends to demand the appraisal of his shares.
Any written demand for appraisal may be withdrawn by notice in writing made
within 60 days following the date of this Prospectus. Any appraisal
proceeding shall be conducted in accordance with the provisions of Section 262
of the Delaware General Corporation Law, a copy of which is set forth in full
in Appendix B to this Prospectus. The Company recommends that any JJFN
shareholder who wishes to exercise his appraisal right read Section 262 in
its entirety and consult with his financial and legal advisors before
submitting written demand for appraisal.
JJFN SERVICES, INC. PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following pro forma condensed consolidated balance sheet as of March 31,
1996 and the condensed consolidated statement of operations for the period
November 2, 1995 through March 31, 1996 give effect to the proposed merger of
JJFN Services, Inc. ("Services") and JJFN Holdings, Inc. ("Holdings") as if it
had occurred on the date of incorporation of JJFN Services, Inc. (November 2,
1995).
Under the terms of the proposed merger agreement, Priority Financial, Inc.
("PFI"), a wholly-owned subsidiary of Services shall be merged into Holdings
which shall be the surviving subsidiary corporation. On the effective date
of the merger, each non- dissenting Holdings shareholder shall be entitled to
receive one share of Services' common stock for each share of Holdings' common.
The preferred shareholders of Holdings shall be entitled to receive one share
of Services' common stock for each 50 shares of preferred stock owned.
The pro forma condensed consolidated financial statements have been prepared
by management based upon the historical financial statements of Services and
Holdings. The pro forma information gives effect to the business combination
accounted for as a purchase and the assumptions and adjustments in the
accompanying notes to the pro forma financial statements. The pro forma
statement of operations is presented for the period beginning when Services
commenced operations on November 2, 1995 through March 31, 1996. As a
business combination accounted for as a purchase, there are not pro forma
statements of operations for periods prior to the inception of Services which
is considered the acquiring entity.
The pro forma financial statements may not be indicative of what would have
occurred if the business combination had been in effect on the date indicated.
Such pro forma information should be read in conjunction with the historical
consolidated financial statements of JJFN Services, Inc. and the historical
consolidated financial statements of JJFN Holdings, Inc.
<TABLE>
JJFN Services, Inc.
<CAPTION>
Pro Forma Condensed Consolidated Balance Sheet
March 31, 1996
(Unaudited)
Historicals Pro Forma
Pro Forma
Services Holdings Adjustments
Consolidated
<S> <C> <C>
<C> <C>
Model homes on lease,
at cost, net of accumulated
depreciation of $7,192 5,741,848 -
5,741,848
Other assets:
Cash 148,010 2,766,219
2,914,229
Contract receivables 0 48,750
48,750
Marketable securities 1,250,000 500,000
1,750,000
Land and development costs 0 353,446
353,446
Prepaid expenses 0 63,375
63,375
Construction equipment 0 186,198
186,198
Loan to affiliate 0 911,626 911,626
0
Deferred finance charges and
other assets 95,848 356,046
451,894
Total assets 7,235,706 5,185,760 0 911,626
11,509,840
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Line of credit 0 154,381
154,381
Accounts payable and accrued
expenses 66,305 149,019
215,324
Unearned rental revenue 54,566 0
54,566
Preferred distribution payable 10,000 0
10,000
Loan from affiliate 911,626 0 911,626
0
Stockholder loans 1,678,684 512,500
2,191,184
Long-term debt 2,100,000 474,747
2,574,747
Total liabilities 4,821,181 1,290,647 911,626
0 5,200,202
Stockholders equity
Preferred stock 4,000 9,046 9,046(a)
4,000
Common stock 10,000 4,067 4,067(b)
1,085(a) 14,085
Additional paid-in capital 2,461,000 8,828,583 4,677,988(b)
7,961(a) 6,619,556
Retained earnings
(accumulated deficit) (60,475) (4,946,583)
4,679,055(b) (328,003)
Total stockholders' equity 2,414,525 3,895,113 0
0 6,309,638
Total liabilities and
stockholders' equity 7,235,706 5,185,760 911,626
0 11,509,840
</TABLE>
(a) To record the issuance of one share of Services common stock for each
share of Holdings common stock and one share of Services common stock for each
50 shares of Holdings preferred stock
(b) To eliminate stockholders' equity of wholly-owned subsidiary, JJFN
Holdings, on consolidation.
<TABLE>
JJFN Services, Inc.
<CAPTION>
Pro Forma Condensed Consolidated Statement of Operations
For the period November 2, 1995 through March 31, 1996
(Unaudited)
Historicals Pro Forma
Pro Forma
Services Holdings Adjustments
Consolidated
<S> <C> <C>
<C> <C>
Revenues 127,211 48,750
$175,961
Cost of Revenues - 39,002
39,002
Gross profit 127,211 9,748
136,959
Operating expenses:
Interest and financing costs 67,057 47,336
114,393
Professional fees 12,005 56,179
68,184
Consulting fees 24,940 140,000
164,940
Salaries and wages 32,981 13,288
46,269
Depreciation and amortization 38,428 9,932
48,360
Other 13,419 13,170
26,589
188,830 279,905
468,735
Loss from operations (61,619) (270,157) 0
0 (331,776)
Interest income 1,144 2,629
3,773
Net income (loss) (60,475) (267,528) 0
0 (328,003)
Net income (loss per share) (0.01) (0.13) -
0.00 (0.03)
Weighted average number
of common shares 10,000,000 2,091,333 -
18,092(c)12,109,425
</TABLE>
(c) To record the effect of issuance of one share of Services common stock for
each 50
shares of Holdings preferred stock.
*Includes operations of wholly-owned subsidiary which commenced operations
in January 1996.
SELLING SHAREHOLDERS
The JJFN Affiliates listed below may, by reason of their ownership of JJFN
Common Stock
and rights to receive JJFN Common Stock, be deemed "affiliates" or persons in
control of JJFN. The shares they will own or have the right to purchase total
7,450,000 or 40% of the Company's
Common Stock, assuming full exercise of all rights to purchase. All of these
shares have been
registered in the Registration Statement of which this Prospectus and
Information Statement is a part.
<TABLE>
<S> <C> <C> <C>
<C> <C>
Name Company Company Shares Company Share Percent
of Company
Share Held Issued in Merger Issuable Upon
Outstanding Shares
Prior to Full Exercise
Company Held
Merger of JJFN
Shares After Following
Options full
exercise Sale
Following
JJFN Options
Merger
Tarlton Financial
Ltd.1 _ 3,000,000 3,250,000
33.7% ---
Priority Capital
Corp. __ __ 500,000 2.7%
- ---
V.J.S. International
Holdings,Inc. __ __ 700,000 3.8%
- ---
</TABLE>
1 Tarlton Financial Ltd. is a Cayman Islands company owned by
a Cayman Islands trust whose sole trustee, Glendyne Company, is directed by
members of Bruce Campbell & Co., Attorneys at Law, of Grand Cayman, Cayman
Islands, BWI.
The Common Stock to be issued to the JJFN Affiliates may be offered for
sale from time to time following the Merger through brokers, dealers or other
agents or directly to one or more purchasers in transactions on the NASDAQ
SmallCap Market (on which the Company anticipates listing its Common Stock),
in privately negotiated sales or in any combination of such transactions.
These sales may be effected at the prevailing market prices or, if the shares
are sold at private sale, at negotiated prices. The brokers, dealers and
agents participating in such sales may receive compensation in the form of
discounts, concessions or commissions from the sellers, which may be in
excess of those customary for the type of transactions involved. The sellers
and any brokers, dealers or agents who participate in such sales may be deemed
underwriters under the Securities Act, and any discounts, commissions or
concessions paid to them may be deemed underwriting commissions. The Company
knows of no existing arrangement between any JJFN Affiliate and any broker,
dealer or agent relating to any prospective sale or distribution by any JJFN
Affiliate of his shares.
Under applicable law, no person engaged in the distribution of any
securities may simultaneously engage in market activities with respect to
other securities of the same class or for a period of nine business days prior
to the commencement of such distributions. The JJFN Affiliates will be
subject to this limitation and to other applicable provisions of the Exchange
Act and rules and regulations thereunder, including Rules 10(b)5, 10(b)6 and
10(b)7, which limit the timing of purchases and sales of their securities and
restrict their marketability.
The Company has agreed to amend the Registration Statement to provide the
JJFN Affiliates with a Prospectus with which they may sell their shares legally
under the Securities Act for up to 36 months following the Merger. In order
to comply with state securities laws, the JJFN Affiliates may sell shares in
some states only through registered or licensed brokers or dealers and, in
certain states, may not sell their shares unless they have been registered or
qualified for sale or an exemption from registration or qualification is
available.
INFORMATION CONCERNING THE COMPANY
Description of Business
The Company is a Delaware corporation organized on November 2, 1995. It
was formed for the purpose of engaging in the financial services industry,
including the financing of homebuilders and other developers of real property.
The Company's only operations to date consist of the purchase from and
lease back to developers of model homes erected to assist in marketing
properties in their developments. The Company is currently working with two
developers, K. Hovnanian of Florida Inc. ("Hovnanian") and Engle Homes Inc.
("Engle").
The Hovnanian Transactions. In November and December of 1995 and
January, 1996 the Company purchased and leased back to subsidiaries of
Hovnanian 19 model homes now being used for marketing the four developments in
which they are located. Each home has been leased back to Hovnanian on a
"triple net" basis, requiring Hovnanian to pay rent and the cost of repairs
and maintenance, insurance, taxes and other carrying charges during the term of
the lease. The rental for each home is fixed at an amount calculated to give
the Company a net return of 1% per month on its investment. The leases run
until the homes are sold. Payment of the rental and recovery of the
Company's cost on resale are guaranteed by Hovnanian by a performance bond
equal to 5% of the Company's purchase price for the homes. They will be
marketed by Hovnanian in accordance with the business plan for each
development. Upon each sale of a home, the Company and Hovnanian will (after
payment of a brokerage commission to a Hovnanian affiliate) share any profits
on an equal basis. Any loss will be absorbed by Hovnanian, because the
Company is not required to accept any loss on the sale of a model home and
Hovnanian is required to pay the lease rental on each home until it is sold.
Hovnanian is a subsidiary of Hovnanian Enterprises, Inc., a publicly-held
company which, with its predecessors, has been a home builder and developer for
over 35 years in the New Jersey, Pennsylvania, California, Virginia, North
Carolina and Florida markets. It has built and sold many thousands of
moderately priced homes, and enjoys an excellent reputation in the industry.
During its fiscal year ended October 31, 1995, Hovnanian Enterprises had
revenues of $660,033,000 and net profits of $14,128,000 and, at fiscal year
end, a net worth of $172,335,000 and a contract backlog of 1,810 homes with a
total contract price of $310,455,000.
The following table shows the location of the 19 model homes purchased by
the Company from Hovnanian and pertinent information relating to their purchase
and rental:
<TABLE>
<S> <C> <C>
Development, Location and Number
of Homes Cost to Company Net Monthly
Rental
to Company
Juniper Glen
Margate, FL(5 homes) $793,870 $7,939
Buttonwood Hammock
Coconut Creek, FL
(4 homes) $630,174 $6,302
La Mirage
Lauderhill, FL
(4 homes) $509,235 $5,092
Pembroke Shores
Pembroke Pines, FL
(6 homes) $1,320,376 $13,204
</TABLE>
The aggregate purchase price for these homes of approximately $3.25
million has been financed by approximately $1.15 million in equity contributed
by existing Company shareholders and $2.1 million by borrowings from Capital
Bank of Miami, Florida. This loan is due February 1, 1998 and bears interest
at 1% over the Prime Rate, payable monthly. It is secured by a first
mortgage on all 19 homes and by an assignment of rents payable by Hovnanian.
To date, the Company has sold two of the model homes it has acquired from
Hovnanian. The first home in Jupiter Glen was sold at a profit of
approximately $1,000 and the second in Buttonwood Hammock was sold at a profit
of approximately $3,500.
The Engle Transactions. In March and April 1996, the Company entered into
a series of transactions with Engle Homes Inc. of Boca Raton, Florida for the
purchase of 22 model homes located in Florida, North Carolina and Texas. The
terms of the Engle transactions are similar to those of the Hovnanian
transactions, with the Company leasing the homes it purchases from Engle back
to Engle on a "triple net" basis calculated to give the Company a net return
of 1% per month on its investment. Engle is obligated to continue paying rent
until the properties are sold. The homes will be marketed by Engle when it
finishes using them for model home purposes in accordance with the business
plan for each development in which the homes are located. On the sale of
each home,the Company and Engle will (after payment of a brokerage commission
to an Engle affiliate) share any profits on an equal basis. Because the
Company will control the sale price of each home and Engle is obligated to
continue paying rent until the home is sold, any loss which may be suffered in
the sale of any home will effectively be borne by Engle. In addition to the
22 homes already purchased from Engle, the Company has committed to purchase
an additional seven homes in Virginia, one in Maryland and 15 in and around
Denver, Colorado.
Engle is a publicly held corporation which has been engaged in home
development for many years, with development properties presently located in
several states. It enjoys an excellent reputation in the industry and is
solidly financed. The latest available financial information on Engle
indicates that it had revenues of $239,754,000 and net profits of $ 5,912,000
for its fiscal year ended October 31, 1995 and, at fiscal year end, had a net
worth of $ 74,106,000 and a contract backlog of 804 homes with a total
contract price of $161,900,000.
The following table shows the location of the 22 model homes purchased to
date from Engle and the 23 homes which the Company has committed to purchase,
as well as pertinent information relating to these purchases. <TABLE>
<S> <C>
<C>
Development , Location, Number of Homes
P=Purchased C=Committed Cost to New
Monthly Rental
Company to
Company
Westchester, Boynton Beach, FL
(3 homes) P $487,232 $4,872
Bay Hill, West Palm Beach, FL
(1 home) P $330,903
$3,309
Whale Run, Boynton Beach, FL
(2 homes) P $245,180
$2,451
Shadow Ridge, Flower Mound, TX
(1 home) P $202,161
$2,022
White Bridge, Amherst and Hadden Hill,
Apex, NC (3 homes) P $735,150
$7,352
Radcliffe, Tampa, FL
(1 home) P $247,558
$2,476
Englewood and Wimbledon Green, Zephyr
Hills, FL (2 homes) P $203,809
$2,038
Canterbury, Emerald Forest,
Muirfield, Dorchester, University
and Kingsbridge, Orlando and Oviedo
FL (9 homes) P $1,621,875
$16,219
Quail Overlook, Darnestown, MD
(1 home) C $439,799 $4,398
McNair Farms, Herndon, VA
(2 homes) C $429,626
$4,295
Ashburn S/F and T/H, Ashburn, VA
(3 homes) C $831,541
$8,315
Lowes Island, Sterling, VA
(2 homes) C $496,774
$4,967
Jackson Farm II and Spring Creek III,
CO (4 homes) C $795,256
$7,953
Meadows II and III, Castle Rock, CO
(3 homes) C $677,179
$6,772
Rolling Hills, Thornton, CO
(3 homes) C $691,513
$6,915
Wright Farms, Brighton, CO
(2 homes) C $330,822
$3,308
Highland Ranch, CO
(3 homes) C $643,840
$6,438
The aggregate purchase price of the Engle homes acquired to date is
$4,073,428 and has been financed by cash available to the Company through
equity contributions. and by borrowing of $2.3 million from Capital Bank.
The loan has a maturity of two years and an interest rate of 8.625% per annum
and secured by first mortgages on the 18 of the model homes purchased from
Engle in Florida and by an assignment of rents payable by Engle. The 23
additional homes which the Company has committed to purchase from Engle will
require payment of a purchase price of 3,714,440, the bulk of which the
Company will finance through a secured loan from Colorado State Bank of
Denver, Colorado for $2.5 million, due in three years with interest at 9.25%
per annum and secured by a first mortgage on 15 of the homes to be purchased.
This loan will close on May 2, 1996. The Company is also currently
negotiating for the purchase and leaseback of additional model homes owned by
Hovnanian and Engle, as well as other national and regional home builders,
including Arvida/JMB Partners, Oriole Homes Inc. and Regency Homes, Inc. No
additional transactions have yet been agreed to, other than the commitments
with Engle described above. To finance additional transactions, the Company
has negotiated a third line of credit from Capital Bank for $10,000,000.
Under this line, the Company's borrowings will be payable in two years with
interest at 8.75% per annum and will be secured by first mortgages on model
homes purchased with the proceeds. The commitment will permit the Company to
use up to 25% of its credit under the line to purchase non-Florida homes.
Capital Transactions
To date, the Company's activities have been financed primarily by capital
contributed and loans made by its existing stockholders and secured loans made
by banks. Through December 31, 1995, the Company had issued and sold
10,000,000 shares of Common Stock for an aggregate purchase price of
$1,500,000 (or $.15 per share) and 400,000 shares of Preferred Stock for a
price of $1,000,000 (or $2.50 per share). It had also borrowed $955,000 from
shareholders payable on demand with interest at 9% per annum. Secured
borrowings from banks already made or committed now total approximately $17
million.
The shareholder loans have been secured by pledge of 500,000 shares of
Antares Resources Corporation, a publicly held corporation of Amelia Island,
Florida with whom several of the Company's officers and directors and key
personnel are associated. The Company acquired 600,000 Antares shares from
stockholders in November and December 1995 in consideration for issuance of
10,000,000 shares of Common Stock. Antares' stock is currently traded on the
NASDAQ SmallCap Market. On April 26, 1996 the last sale price was $4.00.
Antares engages through various subsidiaries in the businesses of buying and
selling pine wood by-products; manufacture of horse and utility trailers; and
design, packaging and marketing of sun and skin care products. It is in the
process of setting up facilities for production and sale of kitty litter.
Antares is the owner of 400,000 shares of the Company's 6% Participating
Convertible Preferred Stock which it purchased in November 1995 for
$1,000,000 in cash. This transaction was approved by all of the directors of
Antares who are not affiliated in any way with the Company or JJFN. See
"Transactions with Related Parties".
The capital contributions and loans received by the Company have been
adequate to permit it to carry on operations to date. However, in order to
expand by acquiring other assets and engaging in other financing transactions,
the Company must raise additional financing through issuance of debt or
equity securities. The Merger should permit a public market for the
Company's Common Stock to commence, which should enhance its value to
prospective investors. In addition, in the Merger the Company will assume the
obligations and rights of JJFN under its existing option and warrants. It is
anticipated that following the Merger, Tarlton Financial Ltd. will exercise
the right under its option to acquire 3,250,000 shares of Company Common Stock
for an additional capital infusion of $3,750,000. See "Information Concerning
JJFN - Outstanding Options."
These funds, together with existing cash of approximately $2,900,000 now
held by the Company and JJFN, will give the Company over $6,650,000 to pursue
additional business activities. The Company anticipates that this amount,
coupled with secured borrowings from banks and other financial institutions
made to support its purchase of model homes, will be sufficient to carry on
and expand its operations in the normal course for a period for at least 12
months. However, no assurance can be given that Tarlton will exercise its
option or that the Company will be able to obtain additional borrowings on
suitable terms once its present funds have been fully used. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
Offices
The Company's day to day operations are conducted from its executive
offices at 2500 North Military Trail, Boca Raton, Florida 33431. The premises
contains 814 square feet and is leased for three years at a rental of $9,341
per annum, escalating to $10,175 in the third year. It also maintains an
office at 100 Quentin Roosevelt Boulevard, Suite 202, Garden City, New York
11530, in space provided on a month-to-month basis at no rent by David Miller,
its principal financial consultant.
Employees
The Company presently has two full-time employees, including its
President, Susan Schlapkohl. The other key personnel of the Company,
including Joan E. Kushay, Assistant Secretary, and David Miller, its principal
financial consultant, expend such time on Company matters as is required in
order to carry on its operations.
Litigation
The Company is not presently a party to any litigation or threatened
litigation.
The Company's Stock
At this date, there are 50,000,000 shares of the Company's Common Stock
authorized, of which 10,000,000 are issued and outstanding, and 25,000,000
shares of its Preferred Stock authorized, of which 400,000 shares, designated
6% Participating Convertible Preferred Stock, are issued and outstanding. The
terms of the Common and Preferred Stock are described in "The Merger - The
Company's Stock". There are presently 15 holders of the Company's Common
Stock and one holder of its Preferred Stock. Following the Merger, there will
be approximately 300 owners of record and 1,500 beneficial owners of the
Company's Common Stock. There is no public trading market for the Company's
Common Stock at this time, but it is anticipated that a public market will be
commenced in the Common Stock following the Merger, on the NASDAQ SmallCap
Market under the symbol "JJFN".
The Company's presently outstanding shares are all "restricted securities"
(within the meaning of that term as defined in Rule 144 promulgated under the
Securities Act) and are subject to the restrictions as to transfer and sale
included in that Rule. In general, under Rule 144 a person must hold shares
he has acquired for a period of two years and may thereafter make sales which,
within any three month period, do not exceed in the aggregate the greater of 1%
percent of the then outstanding shares or the average weekly trading volume in
the stock during the four calendar weeks prior to the sale. Sales must be
made in regular broker's transactions and the Company must at the time be
current in its reporting requirements under the Exchange Act. The shares to
be issued to JJFN shareholders in the Merger or on exercise of the existing
JJFN options will not be "restricted securities", as they have been registered
under the Securities Act in the Registration Statement of which this
Prospectus and Information Statement is a part. They will be freely
tradeable by all JJFN shareholders who receive them, except that the JJFN
Affiliates must use this Prospectus in selling their shares. See "Selling
Shareholders".
The Company has not paid any dividends on its Common Stock and does not
foresee that it will pay any such dividends for the foreseeable future, as it
intends to use all of its funds in the operation and expansion of its
business. It will continue to however, pay preferential distributions on its
6% Participating Convertible Preferred Stock, up to $60,000 per year.
Principal Shareholders.
The following table shows the name, address and number of shares of
Common Stock held by the Company's directors and executive officers and by each
Company stockholder who presently holds, or will hold following the Merger,
more than 5% percent of its outstanding Common Stock:
</TABLE>
<TABLE>
<S> <C> <C>
<C> <C>
Name and Address Shares Owned
Percentage Owned
Before After Before
After
Merger Merger Merger
Merger
Susan Schlapkohl 1,000,000 1,000,000
10.0% 5.4%
Samuel G. Weiss 150,000 154,165 1.5%
0.8%
Joan E. Kushay 150,000 154,200 1.5%
0.8%
Ralph Wilson 150,000 157,500 1.5%
0.8%
Janice Rufo 100,000 100,000 1.0%
0.5%
All directors and officers
as a group 1,550,000 1,565,865 15.5%
8.4%
David Miller 1,250,000 1,253,500 12.5%
6.7%
Helen Miller 1,250,000 1,253,500 12.5%
6.7%
Scott Miller 1,250,000 1,263,500 12.5%
6.7%
Rita Miller 1,250,000 1,263,500 12.5%
6.7%
Helen Miller Irrevocable
Trust No. 1, Libo Fineberg,
Trustee 1,250,000 1,250,000 12.5%
6.7%
Tarlton Financial Ltd.1 -- 6,250,000(2) --
33.7%(2)
Priority Capital Corp. -- 500,000(2) --
2.7%(2)
V.J.S. International
Holdings, Inc. -- 700,000(2) --
3.8%(2)
</TABLE>
1 Tarlton Financial Ltd. is a Cayman Islands company owned by
a Cayman Islands trust whose sole trustee, Glendyne Company, is directed by
members of Bruce Campbell & Co., Attorneys at Law, of Grand Cayman, Cayman
Islands, BWI.
2 Assuming full exercise of existing JJFN Option and Warrants.
Financial Statements
The Balance Sheet of the Company as at December 31, 1995 and the related
Statement of Operations, Statement of Stockholders' Equity and Statement of
Cash Flows for the period from November 2, 1995 (the date of its inception)
through December 31, 1995, audited by Horton & Company, LLC, are presented
beginning on page 43.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The Company was formed on November 2, 1995 and has to date had a limited
operating history of six months. Its results of operations through December
31, 1995 produced net income of $328. On that date, the Company had total
assets of $3,512,050, liabilities of $1,021,762, shareholder's equity of
$2,490,328, and retained earning of $328. While Management believes that the
transactions engaged in to date with Hovnanian and Engle will continue to
prove to be profitable for the Company, its present limited resources will
restrict the amount to which it can expand its operations and generate
additional profit. At this time, the Company's cash on hand is just over
$140,000. If the Company is to expand its operation significantly, it must
acquire new sources of funding.
In this connection, management expects that JJFN's cash resources of
$2,760,000 will become available with the Merger and that, following the
Merger, Tarlton will exercise its JJFN option to acquire 3,250,000 shares,
giving the Company additional proceeds of $3,750,000 for investment. Full
exercise of Tarlton's option will give Tarlton a total of 6,250,000 shares, or
33.7% of the Company's issued and outstanding Common Stock (assuming full
exercise of the warrants to other JJFN Affiliates described below). The
Company does not anticipate any change in its operations or management in the
event that Tarlton exercises its option. Tarlton has advised the Company
that it intends to be an investor only and does not wish to exercise any
control over the Company or its management. Of the 6,250,000 shares to be
issued to Tarlton, 1,250,000 will be delivered to it pursuant to a consulting
agreement between Tarlton and JJFN, which the Company will assume. The
Tarlton consulting agreement provides that in the event the Tarlton option is
not fully exercised, the shares to be issued to Tarlton under the consulting
agreement will be reduced by one share for every four shares of stock Tarlton
fails to purchase on exercise of its option. The Company has assigned no
additional value to the shares to be issued pursuant to the consulting
agreement, as it views the Tarlton option and consulting agreement as one
transaction in which a total of 6,250,000 shares will be issued for a total
purchase price of $7.5 million, or an average price of $1.20 per share.
Exercise of Tarlton's option will depend upon many factors, including the
Company's continued success in its present operations and the market price for
its Common Stock following the Merger. No assurance can be given that the
market price will rise to the level making exercise by Tarlton of its option
feasible and attractive. The Company also intends to seek additional debt
financing from public and private sales of mortgaged backed securities and
mortgage loans from banks and financial institutions to continue its model
home purchases and to launch new asset-based financing activities. There can
be no assurance, however, that such financing will be available on terms
permitting the Company to operate in these areas on a profitable basis.
If the Company succeeds in obtaining additional financing, it intends to
seek new business opportunities in the financing of model houses for
developers and other financial services including other asset-based financing.
Prospective clients for these activities will be sought in various markets.
No assurance can be given, however, that the Company will be successful in
finding suitable clients or that the transactions with which it expands its
operations will prove profitable. It has no present clients other than
Hovnanian and Engle and no prospective clients with whom it has entered into
contracts or completed negotiations.
The Company's activities may also be restricted for the time being by the
limited number of experienced personnel available to assist in its operations.
At the present time, it has two full time employees including one key
employee, Susan Schlapkohl, its President. The Company has also available the
services of David Miller, its principal financial consultant. Management
believes that Ms. Schlapkohl and Mr. Miller have the requisite financial and
business experience to consummate sufficient business transactions to fully
utilize all funds the Company now has or anticipates having available for the
foreseeable future.
Executive Officers and Directors
The executive officers and directors of the Company are:
<TABLE>
<S> <C> <C>
NAME AGE POSITION
Susan Schlapkohl 46 President and
Director
Samuel G. Weiss 45 Secretary, Counsel and
Director
Joan E. Kushay 34 Assistant Secretary
and Director
Janice Rufo 25 Assistant
Secretary
and Director
Ralph Wilson 65 Director
All directors will hold office until the next annual meeting of shareholders
and until their successors have been elected and qualified. Officers of the
Company are elected and serve until their death, resignation or removal by
the directors. There are no family relationships among the officers and
directors or any arrangement or understanding between the Company (or any of
its directors) and any other person pursuant to which that person was or is to
be selected as a Director or officer.
Susan Schlapkohl, President and Director, has served in those capacities
since the Company's organization. She became a full time employee in January
1996. From September, 1986 to January, 1996, Ms. Schlapkohl was Vice
President and Manager of the National Bank of Canada office in Boca Raton,
Florida. Since March of 1995 she has also served as a Director of Antares
Resources Corporation. Ms. Schlapkohl received a B.S. degree in accounting
from Kennesaw College in 1974, majoring in accounting.
Samuel G. Weiss, Secretary, General Counsel and Director, has held these
positions with the Company since its organization. He is also Secretary,
Counsel and a Director of Antares Resources Corporation. Since 1974, Mr.
Weiss has been engaged in the practice of law in Port Washington, New York.
He received a B.A. degree in 1971 and JD/LLM degrees in 1977 from New York
University. Mr. Weiss devotes only such time as is necessary to the business
of the company.
Joan E. Kushay, Assistant Secretary and Director, has held these positions
since the Company's organization. She is also Assistant Secretary and Director
of Antares Resources Corporation. From June, 1994 to date she has been
employed as an executive assistant at XYZ Cleaning Contractors Inc., a
privately owned New York office cleaning and maintenance company located in
Garden City, New York. From February 1994 through June 1994, Ms. Kushay was
employed by Arrow Electronics Inc. of Melville, New York in shareholder and
investor relations and,from July 1988 to January 1994, by Action Staffing
Inc., a publicly held corporation located in Tampa, Florida, as Executive
Assistant to the Chairman. Ms. Kushay devotes only such time as is necessary
to the business of the Company.
Janice Rufo, Director and Assistant Secretary, has held those positions
with the Company since its organization. Since June, 1994 she has been an
executive assistant at Intercapital Holdings, Inc., a financial consulting
firm in Garden City, New York. Prior to that date, she was a full-time
student at Adelphi University, from which she graduated in 1994 with a B.A.
Degree in History. Ms.Rufo devotes only such time as is necessary to the
business of the Company.
Ralph Wilson, Director, has held that position since the Company's
organization. From October 1990 through February 1995, Mr. Wilson was
President of Antares Resources Corporation and has served as a Director of
that company since December 1983. In addition, since 1971 Mr.Wilson has been
a principal officer of Comet Electronics Corp., a privately owned
manufacturer of subassemblies in Farmington, New York. Mr. Wilson devotes
only such time as is necessary to the business of the Company.
Key Personnel
In addition to its executive officers and directors, the Company has
relied and will, following the Merger, rely upon the following key personnel:
David Miller has been engaged as financial consultant to the Company since
its inception. Mr. Miller, who is not an employee of the Company, was
primarily responsible for negotiating its transactions with Hovnanian and with
prior management of JJFN. He is presently a consultant to the Company and
devotes only such time as is necessary to its business. Mr. Miller owns
1,250,000 shares of Company Common Stock and members of his family, a trust
for their benefit and certain companies affiliated with them presently own an
additional 6,100,000 shares, totaling approximately 74% of the outstanding
Common Stock of the Company. Mr. Miller disclaims beneficial ownership or
voting power over the 6,100,000 shares he does not own personally. He may be
deemed the "promoter" of the Company.
Since 1992, Mr. Miller has been a financial consultant to several
companies, including Antares Resources Corporation. From 1978 to 1992 Mr.
Miller was president of Valley Funding Corporation, a privately owned
commercial finance company of Great Neck, New York; from 1974 to 1992 Mr.
Miller also served as president of Darita Capital Corporation, a private
financial consulting firm in Great Neck and from 1981 to 1992 Mr. Miller was
president of Scomiller Realty Corp., a privately owned real estate holding
company of Great Neck. From 1966 to 1992 Mr. Miller was employed by Action
Staffing, Inc. (formerly Leasing Consultants Incorporated), a publicly held
company engaged in employee leasing services in Tampa, Florida; he was
president of that company from 1980 to 1987 and chairman of the board from
1987 to 1992. From 1989 to 1992 Mr. Miller also served as chairman of the
board of Action Capital Inc., a publicly held company engaged in asset based
lending.
During April 1992 Mr. Miller entered a plea of guilty to three counts of
violations of the Internal Revenue Code in the United States District Court for
the Eastern District of New York. The plea arose out of charges that he had
engaged in a conspiracy with others to violate the Code relating to personal
income tax returns and employer's quarterly tax returns as well as impeding
the Internal Revenue Service's collection process. The plea admitted to
violations for the years 1983 to 1985.
Other Personnel. Following the Merger, the Company will rely upon the
services of Anthony Gurino and Dennis Sommeso to run IECM. Messrs. Gurino and
Sommeso were former owners of Iron Eagle Contracting Corp. (a corporation not
affiliated with JJFN) for which Mr. Sommeso worked over 12 years as a
principal executive officer. Mr. Sommeso works full- time for IECM, and Mr.
Gurino works on a part-time basis, as he is also an owner and the chief
executive officer of Ragtime Dairy and Ragtime Foods of New York, private
companies which supply supermarkets and other outlets with milk and bakery
products in the New York metropolitan area.
Executive Compensation
Through December 31, 1995, none of the employees, consultants, directors
or officers of the Company received any compensation. The Company reimbursed
them for out-of- pocket expenses incurred in the pursuit of their duties; such
reimbursements did not exceed $1,000 in the aggregate through December 31,
1995. Ms. Schlapkohl is employed by the Company as its chief executive
officer under a five-year employment contract calling for a salary of $120,000
per year, plus customary employee benefits. It is anticipated that a stock
option plan will be adopted by the Company in the near future.
Indemnification
Pursuant to Section 145 of the Delaware General Corporation Law, the
Company's Certificate of Incorporation provides that it will indemnify its
Directors and officers against expenses (including attorneys' fees),
judgments, fines and amounts paid pursuant to settlement of any pending,
completed or threatened action to which they become parties by reason of the
fact that they are or were directors, officers, employees or agents of the
Company, provided that they have acted in good faith in the manner they
reasonably believe to be in or not opposed to the best interest of the
Corporation and, with respect to any criminal action or proceeding, have had
no reasonable cause to believe their conduct was unlawful. The Company will
also make such indemnity in any threatened, pending or completed action
commenced by or in the right of the Company to procure a judgment in favor of
the Company against a present or former director or officer, provided that
there has been no adjudication that such person is liable to the Company
(unless a court finds that, despite the adjudication of liability, the director
or officer was fairly and reasonably entitled to indemnity in an amount
deemed proper by the court).
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to officers, directors and other persons affiliated with
the Company pursuant to the foregoing authority, or otherwise, the Company has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable. In the event that a claim for indemnification against liability
(other than the payment by the Company to a director or officer who has
successfully defended any such action, suit or proceeding) is asserted by a
director, officer or other person affiliated with the Company, it will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of competent jurisdiction the
question whether such indemnification is against public policy is expressed
in the Securities Act, and the Company will be governed by the final
adjudication of such issue.
INFORMATION CONCERNING JJFN
Description of Business
JJFN is a Delaware corporation organized in 1987. From its inception
through June 30, 1992, its business activities consisted almost exclusively of
its ownership of J. W. Gant Associates, a wholly owned subsidiary engaged in
the brokerage industry. On June 30, 1992, J. W. Gant Associates ceased
operations, filed a petition in bankruptcy on May 24, 1994 and was
subsequently liquidated. Due to this discontinuance of operations, JJFN was
left without any significant source of revenues and was unable to make
scheduled payments to a secured creditor, Kent Capital, Ltd. On July 22,
1992, pursuant to the terms of the secured credit agreement between JJFN and
Kent, substantially all of JJFN's assets were transferred to Kent, including
its interests in J. W. Gant Associates as well as its interests in other
subsidiaries including Lewis Anthony Advisory Group, Inc. and J. D.
Copperfield Ltd.
From that time to December 29, 1995, JJFN was a "shell" company, whose
sole purpose was to locate and consummate a merger or other transaction in
which its shareholders would realize some value on their stock. Commencing in
September, 1995, JJFN negotiated with the principals of the Company
(including Mr. Miller) the terms of the Merger, and on November 29, 1995
executed a letter of intent to complete the Merger. On or about that same
date, the present officers and directors of the Company became the officers
and directors of JJFN, and an amendment to JJFN's Certificate of
Incorporation (approved with the consent of the holders of the majority of its
Common Stock) effected a 1 for 50 reverse split of the outstanding Common
Stock. This amendment also changed the name of JJFN from J. W. Gant
Financial, Inc. to JJFN Holdings, Inc. and increased its authorized shares to
50,000,000 shares of Common Stock, par value $.001 per share, and 25,000,000
of Preferred Stock, par value $.01 per share. Following the reverse stock
split, the transaction between JJFN and Damill Capital Corporation, described
in "Transactions with Related Parties", was completed. In addition, on
December 1, 1995 JJFN acquired 200,000 shares (this number has been
adjustment to reflect a two-for- one stock split in January 1996) of Antares
Resources Corporation from shareholders of that company as a loan. These
Antares shares are carried on JJFN's books at $500,000 (their approximate fair
market value at December 31, 1995) and have been used to secure stockholder
loans made during 1995 to JJFN in the amount of $527,500, which are payable on
demand with interest at 9% per annum. These transactions resulted at December
31, 1995 in a net worth of $378,680 and available cash of approximately
$450,000.
On December 29, 1995, JJFN acquired from Anthony Gurino and Dennis
Sommeso certain construction equipment (appraised at approximately $188,000)
and the stock of IECM, a newly organized and privately held construction
corporation owned by Messrs. Sommeso and Gurino. IECM was organized in
December 1995 to engage in the construction business in the Metropolitan New
York area, to serve principally as a subcontractor for conduit and piping work
(laying, repair and maintenance of gas, telephone, electric and water lines)
and also to engage in the construction of residential homes on land in Ozone
Park, Queens, New York to be acquired by IECM. As part of the acquisition,
Messrs. Sommeso and Gurino entered into an employment contracts with IECM
containing covenants not to compete and an agreement to use their best efforts
to direct work to IECM from customers with whom they had previously been
acquainted. These contracts call for their employment for five years with
base compensation of $75,000 per year each (subject to adjustment for the
cost of living) and performance bonuses equal to 7.5% of IECM's future pretax
profits.
On January 2, 1996 IECM purchased the tract of land in Ozone Park for
$300,000. IECM proposes to build residential housing on this site. In order
to finance the acquisition of this real property and provide working capital
for its future activities, IECM entered into a loan agreement with V.J.S. Inc.
of Garden City, New York on December 21, 1995, pursuant to which VJS has made
loans of $450,000 and will advance up to an additional $150,000 to IECM. IECM
anticipates that proceeds from the VJS line of credit will be sufficient to
permit it to carry on its operations for a period of at least 12 months. The
VJS loans were originally payable on March 31, 1996, but have been extended
by VJS. They carry an interest rate of 12% per annum and are secured by a
lien on all of IECM's assets. In consideration of these loans, VJS has been
granted warrants to purchase 700,000 shares of JJFN Common Stock and fees of
$3,000 per year so long as its loans remain outstanding.
On December 21, 1995, IECM also entered into a financial consulting
agreement with Priority Capital Corp. of Garden City, New York, a corporation
of which Warren Miller, the brother of David Miller, is the president and a
principal stockholder. The consulting agreement with Priority Capital
requires JJFN to pay a fee to Priority Capital of $3,000 per year and to issue
Priority warrants to purchase 500,000 shares of JJFN Common Stock. As part of
the financial consulting services already furnished and to be furnished to
IECM under the consulting agreement, Priority Capital has obtained for IECM
an agreement from Universal Bonding Company to post performance bonds for
IECM subcontracting jobs for up to a total of $7 million. This bonding
facility has not yet been used, but will be used when IECM bids on such jobs.
Litigation
JJFN currently has no material legal proceedings or claims against it
other than those reflected in its financial statements appearing as part of
this Prospectus and Information Statement.
Outstanding Options
On December 8, 1995, JJFN entered into an agreement with Tarlton Financial
Ltd. of Grand Cayman, Cayman Islands BWI, pursuant to which JJFN sold Tarlton,
for a price of $125,000, an option expiring on August 8, 1996 to purchase
5,000,000 shares of JJFN Common Stock at a price of $1.50 per share. In
January and February 1996, Tarlton exercised this option to purchase 2,500,000
JJFN shares. In conjunction of the issuance of the Tarlton option, JJFN
entered into a consulting agreement with Tarlton pursuant to which Tarlton is
to perform various services, including assistance in finding up to $7,500,000
in equity capital (which may be fulfilled by exercise of Tarlton's option).
As compensation for its services, JJFN is to issue to Tarlton over a period of
eight months 1,250,000 shares of JJFN's Common Stock, conditioned upon
Tarlton's success in obtaining the $7,500,000 in equity. These 1,250,000
shares, 500,000 of which have already been issued, will be canceled if
Tarlton fails to provide the full $7,500,000 in equity financing called for
by the consulting agreement. Tarlton's option and consulting agreement are
being assumed by the Company in the Merger and it is anticipated that Tarlton
will fulfill its obligations under the consulting agreement by exercising the
Tarlton option in full shortly after the Merger becomes effective. All
shares to be issued pursuant to Tarlton's option and consulting agreement
have been registered under the Securities Act in the Registration Statement of
which this Prospectus and Information Statement is a part and will be freely
saleable in the public market following the Merger by use of this Prospectus.
See "Selling Shareholders".
On December 21, 1995, IECM issued to V.J.S. International Holdings Inc.
and Priority Capital Corp. warrants to purchase 700,000 and 500,000 shares,
respectively, of stock at a price of $.001 per share. This exercise price
reflects the value which IECM placed upon the financial consulting services of
Priority Capital and credit facility provided to it by VJS and also the fact
that the warrants were issued at a time when JJFN had not yet agreed to
acquire IECM or to assume the obligation to issue shares on exercise of these
warrants. The Company will assume these warrants in the Merger and the
Company's shares issuable upon exercise of the warrants have been registered
under the Securities Act in the Registration Statement of which this
Prospectus and Information Statement is a part and may be sold by the warrant
holders in the public market following the Merger only by use of this
Prospectus. See "Selling Shareholders".
Principal Shareholders
The following table shows the name, address and number of shares of JJFN
Common Stock held by JJFN's directors and executive officers and by each of its
shareholders who presently holds more than 5% of its outstanding Common Stock:
</TABLE>
<TABLE> <S> <C> <C>
Name Number of Shares Owned Percentage
Owned
Susan Schlapkohl -
-
Samuel G. Weiss 4,165 .10%
Joan E. Kushay 4,200 .10%
Ralph Wilson 7,500
.20%
All officers and directors
as a group 15,865
.40%
Tarlton Financial Ltd 3,000,000
73.0%
There is no relationship between Tarlton and the Company or its officers or
directors, other than the fact that the Company's officers and directors are
also the officers and directors of JJFN, in which Tarlton owns a majority
interest.
Financial Statements
The Balance Sheets of JJFN as at December 31, 1995, June 30, 1995 and
June 30, 1994 and the related Statement of Operations, Statement of
Stockholders' Equity (Deficit) and Statement of Cash Flows for the two years
ended June 30, 1995 and the six months ended December 31, 1995, audited by
Horton & Company, LLC, are presented beginning on page 38.
Executive Officers and Directors
The executive officers and directors of JJFN are identical to those of the
Company. See "Information Concerning the Company - Directors and Executive
Officers." None of the officers or directors has received any compensation
from JJFN.
TRANSACTIONS WITH RELATED PARTIES
The only material contracts, transactions and relationships between the
Company and JJFN and their officers, directors, key personnel or principal
stockholders and the affiliates of those persons have consisted of the
following:
1. The persons who are officers and the sole directors of the Company
(including Ms. Schlapkohl, Ms. Kushay and Ms. Rufo and Messrs. Wilson and
Weiss) are also the officers and sole directors of JJFN, holding the same
positions in both corporations. They also hold positions as directors of
Antares Resources Corporation.
2. In November and December of 1995, 400,000 shares of JJFN Common
Stock was issued to Damill Capital Corporation and its affiliates, including
David Miller and members of his family, on conversion of $200,000 of
indebtedness owing by JJFN to Damill.
3. In November, 1995, Mr. Miller, various members of his family, a trust
for their benefit and companies affiliated with them purchased a total of
7,350,000 shares of the Company's Common Stock for a price of $.15 per share
which they paid by contributing shares of Antares Resources Corporation to
the Company. Members of the Miller family also loaned $955,000 to the
Company at that time. The loans are demand loans payable with interest at 9%
per annum and are secured by the stock of Antares Resources Corporation owned
by the Company. The proceeds from these loans were used to acquire model
homes from Hovnanian and Engle.
4. During November, 1995, the Company's officers and directors purchased
the following shares of JJFN Common Stock and the Company's Common Stock for a
price of $.15 per share: Susan Schlapkohl-1,000,000 shares of the Company;
Ralph Wilson-7,500 shares of JJFN and 150,000 shares of the Company; Samuel G.
Weiss-4,165 shares of JJFN and 150,000 shares of the Company; Joan E.
Kushay-4,200 shares of JJFN and 150,000 shares of the Company; and Janice
Rufo-100,000 shares of the Company.
5. On December 29, 1995, pursuant to the terms of a consulting
agreement, JJFN assumed certain warrants to purchase 500,000 shares of JJFN
Common Stock for a price of $.001 per share, issued to Priority Capital Corp.,
a corporation of which Warren Miller, David Miller's brother is the President
and a principal stockholder. In the Merger the Company will assume JJFN's
obligations under the warrants.
6. On November 2, 1995, the Company acquired 600,000 shares (this
number has been adjusted to reflect a two-for-one stock split in January 1996)
of Antares Resources Corporation Common Stock from David Miller, members of
his family and an affiliated trust, in exchange for 10 million shares of the
Company's Common Stock. On or about that same date, Mr. Miller, members of
his family and the affiliated trust loaned 200,000 shares (adjusted to reflect
the stock split) of Antares Common Stock to JJFN. The Antares shares were
valued at $2.50 per share, the market price for Antares stock then being
$3.00 per share (these numbers have been adjusted to reflect the stock
split). The Antares shares held by JJFN at December 31, 1995 represented at
the time 1.4% of Antares outstanding Common Stock and the Antares shares held
by the Company on that date represented 4.2% of Antares' Common Stock. The
Company sold 100,000 of its Antares shares in March 1996 for $2.50 per share
in a brokerage transaction at the market and JJFN sold 100,000 shares of
Antares in April 1996 for $2.50 per share. The Company continues to hold
500,000 shares of Antares and JJFN continues to hold 100,000 Antares shares.
7. In January 1996 Antares acquired 400,000 shares of the Company's 6%
convertible participating Preferred Stock for a cash purchase price of $1
million. These shares are convertible share for share into Company Common
Stock and, when and if such conversion takes place, Antares will own 2.1% of
the Company's Common Stock (on a fully diluted basis).
LEGAL MATTERS
The validity of issuance of the Company's Common Stock is being passed
upon by Jackson & Nash, counsel for the Company. The income tax consequences
of the Merger are being passed upon by Samuel G. Weiss, Secretary, Counsel and
Director of the Company. No member or employee of Jackson & Nash has any
financial or shareholder interest in the Company or in JJFN. Mr. Weiss owns
150,000 shares of the Company's Common Stock and 4,165 shares of JJFN Common
Stock.
EXPERTS
The financial statements of the Company and JJFN appearing in this
Prospectus and Information Statement have been audited by Horton & Company,
LLC, independent auditors, as set forth in their reports thereon appearing
elsewhere in this Prospectus and Information Statement and in the
Registration Statement, and are in included in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
JJFN SERVICES, INC.
(formerly J & J FINANCIAL SERVICES, INC.)
AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Report F-2
Consolidated balance sheet as of December 31, 1995 F-3
Consolidated statement of operations for the period
November 2, 1995 (date of incorporation) through December 31, 1995
F-4
Consolidated statement of stockholders' equity for the period
November 2, 1995 (date of incorporation) through December 31, 1995
F-5
Consolidated statement of cash flows for the period November 2, 1995
(date of incorporation) through December 31, 1995 F-6 - F-7
Notes to consolidated financial statements F-8 - F-12
INDEPENDENT AUDITORS' REPORT
The Board of Directors
JJFN Services, Inc.
Garden City, New York
We have audited the accompanying consolidated balance sheet of JJFN Services,
Inc. (formerly J & J Financial Services, Inc.) and subsidiary as of December
31, 1995, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the period November 2, 1995 (date
of incorporation) through December 31, 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We 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 financial statements are free
of material misstatement. 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of JJFN Services,
Inc. (formerly J & J Financial Services, Inc.) and subsidiary as of December
31, 1995, and the results of its consolidated operations and its consolidated
cash flows for the period November 2, 1995 (date of incorporation) through
December 31, 1995 in conformity with generally accepted accounting principles.
January 29, 1996, except for the last paragraph of Note 7, as to which the
date is February 9, 1996
</TABLE>
<TABLE>
JJFN SERVICES, INC.
(formerly J & J FINANCIAL SERVICES, INC.)
AND SUBSIDIARY
<CAPTION>
CONSOLIDATED BALANCE SHEET
December 31, 1995
ASSETS
<S> <C>
Model homes on lease, at cost, net of
accumulated depreciation of $7,192 (Notes 3 and 7) $1,930,788
Other assets:
Cash 62,102
Marketable securities (Notes 2 and 4) 1,500,000
Deferred financing costs 15,200
Deferred acquisition costs 4,000
1,581,302
Total assets $3,512,090
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable (Note 4) $ 955,457
Accounts payable and accrued expenses 36,972
Unearned rental revenue 19,333
Preferred distribution payable (Note 5) 10,000
Total liabilities 1,021,762
Commitments (Notes 6 and 7) -
Stockholders' equity (Notes 5 and 6):
Convertible preferred stock, $.01 par value
25,000,000 shares authorized,
400,000 shares issued and outstanding 4,000
Common stock, $.001 par value
50,000,000 shares authorized
10,000,000 shares issued and outstanding 10,000
Additional paid-in capital 2,476,000
Retained earnings 328
Total stockholders' equity 2,490,328
Total liabilities and stockholders' equity $3,512,090
</TABLE>
See notes to consolidated financial statements
<TABLE>
JJFN SERVICES, INC.
(formerly J & J FINANCIAL SERVICES, INC.)
AND SUBSIDIARY
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS
For the period November 2, 1995 (date of incorporation)
through December 31, 1995
<S> <C>
Rental revenue (Note 3) $ 33,116
Operating expenses:
Interest ( Note 4) 10,625
Professional fees 14,500
Depreciation 7,192
Other 471
32,788
Net income $ 328
</TABLE>
See notes to consolidated financial statements
<TABLE>
JJFN SERVICES, INC.
(formerly J & J FINANCIAL SERVICES, INC.)
AND SUBSIDIARY
<CAPTION>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the period November 2, 1995 (date of incorporation)
through December 31, 1995
<S> <C> <C> <C>
<C> <C> <C>
Additional
Preferred stock Common
Stock Paid-In Retained
Shares Amount Shares
Amount Capital earnings
Common stock issued at inception - $ - 10,000,000
$10,000 $1,490,000 $ -
Preferred stock issued 400,000 4,000 - - 996,000
-
Preferred distribution - - - - (10,000)
-
Net income - - -
- - 328
Balances, December 31, 1995 400,000 $ 4,000
10,000,000 $ 10,000 $2,476,000 $ 328
</TABLE>
See notes to consolidated financial statements
<TABLE>
JJFN SERVICES, INC.
(formerly J & J FINANCIAL SERVICES, INC.)
AND SUBSIDIARY
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
For the period November 2, 1995 (date of incorporation)
through December 31, 1995
<S> <C>
Cash flows from operating activities:
Net income $
328
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 7,192
Rental revenue paid to related party (40,323)
Changes in assets and liabilities:
Increase in accounts payable and accrued expenses
28,272
Increase in unearned rental revenue
19,333
Net adjustments
14,474
Net cash provided by operating activities
14,802
Cash flows from financing activities:
Advances from stockholders 62,500
Deferred financing costs
(15,200)
Net cash provided by financing activities
47,300
Net increase in cash 62,102
Cash at beginning of period -
Cash at end of period $ 62,102
</TABLE>
See notes to consolidated financial statements
<TABLE>
JJFN SERVICES, INC.
(formerly J & J FINANCIAL SERVICES, INC.)
AND SUBSIDIARY
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
For the period November 2, 1995 (date of incorporation)
through December 31, 1995
Supplemental schedules of non-cash investing and financing activities:
During the period ended December 31, 1995, the Company acquired model
homes at a cost of $1,937,980. Such purchases were financed as follows:
<S> <C>
Model homes acquired $ 1,937,980
Funds deposited into escrow by stockholders (1,933,280)
Accounts payable (4,700)
Capital expenditures $ -
During the period ended December 31, 1995, the Company issued common and
preferred stock as follows:
Common stock issued $ 1,500,000
Preferred stock issued 1,000,000
Consideration received:
Marketable securities received (1,500,000)
Funds deposited into escrow in connection
with acquisition of model homes (1,000,000)
Proceeds from issuance of common
and preferred stock $ -
</TABLE>
JJFN SERVICES, INC.
(formerly J & J FINANCIAL SERVICES, INC.)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the period November 2, 1995 (date of incorporation)
through December 31, 1995
1. Summary of significant accounting policies
This summary of significant accounting policies of JJFN Services, Inc.
(formerly J & J Financial Services, Inc.) and subsidiary (hereinafter the
"Company") is presented to assist in understanding the consolidated financial
statements. The consolidated financial statements and notes are
representations of the Company's management, which is responsible for their
integrity and objectivity. These accounting policies conform to generally
accepted accounting principles and have been consistently applied in the
preparation of the consolidated financial statements.
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 disclosure of
contingent assets and liabilities at the date of financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Principles of consolidation
The accompanying consolidated financial statements include the accounts of
JJFN Services, Inc. for the period November 2, 1995 (date of incorporation)
through December 31, 1995, and of its wholly-owned subsidiary, Priority
Financial, Inc. ("PFI") for the period from the date of incorporation
(November 21, 1995) through December 31, 1995.
History and business activity
JJFN Services, Inc. is engaged in the purchase and leasing of model homes and
accounts receivable factoring and financing. Through December 31, 1995, the
Company had purchased 13 model homes from subsidiaries of K. Hovnanian
Enterprises, Inc. ("Hovnanian") a nationally known home builder and real
estate developer. Concurrent therewith, the Company entered into
arrangements to lease back the units to Hovnanian under operating lease
agreements.
Concentration of credit risk
To date, all of the model homes that the Company has purchased are located in
Florida. All such homes are leased to a single lessee (Hovnanian). See Notes
3 and 7.
Depreciation
Model homes on lease are carried at cost. Depreciation is provided on the
straight-line method over an estimated useful life of 30 years. Cost includes
$386,656 of cost allocated to land.
Maintenance, repairs and renewals which neither materially add to the value of
the homes nor appreciable prolong their lives are charged to expense as
incurred. Gains or losses or disposition of model homes are included in
income.
1. Summary of significant accounting policies (continued)
Accounting standards change
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" ( "SFAS 121")
which is effective for fiscal years beginning after December 15, 1995. The
Company will be required to adopt SFAS 121 for the fiscal year beginning July
1, 1996. However, based on a preliminary evaluation of the requirements of
SFAS 121, management does not expect any material impact on the Company's
consolidated financial position. SFAS 121 provides additional guidance on
when long-lived assets should be reviewed for possible impairment, how
impairment losses should be measured and when such losses should be
recognized. In addition to long- lived assets, SFAS 121 amended the
accounting standards for valuing real estate assets to the lower of cost or
fair value less cost to sell (for certain assets the lower of cost or fair
value) from the lower of cost or net realizable value.
Under SFAS 121, real estate assets are to be reviewed for possible impairment
whenever events or circumstances indicate the carrying amount of an asset may
not be recoverable such as a significant decrease in market value, a
significant adverse change in legal factors or business climate, a
significant change in intended use, an accumulation of costs significantly in
excess of the amount originally expected, or current period losses combined
with a history of losses or a forecast of continuing losses. If indications
are that the carrying amount of an asset may not be recoverable, SFAS 121
requires an estimate of the future undiscounted cash flows expected to result
from the use of the asset and its eventual disposition. If these cash flows
are less than the carrying amount of the asset, an impairment loss must be
recognized to write down the asset to its estimated fair value less cost to
sell. While the determination of whether a property is impaired under the
new accounting standard is similar to previous accounting standards, the
amount of a write-down under SFAS 121 could be greater than under the
previous standards. Fair value differs from net realizable value in that,
among other things, fair value assumes a cash sale under current market
conditions, considers a potential purchaser's requirement for future profit
and discounts the timing of estimated future cash receipts, whereas net
realizable value is the price obtainable in the future based on the current
intended use of the land, net of disposal and holding costs, without provision
for future profits or discounting future cash flow to present value.
2. Marketable securities
Marketable securities, which consist of equity securities available-for-sale,
are shown in the balance sheet at fair value. The cost of securities sold is
determined using the specific identification method.
On November 30, 1995, the Company acquired 300,000 shares of Antares Resources
Corporation ("Antares"), a publicly held company whose stock is traded on the
NASDAQ Small-Cap Stock Market. At December 31, 1995, the fair value of the
securities approximates cost. While the listed bid price of the stock is
$61/2 per share at December 31, 1995, the market value is discounted to
reflect an estimated block trading price. The securities are used to secure
stockholder loans (Note 4).
The Company's investment represents approximately 4% of the outstanding common
stock of Antares. Antares owns all of the Company's convertible preferred
stock (Note 5).
Two officers and directors of the Company are also directors of Antares. Two
other directors of the Company are also directors of Antares.
3. Leasing arrangements
The Company has entered into a series of thirteen operating leases with
Hovnanian (the "Lessee") (Note 1) which provide for monthly lease payments
equal to 1% of the Company's purchase price of each premises. Under the
terms of the lease agreements, all expenses arising during the term of the
lease shall be paid by the Lessee including utilities, homeowner association
assessments, maintenance, insurance and real estate taxes. Monthly revenue
from leases existing at December 31, 1995 was $19,333.
The leases terminate only upon the sale of the model homes. In connection
therewith, the Company has agreed to enter into an exclusive listing agreement
with a brokerage affiliate of the Lessee. Such agreement specifies that the
commission to the affiliate shall not exceed 1.25% plus a 3% fee to be paid
to another broker, if any, who produces a purchaser.
The net profit from the sale of any property (excluding closing costs
associated with mortgage financing and commissions) shall be equally divided
between the Company and the Lessee. Should the sale price be less than the
purchase price paid by the Company, such deficiency shall be funded from a
guaranty fund, described in the following paragraph. If the fund is
depleted, the property cannot be sold until such time that it can be sold
without a deficit.
The Lessee has provided a fund to be held in escrow as an additional guaranty
to the Company to secure the lease payments and the recovery of the purchase
price and all related costs. Such fund shall be equal to 5% of the Company's
purchase price including related costs. The lessee has provided a surety
bond to secure its performance.
During November 1995, the Company entered into a contract to sell one of its
model homes for $170,000. The property was purchased at a cost of $163,641.
Such sale is expected to close in March 1996.
4. Notes payable
Notes payable represent advances made to the Company by various stockholders.
The notes are payable on demand, bear interest at 9% and are secured by
marketable securities (Note 2).
Interest on notes payable totaled $10,625 for the initial period ended December
31, 1995.
5. Stockholders' equity
Convertible preferred stock
On November 2, 1995, the Company issued 400,000 shares of its 6% participating
preferred stock. Each share is convertible into one share of the Company's
common stock commencing in December 1996. The preferred stockholders are
entitled to 50% participation in the rental revenue stream up to $60,000 per
year. The preferred stock is redeemable at the option of the Company, on the
basis of 105% within the first six-months, 104% within the second six- months,
103% within the third six-months, 102% within the fourth six months, 101%
within the fifth six-month period and 100% thereafter.
The Board of Directors declared a regular quarterly distribution of $15,000
payable on February 1, 1996. Through December, $10,000 was accrued as a
preferred distribution and is to be paid out of additional paid-in capital
due to the lack of available retained earnings.
6. Commitments
Merger agreement
On December 29, 1995, the Company executed a letter of intent to merge with
JJFN Holdings, Inc. ("JJFN"). JJFN is a publicly-held company which was
inactive until it commenced operations as a construction contractor through a
wholly-owned subsidiary on December 29, 1995. Under the terms of the
proposed agreement, Priority Financial, Inc. ("PFI"), a wholly owned
subsidiary of the Company, shall be merged into JJFN which shall be the
surviving subsidiary corporation. On the effective date of the merger, each
non-dissenting JJFN shareholder shall be entitled to receive one share of the
Company's common stock for each share of JJFN's common stock. The preferred
stockholders of JJFN shall be entitled to receive one share of the Company's
common stock for each 50 shares of preferred stock owned. On the effective
date of the merger, the Company will also assume JJFN's rights and
obligations under the stock option and consulting agreements with Tarlton
Company, Ltd. ("Tarlton") as described below, as well as all other obligations
of JJFN.
The merger agreement also provides that the Company shall file a registration
statement with the Securities and Exchange Commission in order to register all
shares issued or to be issued to JJFN shareholders and those shares issued
pursuant to the Tarlton agreements. The merger agreement is subject to the
registration statement becoming effective.
Two officers and directors of the Company are also officers and directors of
JJFN. Three other directors of the Company are also directors of JJFN
Stock option and consulting agreements to be assumed
On December 8, 1995, JJFN entered into an Offshore Securities Subscription
Agreement which gives Tarlton the option to purchase up to 5,000,000 shares of
JJFN's common stock at $1.50 per share. The purchase price is based on the
estimated market value of JJFN's common stock as of the date of the option
agreement. The agreement is assignable to JJFN Services, Inc. (formerly J &
J Financial Services, Inc.), under the terms of the Company's proposed
merger. In the event of the merger, the options issued shall become an
obligation of the Company.
Concurrent with the above agreement, JJFN entered into a consulting agreement
with Tarlton whereby Tarlton would provide a variety of consulting and
financial advisory services. In return, Tarlton will receive a placement fee
of up to 1,250,000 shares of JJFN's common stock, of which 550,000 shares are
payable January 1996, and 140,000 shares payable each succeeding month. This
agreement is also assignable to the Company in the event of a merger.
In the event that the proposed merger takes place and Tarlton exercises its
option to purchase the full 5,000,000 shares and receives the placement fee
of 1,250,000 shares, Tarlton would own approximately 34% of the outstanding
common stock of the consolidated entity. Such stock could be freely traded
with the use of a prospectus. Shares issued as a placement fee will be
treated as a reduction of the per share price of the stock purchased under the
option agreement. The exercise of the option agreement is not expected to
have any impact on the management or operations of the Company other than
providing additional capital and liquidity.
7. Subsequent events
On January 24, 1996, the Company purchased six additional model homes from
Hovnanian and entered into leases under the same terms as described in Note 3.
The total acquisition price of the six homes was $1,320,549. Monthly
revenue from such leases will be $13,205.
7. Subsequent events (continued)
On January 24, 1996, the Company closed on a $2,100,000 mortgage loan. The
loan bears interest at 1% over prime with interest only payable monthly. The
loan balance is due and p payable on February 1, 1998. The loan is secured by
the Company's real estate and by the leases described in Note 3 and in the
previous paragraph.
Pursuant to a resolution by the Board of Directors, the certificate of
incorporation was amended to change the Company's name to JJFN Services, Inc.
The change was effective February 9, 1996.
JJFN HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Report F-2
Consolidated balance sheet as of December 31, 1995 F-3
Consolidated statement of operations for the six-month
period ended December 31, 1995 F-4
Consolidated statement of stockholders' equity (deficit) for the
six-month period ended December 31, 1995 F-5
Consolidated statement of cash flows for the six-month
period ended December 31, 1995 F-6 - F-7
Notes to consolidated financial statements F-8 - F-13
INDEPENDENT AUDITORS' REPORT
The Board of Directors
JJFN Holdings, Inc. and subsidiary
Garden City, New York
We have audited the accompanying consolidated balance sheet of JJFN Holdings,
Inc. and subsidiary as of December 31, 1995, and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for
the six-month period then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We 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 financial statement is free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement.
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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of JJFN Holdings,
Inc. and subsidiary as of December 31, 1995, and the results of its
consolidated operations and cash flows for the six- month period then ended in
conformity with generally accepted accounting principles.
January 19, 1996
<TABLE>
JJFN HOLDINGS, INC. AND SUBSIDIARY
<CAPTION>
CONSOLIDATED BALANCE SHEET
December 31, 1995
ASSETS
<S> <C>
Current assets:
Cash $ 451,738
Marketable securities (Notes 3 and 8) 500,000
Prepaid expenses 50
Total current assets 951,788
Construction equipment (Notes 2, 5 and 6) 188,350
Other assets:
Customer contacts (Note 2) 58,038
Restrictive covenants (Note 2) 280,000
Organizational costs, net of amortization of $4 280
Deferred financing costs, net of amortization of $891 8,109
Deposits 15,600
362,027
$1,502,165
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit (Note 4) $ 144,013
Note payable (Note 5) 350,000
Current portion of long-term debt (Note 6) 10,582
Accounts payable and accrued expenses (Note 7) 75,534
Stockholder loans (Note 8) 527,500
Total current liabilities 1,107,629
Long-term debt, net of current maturities (Note 6) 15,856
Stockholders' equity (Notes 9 and 11):
Preferred stock, $.01 par value
25,000,000 shares authorized,
904,585 shares issued and outstanding 9,046
Common stock, $.001 par value
50,000,000 shares authorized
1,066,896 shares issued and outstanding 1,067
Additional paid-in capital 5,231,583
Accumulated deficit (4,863,016)
378,680
$ 1,502,165
</TABLE>
See notes to consolidated financial statements
<TABLE>
JJFN HOLDINGS, INC. AND SUBSIDIARY
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS
Six-month period ended December 31, 1995
<S> <C>
Revenues $ -
General and administrative expenses:
Consulting fees 140,000
Other 43,557
Loss from operations (183,557)
Interest and financing costs 24,655
Net loss $ (208,212)
Net loss per common share $ (.50)
</TABLE>
See notes to consolidated financial statements
<TABLE>
JJFN HOLDINGS, INC. AND SUBSIDIARY
<CAPTION>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
Six-month period ended December 31, 1995
<S> <C> <C> <C> <C>
<C> <C>
Additional
Preferred stock Common Stock
Paid-In Accumulated
Shares Amount Shares Amount
Capital Deficit
Balances, July 1, 1995 904,585 $2,261,463 6,844,800
$68,448 $1,946,785 $ (4,654,804)
One-for-fifty reverse stock
split-November 1995 - - (6,707,904) (67,079)
67,079 -
Decrease in par value of
common stock from $.01 to
$.001, November 1995 - - - (1,232) 1,232 -
Decrease in par value of
preferred stock from $2.50 to
$.01, November 1995 - (2,252,417) - -
2,252,417 -
Line of credit
converted to stock - - 400,000 400 199,600
-
Stock options issued - - - - 125,000 -
Stock issued for consulting
services - - 280,000 280 139,720 -
Stock issued in asset
acquisition -
December 1995 - - 250,000 250 499,750 -
Net loss - - - -
- - (208,212)
Balances, December 31, 1995 904,585 $ 9,046
1,066,896 $ 1,067 $5,231,583 $(4,863,016)
</TABLE>
See notes to consolidated financial statements
<TABLE>
JJFN HOLDINGS, INC. AND SUBSIDIARY
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
Six-month period ended December 31, 1995
<S> <C>
Net loss $(208,212)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization 895
Stock issued for consulting services
140,000
Changes in assets and liabilities
net of effects from asset acquisition:
Increase in organization costs
(284)
Increase in accounts payable
2,000
Increase in accrued interest and financing costs
24,655
Increase in accrued expenses
15,284
Total adjustments
182,550
Net cash used in operating activities
(25,662)
Cash flows from investing activities:
Cash acquired in asset acquisition
339,900
Net cash provided by investing activities
339,900
Cash flows from financing activities:
Proceeds from stockholder loans
12,500
Proceeds from issuance of stock options
125,000
Net cash provided by financing activities
137,500
Net increase in cash 451,738
Cash at beginning of period -
Cash at end of period $451,738
</TABLE>
See notes to consolidated financial statements
<TABLE>
JJFN HOLDINGS, INC. AND SUBSIDIARY
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
Six-month period ended December 31, 1995
Supplemental disclosures of cash flow information:
Interest and finance charges paid $500
Supplemental schedules of non-cash investing and financing activities:
During the six-month period ended December 31, 1995, the Company purchased
$500,000 in marketable securities from a stockholder in consideration of a note
payable to the stockholder for the same amount.
During the six-month period ended December 31, 1995, the Company acquired
assets as described in Note 2, in exchange for common stock and debt assumed
as follows:
<S> <C>
Assets acquired $ 876,438
Consideration paid in stock and assumed debt
(876,438)
Acquisition costs $ -
During the six-month period ended December 31, 1995, the Company issued
common stock and options as follows:
Common stock issued $ 965,000
Line of credit converted to stock
(200,000)
Consulting fees paid in stock
(140,000)
Stock issued in asset acquisition
(500,000)
Proceeds from issuance of options $
125,000
</TABLE>
See notes to consolidated financial statements
JJFN HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Six-month period ended December 31, 1995
1. Summary of significant accounting policies
This summary of significant accounting policies of JJFN Holdings, Inc.(formerly
J.W.Gant Financial, Inc.) (hereinafter the "Company") is presented to assist in
understanding the consolidated financial statements. The consolidated
financial statements and notes are representations of the Company's management,
which is responsible for their integrity and objectivity. These accounting
policies conform to generally accepted accounting principles and have been
consistently applied in the preparation of the consolidated financial
statements.
Principles of consolidation
The accompanying consolidated financial statements include the accounts of
JJFN Holdings, Inc. for the six-month period ended December 31, 1995, and of
its wholly-owned subsidiary, Iron Eagle Contracting and Mechanical, Inc.
('Iron Eagle") for the period from the date of acquisition (December 29, 1995)
through December 31, 1995. On December 29, 1995, Iron Eagle acquired certain
tangible and intangible assets as described in Note 2.
History and business activity
The Company was organized on June 26, 1987 as a Colorado holding company to
purchase J.W. Gant & Associates, Inc. ("Associates") which became a wholly-
owned subsidiary. Associates engaged in securities brokerage, trading,
investment banking and other financial services for customers nationwide. On
September 27, 1989, the Company became a Delaware corporation. The Company
had other wholly-owned subsidiaries which included, Louis Anthony Advisory
Group, Inc., a registered investment advisor, and J.D. Copperfield, Ltd., a
broker/dealer conducting a limited securities business. Associates ceased
operations as a broker/dealer on June 30, 1992.
On August 21, 1990, the Company entered into a $1,000,000 line of credit
agreement with Kent Capital, Ltd. ("Kent"), (formerly Action Capital Corp.)
which by its terms was initially scheduled to expire August 21, 1991. The line
of credit was secured by all the assets of J.W. Gant Financial, Inc.,
including the capital stock of its subsidiaries. The Company paid a 3%
commitment fee and 16% interest on any amounts borrowed on the line. The
agreement also granted Kent the right to purchase from the Company up to 5% of
all underwriters warrants that the Company had the right to acquire in
connection with underwriting of public securities other than the securities of
Kent or any of its affiliates.
On July 29, 1991, the line of credit agreement was amended in order to extend
the agreement for an additional year to August 21, 1992. A second amendment on
July 29, 1991 modified the termination date to August 31, 1992, and called for
a $7,500 loan origination fee payable monthly through August 31, 1992.
Effective August 27, 1991, the Company entered into a $250,000 line of credit
agreement with Damill Capital Corp.("Damill") (Note 2), a corporation owned by
a principal stockholder of Kent.
1. Summary of significant accounting policies (continued)
History and business activity (continued)
During June 1992, the Company defaulted on its credit facilities. On July 22,
1992, in accordance with the Loan, Pledge and Security Agreements, the Company
transferred all of its assets, fixed, real, tangible and intangible, including
but not limited to all of the capital stock owned by the Company in wholly
owned subsidiaries to Kent in full satisfaction of amounts due to Kent.
Accordingly, the Company ceased all business activities.
Effective November 28, 1995, the Company amended its certificate of
incorporation to reflect the change in the corporate name to JJFN Holdings,
Inc. JJFN Holdings, Inc. is a publicly held company.
Effective with the asset acquisition described in Note 2, the Company acquired
a wholly-owned subsidiary, Iron Eagle. During 1996, Iron Eagle commenced
operations as a construction contractor engaged in pipe work including gas and
water mains as well as steel installation. On December 29, 1995, the Company
entered into a merger agreement with J&J Financial Services, Inc. (Note 11).
J&J Financial Services, Inc. was incorporated on November 2, 1995 and is
engaged in the purchase and leasing of model homes.
Concentration of credit risk
At December 31, 1995, the Company had cash balances with two banks which were
in the aggregate $251,738 in excess of the $100,000 limit insured by the
Federal Deposit Insurance Corporation. The Company has not experienced any
losses in such accounts and believes it is not exposed to any significant
credit risk on cash.
Construction equipment
Construction equipment is carried at cost. Depreciation of construction
equipment is provided on accelerated and straight-line methods over an
estimated useful life of five years.
There was no depreciation expense for the six-month period ended December 31,
1995 since all construction equipment was acquired on the last business day of
the period.
Maintenance, repairs and renewals which neither materially add to the value of
the equipment nor appreciably prolong its life are charged to expense as
incurred. Gains or losses on dispositions of equipment are included in income.
Customer contacts and restrictive covenants
Customer contacts and restrictive covenants are carried at cost and were
acquired in the asset acquisition described in Note 2. Customer contacts are
being amortized on the straight-line method over the five-year life of the
employment agreements with two individuals (Note ll). Restrictive covenants
are being amortized on the straight-line method over the seven-year period
specified in the employment agreements. There was no amortization expense for
the six-month period ended December 31, 1995 since the assets were acquired on
the last business day of the period.
1. Summary of significant accounting policies (continued)
Loss per common share
Loss per common share is computed by dividing the net loss by the weighted
average number of shares of common stock outstanding during the period. For
the six-month period ended December 31, 1995, the weighted average number of
shares used in the calculation was 417,181. Primary loss per common share does
not include the effect of common stock equivalents because the effect of such
inclusion would be to reduce loss per common share. Fully diluted loss per
share amounts are not presented because they are anti-dilutive.
2. Asset acquisition
On December 29, 1995, the Company acquired the stock of Iron Eagle Contracting
and Mechanical, Inc. including construction equipment in exchange for 250,000
shares of its $.001 par value common stock and the assumption of $376,438 in
liabilities. The acquisition also included customer contacts and the
agreement of certain shareholders not to compete with the business. The
acquisition was accounted for as a purchase.
Since the acquisition was accounted for as a purchase, assets were recorded at
their fair market value as of the date of the acquisition as follows:
Cash $339,900
Construction equipment 188,350
Prepaid expenses 50
Deferred financing costs 9,500
Deposits 600
Customer contacts 58,038
Restrictive covenants 280,000
$876,438
The value of the consideration paid was as follows:
Common stock $500,000
Debt assumed 376,438
Purchase cost $876,438
3. Marketable securities
Marketable securities, which consist of equity securities available-for-sale,
are shown in the balance sheet at fair value. The cost of securities sold is
determined using the specific identification method.
On December 1, 1995, the Company acquired 100,000 shares of Antares Resources
Corporation ("Antares"), a publicly held company whose stock is traded on the
NASDAQ Small-Cap Stock Market. At December 31, 1995, the fair value of the
securities approximates cost. While the listed bid price of the stock is
$61/2 per share at December 31, 1995, the market value is discounted to
reflect an estimated block trading price. The securities are used to
partially secure stockholder loans ( Note 8).
The Company's investment represents less than 1.5% of the outstanding common
stock of Antares. Two officers and directors of the Company are also officers
and directors of Antares. Two other directors of the Company are also
directors of Antares.
4. Line of credit
Effective August 27, 1991, the Company entered into a $250,000 line of credit
agreement with Damill Capital Corp.("Damill"). The line of credit bears
interest at the rate of 16% per annum on the outstanding portion of principal
and a loan origination fee of 7.5% of the committed amount. Interest is
payable on a monthly basis. The line of credit is secured by all assets of
the Company, including stock in any subsidiaries.
On July 22, 1992, as an inducement for Damill not to interfere with the
transfer of assets to Kent (Note 1), the Company granted Damill the right to
convert the loan plus unpaid interest and origination fees into common stock
at a conversion price of $.01. However, Damill did not waive any of its
rights as a secured creditor. On November 30, 1995, Damill converted $150,000
of its line of credit receivable from the Company into 300,000 post-split
shares of common stock. On December 29, 1995, Damill converted $50,000 of its
line of credit receivable from the Company into 100,000 post-split shares of
common stock.
5. Note payable
On December 21, 1995, the Iron Eagle entered into a loan agreement which
provides for up to $600,000 of financing to be used for working capital and
asset acquisitions. The loan bears interest at 12% with interest only payable
monthly and the principal balance due on March 31, 1996. The note is secured
by construction equipment. In conjunction therewith, Iron Eagle entered into
consulting agreements (Note 11).
6. Long-term debt
Long-term debt consists of a 10% note payable in monthly installments of
$1,063, including interest, through April 1998. The note is secured by
construction equipment.
Maturities of long-term debt are as follows:
Year ending December 31, 1996 $ 10,582
Year ending December 31, 1997 11,692
Year ending December 31, 1998 4,164
$ 26,438
7. Accrued expenses
Accrued expenses principally consists of professional fees. Accrued expenses
also includes a $2,000 offer to a bankruptcy trustee to acquire all of the
assets of the Company's former subsidiary, J.W. Gant & Associates, Inc.
("Associates") (Note 1). In August 1994, Associates filed for protection
under Chapter 7 of the U.S. Bankruptcy Law. As part of its due diligence, it
was discovered that schedules of assets and liabilities filed by Associates
with the Bankruptcy Court included an intercompany receivable from the Company
in the amount of $2,140,000. No claims have been asserted against the
Company, nor have any steps been taken by the Trustee to pursue the matter.
Management of the Company disputes the existence of any liability to
Associates. The Company has made an offer to acquire all of the accounts
receivable of J.W. Gant & Associates, Inc. for $2,000. Management does not
believe that there is any significant value to the assets of Associates.
However, such assets would include the aforementioned intercompany receivable.
The Trustee has accepted the offer subject to the completion of statutory
requirements including notification of creditors. On December 8, 1995, the
Trustee filed a notice to creditors and all interested parties of its intent
to sell the accounts receivable to the Company. In the opinion of management
and legal counsel, the matter will be resolved without any adverse
consequences to the Company.
8. Stockholder loans
Stockholder loans consist of advances to the Company which bear interest at 9%.
The loans are partially secured by marketable securities (Note 3).
9. Stockholders' equity
Effective November 28, 1995, the Company amended its certificate of
incorporation to increase authorized common stock from 15,000,000 shares at
$.01 par value to 50,000,000 shares at $.001 par value and increased authorized
preferred stock from 8,000,000 shares at $2.50 par value to 25,000,000 shares
at $.01 par value.
Effective November 28, 1995, the Directors declared a 1-for-50 reverse split of
its common stock.
On December 8, 1995, the Company issued 280,000 shares of common stock as
compensation for consulting services. The consulting services were valued at
$140,000 based on the estimated market value of the Company's common stock at
the time the Company entered into the consulting agreement. Such services
include financial advisory activities, offshore fundraising and merger and
acquisition evaluation and analysis. An additional 7,450,000 shares are
reserved for issuance under stock option and consulting agreements (Note 11).
10. Income taxes
The Company has net operating losses available for carryforward to offset
future years' taxable income. The net operating losses expire in the years
ending June 30, 2005 through 2011.
Deferred income taxes arise from temporary differences in reporting assets and
liabilities for income tax and financial accounting purposes primarily
resulting from net operating losses. The components of the deferred tax asset
and the related tax effects of the temporary differences are as follows:
Non-current deferred income tax asset arising from net
operating loss carryforward $ 366,000
Valuation allowance (366,000)
Net deferred income tax asset $ -
11. Commitments
Stock option and consulting agreements
On December 8, 1995, the Company entered into an Offshore Securities
Subscription Agreement with Tarlton Company, Ltd. ("Tarlton"), a corporation
organized in the Cayman Islands. Under the terms of the agreement, Tarlton
paid $125,000 for the option to purchase up to 5,000,000 shares of the
Company's common stock at $1.50 per share. The agreement is assignable to J &
J Financial Services, Inc. ("J & J"), under the terms of the Company's
proposed merger (Note 1) and the options issued shall become an obligation of
J & J.
Concurrent with the above agreement, the Company entered into a consulting
agreement with Tarlton whereby Tarlton would provide a variety of consulting
and financial advisory services. In return, Tarlton will receive a placement
fee of up to 1,250,000 shares of the Company's common stock, of which 550,000
shares are payable January 1996, and 140,000 shares payable each succeeding
month.
11. Commitments (continued)
Merger agreement
On December 29, 1995, the Company executed an agreement to merge with J & J
Financial Services, Inc. ("J & J"). Under the terms of the proposed agreement,
Priority Financial, Inc. ("PFI"), a wholly owned subsidiary of J & J, shall be
merged into JJFN which shall be the surviving subsidiary corporation. On the
effective date of the merger, each non-dissenting JJFN shareholder shall be
entitled to receive one share of J & J's common stock for each share of the
Company's common stock. The preferred shareholders shall be entitled to
receive one share of J & J common stock for each 50 shares of preferred stock
owned. On the effective date of the merger, J & J will also assume the
Company's rights and obligations under the agreements with Tarlton above as
well as all other obligations of the Company.
The merger agreement also provides that J & J shall file a registration
statement with the Securities and Exchange Commission in order to register all
shares issued to JJFN shareholders and those shares issued pursuant to the
Tarlton agreements. The agreement is subject to the registration statement
becoming effective.
Two officers and directors of the Company are also officers and directors of J
& J. Three other directors of the Company are also directors of J & J.
In the event that the proposed merger takes place and Tarlton exercises its
option to purchase the full 5,000,000 shares and receives the placement fee of
1,250,000 shares, Tarlton would own approximately 34% of the outstanding
common stock of the consolidated entity. Such stock could be freely traded
with the use of a prospectus. Shares issued as a placement fee will be
treated as a reduction of the per share price of the stock purchased under the
option agreement. The exercise of the option agreement is not expected to
have any impact on the management or operations of the Company other than
providing additional capital and liquidity.
Consulting agreements
In conjunction with the loan agreement described in Note 5, Iron Eagle entered
into two consulting agreements. Each agreement is for a six-month period
commencing January 1996. Combined payments under the two agreements are
$1,000 per month. In addition, the agreements provide for a total of 1,200,000
warrants convertible into 1,200,000 shares of Iron Eagle's common stock at
$.001 per share. In conjunction with the asset acquisition agreement
described in Note 2, the Company assumed this obligation under the same terms.
Employment agreements
In connection with the business combination described in Note 3, Iron Eagle
entered into employment agreements with two individuals. Each agreement is for
a five-year period commencing January 1996 and calls for base compensation of
$75,000 with annual increases equal to the increase in the cost of living for
the New York metropolitan area plus 1%. In addition, each individual is
entitled to a performance bonus equal to 7.5% of pre-tax profit of Iron Eagle.
12. Subsequent events
On January 2, 1996, Iron Eagle purchased a tract of land in Ozone Park, Queens,
New York for $300,000. The Company is developing the land and building two-
family homes.
JJFN HOLDINGS, INC.
INDEX TO FINANCIAL STATEMENTS
Page
Independent Auditors' Report F-2
Balance sheet as of June 30, 1995 and 1994 F-3
Statement of operations and accumulate deficit
for the year ended June 30, 1995 and 1994 F-4
Statement of stockholders' deficit for the
years ended June 30, 1995 and 1994 F-5
Statement of cash flows for the years
ended June 30, 1995 and 1994 F-6
Notes to financial statements for the years ended June 30, 1995 and 1995
F-7 - F-10
INDEPENDENT AUDITORS' REPORT
The Board of Directors
JJFN Holdings, Inc. and subsidiary
Garden City, New York
We have audited the accompanying balances sheet of JJFN Holdings, Inc. and as
of June 30, 1995 and 1994, and the related consolidated statements of
operations, and accumulated deficit, stockholders' deficit, and cash flows for
the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We 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 financial statement is free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement.
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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of JJFN Holdings,
Inc. as of June 30, 1995, and 1994, and the results of its operations and
cash flows for the years then ended in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 5 to the
financial statements, the Company has suffered losses since 1990 and has a
net capital deficiency that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters
are also described in Note 5. The financial statement do not include any
adjustments that might result from the outcome of this uncertainty.
November 17, 1995 except for Note 6, as to which the date is November 30, 1995.
<TABLE>
JJFN HOLDINGS, INC.
(formerly J.W. GANT FINANCIAL, INC.)
<CAPTION>
BALANCE SHEETS
ASSETS
<S> <C> <C>
June 30,
1995 1994
Current Assets
Cash $ - $ -
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Line of credit (Note 2) $ 323,608 $ 280,858
Accrued expenses (Note 3) 54,500 28,800
Total current liabilities 378,108 309,658
Stockholders' deficit (Notes 5 and 6):
Preferred stock, $.01 par value,
25,000,000 shares authorized,
904,585 shares issued and outstanding 9,046
9,046
Common stock, $.001 par value
50,000,000 shares authorized
136,896 shares issued and outstanding 137 137
Additional paid-in-capital 4,267,513 4,267,513
Accumulated deficit (4,654,804) (4,586,354)
(378,108) (309,658)
$ - $ -
</TABLE>
See notes to financial statements
<TABLE>
JJFN HOLDINGS, INC.
(formerly J.W. GANT FINANCIAL, INC.)
<CAPTION>
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
Years ended June 30,
1995 1994
<S> <C> <C>
Revenues $ - $ -
General and administrative expenses 25,700 26,800
Interest and financing costs 42,750 42,750
Net loss (68,450) (69,550)
Accumulated deficit, beginning of year 4,586,354 4,516,804
Accumulated deficit, end of year $4,654,804 $4,586,354
Net loss per common share $ (.50) $ (.51)
</TABLE>
See notes to financial statements
<TABLE>
JJFN HOLDINGS, INC.
(formerly of J.W. GANT FINANCIAL, INC.)
<CAPTION>
STATEMENTS OF STOCKHOLDERS DEFICIT
Years ended June 30, 1995 and 1994
<S> <C> <C> <C> <C> <C> <C>
Additional
Preferred Stock Common Stock Paid-In
Accumulated
Shares Amount Shares Amount Capital
deficit
Balances, July 1993 904,585 $ 9,046 136,896 $ 137 $4,267,513
$(4,516,804)
Net loss - - - - -
(69,550)
Balances, June 30, 1994 904,585 9,046 136,896 137 4,267,513
(4,586,354)
Net loss - - - - -
(68,450)
Balance June 30, 1995 904,585 $9,046 136,896 $137 $4,267,513
$(4,654,804)
</TABLE>
<TABLE>
JJFN HOLDINGS, INC.
(formerly J.W. Gant Financial, Inc)
<CAPTION>
STATEMENTS OF CASH FLOWS
Years ended June 30,
1995 1994
<S> <C> <C>
Net loss $(68,450) $69,550)
Adjustments to reconcile net loss to cash
used in operating activities:
Changes in assets and liabilities:
Interest in accrued interest and financing costs 42,750
42,750
Increase in accrued expenses
25,700 26,800
Total adjustments 68,450
69,550
Net cash used in operating activities -
-
Cash flows from investing activities -
-
Cash flows from financing activities -
-
Net change in cash -
- -
Cash at beginning of year -
- -
Cash at end of year $ -
$ -
</TABLE>
JJFN HOLDINGS, INC.
(formerly J.W. Gant Financial, Inc.)
NOTES TO FINANCIAL STATEMENTS
Years ended June 30, 1995 and 1994
1. Summary of significant accounting policies
This summary of significant accounting policies of JJFN Holdings, Inc.
(formerly J.W. Gant Financial, Inc.) (hereinafter the "Company") is presented
to assist in understanding the financial statements. The financial
statements and notes are representation of the Company's management, which is
responsible for their integrity and objectivity. These accounting policies
conform to generally accepted accounting principles and have been consistently
applied in the preparation of the financial statements.
History and business activity
The Company was organized on June 26, 1987 as a Colorado holding company to
purchase JW. Gant & Associates, Inc. ('Associates") which became a
wholly-owned subsidiary. Associates engaged in securities brokerage, trading,
investment banking and other financial services for customers nationwide. On
September 27, 1989, the Company became a Delaware corporation. The Company
had other wholly- owned subsidiaries which included, Louis Anthony Advisory
Group, Inc., a registered investment advisor, and J.D. Cooperfield, Ltd, a
broker/dealer conducting a limited securities business. Associates ceased
operations as a broker/dealer on June 30, 1992.
On August 21, 1990, the company entered into a $1,000,000 line of credit
agreement with Kent capital, Ltd. ('Kent"), (formerly Action Capital Corp.)
which by its terms was initially schedule to expire August 21, 1991. The
line of credit was secured by all the assets of J.W. Gant Financial, Inc.,
including the capital stock of its subsidiaries. The Company paid a 3%
commitment fee and 16% interest on any amounts borrowed on the line. The
agreement also granted Kent the right to purchase from the Company up to 5% of
all underwriters warrants that the Company had the right to acquire in
connection with underwriting of public securities other than the securities of
Kent or any of its affiliates.
On July 29 ,1991, the line of credit agreement was amended in order to extend
the agreement for an additional year to August 21, 1992. A second amendment
on July 29, 1991, modified the termination date to August 31, 1992, and call
for a $7,500 loan origination fee payable monthly through August 31, 1992.
Effective August 27, 1991, the Company entered into a $250,000 line of credit
agreement with Damill Capital Corp. ("Damill") (Note 2), a corporation owned
by a principal stockholder of Kent.
During June1992, the Company defaulted on its credit faciliti4es. On July 22,
1992, in accordance with the Loan, Pledge and Security Agreements, the Company
transferred all of its assets fixed, real, tangible and intangible, including
but not limited to all of the capital stock owned by the Company in wholly
owned subsidiaries to Kent in full satisfaction of amounts due to Kent.
Accordingly, the Company cease all business activities.
History and business activity (continued)
Effective November 28, 1995, the Company amended its certificate of
incorporation to reflect the change in the corporate name to JJFN Holdings,
Inc. JJFN Holdings, Inc. is a publicly held company.
The Company intends to seek potential business ventures which, in the opinion
of management, will provide a profit to the Company. Such involvement may be
n the form of an acquisition of an existing business (See Note 6).
During the years ended June 30, 1995 and 1994, the Company had no cash
transactions.
Loss per common share.
Loss per common share is computed by dividing the net loss by the weighted
average number of shares of common stock outstanding. For the years ended
June 30, 1995 and 1994, there were 136,896 shares of common stock equivalents
outstanding.
2. Line of credit
Effective August 27, 1991, the Company entered into a $250,000 line of credit
agreement with Damill Capital Corp. ("Damill"). The line of credit bears
interest at the rate of 16% per annum on the outstanding portion of principal
and a loan origination fee of 7.5% of the committed amount. Interest is
payable on a monthly basis. The line of credit is secured by all assets of
J.W. Gant Financial, Inc., including stock in subsidiaries of the Company,
subject to the prior security interest of Kent Capital, Ltd. described in Note
1.
On July 22, 1992, as an inducement for Damill not to interfere with the
transfer of assets to Kent (Note 1), the Company granted Damill the right to
convert the loan plus unpaid interest and origination fees into common stock
at a conversion price of $.01. However, Damill did not waive any of its
rights as a secured creditor. Effective November 195, a substantial portion
of the amount due was converted to common stock (Note 6).
The Components of the line of credit liability are as follows:
<TABLE>
<S> <C> <C>
June 30,
1995 1994
Principal amount outstanding
$150,000 $150,000
Accrued interest 101,733
77,733
Accrued financing costs 71,875
53,125
$323,608 $280,858
</TABLE>
3. Accrued expenses
Accrued expenses principally consists of professional fees. Accrued expenses
also includes a $2,000 offer to a bankruptcy trustee to acquire all of the
assets of the Company' former subsidiary, J.W. Gant & Associates, Inc.
("Associates") (Note 1). I August 1994, Associates filed for protection
under Chapter 7 of the U.S. Bankruptcy Law. As part of its due diligence, it
was discovered that schedules of assets and liabilities filed by Associates
with the Bankruptcy Court included an intercompany receivable from the Company
in the amount of @,140,000. No claims have been asserted against the
Company, nor have any steps been taken by the Trustee to pursue the matter.
Management of the Company disputes the existence of any liabilities t
Associates. The Company has made an offer to acquire all of the assets of
J.W. Gant & Associates, Inc. for $2,000. Management does not believe that
there is any significant value to the assets of associates. Such assets
would include the aforementioned intercompany receivable as well as
underwriter warrants and options. The Trustee has accepted the offer subject
to the completion of statutory requirements including notification of
creditors. In the opinion of management and legal counsel, the matter will be
resolved without any adverse consequences to the Company.
4. Income taxes
The Company has net operating losses available for carryforward to offset
future years' taxable income The net operating losses expire in the years
ending June 30, 2005 through 2010.
Deferred income taxes arise from temporary differences in reporting asset and
liabilities for income tax and financial accounting purposes primarily
resulting from net operating losses. The components of the deferred tax
asset and the related tax effects of the temporary differences at June 30,
1995 and 1994 are as follows:
June 30,
1995 1994
Non-current deferred income tax asset
arising from net operating loss carryfoward
$366,000 $356,000
Valuation allowance (366,000)
(356,000)
Net deferred income tax asset $ -
$ -
5. Going concern
The financial statements have been prepared assuming that the Company will
continue as a going concern. The Company has suffered losses resulting in a
net capital deficiency that raises substantial doubt about its ability to
continue as a going concern. The financial statements do not include any
adjustment that might result from the outcome of this uncertainty.
Management is seeking to acquire a business which will provide a profit to the
Company.
6. Subsequent events
Corporate name change
Effective November 28, 1995, the Company amended its certificate of
incorporation to reflect the changing the corporate name to JJFN Holdings, Inc.
Stockholders' equity
Effective November 28, 1995, the Company amended its certificate of
incorporation to increase authorized common stock from 15,000,000 shares at
$.01 par value to 50,000,000 shares at $.001 par value and increased authorized
preferred stock from 8,000,000 shares at $2.50 par value to 25,000,000 shares
at $.01 par value. The features of the preferred stock were unchanged other
than the elimination of the 8.75% non-cumulative dividend.
Effective November 28, 1995, the Directors declared a 1 for 50 reverse stock
split of its common and preferred stock. On November 30, 1995, Damill (Note
3) converted to $150,000 of its line of credit receivable from the Company
into 300,000 post-split shares of common stock.
All share and per share amounts have been retroactively restated to reflect the
change in par value, increase in authorized shares, and the reverse stock split.
Letter of intent
Effective November 29, 1995, the Company executed a letter of intent with J&J
Financial Services, Inc., which outlines the general terms of a plan of merger
of the two companies. J&J Financial Services, Inc. is engaged in the
purchase and leasing of model homes and accounts receivable factoring and
financing.
No dealer, sales person or other person has been authorized to give any
information or to make any representation not contained in this Prospectus in
connection with the sale of the Company's securities hereby. If given or made,
such information or representation must not relied upon as having been
authorized by the Company. This Prospectus does not constitute an offer to
sell or solicitation of an offer to purchase by any person in any jurisdiction
in which such offer would be unlawful. Neither the delivery of this
Prospectus nor any sale made hereunder shall under any circumstances create
any implication that the information contained herein is correct as f any time
subsequent to the date hereof.
Table of Contents
Summary Information. . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . .
The Merger . . . . . . . . . . . . . . .
Pro Forma Financial Information. . . . .
Selling Shareholders . . . . . . . . . .
Information Concerning the Company . . .
Information Concerning JJFN. . . . . . .
Transactions with Related Parties. . . .
Legal Matters. . . . . . . . . . . . . .
Experts. . . . . . . . . . . . . . . . .
Financial Statements . . . . . . . . . .
All dealers effecting transactions in the registered securities offered hereby,
whether or not participating in a distribution, may be required to deliver this
Prospectus. This delivery requirement is in addition to the obligation of
dealers to deliver a prospectus when acting as underwriters on behalf of the
Selling Shareholders.
JJFN SERVICES, INC.
7,450,000 SHARES OF COMMON STOCK
May 7, 1996
APPENDIX A
AGREEMENT AND PLAN OF MERGER
MERGER OF
PRIORITY FINANCIAL, INC.
a Delaware corporation
(a wholly owned subsidiary of J & J FINANCIAL SERVICES, INC.)
INTO
JJFN HOLDINGS, INC.
a Delaware corporation
effective as of December 29, 1995
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (hereinafter referred to as
the "Agreement"), is entered into as of December 29, 1995, by and among J & J
FINANCIAL SERVICES, INC., a Delaware corporation ("J&J"), PRIORITY FINANCIAL,
INC., a Delaware corporation ("PFI"), a wholly owned subsidiary of J&J and
JJFN HOLDINGS, INC., f/k/a J.W. GANT FINANCIAL, INC., a Delaware corporation
("JJFN").
Recitals
WHEREAS, J&J has formed a wholly-owned subsidiary corporation, PFI,
for the purposes of causing PFI to merger with and into JJFN, with the results
being that the surviving entity, JJFN, shall be a wholly owned subsidiary
company of J&J, and in connection therewith, the conversion of the
outstanding common and preferred stock of JJFN into shares of common voting
stock of J&J pursuant to the terms and conditions contained hereinbelow; and
WHEREAS, the Boards of Directors of J&J, PFI and JJFN deem it
advisable and in the best interests of such corporations and their respective
shareholders that the transaction proposed herein be consummated; and
WHEREAS, the Boards of Directors of the parties hereto desire to adopt
a plan of merger within the meaning of Section 368(a)(2)(E) of the Internal
Revenue Code of 1986, as amended.
Agreement
NOW, THEREFORE, on the stated premises and for and in
consideration of the mutual covenants and agreements hereinafter set forth and
the mutual benefits to the parties to be derived herefrom, the parties hereto
adopt the following Agreement and Plan of Merger and agree as follows:
ARTICLE I.
REPRESENTATIONS, COVENANTS AND WARRANTIES OF
J&J
As an inducement to, and to obtain the reliance of JJFN, J&J
and PFI (collectively sometimes referred to as J&J) represent and warrant as
follows:
Section 1.1 Organization. J&J and PFI are corporations duly
organized, validly existing, and in good standing under the laws of the state
of Delaware and have the corporate power and are duly authorized, qualified,
franchised and licensed under all applicable laws, regulations, ordinances
and orders of public authorities to own all of their properties and assets
and to carry on their business in all material respects as it is now being
conducted, including qualification to do business as a foreign corporation in
the states in which the character and location of the assets owned by it or
the nature of the business transacted by it requires qualification. Included
in the J&J Schedules (as hereinafter defined) are complete and correct copies
of the Certificate of Incorporation and bylaws of J&J and PFI as in effect on
the date hereof. The execution and delivery of this Agreement does not, and
the consummation of the transactions contemplated by this Agreement in
accordance with the terms hereof will not, violate any provision of either
J&J or PFI's Certificate of Incorporation or bylaws. J&J and PFI have taken
all action required by law, their respective Certificate of Incorporation,
bylaws or otherwise to authorize the execution and delivery of this Agreement.
J&J and PFI have full power, authority and legal right and has taken all
action required by law, their Certificate of Incorporation, bylaws and
otherwise to consummate the transactions herein contemplated.
Section 1.2 Capitalization. The authorized capitalization of
J&J consists of 50,000,000 shares of common stock, par value $.001 per share
and 25,000,000 shares of preferred stock, par value $.01 per share. The
authorized capital stock of PFI consists of 10,000,000 shares of common
stock, par value $0.01 per shares. As of the Closing Date (as hereinafter
defined) there will be 15,000,000 J&J common shares issued and outstanding and
400,000 J&J preferred shares issued and outstanding, each preferred share
convertible into one share of common stock and 100 shares of PFI capital stock
issued and outstanding. All issued and outstanding securities have been or
will be legally issued, fully paid and nonassessable and not issued in
violation of the preemptive or other rights of any person.
Section 1.3 Subsidiaries and Predecessor Corporations.
Except for PFI, which is wholly owned by J&J, J&J does not have any
subsidiaries and does not own, beneficially or of record, any shares of any
other corporation.
Section 1.4 Financial Statements.
Included in the J&J Schedules is a
consolidated unaudited balance sheet of J&J and its subsidiaries
(collectively, "J&J") as of November 30, 1995;
1. the J&J balance sheet presents fairly as of its
date the financial condition of J&J. J&J does not have, as of the date of
such balance sheet, except as noted and to the extent reflected or reserved
against therein, any liabilities or obligations (absolute or contingent)
which should be reflected in a balance sheet or the notes thereto, and all
assets reflected therein are properly reported and present fairly the value of
the assets of J&J, in accordance with generally accepted accounting
principles;
2. J&J has no liabilities with respect to the
payment of any federal, state, county, local or other taxes (including any
deficiencies, interest or penalties), except for taxes accrued but not yet
due and payable;
3. J&J has filed all state, federal and local
income tax returns required to be filed by it from inception to the date
hereof;
4. The books and records, financial and others,
of J&J are in all material respects complete and correct and have been
maintained in accordance with good business accounting practices; and
5. except as and to the extent disclosed in the
most recent J&J balance sheet and the J&J Schedules, J&J has no material
contingent liabilities, direct or indirect, matured or unmatured.
Section 1.5 Information. The information concerning J&J set
forth in this Agreement and in the J&J Schedules is complete and accurate in
all material respects and does not contain any untrue statement of a material
fact or omit to state a material fact required to make the statements made,
in light of the circumstances under which they were made, not misleading.
Section 1.6 Options or Warrants. Except as setforth in the
J&J schedules, there are no existing options, warrants, calls or commitments
of any character relating to the authorized and unissued J&J common or
preferred stock or options, warrants, calls or commitments, if any, to which
J&J is a party and by which it is bound.
Section 1.7 Absence of Certain Changes or Events. Except as
set forth in this Agreement or the J&J Schedules, since December 1, 1995:
(a) there has not been: (i) any material adverse
change in the business, operations, properties, assets or condition of J&J; or
(ii) any damage, destruction or loss to J&J (whether or not covered by
insurance) materially and adversely affecting the business, operations,
properties, assets or condition of J&J;
(b) J&J has not: (i) amended its Certificate of
Incorporation or bylaws; (ii) declared or made, or agreed to declare or make,
any payment of dividends or distributions of any assets of any kind
whatsoever to stockholders or purchased or redeemed or agreed to purchase or
redeem any of its capital stock; (iii) waived any rights of value which in the
aggregate are extraordinary or material considering the business of J&J; (iv)
made any material change in its method of management, operation or
accounting; (v) entered into any other material transaction; (vi) made any
accrual or arrangement for or payment of bonuses or special compensation of
any kind or any severance or termination pay to any present or former officer
or employee; (vii) increased the rate of compensation payable or to become
payable by it to any of its officers or directors or any of its employees
whose monthly compensation exceeds $5,000; or (viii) made any increase in any
profit sharing, bonus, deferred compensation, insurance, pension, retirement
or other employee benefit plan, payment or arrangement made to, for, or with
its officers, directors or employees.
(c) J&J has not: (i) granted or agreed to grant
any options, warrants or other rights for its stocks, bonds or other corporate
securities calling for the issuance thereof; (ii) borrowed or agreed to
borrow any funds or incurred or become subject to, any material obligation or
liability (absolute or contingent) except liabilities incurred in the ordinary
course of business; (iii) paid any material obligation or liability (absolute
or contingent) other than current liabilities reflected in or shown on the
most recent J&J balance sheet and current liabilities incurred since that
date in the ordinary course of business; (iv) sold or transferred, or agreed to
sell or transfer, any of its assets, properties or rights (except assets,
properties or rights not used or useful in its business which, in the
aggregate have a value of less than $10,000); (v) made or permitted any
amendment or termination of any contract, agreement or license to which it is a
party if such amendment or termination is material, considering the business
of J&J; or (vi) issued, delivered or agreed to issue or deliver any stock,
bonds or other corporate securities, including debentures (whether authorized
and unissued or held as treasury stock); and
(d) to the best knowledge of J&J, it has not
become subject to any law or regulation which materially and adversely affects,
or in the future may adversely affect, the business, operations, properties,
assets or condition of J&J.
Section 1.8 Title and Related Matters. J&J has good and
marketable title to and is the sole and exclusive owner of all of its
properties, inventory, interests in properties and assets, real and personal,
patents, copyrights, trademarks, service marks and tradenames (collectively,
the "Assets"), which are reflected in the most recent J&J balance sheet and
the J&J Schedules (except properties, interests in properties and assets sold
or otherwise disposed of since such date in the ordinary course of business),
free and clear of all liens, pledges, charges or encumbrances except: (a)
statutory liens or claims not yet delinquent; (b) such imperfections of title
and easements as do not and will not, materially detract from or interfere
with the present or proposed use of the properties subject thereto or
affected thereby or otherwise materially impair present business operations
on such properties; and (c) as described in the J&J Schedules. Except as set
forth in the J&J Schedules, J&J owns free and clear of any liens, claims,
encumbrances, royalty interests or other restrictions or limitations of any
nature whatsoever, any and all products it is currently manufacturing,
including the underlying technology and data, and all procedures, techniques,
marketing plans, business plans, methods of management or other information
utilized in connection with J&J's business. Except as set forth in the J&J
Schedules, no third party has any right to, and J&J has not received any
notice of infringement of or conflict with asserted rights of others with
respect to, any product, technology, data, trade secrets, know-how,
proprietary techniques, trademarks, service marks, trade names or copyrights
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would have a materially adverse affect on the business,
operations, financial conditions, income or business prospects of J&J or any
material portion of its properties, assets or rights.
Section 1.9 Litigation and Proceedings. To the best of J&J's
knowledge and belief, there are no actions, suits, proceedings or
investigations pending or threatened by or against J&J or affecting J&J or
its properties, at law or in equity, before any court or other governmental
agency or instrumentality, domestic or foreign or before any arbitrator of any
kind that would have a material adverse affect on the business, operations,
financial condition, income or business prospects of J&J. J&J does not have
any knowledge of any default on its part with respect to any judgment, order,
writ, injunction, decree, award, rule or regulation of any court, arbitrator
or governmental agency or instrumentality or of any circumstances which, after
reasonable investigation, would result in the discovery of such a default.
Section 1.10 Contracts. Except as included or described
in the J&J Schedules,
(a) There are no material contracts, agreements, franchises, license
agreements or other commitments to which J&J is a party or by which it or any
of its assets, products, technology or properties are bound;
(b) J&J is not a party to or bound by, and the
properties of J&J are not subject to, any contract, agreement, other
commitment or instrument; any charter or other corporate restriction; or any
judgment, order, writ, injunction, decree or award which materially and
adversely affects, or in the future may (as far as J&J can now foresee)
materially and adversely affect, the business, operations, properties, assets
or conditions of J&J;
(c) Except as included or described in the J&J
Schedules or reflected in the most recent J&J balance sheet, J&J is not a
party to any oral or written: (i) contract for the employment of any officer
or employee which is not terminable on thirty (30) days or less notice; (ii)
profit sharing, bonus, deferred compensation, stock option, severance pay,
pension benefit or retirement plan, agreement or arrangement covered by Title
IV of the Employee Retirement Income Security Act, as amended; (iii)
agreement, contract or indenture relating to the borrowing of money; (iv)
guaranty of any obligation, other than one on which J&J is a primary obligor,
for collection and other guaranties of obligations, which, in the aggregate do
not exceed more than one year or providing for payments in excess of $10,000
in the aggregate; (v) consulting or other similar contracts with an unexpired
term of more than one year or providing for payments in excess of $10,000 in
the aggregate; (vi) collective bargaining agreements; (vii) agreement with
any present or former officer or director of J&J; or (viii) contract, agreement
or other commitment involving payments by it of more than $10,000 in the
aggregate; and
(d) All contracts, agreements, franchises, license
agreements and other commitments to which J&J is a party or by which its
properties are bound and which are material to the operations of J&J taken as
a whole, are valid and enforceable by J&J in all respects, except as limited
by bankruptcy and insolvency laws and by other laws affecting the rights of
creditors generally.
Section 1.11 Material Contract Defaults. To the best of J&J's
knowledge and belief, J&J is not, except as disclosed in the J&J Schedules, in
default in any material respect under the terms of any outstanding contract,
agreement, lease or other commitment which is material to the business,
operations, properties, assets or condition of J&J, and there is no event of
default in any material respect under any such contract, agreement, lease or
other commitment in respect of which J&J has not taken adequate steps to
prevent such a default from occurring.
Section 1.12 No Conflict With Other Instruments. The
execution of this Agreement and the consummation of the transactions
contemplated by this Agreement will not result in the breach of any term or
provision of, or constitute an event of default under, any material
indenture, mortgage, deed of trust or other material contract, agreement or
instrument to which J&J is a party or to which any of its properties or
operations are subject.
Section 1.13 Governmental Authorizations. To the best of
J&J's knowledge, J&J has all licenses, franchises, permits or other
governmental authorizations that J&J is legally required to enable J&J to
conduct its business in all material respects as conducted on the date
hereof. Except for compliance with federal and state securities and
corporation laws, as hereinafter provided, no authorization, approval,
consent or order of, or registration, declaration or filing with, any court
or other governmental body is required in connection with the execution and
delivery by J&J of this Agreement and the consummation by J&J of the
transactions contemplated hereby.
Section 1.14 Compliance With Laws and Regulations. To the
best of J&J's knowledge, J&J has complied with all applicable statutes and
regulations of any federal, state or other governmental entity or agency
thereof, except to the extent that noncompliance would not materially and
adversely affect the business, operations, properties, assets or condition of
J&J or would not result in J&J's incurring any material liability.
Section 1.15 Insurance. All of the insurable properties of
J&J are insured for J&J's benefit in accordance with the insurance policies
disclosed in the J&J Schedules under valid and enforceable policies issued by
insurers of recognized responsibility. Such policy or policies containing
substantially equivalent coverage will be outstanding and in full force at the
Closing Date.
Section 1.16 Approval of Agreement. The board of directors
of J&J and PFI have authorized the execution and delivery of this Agreement by
J&J and PFI, as applicable, have approved the transactions contemplated
hereby, and approved the submission of this Agreement and the transactions
contemplated hereby to the stockholders of J&J for their approval with the
recommendation that the merger be accepted.
Section 1.17 Material Transactions or Affiliations. Except as
disclosed herein and in the J&J Schedules, there exists no material contract,
agreement or arrangement between J&J and any predecessor and any person who
was at the time of such contract, agreement or arrangement an officer,
director or person owning of record, or known by J&J to own beneficially, ten
percent (10%) or more of the issued and outstanding common stock of J&J and
which is to be performed in whole or in part after the date hereof. In all of
such transactions, the amount paid or received, whether in cash, in services
or in kind, has been during the full term thereof, and is required to be
during the unexpired portion of the term thereof, no less favorable to J&J
than terms available from otherwise unrelated parties in arms length
transactions. There are no commitments by J&J, whether written or oral, to
lend any funds to, borrow any money from or enter into any other material
transactions with, any such affiliated person.
Section 1.18 Labor Relations. J&J has never had a work
stoppage resulting from labor problems. To the best knowledge of J&J, no
union or other collective bargaining organization is organizing or attempting
to organize any employee of J&J.
Section 1.19 Previous Sales of Securities. Since inception,
J&J has sold shares of restricted common stock to investors in reliance upon
applicable exemptions from the registration requirements under federal and
state securities laws. All such sales (the "Sales") were made to a limited
number of investors in reliance on and in conformity with the exemptions from
registration under the Securities Act of 1933, as amended (the "Securities
Act"), and in reliance and in conformity with exemptions from registration in
all states where offers and/or sales occurred. With respect to the Sales:
(a) all prospective investors were provided, prior
to their investment, all material information with respect to the investment,
including any information necessary to make the materials provided not
misleading;
(b) neither J&J nor any person acting on its
behalf offered or sold securities of J&J by any form of general solicitation
or general advertising;
(c) immediately prior to making any sale, J&J
reasonably believed that each purchaser who was not an accredited investor,
either alone or with his purchaser representative, had such knowledge and
experience in financial and business matters that he was capable of
evaluating the merits and risks of the prospective investment; and
(d) the descriptive material and all other
information, whether written or oral, provided to prospective investors in the
Sales did not contain any 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 not misleading.
Section 1.20 J&J Schedules. At the Closing, J&J will deliver
to JJFN the following schedules, prior to or which are collectively referred
to as the "J&J Schedules" and which consist of separate schedules dated as of
the Closing Date or the date of delivery and instruments and data as of such
date, all certified by the chief executive officer of J&J as complete, true
and correct:
(a) a schedule containing complete and correct
copies of the Certificate of Incorporation and bylaws of J&J and PFI and all
minutes of shareholders' and directors' meetings of J&J and PFI held prior to
the Closing;
(b) a schedule including the consolidated
financial statements of J&J identified in Section 1.4(a);
(c) a schedule containing a list indicating the
name and address of each stockholder of J&J, together with the number of
shares owned by him, her or it;
(d) copies of all licenses, permits and other
governmental authorizations, requests or applications therefor, pursuant to
which J&J carries on or proposes to carry on its business (except those which
in the aggregate, are immaterial to the present or proposed business of J&J);
(e) a schedule containing a list of every debt,
mortgage, security interest, pledge, lien, encumbrance or claim of any nature
whatsoever in excess of $10,000 as may affect J&J, its properties or assets;
(f) a list of all executive employees of J&J,
including current compensation, with notation as to job description and
whether or not such employee is subject to a written contract;
(g) a schedule containing a description of all
real and personal property owned by J&J, together with a description of every
mortgage, deed of trust, pledge, lien, agreement, encumbrance, claim or
equity interest of any nature whatsoever in such real and personal property;
(h) a schedule containing true and correct copies
of all material contracts, leases, agreements or other instruments to which
J&J is a party or by which it or its properties are bound, specifically
including all contracts, agreements or arrangements referred to in Section
1.17; (i) a schedule showing the name and
location of each bank or other institution with which J&J has an account or
safety deposit box and the names of all persons authorized to draw thereon or
having access thereto;
(j) a schedule containing a list of all Patents,
Technical Information, copyrights, trademarks, service marks and trade names
or patents that are pertinent in any manner whatsoever to the development,
testing, registration, assembly, manufacture, use or sale of any products or
services used in the business of J&J and in which either J&J or J&J's
Stockholders has or previously had any direct or indirect, equitable or legal
right or interest and all pertinent documentation;
(k) a copy of all material documentation relating
to the sale of restricted securities by J&J to its present stockholders;
(l) a schedule listing the insurance policies
referred to in Section 1.15;
(m) a schedule setting forth a description of any
material adverse change in the business operations, property, inventory,
assets or condition of J&J since the most recent J&J consolidated balance
sheet required to be provided pursuant to Section 1.7 hereof;
(n) a schedule setting forth any other
information, together with any required copies of documents required to be
disclosed in the J&J Schedules by Sections 1.1 through 1.19, hereof.
J&J shall cause the J&J Schedules and the instruments and data delivered to
JJFN hereunder to be updated up to and including the Closing Date.
ARTICLE II.
REPRESENTATIONS, COVENANTS AND WARRANTIES
OF JJFN
As an inducement to, and to obtain the reliance of J&J, JJFN
represents and warrants as follows:
Section 2.1 Organization. JJFN is a corporation duly
organized, validly existing and in good standing under the laws of the state
of Delaware and has the corporate power and is duly authorized, qualified,
franchised and licensed under all applicable laws, regulations, ordinances
and orders of public authorities to own all of its properties and assets and
to carry on its business in all material respects as it are now being
conducted, including qualification to do business as a foreign corporation in
the states in which the character and location of the assets owned by it or
the nature of the business transacted by it requires qualification. Included
in the JJFN Schedules (as hereinafter defined) are complete and correct copies
of the Certificate of Incorporation, amended Certificate of Incorporation
(collectively, hereinafter referred to as the "Certificate of Incorporation")
and bylaws of JJFN as in effect on the date hereof. The execution and
delivery of this Agreement does not, and the consummation of the transactions
contemplated by this Agreement in accordance with the terms hereof will not,
violate any provision of JJFN's Certificate of Incorporation or bylaws. JJFN
has taken all action required by law, its Certificate of Incorporation, its
bylaws or otherwise to authorize the execution and delivery of this
Agreement. JJFN has full power, authority and legal right and has taken all
action required by law, its Certificate of Incorporation, bylaws or otherwise
to consummate the transactions herein contemplate.
Section 2.2 Capitalization. The authorized capitalization of
JJFN consists of 50,000,000 shares of common stock, par value $0.001 per share
and 25,000,000 shares of preferred stock, par value $0.01 per share. As of
the date hereof, there are 691,896 shares of common stock issued and
outstanding and 904,585 shares of preferred stock issued and outstanding.
All issued and outstanding shares are legally issued, fully paid and
nonassessable. Additionally, JJFN has issued options to purchase 7,450,000
shares of its common stock.
Section 2.3 Subsidiaries. JJFN does not have any subsidiaries
and does not own, beneficially or of record, any other corporation, except as
set forth in the JJFN Schedules.
Section 2.4 Financial Statements.
1. Included in the JJFN Schedules are the audited
consolidated balance sheet of JJFN and subsidiaries for the years ended June
30, 1994 and 1995 and the related statements of operations, stockholders'
equity and cash flows for the year then ended, which are included in the
schedules identified in Section 2.18(c). 2.
All such financial statements have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved. The JJFN balance sheets presents fairly as of their
respective dates the financial condition of JJFN. JJFN did not have as of the
date of any of such JJFN balance sheets, any liabilities or obligations
(absolute or contingent) which should be reflected in a balance sheet or the
notes thereto prepared in accordance with generally accepted accounting
principles, and all assets reflected therein are properly reported and present
fairly the value of the assets of JJFN, in accordance with generally accepted
accounting principles. The statements of operations, stockholders' equity and
changes in financial position reflect fairly the information required to be
set forth therein by generally accepted accounting principles;
3. The books and records, financial and others,
of JJFN are in all material respects complete and correct and have been
maintained in accordance with good business accounting practices;
4. JJFN has no liabilities with respect to the
payment of any federal, state, county, local or other taxes (including any
deficiencies, interest or penalties), except for taxes accrued but not yet
due and payable;
5. JJFN has filed all state, federal or local
income tax returns required to be filed by it from inception to the date
hereof; and
6. The most recent JJFN balance sheet and the
notes thereto, reflect that JJFN has: (i) no receivables; (ii) no accounts
payable; and (iii) no contingent liabilities, direct or indirect, matured or
unmatured.
Section 2.5 Information. The information concerning JJFN as
set forth in this Agreement and in the JJFN Schedules is complete and accurate
in all material respects and does not contain any untrue statement of a
material fact or omit to state a material fact required to make the
statements made, in light of the circumstances under which they were made, not
misleading.
Section 2.6 Absence of Certain Changes or Events. Except as
described herein or in the JJFN Schedules, since June 30, 1995:
(a) there has not been: (i) any material adverse
change in the business, operations, properties, assets or condition, of JJFN
or any damage, destruction or loss to JJFN (whether or not covered by
insurance) materially and adversely affecting the business, operations,
properties, assets or condition of JJFN;
(b) JJFN has not: (i) amended its Certificate of
Incorporation or bylaws; (ii) declared or made, or agreed to declare or make,
any payment of dividends or distributions of any assets of any kind
whatsoever to stockholders or purchased or redeemed or agreed to purchase or
redeem any of its capital stock; (iii) waived any rights of value which in the
aggregate are extraordinary or material considering the business of JJFN; (iv)
made any material change in its method of management, operation or accounting;
(v) entered into any other material transaction; (vi) made any accrual or
arrangement for or payment of bonuses or special compensation of any kind or
any severance or termination pay to any present or former officer or
employee; (vii) paid or agreed to pay any compensation payable or to become
payable by it to any of its officers or directors or any employee; or (viii)
made any payment to any profit sharing, bonus, deferred compensation,
insurance, pension, retirement or other employee benefit plan, payment or
arrangement made to, for, or with its officers, directors or employees.
(c) JJFN has not: (i) granted or agreed to grant
any options, warrants or other rights for its stocks, bonds or other corporate
securities calling for the issuance thereof; (ii) borrowed or agreed to
borrow any funds or incurred or become subject to, any material obligation or
liability (absolute or contingent) except liabilities incurred in the ordinary
course of business; (iii) paid any material obligation or liability (absolute
or contingent) other than current liabilities reflected in or shown on the
most recent JJFN balance sheet and current liabilities incurred since that
date in the ordinary course of business; (iv) sold or transferred, or agreed
to sell or transfer, any of its assets, properties or rights; (v) made or
permitted any amendment or termination of any contract, agreement or license
to which it is a party if such amendment or termination is material,
considering the business of JJFN; or (vi) issued, delivered or agreed to
issue or deliver any stock, bonds, or other corporate securities including
debentures (whether authorized and unissued or held as treasury stock); and
(d) to the best knowledge of JJFN, it has not
become subject to any law or regulation which materially and adversely
affects, or in the future may adversely affect, the business, operations,
properties, assets or condition of JJFN.
Section 2.7 Title and Related Matters. JJFN owns no real
property. JJFN has good title to all of the assets which are reflected in the
JJFN balance sheet, if any, or acquired after that date (except assets sold
or otherwise disposed of since such date in the ordinary course of business),
free and clear of all liens, pledges, charges or encumbrances except statutory
liens or claims not yet delinquent or as described in the JJFN Schedules.
Section 2.8 Litigation and Proceedings. Except as set forth
in the JJFN Schedules, there are no actions, suits or proceedings pending or,
to the best of JJFN's knowledge and belief, threatened by or against or
affecting JJFN, at law or in equity, before any court or other governmental
agency or instrumentality, domestic or foreign, or before any arbitrator of
any kind that would have a material adverse effect on the business,
operations, financial condition, income or business prospects of JJFN. JJFN
does not have any knowledge of any default on its part with respect to any
judgment, order, writ, injunction, decree, award, rule or regulation of any
court, arbitrator or governmental agency or instrumentality.
Section 2.9 Contracts. Except as included or described in the
JJFN Schedules,
(a) there are no material contracts, agreements, franchises, license
agreements, or other commitments to which JJFN is a party or by which it or
any of its properties are bound;
(b) JJFN is not a party to any contract,
agreement, commitment or instrument or subject to any charter or other
corporate restriction or any judgment, order, writ, injunction, decree or
award which materially and adversely affects, or in the future may (as far as
JJFN can now foresee) materially and adversely affect, the business,
operations, properties, assets or conditions of JJFN;
(c) Except for the options to purchase 7,450,000
shares of its common stock, JJFN is not a party to any material oral or
written: (i) contract for the employment of any officer or employee; (ii)
profit sharing, bonus, deferred compensation, stock option, severance pay,
pension, benefit or retirement plan, agreement or arrangement covered by Title
IV of the Employee Retirement Income Security Act, as amended; (iii)
agreement, contract or indenture relating to the borrowing of money; (iv)
guaranty of any obligation for the borrowing of money or otherwise, excluding
endorsements made for collection and other guaranties of obligations, which,
in the aggregate exceeds $1,000; (v) consulting or other similar contract with
an unexpired term of more than one year or providing for payments in excess
of $1,000 in the aggregate; (vi) collective bargaining agreement; (vii)
agreement with any present or former officer or director of JJFN; or (viii)
contract, agreement, or other commitment involving payments by it of more than
$1,000 in the aggregate; and
(d) All contracts, agreements, franchises, license
agreements and other commitments to which JJFN is a party or by which its
properties are bound and which are material to the operations of JJFN taken
as a whole, are valid and enforceable by JJFN in all respects, except as
limited by bankruptcy and insolvency laws and by other laws affecting the
rights of creditors generally.
Section 2.10 No Conflict With Other Instruments. The
execution of this Agreement and the consummation of the transactions
contemplated by this Agreement will not result in the breach of any term or
provision of, or constitute an event of default under, any material
indenture, mortgage, deed of trust or other material contract, agreement or
instrument to which JJFN is a party or to which any of its properties or
operations are subject.
Section 2.11 Material Contract Defaults. To the best of JJFN's
knowledge and belief, JJFN is, except as disclosed in the JJFN Schedules, not
in default in any material respect under the terms of any outstanding
contract, agreement, lease or other commitment which is material to the
business, operations, properties, assets or condition of JJFN, and there is no
event of default in any material respect under any such contract, agreement,
lease or other commitment in respect of which JJFN has not taken adequate
steps to prevent such a default from occurring.
Section 2.12 Governmental Authorizations. To the best of
JJFN's knowledge, JJFN has all licenses, franchises, permits and other
governmental authorizations that are legally required to enable it to conduct
its business operations in all material respects as conducted on the date
hereof. Except for compliance with federal and state securities or
corporation laws, no authorization, approval, consent or order of, or
registration, declaration or filing with, any court or other governmental
body is required in connection with the execution and delivery by JJFN of the
transactions contemplated hereby.
Section 2.13 Compliance With Laws and Regulations. To the
best of JJFN's knowledge and belief, JJFN has complied with all applicable
statutes and regulations of any federal, state or other governmental entity
or agency thereof, except to the extent that noncompliance would not
materially and adversely affect the business, operations, properties, assets
or condition of JJFN or would not result in JJFN's incurring any material
liability. Furthermore, JJFN, as of the Closing shall be current in all
filings required to be tendered to the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934, as amended, including, but
not limited to, filings on Forms 10-K, 10-KSB, 10-Q and 10-QSB.
Section 2.14 Insurance. All of the insurable properties of
JJFN, if any, are insured for JJFN's benefit in accordance with the insurance
policies disclosed in the JJFN Schedules under valid and enforceable policies
issued by insurers of recognized responsibility. Such policy or policies
containing substantially equivalent coverage will be outstanding and in full
force at the Closing Date, as hereinafter defined.
Section 2.15 Approval of Agreement. The board of directors
of JJFN has authorized the execution and delivery of this Agreement by JJFN
and has approved the transactions contemplated hereby, and approved the
submission of this Agreement and the transactions contemplated hereby to the
stockholders of JJFN for their approval with the recommendation that the
merger be accepted.
Section 2.16 Material Transactions or Affiliations. Except as
disclosed herein and in the JJFN Schedules, there exists no material contract,
agreement or arrangement between JJFN and any person who was at the time of
such contract, agreement or arrangement an officer, director or person owning
of record, or known by JJFN to own beneficially, ten percent (10%) or more of
the issued and outstanding common stock of JJFN and which is to be performed
in whole or in part after the date hereof. JJFN has no commitment, whether
written or oral, to lend any funds to, borrow any money from or enter into
any other material transactions with, any such affiliated person.
Section 2.17 Labor Relations. JJFN has never had a work
stoppage resulting from labor problems. JJFN has no employees other than its
officers and directors.
Section 2.18 JJFN Schedules. JJFN has delivered to J&J the
following schedules, which are collectively referred to as the "JJFN
Schedules" which are dated the date of this Agreement, all certified by an
officer of JJFN to be complete, true and accurate:
(a) a schedule containing complete and correct
copies of the Certificate of Incorporation and bylaws of JJFN as in effect as
of the date of this Agreement;
(b) a schedule containing copies of all financial
statements of JJFN identified in Section 2.4(a);
(c) a schedule containing a copy of all reports or
documents filed by JJFN with the U.S. Securities and Exchange Commission and
other state regulatory agencies;
(d) a schedule setting forth the description of any
material adverse change in the business, operations, property, assets, or
condition of JJFN since June 30, 1995 required to be provided pursuant to
Section 2.6 hereof; and
(e) a schedule setting forth any other
information, together with any required copies of documents, required to be
disclosed in the JJFN Schedules by Sections 2.1 through 2.17.
JJFN shall cause the JJFN Schedules and the instruments to be
delivered to J&J hereunder to be updated after the date hereof up to and
including the Closing Date.
ARTICLE III.
PRINCIPAL TERMS OF THE MERGER
Section 3.1 The Merger. On the effective date of the Merger
(the "Effective Date"), PFI shall be merged with and into JJFN, the latter of
which shall survive the merger as the Surviving Corporation.
Section 3.2 Certificate of Incorporation, Bylaws, Officers and
Directors. The Certificate of Incorporation and Bylaws of JJFN as in effect
on the Effective Date from and after the Effective Date, shall be, and
continue to be, the Certificate of Incorporation and Bylaws of the Surviving
Corporation. The directors and officers of JJFN shall each retain their
respective positions.
Section 3.3 Conversion of JJFN Common and Preferred Stock. Each
outstanding share of JJFN's common stock and each 50 outstanding shares of
JJFN's preferred stock held by non- dissenting JJFN Shareholders shall, by
virtue of the Merger and without any further action on the part of the
holders thereof, be converted into and exchanged for, and the holder shall be
entitled to receive one share of J&J's common stock.
Section 3.4 Assumption of JJFN Stock Options. J&J shall assume
JJFN's rights and obligations under the Tarlton Offshore Subscription
Agreement, Stock Option Agreement and Consulting Agreement with JJFN
(hereinafter jointly referred to as the "Tarlton Agreements") and consulting
agreements with Priority Capital Corp and VJS International Holdings, Inc.
relating to JJFN's acquisition of assets of Iron Eagle Contracting Corp. (the
"Iron Eagle Agreements"). Tarlton, Priority Capital and VJS shall, following
the merger, have the right to purchase from J&J, in accordance with the terms
and subject to the conditions of the Tarlton and Iron Eagle Agreements
7,450,000 shares of J&J common stock, at the exercise price included in the
applicable agreement. This assumption by J&J of JJFN's obligations under the
Tarlton and Iron Eagle Agreements shall not give Tarlton, Priority Capital or
VJS additional benefits which they did not have under the Tarlton and Iron
Eagle Agreements, but shall constitute a continuation of Tarlton and Iron
Eagle Agreements, substituting J&J for JJFN.
Section 3.5 Closing. The closing ("Closing") of the
transactions contemplated by this Agreement shall take place or the Effective
Date (the "Closing Date").
Section 3.6 Closing Events. At the Closing, each of the
respective parties hereto shall execute, acknowledge and deliver (or shall
cause to be executed, acknowledged and delivered) any and all certificates,
opinions, financial statements, schedules, agreements, resolutions, rulings
or other instruments required by this Agreement to be so delivered at or prior
to the Closing, together with such other items as may be reasonably requested
by the parties hereto and their respective legal counsel in order to
effectuate or evidence the transactions contemplated hereby.
Section 3.7 Certificate of Merger. On the Closing Date
following the closing, a Certificate of Merger setting forth the plan of
merger, and other matters required by the corporate statutes of the state of
Delaware to complete the merger of JJFN and PFI, shall be filed with the
Secretary of State of Delaware, effectuating the merger.
Section 3.8 Registration Statement. As soon as possible
following the execution and delivery of this Agreement, J&J shall cause to be
filed with the Securities and Exchange Commission a registration statement on
Form S-4 (or such other form as may be prescribed by the Commission for the
purposes described herein) (the "J&J Registration Statement") registering
under the Securities Act of 1933 all of the shares of J&J's common stock to be
issued to the JJFN shareholders and those shares of J&J's common stock to be
reserved for issuance pursuant to the Tarlton and Iron Eagle Agreements and
shall undertake all action necessary, in a timely manner, to cause such J&J
Registration Statement to be declared effective by the SEC. The closing of
the Merger shall take place on the date on which the J&J Registration
Statement is declared effective by the SEC unless a different and later date
is mutually agreed to in writing by the parties hereto.
Section 3.9 Manner of Exchange of Certificates. Following
the Merger, each holder of a certificate which immediately prior to the
Effective Date represented outstanding shares of JJFN common or preferred
stock may surrender such certificate, together with any other required
documents, to Trust Company of New Jersey, or such other agent as J&J and JJFN
may select (the "Exchange Agent") and such holders shall be entitled upon such
surrender to receive in exchange therefor certificates representing shares of
J&J common stock in accordance with the terms of this Agreement. If any
certificate for J&J common stock is to be issued in a name other than that in
which the certificate for shares of JJFN common or preferred stock
surrendered is registered, it shall be a condition of such exchange that the
holders shall pay to the Exchange Agent any transfer fees or tax required by
reason of the issuance. At the Effective date, the stock transfer books of
JJFN shall be closed and no transfer of shares of JJFN common or preferred
stock shall be made thereafter.
Section 3.10 Conditions to Delivery of Certificates/
Registration of J&J Common Shares. It shall be a condition of the delivery of
certificates for the J&J shares that the J&J Registration Statement shall
have been declared effective and shall not have been the subject of an order
of the Securities and Exchange Commission rescinding or suspending its
effectiveness unless otherwise required by law. Each of the certificates
representing J&J Shares deliverable pursuant to this Agreement shall not bear
any "restrictive" legend and no stop transfer instructions shall be given to
the transfer agent or Exchange Agent with respect to such shares.
Section 3.11 Termination.
(a) This Agreement may be terminated by the board of
directors of either JJFN or J&J at any time prior to the Closing Date if:
(i) there shall be any actual or threatened action or
proceeding before any court or any governmental body which shall seek to
restrain, prohibit or invalidate the transactions contemplated by this
Agreement and which, in the judgment of such board of directors, made in good
faith and based on the advice of its legal counsel, makes it inadvisable to
proceed with the merger and consolidation contemplated by this Agreement; or
(ii) any of the transactions contemplated hereby are
disapproved by any regulatory authority whose approval is required to
consummate such transactions or in the judgment of such board of directors,
made in good faith and based on the advice of counsel, there is substantial
likelihood that any such approval will not be obtained or will be obtained
only on a condition or conditions which would be unduly burdensome, making it
inadvisable to proceed with the merger and consolidation.
In the event of termination pursuant hereto, no obligation, right, or
liability shall arise hereunder, and each party shall bear all of the expenses
incurred by it in connection with the negotiation, drafting and execution of
this Agreement and the transactions herein contemplated;
(b) This Agreement may be terminated at any time prior to the
Closing Date by action of the board of directors of JJFN if J&J shall fail to
comply in any material respect with any of its covenants or agreements
contained in this Agreement or if any of the representations or warranties of
J&J contained herein shall be inaccurate in any material respect. If this
Agreement is terminated pursuant to this paragraph (b) of this Section 3.11,
this Agreement shall be of no further force or effect, and no obligation,
right or liability shall arise hereunder; and
(c) This Agreement may be terminated at any time prior to the
Effective Date by action of the board of directors of J&J if JJFN shall fail
to comply in any material respect with any of its covenants or agreements
contained in this Agreement or if any of the representations or warranties of
JJFN contained herein shall be inaccurate in any material respect. If this
Agreement is terminated pursuant to this paragraph (c) of this Section 3.11,
this Agreement shall be of no further force or effect and no obligation,
right or liability shall arise hereunder.
Section 3.12 Effect of Merger. In the Merger, JJFN shall be
merged with PFI and PFI shall cease to exist, in accordance with the
provisions of this Agreement and in accordance with the provisions of, and
with the effect provided in the corporation laws of the state of Delaware.
JJFN, as the surviving corporation, shall possess all the rights, privileges,
powers, franchises, trust and fiduciary duties, powers and obligations, of a
public as of a private nature, and be subject to all the restrictions,
obligations and duties of each of said corporations, and all the rights,
privileges, powers, franchises, trust and fiduciary rights, powers, duties and
obligations of each of said corporations; and all property, real, personal and
mixed, and all debts due to either of said corporations on whatever account,
and all other things belonging to each of said corporations shall be vested
in JJFN; and all property, rights, privileges, powers and franchises, and all
and every other interest shall thereafter be the property of the JJFN as they
were of the respective said corporations; and the title to any real estate,
whether vested by deed or otherwise, in either of the said corporations shall
not revert or be in any way impaired by reason of the merger; provided,
however, that all rights of creditors and all liens upon any property of
either of the said corporations shall be preserved unimpaired, and all debts,
liabilities and duties of the respective said corporations shall thenceforth
attach to JJFN, and may be enforced against it to the same extent as if such
debts, liabilities and duties had been incurred or contracted by the
Surviving Corporation.
ARTICLE IV.
SPECIAL COVENANTS
Section 4.1 Stockholder Meetings of J&J and PFI. J&J and PFI
shall, at a meeting of their stockholders duly called by their boards of
directors, to be held as soon as practicable following execution of this
Agreement, present for the authorization and approval of the stockholders of
J&J and PFI, in accordance with the applicable provisions of the laws of the
state of Delaware, this Agreement and the consummation of the transactions
contemplated with JJFN as set forth herein. In lieu of this requirement, J&J
and PFI may provide the approval required under this Section 4.1 by written
consent of shareholders sufficient under Delaware Law to take the action
contemplated hereby, in lieu of the approval of stockholders at a
stockholder's meeting.
Section 4.2 Stockholder Meeting of JJFN. JJFN shall, at a
meeting of its stockholders duly called by the board of directors of JJFN, to
be held as soon as practicable following execution of this Agreement, present
for the authorization and approval of the stockholders of JJFN in accordance
with the applicable provisions of the laws of the state of Delaware, this
Agreement and the consummation of the transactions contemplated with J&J as
set forth herein. In lieu of this requirement, JJFN may provide the approval
required under this Section 4.2 by a written consent of shareholders
sufficient under Delaware Law to take the action contemplated hereby, in lieu
of the approval of stockholders at a stockholder's meeting.
Section 4.3 Access to Properties and Records. JJFN and J&J
will each afford to the officers and authorized representatives of the other
full access to the properties, books and records of JJFN and J&J, as the case
may be, in order that each may have full opportunity to make such reasonable
investigation as it shall desire to make of the affairs of the other, and each
will furnish the other with such additional financial and operating data and
other information as to the business and properties of JJFN and J&J, as the
case may be, as the other shall from time to time reasonably request.
However, in such event, JJFN shall cause an Information Statement to be
distributed to each JJFN shareholder not a party to such consent and shall
provide each such shareholder all dissenting rights established under the
corporate laws for the State of Delaware.
Section 4.4 Information for J&J Registration Statement and
Public Reports. JJFN will furnish J&J with all information concerning JJFN
and its stockholders, including all financial statements, required for
inclusion in any registration statement or public report intended to be filed
by J&J pursuant to the Securities Act, the Exchange Act, or any other
applicable federal or state law. JJFN represents and warrants to J&J that, to
the best of its knowledge and belief, all information so furnished for either
such registration statement or other public release by J&J, including the
financial statements described in Section 2.4, shall be true and correct in
all material respects without omission of any material fact required to make
the information stated not misleading.
Section 4.5 Third Party Consents. JJFN and J&J agree to
cooperate with each other in order to obtain any required third party consents
to this Agreement and the transactions herein contemplated.
Section 4.6 Actions Prior to Closing.
1. From and after the date of this Agreement until the
Closing Date and except as set forth in the JJFN or J&J Schedules or as
permitted or contemplated by this Agreement, JJFN, PFI and J&J, respectively,
will each:
(i) carry on its business in
substantially the same manner as it has heretofore;
(ii) maintain and keep its properties in
states of good repair and condition as at present, except for depreciation due
to ordinary wear and tear and damage due to casualty;
(iii) maintain in full force and effect
insurance comparable in amount and in scope of coverage to that now maintained
by it;
(iv) perform in all material respects all of
its obligations under material contracts, leases and instruments relating to
or affecting its assets, properties and business;
(v) use its best efforts to maintain and
preserve its business organization intact, to retain its key employees and to
maintain its relationship with its material suppliers and customers; and
(vi) fully comply with and perform in all
material respects all obligations and duties imposed on it by all federal and
state laws and all rules, regulations and orders imposed by federal or state
governmental authorities.
2. From and after the date of this Agreement until the Closing
Date, neither JJFN, PFI nor J&J will, without the express written consent of
the others:
(i) except as otherwise specifically set
forth herein, make any change in its Certificate of Incorporation or bylaws;
(ii) take any action described in Section 1.7
in the case of J&J, or in Section 2.7, in the case of JJFN (all except as
permitted therein or as disclosed in the applicable party's schedules); or
(iii) enter into or amend any contract,
agreement or other instrument of any of the types described in such party's
schedules, except that a party may enter into or amend any contract,
agreement or other instrument in the ordinary course of business involving
the sale of goods or services.
Section 4.9 Indemnification.
(a) J&J hereby agrees to indemnify JJFN and each
of the officers, agents and directors of JJFN as of the date of execution of
this Agreement against any loss, liability, claim, damage or expense
(including, but not limited to, any and all expense whatsoever reasonably
incurred in investigating, preparing or defending against any litigation,
commenced or threatened or any claim whatsoever), to which it or they may
become subject arising out of or based on any inaccuracy appearing in or
misrepresentation made in this Agreement. The indemnification provided for
in this paragraph shall survive the Closing and consummation of the
transactions contemplated hereby and termination of this Agreement; and
(b) JJFN and its officers and directors hereby agrees
to indemnify J&J and each of the officers, agents, directors and shareholders
of J&J against any loss, liability, claim, damage or expense (including, but
not limited to, any and all expense whatsoever reasonably incurred in
investigating, preparing or defending against any litigation, commenced or
threatened or any claim whatsoever), to which it or they may become subject
arising out of or based on any inaccuracy appearing in or misrepresentation
made in this Agreement and particularly the representation regarding
no liabilities referred to in Section 2.4 (b) and with regard to the
representation set forth in Section 7.1 hereof regarding finders fees. The
indemnification provided for in this Paragraph shall survive the Closing and
consummation of the transactions contemplated hereby and termination of this
Agreement.
ARTICLE V.
CONDITIONS PRECEDENT TO OBLIGATIONS
OF JJFN
The obligations of JJFN under this Agreement are subject to
the satisfaction, at or before the Closing Date, of the following conditions:
Section 5.1 Accuracy of Representations. The representations
and warranties made by J&J and PFI in this Agreement shall be true at the
Closing Date with the same force and effect as if such representations and
warranties were made at the Closing Date (except for changes therein
permitted by this Agreement), and J&J and PFI shall have performed or complied
with all covenants and conditions required by this Agreement to be performed or
complied with by J&J prior to or at the Closing. JJFN shall be furnished with
a certificate, signed by duly authorized officer of J&J and PFI and dated the
Closing Date, to the foregoing effect.
Section 5.2 Stockholder Approval. The stockholders of J&J
and PFI shall have approved the Merger and the transactions contemplated
hereby.
Section 5.3 Officer's Certificate. JJFN shall have been
furnished with a certificate dated the Closing Date and signed by a duly
authorized officer of J&J to the effect that no litigation, proceeding,
investigation or inquiry is pending or, to the best knowledge of J&J,
threatened, which might result in an action to enjoin or prevent the
consummation of the transactions contemplated by this Agreement or, to the
extent not disclosed in the J&J Schedules, by or against J&J which might
result in any material adverse change in any of the assets, properties,
business or operations of J&J.
Section 5.4 No Material Adverse Change. Prior to the Closing
Date, there shall not have occurred any material adverse change in the
financial condition, business or operations of nor shall any event have
occurred which, with the lapse of time or the giving of notice, may cause or
create any material adverse change in the financial condition, business or
operations of J&J.
Section 5.5 Other Items. The JJFN shall have
received such further documents, certificates or instruments relating to the
transactions contemplated hereby as JJFN may reasonably request.
Section 5.6 Registration of J&J Shares. The J&J
Registration Statement shall have been declared effective, and no action shall
have been taken by the Securities and Exchange Commission to rescind or
suspend the effectiveness of said Statement.
ARTICLE VI.
CONDITIONS PRECEDENT TO OBLIGATIONS OF J&J
The obligations of J&J under this Agreement are subject to the
satisfaction, at or before the Closing Date, of the following conditions:
Section 6.1 Accuracy of Representations. The representations
and warranties made by JJFN in this Agreement shall be true as of the Closing
Date (except for changes therein permitted by this Agreement) with the same
force and effect as if such representations and warranties were made at and
as of the Closing Date, and JJFN shall have performed and complied with all
covenants and conditions required by this Agreement to be performed or
complied with by JJFN prior to or at the Closing. J&J shall have been
furnished with a certificate, signed by a duly authorized executive officer
of JJFN and dated the Closing Date, to the foregoing effect.
Section 6.2 Stockholder Approval. The stockholders of JJFN
shall have approved the proposed plan of reorganization and the transactions
contemplated hereby.
Section 6.3 Officer's Certificate. J&J shall have been
furnished with a certificate dated the Closing Date and signed by a duly
authorized officer of JJFN to the effect that no litigation, proceeding,
investigation or inquiry is pending or, to the best knowledge of JJFN,
threatened, which might result in an action to enjoin or prevent the
consummation of the transactions contemplated by this Agreement or, to the
extent not disclosed in the JJFN Schedules, by or against JJFN which might
result in any material adverse change in any of the assets, properties,
business or operations of JJFN.
Section 6.4 No Material Adverse Change. Prior to the Closing
Date, there shall not have occurred any material adverse change in the
financial condition, business or operations of nor shall any event have
occurred which, with the lapse of time or the giving of notice, may cause or
create any material adverse change in the financial condition, business or
operations of JJFN.
Section 6.5 Other Items. J&J shall have received
such further documents, certificates, or instruments relating to the
transactions contemplated hereby as J&J may reasonably request.
Section 6.6 Registration of J&J Shares. The J&J
Registration Statement shall have been declared effective, and no action shall
have been taken by the Securities and Exchange Commission to rescind or
suspend the effectiveness of said Statement.
ARTICLE VII.
MISCELLANEOUS
Section 7.1 Brokers and Finders. All parties hereto hereby
represent and warrant that there are no broker or finders fees to be paid to
any third party in connection with the bringing of the parties together in
the negotiation, execution, or consummation of this Agreement. The parties
each agree to indemnify the other against any claim by any third person for
any commission, brokerage or finder's fee or other payment with respect to
this Agreement or the transactions contemplated hereby based on any alleged
agreement or understanding between the indemnifying party and such third
person, whether express or implied from the actions of the indemnifying party.
Section 7.2 Law. Forum and Jurisdiction. This agreement
shall be construed and interpreted in accordance with the laws of the State of
Delaware. The parties agree that any dispute arising under this Agreement,
whether during the term of the Agreement or at any subsequent time, shall be
resolved exclusively in the courts of the state of New York and the parties
hereby submit to the jurisdiction of such courts for all purposes provided
herein and appoint the Secretary of State of the state of New York as agent
for service of process for all purposes provided herein.
Section 7.3 Notices. Any notices or other communications
required or permitted hereunder shall be sufficiently given if personally
delivered to its or sent by registered mail or certified mail, postage
prepaid, or by prepaid telegram addressed as follows:
If to JJFN: JJFN Holdings, Inc.
100 Quentin Roosevelt Boulevard
Suite 202
Garden City, New York 11530
If to J&J, to: J&J Financial Services,
Inc.
100 Quentin
Roosevelt Boulevard
Suite 202
Garden City, New
York 11530
or such other addresses as shall be furnished in writing by any
party in the manner for giving notices hereunder, and any such notice or
communication shall be deemed to have been given as of the date so delivered,
mailed, or telegraphed.
Section 7.4 Attorneys' Fees. In the event that any party
institutes any action or suit to enforce this Agreement or to secure relief
from any default hereunder or breach hereof, the breaching party or parties
shall reimburse the non-breaching party or parties for all costs, including
reasonable attorneys' fees, incurred in connection therewith and in enforcing
or collecting any judgment rendered therein.
Section 7.5 Confidentiality. Each party hereto agrees with
the other parties that, unless and until the merger contemplated by this
Agreement has been consummated, they and their representatives will hold in
strict confidence all data and information obtained with respect to another
party or any subsidiary thereof from any representative, officer, director or
employee, or from any books or records or from personal inspection, of such
other party, and shall not use such data or information or disclose the same
to others, except: (i) to the extent such data is a matter of public
knowledge or is required by law to be published; and (ii) to the extent that
such data or information must be used or disclosed in order to consummate the
transactions contemplated by this Agreement.
Section 7.6 Schedules; Knowledge. Each party is presumed to
have full knowledge of all information set forth in the other party's
schedules delivered pursuant to this Agreement.
Section 7.7 Third Party Beneficiaries. This contract is
solely among JJFN, PFI and J&J and, except as specifically provided, no
director, officer, stockholder, employee, agent, independent contractor or
any other person or entity shall be deemed to be a third party beneficiary of
this Agreement.
Section 7.8 Entire Agreement. This Agreement represents the
entire agreement between the parties relating to the subject matter hereof.
This Agreement alone fully and completely expresses the agreement of the
parties relating to the subject matter hereof. There are no other courses of
dealing, understandings, agreements, representations or warranties, written or
oral, except as set forth herein. This Agreement may not be amended or
modified, except by a written agreement signed by all parties hereto.
Section 7.9 Survival; Termination. The representations,
warranties and covenants of the respective parties shall survive the Closing
Date of the merger and the consummation of the transactions herein
contemplated.
Section 7.10 Counterparts. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original and all of
which taken together shall be but a single instrument.
Section 7.11 Amendment or Waiver. Every right and remedy
provided herein shall be cumulative with every other right and remedy, whether
conferred herein, at law, or in equity, and may be enforced concurrently
herewith, and no waiver by any party of the performance of any obligation by
the other shall be construed as a waiver of the same or any other default
then, theretofore, or thereafter occurring or existing. At any time prior to
the Closing Date, this Agreement may be amended by a writing signed by all
parties hereto, with respect to any of the terms contained herein, and any
term or condition of this Agreement may be waived or the time for performance
hereof may be extended by a writing signed by the party or parties for whose
benefit the provision is intended.
Section 7.12 Incorporation of Recitals. All of the recitals
hereof are incorporated by this reference and are made a part hereof as though
set forth at length herein.
Section 7.13 Expenses. Each of the parties to this Agreement
shall bear all of its own expenses incurred by it in connection with the
negotiation of this Agreement and in the consummation of the transactions
provided for herein and the preparation therefor.
Section 7.14 Headings; Context. The headings of the
sections and paragraphs contained in this Agreement are for convenience of
reference only and do not form a part hereof and in no way modify, interpret
or construe the meaning of this Agreement.
Section 7.15 Benefit. This Agreement shall be binding upon
and shall insure only to the benefit of the parties hereto, and their
permitted assigns hereunder. This Agreement shall not be assigned by any
party without the prior written consent of the other party.
Section 7.16 Public Announcements. Except as may be required
by law, neither party shall make any public announcement or filing with
respect to the transactions provided for herein without the prior consent of
the other party hereto.
Section 7.17 Severability. In the event that any particular
provision or provisions of this Agreement or the other agreements contained
herein shall for any reason hereafter be determined to be unenforceable, or
in violation of any law, governmental order or regulation, such
unenforceability or violation shall not affect the remaining provisions of such
agreements, which shall continue in full force and effect and be binding upon
the respective parties hereto.
Section 7.18 Failure of Conditions; Termination. In the
event any of the conditions specified in this Agreement shall not be
fulfilled on or before the Closing Date, either of the parties have the right
either to proceed or, upon prompt written notice to the other, to terminate
and rescind this Agreement without liability to any other party. The election
to proceed shall not affect the right of such electing party reasonably to
require the other party to continue to use its efforts to fulfill the unmet
conditions.
Section 7.19 No Strict Construction. The language of this
Agreement shall be construed as a whole, according to its fair meaning and
intendment, and not strictly for or against either party hereto, regardless of
who drafted or was principally responsible for drafting the Agreement or
terms or conditions hereof.
Section 7.20 Execution Knowing and Voluntary. In executing
this Agreement, the parties severally acknowledge and represent that each:
(a) has fully and carefully read and considered this Agreement; (b) has been
or has had the opportunity to be fully apprised of its attorneys of the legal
effect and meaning of this document and all terms and conditions hereof; (c)
has been afforded the opportunity to negotiate as to any and all terms hereof;
and (d) is executing this Agreement voluntarily, free from any influence,
coercion or duress of any kind.
Section 7.21 Litigation by Third Parties. In the event that
suit is brought by a third party to enjoin or otherwise interfere with the
consummation of the transactions contemplated herein, the parties agree that
the bringing of such litigation shall not entitle any party hereto to
terminate the within Agreement, but that the parties shall bring an action for
declaratory relief before a court of competent jurisdiction and shall
terminate this Agreement if such court adjudges termination to be required by
the rights of such third party.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers, hereunto duly
authorized, and entered into and closed as of the date first above written at
Garden City, New York.
JJFN HOLDINGS, INC .
("JJFN")
ATTEST:
_________________________ By: ______________________________
Secretary or President
Assistant Secretary
ATTEST: PRIORITY FINANCIAL,
INC.
("PFI")
____________________________ By: _______________________________
Secretary or President
Assistant Secretary
ATTEST: J&J FINANCIAL
SERVICES, INC.
("J&J")
____________________________ By: _______________________________
Secretary or President
Assistant Secretary
APPENDIX B
Section 262 - Delaware General Corporation Law Appendix B
262 APPRAISAL RIGHTS.--(a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation,
who has otherwise complied with subsection (d) of this section and who has
neither voted in favor of the merger or consolidation nor consented thereto in
writing pursuant to 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to 251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an inter-dealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did
not require for its approval the vote of the holders of the surviving
corporation as provided in 'subsections (f) or (g) of 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights under
this section shall be available for the shares of any class or series of stock
of a constituent corporation if the holders thereof are required by the terms
of an agreement of merger or consolidation pursuant to 251, 252, 254, 257,
258, 263 and 264 of this title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock or depository receipts at the effective
date of the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system security on an
inter-dealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash in
lieu of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under 253 of this title is not owned by the parent
corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted his certificates of stock to the Register
in Chancery, if such is required, may participate fully in all proceedings
until it is finally determined that he is not entitled to appraisal rights
under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State Or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding. including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) Us proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for such
meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are available
for any or ail of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each stockholder electing to
demand the appraisal of his shares shall deliver to the corporation, before the
taking of the vote on the merger or consolidation, a written demand for
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares. A proxy or
vote against the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall notify
each stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to 228 or 253 of
this title, the surviving or resulting corporation, either before the effective
date of the merger or consolidation or within 10 days thereafter, shall notify
each of the stockholders entitled to appraisal rights of the effective date of
the merger or consolidation and that appraisal rights are available for any or
all of the shares of the constituent corporation, and shall include in such
notice a copy of this section. The notice shall be sent by certified or
registered mail, return receipt requested, addressed to the stockholder at his
address as it appears on the records of the corporation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing of
the notice. demand in writing from the surviving or resulting corporation the
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise entitled
to appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after his written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof.
whichever is later.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided.
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall
deliver to the surviving or resulting corporation a written withdrawal of his
demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this Section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(1) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by Ch.
79, L.'95, eff. 7-1-95.)
