U.S. Securities and Exchange Commission
Washington, DC 20549
Form 10-QSB
Amendment No. 1
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For The Quarterly Period Ended June 30, 2000
[ ] TRANSITION REPORT UNDER SECTON 13 OR 15(d) OF THE EXCHANGE ACT for the
transition period from ___________________ to ________________________.
Commission File Number 0-9940
THE FINX GROUP, INC.
(Exact name of small business issuer as specified in its charter)
(Formerly known as Fingermatrix, Inc.
Delaware 13-2854686
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
249 Saw Mill River Road, Elmsford, NY 10523
(Address of principal executive offices) (Zip Code)
(914) 592-5930
(Registrant's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months, (or for
such shorter period that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes X
No ___
As of August 10, 2000, there were 11,537,855 shares of the par value
$.01 common stock outstanding.
Purpose of Amendment:
To attach Exhibit 99.1, omitted from the original filing.
1
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------------------------------------------------------------------
Fingermatrix, Inc. and Subsidiaries
Unaudited Consolidated Interim Financial Statements
Table of Contents
--------------------------------------------------------------------------------
INDEPENDENT ACCUNTANT'S REPORT..............................................3
------------------------------
Unaudited Quarterly Consolidated Statements of Operations...................4
---------------------------------------------------------
Unaudited Year to Date Consolidated Statements of Operations................5
------------------------------------------------------------
Unaudited Consolidated Balance Sheet........................................6
------------------------------------
Unaudited Year to Date Consolidated Statements of Cash Flows................7
------------------------------------------------------------
Unaudited Year to Date Consolidated Statement of Changes in
Capital Deficiency.........................................................9
------------------
Footnotes to Unaudited Consolidated Interim Financial Statements...........10
----------------------------------------------------------------
2
<PAGE>
INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors and Stockholders of
The Finx Group, Inc.
Elmsford, New York
We have reviewed the accompanying consolidated balance
sheet of The Finx Group, Inc. and its subsidiaries as of June 30, 2000,
the related consolidated statements of operations for the three and six
month periods ended June 30, 2000 and 1999, the related consolidated
statement of capital deficiency for the six month period ended June 30,
2000 and the related consolidated statements of cash flows for the six
month periods ended June 30, 2000 and 1999. These financial statements are
the responsibility of the Company's management.
We conducted our review in accordance with standards
established by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of persons
responsible for financial and accounting matters. It is substantially less
in scope than an audit conducted in accordance with generally accepted
auditing standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the accompanying consolidated
financial statements referred to above for them to be in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have
been prepared assuming that the Company will continue as a going concern.
As discussed in Note 2 to the consolidated financial statements, the
Company has suffered a net loss of $2,664,000 for the six month period
ended June 30, 2000 and has a working capital deficiency of $3,308,000 and
a capital deficiency of $2,994,000 as of June 30, 2000. Management's plans
in regard to these matters are also described in Note 2. The consolidated
financial statements do not include any adjustments which might arise from
the outcome of these uncertainties,
MOORE STEPHENS, P. C.
Certified Public Accountants.
Cranford, New Jersey
August 10, 2000
3
<PAGE>
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The Finx Group, Inc. and Subsidiaries
Unaudited Quarterly Consolidated Statements of Operations
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Three months ended June 30, 2000 1999
-----------------------------------------------------------------------------------------------------------
Sales $ 745,000 $ 558,000
Cost of goods sold 428,000 344,000
-----------------------------------------------------------------------------------------------------------
Gross profit 317,000 214,000
Non cash stock option expense 1,766,000 --
Selling, general and administrative expense 626,000 333,000
-----------------------------------------------------------------------------------------------------------
Operating loss (2,075,000) (119,000)
Interest expense and financing fees, related parties (74,000) (21,000)
Interest expense and financing fees, other (59,000) (40,000)
-----------------------------------------------------------------------------------------------------------
Loss before extraordinary items (2,208,000) (180,000)
Extraordinary loss on debt extinguishment -- (429,000)
-----------------------------------------------------------------------------------------------------------
Net loss $ (2,208,000) $ (609,000)
===========================================================================================================
Weighted average shares outstanding 2,093,493 1,686,337
Net loss per common share: Basic and fully diluted
Loss before extraordinary items $ (1.05) $ (0.11)
Extraordinary loss on debt extinguishment -- (0.25)
-----------------------------------------------------------------------------------------------------------
Net loss per common share $ (1.05) $ (0.36)
===========================================================================================================
</TABLE>
See Notes to Unaudited Consolidated Interim Financial Statements.
4
<PAGE>
--------------------------------------------------------------------------------
The Finx Group, Inc. and Subsidiaries
Unaudited Year to Date Consolidated Statements of Operations
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Six months ended June 30, 2000 1999
-----------------------------------------------------------------------------------------------------------
Sales $ 1,433,000 $ 1,103,000
Cost of goods sold 756,000 744,000
-----------------------------------------------------------------------------------------------------------
Gross profit 677,000 359,000
Non cash stock option expense 1,766,000 --
Selling, general and administrative expense 1,346,000 712,000
-----------------------------------------------------------------------------------------------------------
Operating loss (2,435,000) (353,000)
Interest expense and financing fees, related parties (131,000) (21,000)
Interest expense and financing fees, other (98,000) (80,000)
-----------------------------------------------------------------------------------------------------------
Loss before extraordinary items (2,664,000) (454,000)
Extraordinary loss on debt extinguishment -- (429,000)
-----------------------------------------------------------------------------------------------------------
Net loss $ (2,664,000) $ (883,000)
===========================================================================================================
Weighted average shares outstanding 2,047,004 1,316,642
Net loss per common share: Basic and fully diluted
Loss before extraordinary items $ (1.30) $ (0.34)
Extraordinary loss on debt extinguishment -- (0.33)
-----------------------------------------------------------------------------------------------------------
Net loss per common share $ (1.30) $ (0.67)
===========================================================================================================
</TABLE>
See Notes to Unaudited Consolidated Interim Financial Statements.
5
<PAGE>
--------------------------------------------------------------------------------
The Finx Group, Inc. and Subsidiaries
Unaudited Consolidated Balance Sheet
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
As of June 30, 2000
-----------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSSETS:
Cash $ 14,000
Accounts receivable, net 314,000
Inventory 1,556,000
Prepaid expense and other current assets 7,000
-----------------------------------------------------------------------------------------------------------
Total current assets 1,891,000
-----------------------------------------------------------------------------------------------------------
Property, Plant and Equipment:
Property, plant and equipment, cost 2,459,000
Less accumulated depreciation and amortization (2,383,000)
-----------------------------------------------------------------------------------------------------------
Net property plant and equipment 76,000
-----------------------------------------------------------------------------------------------------------
Other assets:
Deferred offering costs 148,000
Capitalized software costs 46,000
Security deposits 44,000
-----------------------------------------------------------------------------------------------------------
Total other assets 238,000
-----------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 2,205,000
===========================================================================================================
LIABILITIES AND CAPITAL DEFICIENCY
-----------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES:
Notes payable, related parties $ 2,346,000
Accounts payable 1,195,000
Revolving line of credit 705,000
Accrued expenses 643,000
Other current liabilities 310,000
-----------------------------------------------------------------------------------------------------------
Total current liabilities 5,199,000
-----------------------------------------------------------------------------------------------------------
CAPITAL DEFICIENCY
-----------------------------------------------------------------------------------------------------------
Preferred stock, $.01 par value; 1,000,000 shares authorized; 1,000
shares issued
Common stock, $.01 par value; 50,000,000 shares authorized; 10,507,855
shares issued and outstanding 105,000
Additional paid-in capital 10,136,000
Accumulated deficit (13,235,000)
-----------------------------------------------------------------------------------------------------------
Total capital deficiency (2,994,000)
-----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND CAPITAL DEFICIENCY $ 2,205,000
===========================================================================================================
</TABLE>
See Notes to Unaudited Consolidated Interim Financial Statements.
6
<PAGE>
--------------------------------------------------------------------------------
The Finx Group, Inc. and Subsidiaries
Unaudited Year to Date Consolidated Statements of Cash Flows
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Six Months ended June 30, 2000 1999
-----------------------------------------------------------------------------------------------------------
CASH FLOWS - OPERATING ACTIVITIES:
-----------------------------------------------------------------------------------------------------------
Net loss $ (2,664,000) $ (883,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Non cash stock option expense 1,766,000 --
Non cash expense for value of stock issued for payment of a
subsidiary's obligation 28,000 --
Depreciation and amortization 17,000 36,000
Bad debt expense 5,000 --
Write-off long-term assets 2,000 --
Extraordinary loss on debt extinguishment -- 429,000
Changes in assets and liabilities, net of reverse acquisition:
Inventory (280,000) (189,000)
Accounts receivable, net 146,000 110,000
Prepaid expense and other current assets 20,000 (7,000)
Accounts payable 246,000 119,000
Accrued expenses 78,000 (87,000)
Other current liabilities 69,000 36,000
-----------------------------------------------------------------------------------------------------------
Net cash used for operating activities (567,000) (436,000)
-----------------------------------------------------------------------------------------------------------
CASH FLOWS - INVESTING ACTIVITIES:
Capitalized software costs (43,000) --
Security deposits (18,000) (2,000)
-----------------------------------------------------------------------------------------------------------
Net cash used for investing activities (61,000) (2,000)
-----------------------------------------------------------------------------------------------------------
CASH FLOWS - FINANCING ACTIVITIES:
Loans from related parties 814,000 405,000
Deferred offering costs (148,000) --
Net advances (payments) under revolving lines of credit (75,000) 47,000
Other financing activities (20,000) (3,000)
-----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 571,000 449,000
-----------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash (57,000) 11,000
Cash - Beginning of period 71,000 14,000
-----------------------------------------------------------------------------------------------------------
Cash - End of period $ 14,000 $ 25,000
-----------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
-----------------------------------------------------------------------------------------------------------
Cash paid during the year for:
Interest $ 98,000 $ 59,000
Income Taxes -- --
-----------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Unaudited Consolidated Interim Financial Statements.
continued
7
<PAGE>
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The Finx Group, Inc. and Subsidiaries
Unaudited Year to Date Consolidated Statements of Cash Flows
--------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF NON CASH INVESTING AND FINANCING ACTIVITIES:
--------------------------------------------------------------------------------
Six Months Ended June 30, 2000
--------------------------------------------------------------------------------
The Company granted an aggregate of 737,500 non employee stock options,
which, using the Black-Scholes option valuation formula, had a value of $1.766
million.
The Company issued 10,000 shares of common stock in order to settle an
obligation of Sequential Electronic Systems, Inc., its wholly owned subsidiary.
Such shares, using the Black-Scholes option valuation formula, had a value of
$28,000.
The Company granted an aggregate of 1,088,500 employee stock options.
As of June 30, 2000, such options did not result in any compensation expense.
Six Months Ended June 30, 1999
--------------------------------------------------------------------------------
The Company consummated a reverse acquisition whereby certain assets
and liabilities, for which there was no cash flow impact, were consolidated into
the balance sheet, including $90,000 of property, plant and equipment, $98,000
of patent costs, $344,000 of accounts payable, $109,000 of accrued expenses and
$425,000 of subordinated debt.
Certain creditors of the Company accepted 6,346 shares of Series A
Preferred Stock in exchange for their aggregate debt of $648,000. Using the
Black-Scholes option valuation formula, the 6,346 Series A Preferred shares were
valued at $1.077 million, resulting in a non cash extraordinary loss on debt
extinguishment of $429,000.
--------------------------------------------------------------------------------
See Notes to Unaudited Consolidated Interim Financial Statements.
concluded
8
<PAGE>
--------------------------------------------------------------------------------
Fingermatrix, Inc. and Subsidiaries
Unaudited Year to Date Consolidated Statement of Changes in Capital Deficiency
Six Months Ended June 30 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Preferred
Preferred Common Preferred Stock in Common Additional
Shares Shares Stock, Excess of Stock, Paid-in
Outstanding Outstanding Par Value Par Value Par Value Capital
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 115,402 20,000,000 $ 1,000 $ 1,130,000 $ 200,000 $ 7,116,000
Convert Series A preferred stock to
common stock (114,402) 84,978,548 (1,000) (1,130,000) 850,000 281,000
1 for 10 reverse split of common stock -- (94,480,693) -- -- (945,000) 945,000
------------------------------------------------------------------------------------------------------------------------------
1,000 10,497,855 *-- -- 105,000 8,342,000
Issuance of non-employee stock options -- -- -- -- -- 1,766,000
Stock issued for payment of
subsidiaries obligations -- 10,000 -- -- *-- 28,000
Accrued dividends on preferred stock -- -- -- -- -- --
Net loss - Six Months Ended June 30,
2000 -- -- -- -- -- --
------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2000 1,000 10,507,855 $ *-- $ -- $ 105,000 $ 10,136,000
==============================================================================================================================
</TABLE>
Continued
See Notes to Consolidated Financial Statements.
* - Amounts are less than $1,000.
<PAGE>
--------------------------------------------------------------------------------
Fingermatrix, Inc. and Subsidiaries
Unaudited Year to Date Consolidated Statement of Changes in Capital Deficiency
Six Months Ended June 30 2000
--------------------------------------------------------------------------------
Total
Stockholders'
Equity
Accumulated (Capital
Deficit Deficiency)
-----------------------------------------------------------------------
Balance at December 31, 1999 $ (10,564,000) $ (2,117,000
Convert Series A preferred stock to
common stock -- --
1 for 10 reverse split of common stock -- --
-----------------------------------------------------------------------
(10,564,000) (2,117,000)
Issuance of non-employee stock options -- 1,766,000
Stock issued for payment of
subsidiaries obligations -- 28,000
Accrued dividends on preferred stock (7,000) (7,000)
Net loss - Six Months Ended June 30,
2000 (2,664,000) (2,664,000)
-----------------------------------------------------------------------
Balance at June 30, 2000 $ (13,235,000) $ (2,994,000)
=======================================================================
Concluded
See Notes to Consolidated Financial Statements.
9
<PAGE>
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The Finx Group, Inc. and Subsidiaries
--------------------------------------------------------------------------------
Footnotes to Unaudited Consolidated Interim Financial Statements
Three and Six Months Ended June 30, 2000 and 1999
--------------------------------------------------------------------------------
1. Merger Authorized by a Majority of the Stockholders
The Board of Directors of Fingermatrix, Inc. ("Fingermatrix")
determined that the reincorporation of Fingermatrix in Delaware was in the best
interests of Fingermatrix and that such reincorporation would be accomplished
through the merger of Fingermatrix with and into its wholly-owned subsidiary,
The Finx Group, Inc., ("The Finx Group"), a Delaware Corporation. On June 23,
2000, the Fingermatrix Board of Directors approved a merger agreement between
Fingermatrix and The Finx Group (the "Merger Agreement"), which became effective
as of July 14, 2000 upon the written consent of a majority of the Fingermatrix
shareholders consisting of The Trinity Group, Inc. and five other shareholders.
Fingermatrix reported the Merger Agreement in an Information Statement under
Section 14 of the Securities and Exchange act of 1934 and on or about July 14,
2000, such Information Statement was sent to the shareholders of record as of
June 30, 2000.
The board of directors fixed the close of business on June 30, 2000 as
the record date for purposes of consummating the terms of the Merger Agreement.
On June 30, 2000, Fingermatrix had 20,000,000 shares of Common Stock, 114,403
shares of Series A 2% Voting Convertible Preferred Stock (convertible into
84,978,548 shares of Common stock) and 1,000 shares of Series B 4% Preferred
Stock issued and outstanding. On June 30, 2000, The Finx Group had authorized
capital stock consisting of 50,000,000 shares of Common Stock, par value $.01
per share, of which no shares were issued or outstanding and 1,000,000 shares of
Series A 4% Preferred Stock, par value $.01 per share, of which 1,000 shares
were issued and outstanding and were owned by The Trinity Group, Inc.
("Trinity").
Pursuant to the Merger Agreement, each outstanding ten shares of
Fingermatrix Common Stock was automatically converted into the right to receive
one share of The Finx Group's fully paid and non-assessable common stock. Each
outstanding share of Fingermatrix Series A 2% Voting Convertible Preferred Stock
was automatically converted into 742.8 shares of Fingermatrix Common Stock and
then each outstanding ten shares of such Fingermatrix Common Stock was
automatically converted into the right to receive one share of The Finx Group's
fully paid and non-assessable common stock. Each outstanding share of
Fingermatrix Series B 4% Preferred Stock automatically converted into the right
to receive one share of The Finx Group's fully paid and non-assessable Series A
4% Preferred Stock. Each outstanding option or warrant to purchase ten shares of
Fingermatrix Common Stock was converted into an option to purchase one share of
The Finx Group's Common Stock. The By-Laws of Fingermatrix continued in force as
the By-Laws of The Finx Group and the directors and officers of The Finx Group
are the same as those of Fingermatrix.
The Merger Agreement became effective prior to the issuance of the June
30, 2000 quarterly financial statements and, as such, the unaudited interim
financial statements as of and for the three and six months ended June 30, 2000
and 1999 reflect the consummation of the Merger Agreement whereby all capital
stock data have been restated to reflect the terms of the Merger Agreement.
2. Basis of Presentation
In the opinion of Management, the accompanying unaudited interim
consolidated financial statements contain all adjustments (consisting of only
normal, recurring accruals) which are necessary in order to make the Financial
statements not misleading.
10
<PAGE>
The accompanying unaudited interim financial statements have been
prepared on a going concern basis, which contemplates the realization of assets
and the liquidation of liabilities in the normal course of business. At June 30,
2000, the Company had a working capital deficiency of $3.308 million and a
capital deficiency of $2.994 million. During the current interim period and for
all of 1999 and 1998, the Company has relied on financial support from its
controlling stockholder, Trinity. Management is currently seeking additional
financing; however no assurances can be made that such financing will be
consummated. The continuation of the Company as a going concern is dependent
upon its ability to obtain financing, and to use the proceeds from any such
financing to increase its business to achieve profitable operations. The
accompanying financial statements do not include any adjustments that would
result should the Company be unable to continue as a going concern.
The results of operations for the three and six months ended June 30,
2000 and 1999 are not necessarily indicative of the results to be expected for
the full year.
3. Significant Accounting Policies
The accounting policies followed by the Company are set forth in Note 1
to the Company's financial statements in the December 31, 1999 Form 10-KSB.
4. Loss Per Share
All loss per share data have been restated to reflect the terms of the
Merger Agreement as more fully described in Footnote 1. Basic loss per share is
computed by dividing net loss by the weighted average number of common shares
outstanding during the year. Diluted loss per share is computed by adjusting
outstanding shares, assuming conversion of all dilutive potential common shares.
At June 30, 2000, the Company had outstanding options to purchase an aggregate
of 1,826,000 shares of common stock and warrants to purchase 59,000 shares of
common stock. The potential common shares from the exercise of all options and
warrants are not included for purposes of calculating fully diluted loss per
share because their inclusion would be anti-dilutive.
5. Segment Information
Statement of Financial Accounting Standards No. 131, "Disclosure about
Segments of an Enterprise and Related Information" established standards for the
reporting of information about operating segments and defines operating segments
as components of an enterprise for which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. The Company's
chief operating decision maker is Lewis S. Schiller, the Company's Chief
Executive Officer and Vice-Chairman of the Board, who evaluates the Company's
businesses based upon the separate financial statements and information of the
underlying subsidiaries of the Company. Based on the above evaluation, the
Company has identified five reportable business segments as follows: (1)
Electro-Mechanical and Electro-Optical Products, which is an operating business
segment reflecting the activities of Sequential Electronic Systems, Inc.
("Sequential"); (2) Specialized Vending Machines and Avionics Equipment, which
is an operating business segment reflecting the activities of S-Tech, Inc.
("S-Tech"); (3) Fingerprint Identification Technologies, which is a development
stage business segment reflecting the activities of FMX Corp. ("FMX"); (4)
Secured Entrance Systems, which is a development stage business segment
reflecting the activities of Secured Portal Systems, Inc. ("SPS"), and (5)
Internet Viral Marketing, which is a development stage business reflecting the
activities of Starnet365.com, Inc. ("Starnet365.com"). The accounting policies
of the reportable segments are the same as those described in the summary of
significant accounting policies. There are no intersegment sales but there are
intersegment advances and related interest charges, all of which are eliminated
in the consolidated financial statements.
11
<PAGE>
5. Segment Information (continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Ended June 30, 2000 1999
-------------------------------------------------------------------------------------------------------------
Revenues:
Electro-Mechanical and Electro- Optical Products $ 608,000 $ 320,000
Specialized Vending Machines and Avionics Equipment 137,000 238,000
-------------------------------------------------------------------------------------------------------------
Total revenues $ 745,000 $ 558,000
=============================================================================================================
Operating income (loss):
Electro-Mechanical and Electro- Optical Products $ 238,000 $ (121,000)
Specialized Vending Machines and Avionics Equipment (41,000) 6,000
Fingerprint Identification Technologies (55,000) --
Secured Entrance Systems (22,000) --
Internet Viral Marketing (80,000) --
-------------------------------------------------------------------------------------------------------------
40,000 (115,000)
Corporate costs and expenses (2,115,000) (4,000)
-------------------------------------------------------------------------------------------------------------
Total operating loss $ (2,075,000) $ (119,000)
=============================================================================================================
Interest income:
Electro-Mechanical and Electro- Optical Products $ 9,000 --
Intersegment charges (9,000) --
-------------------------------------------------------------------------------------------------------------
Total interest income $ -- --
=============================================================================================================
Interest expense:
Electro-Mechanical and Electro- Optical Products $ 86,000 $ 57,000
Specialized Vending Machines and Avionics Equipment 30,000 --
Fingerprint Identification Technologies 6,000 --
Secured Entrance Systems 3,000 --
Internet Viral Marketing 2,000 --
-------------------------------------------------------------------------------------------------------------
127,000 57,000
Corporate costs and expenses 15,000 4,000
-------------------------------------------------------------------------------------------------------------
Intersegment charges (9,000) --
-------------------------------------------------------------------------------------------------------------
Total interest expense $ 133,000 $ 61,000
=============================================================================================================
Net income (loss):
Electro-Mechanical and Electro- Optical Products $ 160,000 $ (178,000)
Specialized Vending Machines and Avionics Equipment (70,000) 6,000
Fingerprint Identification Technologies (61,000) --
Secured Entrance Systems (25,000) --
Internet Viral Marketing (82,000) --
-------------------------------------------------------------------------------------------------------------
(78,000) (172,000)
Corporate costs and expenses (2,130,000) (8,000)
-------------------------------------------------------------------------------------------------------------
Extraordinary loss on debt extinguishment -- (429,000)
-------------------------------------------------------------------------------------------------------------
Total net loss $ (2,208,000) $ (609,000)
=============================================================================================================
Depreciation and amortization:
Electro-Mechanical and Electro- Optical Products $ 1,000 $ 4,000
Specialized Vending Machines and Avionics Equipment -- 11,000
-------------------------------------------------------------------------------------------------------------
1,000 15,000
Corporate 6,000 4,000
-------------------------------------------------------------------------------------------------------------
Total depreciation and amortization $ 7,000 $ 19,000
=============================================================================================================
</TABLE>
12
<PAGE>
5. Segment Information (continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Six Months Ended June 30, 2000 1999
-------------------------------------------------------------------------------------------------------------
Revenues:
Electro-Mechanical and Electro- Optical Products $ 1,252,000 $ 788,000
Specialized Vending Machines and Avionics Equipment 181,000 315,000
-------------------------------------------------------------------------------------------------------------
Total revenues $ 1,433,000 $ 1,103,000
=============================================================================================================
Operating income (loss):
Electro-Mechanical and Electro- Optical Products $ 383,000 $ (233,000)
Specialized Vending Machines and Avionics Equipment (94,000) (116,000)
Fingerprint Identification Technologies (106,000) --
Secured Entrance Systems (88,000) --
Internet Viral Marketing (80,000) --
-------------------------------------------------------------------------------------------------------------
15,000 (349,000)
Corporate costs and expenses (2,450,000) (4,000)
-------------------------------------------------------------------------------------------------------------
Total operating loss $ (2,435,000) $ (353,000)
=============================================================================================================
Interest income:
Electro-Mechanical and Electro- Optical Products $ 16,000 --
Intersegment charges (16,000) --
-------------------------------------------------------------------------------------------------------------
Total interest income $ -- --
=============================================================================================================
Interest expense:
Electro-Mechanical and Electro- Optical Products $ 157,000 $ 97,000
Specialized Vending Machines and Avionics Equipment 43,000 --
Fingerprint Identification Technologies 11,000 --
Secured Entrance Systems 5,000 --
Internet Viral Marketing 2,000 --
-------------------------------------------------------------------------------------------------------------
218,000 97,000
Corporate costs and expenses 27,000 4,000
-------------------------------------------------------------------------------------------------------------
Intersegment charges (16,000) --
-------------------------------------------------------------------------------------------------------------
Total interest expense $ 229,000 $ 101,000
=============================================================================================================
Net income (loss):
Electro-Mechanical and Electro- Optical Products $ 242,000 $ (330,000)
Specialized Vending Machines and Avionics Equipment (137,000) (116,000)
Fingerprint Identification Technologies (118,000) --
Secured Entrance Systems (93,000) --
Internet Viral Marketing (82,000) --
-------------------------------------------------------------------------------------------------------------
(188,000) (446,000)
Corporate costs and expenses (2,476,000) (8,000)
-------------------------------------------------------------------------------------------------------------
Extraordinary loss on debt extinguishment -- (429,000)
-------------------------------------------------------------------------------------------------------------
Total net loss $ (2,664,000) $ (883,000)
=============================================================================================================
Depreciation and amortization:
Electro-Mechanical and Electro- Optical Products $ 5,000 $ 9,000
Specialized Vending Machines and Avionics Equipment -- 23,000
-------------------------------------------------------------------------------------------------------------
5,000 32,000
Corporate 12,000 4,000
-------------------------------------------------------------------------------------------------------------
Total depreciation and amortization $ 17,000 $ 36,000
=============================================================================================================
</TABLE>
13
<PAGE>
5. Segment Information (continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
June 30, December 31,
2000 1999
-------------------------------------------------------------------------------------------------------------
Assets:
Electro-Mechanical and Electro- Optical Products $ 1,895,000 $ 1,702,000
Specialized Vending Machines and Avionics Equipment 627,000 582,000
Fingerprint Identification Technologies 3,000 5,000
Secured Entrance Systems -- 1,000
Internet Viral Marketing 60,000 --
-------------------------------------------------------------------------------------------------------------
2,585,000 2,290,000
Corporate 8,215,000 8,077,000
Intersegment investments (8,008,000) (8,007,000)
Intersegment advances (587,000) (397,000)
-------------------------------------------------------------------------------------------------------------
Total assets $ 2,205,000 $ 1,963,000
=============================================================================================================
</TABLE>
6. Subsequent Event
On July 27, 2000, the Company concluded an agreement to acquire a
controlling interest in Shopclue.com, Inc. ("Shopclue.com") in exchange for
1.030 million shares of the Company's common stock. Shopclue.com is an
Application Service Provider that enables small- and medium-sized businesses to
establish an online presence rapidly and inexpensively using Shopclue.com's
software. The software used by Shopclue.com allows its customers to create, edit
and maintain advanced, interactive websites without having any prior knowledge
of web-based programming languages. Shopclue.com has more than 30 employees and
is headquartered in Armonk, New York. Blake Schiller, the son of Lewis S.
Schiller, The Finx Group's chief executive officer and vice-chairman, developed
the Shopclue.com concept and will continue to serve as Shopclue.com's president
under an employment agreement having significant earn-up provisions.
On July 27, 2000, the Company acquired a minority equity interest in
Bizchase.com, Inc. ("Bizchase.com") from Trinity. Bizchase.com will be included
as a part of the Company's consolidated statements of operations and
consolidated statement of financial position due to the effective control as
evidenced by interlocking management and The Finx Group's ownership of a series
of Bizchase.com's preferred stock that gives the Company the right to elect a
majority of the Bizchase.com board of directors. Bizchase.com is a software
development company that provides comprehensive solutions for the online needs
of businesses. Bizchase.com's concept was developed by Blake Schiller, the
founder of Shopclue.com, and provides Shopclue.com with its software under a
licensing agreement.
...................................................................
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Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
This Management's Discussion and Analysis of Financial Condition and Results of
Operations may be deemed to include forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, that involve risk and
uncertainty. Although management believes that its expectations are based on
reasonable assumptions, it can give no assurance that its expectations will be
achieved.
The important factors that could cause actual results to differ from
those in the forward-looking statements herein (the "Cautionary Statements") are
more fully described in the Company's December 31, 1999 Form 10-KSB and include,
without limitation: the Company's history of losses and cash flow deficits; need
for additional financing to fund our present and proposed business activities;
dependence on present executive officers and key personnel to manage our present
and proposed business operations and our ability to integrate new officers and
key personnel; dependence upon an exclusive distribution agreement for the
future operations of SPS; dependence upon patent protection for the proposed
activities of FMX; threat that technological change could render certain of our
products and proposed products obsolete or non-competitive; inability to predict
market acceptance for our proposed products; intense competition of the business
in which we intend to engage; threat that E-commerce products and services may
become subject to government regulation; the risks relating to legal
proceedings, as well as other risks referenced form time to time in the
Company's filings with the SEC. All subsequent written and oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the Cautionary Statements. The Company
does not undertake any obligation to release publicly any revisions to such
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
Results of Operations
As more fully disclosed in the footnotes to the unaudited interim
financial statements, The Finx Group has five identifiable business segments.
The operations of each of the business segments is discussed separately as
follows:
Electro-Mechanical and Electro-Optical Products
The Electro-Mechanical and Electro-Optical Products segment comprises
the activities of Sequential, which is primarily engaged in the design,
manufacture and assembly of precision electro-mechanical and electro-optical
products and devices for sale to commercial and governmental customers
throughout the United States. Among such products and devices are optical
encoders, encoded motors and limit programmers.
Sequential's revenues increased $288,000,or 90%, from $320,000 for the
three months ended June 30, 1999 (the "1999 2nd Quarter") to $608,000 for the
three months ended June 30, 2000 (the "2000 2nd Quarter"). Sequential's 2000 2nd
Quarter gross profit was $279,000, or 46% of sales. Sequential's 1999 2nd
Quarter gross profit was $133,000, or 42% of sales. Sequential's revenues
increased $464,000,or 59%, from $788,000 for the six months ended June 30, 1999
(the "1999 Six Month Period") to $1,252,000 for the six months ended June 30,
2000 (the "2000 Six Month Period"). Sequential's 2000 Six Month Period gross
profit was $631,000, or 50% of sales. Sequential's 1999 Six Month Period gross
profit was $317,000, or 40% of sales. During the 2000 Six Month Period a
significant portion of Sequential's revenue was generated on a defense contract
that had a gross margin rate of approximately 50%. As a result, Sequential's
gross profits, as a percentage of revenue, for the 2000 comparative periods
increased significantly when compared to the 1999 comparative periods.
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Sequential's selling, general and administrative expenses decreased
$213,000, or 84%, from $254,000 for the 1999 2nd Quarter to $41,000 for the 2000
2nd Quarter. $135,000 of such decrease resulted from cost containment efforts by
management. The remaining $78,000 decrease comprises a write-off of previously
accrued expenses for which Sequential believes it will not have to pay.
Sequential's selling, general and administrative expenses decreased $302,000, or
55%, from $550,000 for the 1999 Six Month Period to $248,000 for the 2000 Six
Month Period. $224,000 of such decrease resulted from cost containment efforts
by management. The remaining $78,000 reduction relates to the aforementioned
accrued expense write-offs.
As a result of the above, Sequential's operating income increased by
$359,000, or 297%, from an operating loss of $121,000 for the 1999 2nd Quarter
to operating income of $238,000 for the 2000 2nd Quarter. Sequential's operating
income increased by $616,000, or 264%, from an operating loss of $233,000 for
the 1999 Six Month Period to operating income of $383,000 for the 2000 Six Month
Period.
Specialized Vending and Avionics Equipment
The Specialized Vending and Avionics Equipment comprises the activities
of S-Tech, which designs and manufactures two specialized product lines
consisting of specialized vending machines and avionics equipment. "Specialized
Vending" is an industry term used to describe a vending product that utilizes
electronic circuitry and/or computer software. Among the vending machines
manufactured by S-Tech are prepaid telephone debit card machines, bill payment
kiosks, information kiosks, and stamp vending machines.
S-Tech's revenues for the 2000 2nd Quarter decreased $101,000,or 42%,
from $238,000 for the 1999 2nd Quarter to $137,000 for the 2000 1st Quarter.
S-Tech's 2000 2nd Quarter gross profit was $38,000, or 28% of sales. S-Tech'
1999 2nd Quarter gross profit was $81,000, or 34% of sales. S-Tech's revenues
for the 2000 Six Month Period decreased $134,000,or 43%, from $315,000 for the
1999 Six Month Period to $181,000 for the 2000 1st Quarter. S-Tech's 2000 Six
Month Period gross profit was $46,000, or 25% of sales. S-Tech's 1999 Six Month
Period gross profit was $42,000, or 13% of sales. S-Tech's significantly lower
margins, as a percentage of sales, for the 1999 Six Month Period is due
primarily to the fact that during the 1999 1st Quarter, S-Tech incurred a
negative gross profit of $38,000, or 49% of sales, as a result of non-variable
overhead costs being allocated to a relatively minimal sales volume during such
quarter.
S-Tech's selling, general and administrative expenses remained
relatively level when comparing both the 2nd Quarter and Six Month comparable
periods. Selling, general and administrative costs approximated $79,000 and
$75,000, respectively, for the 2000 and 1999 2nd Quarters and approximated
$140,000 and $158,000, respectively, for the 2000 and 1999 Six Month Periods.
As a result of the above, S-Tech's operating loss increased by $47,000,
or 783%, from operating income of $6,000 for the 1999 2nd Quarter to an
operating loss of $41,000 for the 2000 2nd Quarter. S-Tech's operating loss
decreased by $22,000, or 19%, from $116,000 for the 1999 Six Month Period to
$94,000 for the 2000 Six Month Period.
Fingerprint Identification Technologies
The Fingerprint Identification Technologies segment comprises the
activities of FMX, which was formed in 1996 to continue with the development of
products and systems utilizing a proprietary and patented electronic fingerprint
identification technology originally conceived by The Finx Group. The
fingerprint identification technology being developed and utilized by FMX is a
fingerprint identification scanning technology utilized for a variety of access
control and law enforcement purposes. Applications for this technology include
access control systems for banks, airports and industrial and government
facilities, voter registration and electoral anti-fraud systems, welfare and
social program identification systems, immigration control, suspect booking,
prisoner and detainee movement and release control systems, and sensitive
employment authorization systems. On July 24, 2000, FMX delivered its
fingerprint scanning device to the U.S. State Department in Washington, D.C. for
evaluation for varied applications
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within the State Department including providing access control to the secured
portal delivered by its sister company, SPS, to the State Department on the same
date.
FMX did not have revenues or gross profits for the 2000 and 1999 2nd
Quarters or for the 2000 and 1999 Six Month Periods and as such, FMX's operating
losses for such periods consisted entirely of its operating expenses. FMX had no
activity or expenses during the 1999 2nd Quarter and the 1999 Six Month Period.
FMX incurred general and administrative expenses of $55,000 for the 2000 2nd
Quarter and $106,000 for the 2000 Six Month Period. FMX had nominal activity in
1998 and the first part of 1999 due to a lack of funding. During the later part
of 1999 and during the 2000 1st and 2nd Quarters, the development activity
increased as a result of funding received from Trinity.
Secured Entrance Systems
The Secured Entrance Systems segment comprises the activities of SPS,
which is a newly created subsidiary formed in 1999 for the purpose of entering
into an exclusive distribution agreement with GIL Security Systems, Inc.
pursuant to which SPS was engaged as the exclusive distributor for a certain
secured entrance system developed, manufactured and marketed by GIL (the
"Security Systems") for a term commencing as of September 1, 1999 and expiring
on August 31, 2009. SPS obtained the exclusive right to distribute the Security
Systems to certain categories of customers defined in the Distribution
Agreement, including certain agencies of the Federal Government, including U.S.
embassies, U.S. courthouses and U.S. government buildings, department stores and
retail stores located in the United States, the Government of Israel, NCR Corp.,
and Sun Microsystems. The Security Systems are currently in use in at various
locations, including the new American Airlines Terminal in Dallas, United
Airlines at O'Hare Airport in Chicago and the Port Authority Newark Airport;
Citicorp Computer Data Center (Ft. Lee, N.J.) and Rikers Island Detention Center
in New York. Further, on July 24, 2000, SPS delivered its ultra secure
unattended portal to the U.S. State Department in Washington, D.C. for
evaluation. SPS incurred general and administrative expenses, and therefore net
operating losses, of $22,000 and $88,000, respectively, for the 2000 2nd Quarter
and the 2000 Six Month Period.
Internet Viral Marketing
The Internet Viral Marketing segment comprises the activities of
Starnet365.com, which is a newly created subsidiary formed in 2000.
Starnet365.com is a development stage company and is nearing its pre-launch
stage for its web site. Starnet365.com combines the power of network marketing,
the power of the Internet and extensive marketing tools, coined "Viral
Marketing" by Starnet365.com. Starnet365.com enables individuals to own their
own online E-Commerce website rapidly and inexpensively, utilizing
Starnet365.com's software and Internet expertise. Starnet365.com incurred
general and administrative expenses, and therefore a net operating loss of
$80,000 for the 2000 2nd Quarter and the 2000 Six Month Period.
Corporate costs and expenses
Corporate costs and expenses comprise the expenses of The Finx Group,
the holding company. As a result of the SES Merger and its treatment as a
reverse acquisition, all of the activities of The Finx Group prior to the April
28, 1999 SES Merger were recapitalized into equity and are not reflected in the
results of operations. As a result, the holding company had no general and
administrative expenses, and therefore no operating loss for the 1999 1st
Quarter. The holding's company's general and administrative expense for the 2000
and 1999 2nd Quarters was $349,000 and $4,000, respectively, and for the 2000
and 1999 Six Month Periods was $684,000 and $4,000, respectively. As of June 30,
2000, Mr. Lewis S. Schiller and Ms. Grazyna B. Wnuk are owed an aggregate of
$400,000 for unpaid salaries of which $200,000 was accrued as of December 31,
1999 and $100,000 and $200,000,respectively, is included in the 2000 2nd Quarter
and 2000 Six Month Period corporate costs. Other significant corporate costs for
the 2000 2nd Quarter and the 2000 Six Month Period include audit fees,
consulting fees, legal and professional fees and public relation costs.
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Non Cash Stock Option Expense
The Company granted an aggregate of 737,500 non employee stock options,
which, using the Black-Scholes option valuation formula, had a value of $1.766
million, which was recorded as an operating expense for the 2000 2nd Quarter and
the 2000 Six Month Period.
Non-Operating Components of Net Loss
Interest Expense and Financing Fees, Other
The interest and maintenance fees on the on the revolving line of
credit amounted to $59,000 and $40,000, respectively for the 2000 and 1999 2nd
Quarters and $98,000 and $80,000, respectively, for the 2000 and 1999 Six Month
Periods. Pursuant to an amended revolving line of credit agreement between
Sequential and FINOVA Capital Corporation (the "FINOVA Line of Credit"),
Sequential is eligible to receive advances on up to 80% of its eligible accounts
receivable to a maximum of $400,000. The FINOVA Line of Credit requires payment
of a 1% annual facility fee and a 1% monthly commitment fee, against which
monthly interest, exclusive of interest on any over advances, is applied. The
annual monthly interest rate on the FINOVA Line of Credit is the greater of
18.5% or the prime rate in effect in New York City plus 10%, and is payable
monthly. The FINOVA Line of Credit is collateralized by all of the assets of
Sequential. The term of the FINOVA Line of Credit has an expiration date of July
31, 2000 but was extended to July 31, 2001 as a result of an automatic extension
provision whereby the agreement is automatically extended for one year terms
unless either party gives 30 days prior notice of intent to not extend the
agreement. Trinity has guaranteed Sequential's performance under the FINOVA Line
of Credit and provided FINOVA Capital Corporation with a collateral security
deposit of $522,500 on which Trinity receives from FINOVA a return on the cash
collateral in an amount equal to the greater of the prime rate of Citibank,
N.A., plus 6% or 14.5% per annum. As of June 30, 2000, Sequential had received
over advances on the FINOVA Line of Credit in the amount of $305,000.
Interest Expense, Related Parties
The Company incurs interest expense on loans and advances received from
Trinity. The interest expense incurred on the loans and advances from Trinity
was $74,000 and $21,000, respectively, for the 2000 and 1999 2nd Quarters and
$131,000 and $21,000, respectively, for the 2000 and 1999 Six Month Periods. As
of June 30, 2000, the Company owes Trinity in the aggregate approximately $2.346
million of which all but approximately $36,000 bears interest at 9%.
Extraordinary Loss
On April 28, 1999 certain creditors of the Company accepted 6,346
shares of Series A Preferred Stock in exchange for their aggregate debt of
$648,000. The 6,346 Series A Preferred shares are convertible into 471,381
common shares of the Company and using the Black-Scholes option valuation
formula, such shares were valued at $1.077 million, resulting in $429,000 of
expense from issuance of the stock. Effective June 30, 2000, all of such Series
A Preferred Shares were converted into common stock.
Net Loss
As a result of the above, the Company incurred a consolidated net loss
of $2.208 million, or $1.05 per common share, for the 2000 2nd Quarter and
$609,000, or $.36 per common share for the 1999 2nd Quarter and incurred a
consolidated net loss of $2.545 million, or $1.30 per common share, for the 2000
Six Month Period and $883,000, or $.67 per common share for the 1999 Six Month
Period.
Financial Condition - Liquidity and Capital Resources
As of June 30, 2000 the Company had a working capital deficiency of
$3.308 million. Approximately $2.746 million of such deficiency relates to
amounts owed to related parties, including accrued and unpaid salaries of
$400,000 owed to Lewis S. Schiller and Grazyna B. Wnuk and $2.346
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million owed to Trinity, its controlling stockholder, for loans and advances
made to fund the operations of the Company.
During the 2000 Six Month Period, the Company used $567,000 for
operating activities, used $61,000 for investing activities and generated
$571,000 from financing activities. As of June 30, 2000, Sequential and S-Tech
are delinquent on payment of payroll taxes approximating $241,000. The Company
has issued its capital stock in order to make its recent acquisitions and is
pursuing various financing sources with which to fund future operating
activities.
As of June 30, 2000, the Company has a working capital deficiency of
$3.308 million and a capital deficiency of $2.994 million. During the current
interim period and for all of 1999 and 1998, the Company has relied on financial
support from its controlling stockholder, The Trinity Group, Inc. ("Trinity").
Management is currently seeking additional financing; however no assurances can
be made that such financing will be obtained. The continuation of the Company as
a going concern is dependent upon the ability of Trinity to continue to provide
financing, and or, to obtain financing, and to use the proceeds from any such
financing to increase its business to achieve profitable operations. The
accompanying consolidated financial statements do not include any adjustments
that would result should the Company be unable to continue as a going concern.
PART II OTHER INFORMATION
Item 5. Other Information
On July 27, 2000, the Company concluded an agreement to acquire a
controlling interest in Shopclue.com, Inc. ("Shopclue.com") in exchange for
1.030 million shares of the Company's common stock. Shopclue.com is an
Application Service Provider that enables small- and medium-sized businesses to
establish an online presence rapidly and inexpensively using Shopclue.com's
software. The software used by Shopclue.com allows its customers to create, edit
and maintain advanced, interactive websites without having any prior knowledge
of web-based programming languages. Shopclue.com has more than 30 employees and
is headquartered in Armonk, New York. Blake Schiller, the son of Lewis S.
Schiller, The Finx Group's chief executive officer and vice-chairman, developed
the Shopclue.com concept and will continue to serve as Shopclue.com's president
under an employment agreement having significant earn-up provisions.
On July 27, 2000, the Company acquired a minority equity interest in
Bizchase.com, Inc. ("Bizchase.com") from Trinity. Bizchase.com will be included
as a part of the Company's consolidated statements of operations and
consolidated statement of financial position due to the effective control as
evidenced by interlocking management and The Finx Group's ownership of a series
of Bizchase.com's preferred stock that gives the Company the right to elect a
majority of the Bizchase.com board of directors. Bizchase.com is a software
development company that provides comprehensive solutions for the online needs
of businesses. Bizchase.com's concept was developed by Blake Schiller, the
founder of Shopclue.com, and provides Shopclue.com with its software under a
licensing agreement.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule.(1)
(99.1) Purchase agreement to acquire a controlling interest in
Shopclue.com, Inc.
(1) Filed only with the SEC in electronic format.
(b) Reports on Form 8-K
Current report on Form 8-K reporting under Item 4 the change in the
Company's certifying accountant.
.............................
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
THE FINX GROUP, INC.
/S/______________ Chief Executive Officer and Director August 10, 2000
Lewis S. Schiller (Principal Executive and Accounting Officer)
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Exhibit 99.1
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION dated this 20th day of July, 2000
by and among THE FINX GROUP, INC., a Delaware corporation with offices at 249 N.
Saw Mill River Road, Elmsford, NY 10523 ("FINX"), SHOPCLUE.COM, INC., a Delaware
corporation with offices at 84 Business Park Drive, Suite 202, Armonk, New York
10504 ("ShopClue"), BLAKE SCHILLER, an individual residing at 95 High Street,
Armonk, New York 10504 ("B. Schiller"), LEWIS S. SCHILLER, an individual
residing at 21634 Club Villa Terrace, Boca Raton, Florida 33433 ("L. Schiller"),
CAROL SCHILLER, an individual residing at One Butler Road, Scarsdale, New York
10583 ("C. Schiller"), DOUGLAS SCHILLER, an individual residing at 9206 Monte
Mar Drive, Los Angeles, California 90035 ("D. Schiller"), GRAZYNA B. WNUK, an
individual residing at 21634 Club Villa Terrace, Boca Raton, Florida 33433 ("G.
Wnuk"), and LINDA SCHILLER EGLES, an individual residing at 153 Green Ridge
Road, White Plains, New York 10605 ("L. Egles") (B. Schiller, L. Schiller, C.
Schiller, D. Schiller, G. Wnuk, and L. Egles hereinafter collectively referred
to as the "Stockholders").
W I T N E S S E T H :
WHEREAS, the Stockholders are the owners of the number of issued and
outstanding shares of common stock, $.01 par value per share, of ShopClue (the
"ShopClue Common Stock") set forth opposite their names on Exhibit A thereto;
and
WHEREAS, the Stockholders desire to exchange a portion of the shares of
ShopClue Common Stock owned by each of them for shares of the common stock, $.01
par value per share, of FINX (the "FINX Common Stock"); and
WHEREAS, FINX desires to acquire such shares of the ShopClue Common
Stock owned by the Stockholders in a tax-free exchange for shares of FINX Common
Stock; and
WHEREAS, in order to carry out the foregoing objectives, the parties
hereto desire to enter into and adopt this Agreement and Plan of Reorganization,
all on and subject to the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
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1. Exchange.
1.1._ On the Closing Date (hereinafter defined), each of the
Stockholders hereby agrees to sell, transfer and assign to FINX the shares of
ShopClue Common Stock owned by them and set forth opposite their names on
Exhibit A hereto. In consideration for such sale, transfer and assignment of
such shares of ShopClue Common Stock, FINX hereby agrees to issue an aggregate
of 1,000,030 shares of FINX Common Stock (the "FINX Shares") for an aggregate of
800,000 shares of the ShopClue Common Stock owned by the Stockholders (the
"ShopClue Shares"), except as to G. Wnuk and L. Schiller as provided in
subparagraph 1.2 hereof. Set forth on Exhibit A opposite the names of each
Stockholder is the number of FINX Shares to be received by each of the
Stockholders on the Closing Date in exchange for the shares of ShopClue Common
Stock owned by each of such Stockholders. Also set forth on Exhibit A opposite
the names of each Stockholder is the number of shares of ShopClue Common Stock
which will be owned by each such Stockholder on the Closing Date upon and
subject to the consummation of the aforementioned exchange.
1.2._ Notwithstanding the provisions of subparagraph 1.1 above, or any
other provision of this Agreement to the contrary, G. Wnuk and L. Schiller
hereby waive any and all right and entitlement which either of them have with
respect to receiving any FINX Shares from FINX on the Closing Date in exchange
for the shares of ShopClue Common Stock owned by them.
1.3._ On the Closing Date, FINX will execute and deliver to each of the
Stockholders (other than G. Wnuk and L. Schiller) a Registration Rights
Agreement in the form annexed hereto as Exhibit B pursuant to which each such
Stockholder will be granted "piggyback" registration rights with respect to the
shares of FINX Common Stock that are issued to each such Stockholder on the
Closing Date.
2. Right to Receive Additional Shares of ShopClue.
2.1. ShopClue hereby agrees to issue to B. Schiller upon either or both
of the following occurrences the following additional shares of ShopClue Common
Stock (the "Additional Shares") without any payment to ShopClue therefor:
(1) 520,000 shares at such time as ShopClue's website is
operational. For purposes hereof, such website shall be deemed "operational" at
such time as all security features have been installed and are in effect and all
software enabling e-commerce transactions to be completed is installed and
operational and when consumers are thereafter actually purchasing products from
merchants on such website and ShopClue is billing and collecting transaction
processing fees from merchants; and
(b) 520,000 shares at such time as ShopClue's gross revenues
exceed an aggregate of
$100,000.
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2.2. The number of Additional Shares provided for in subparagraph 2.1
shall be subject to adjustment to reflect any stock splits, stock dividends,
consolidations, reclassifications and other similar transactions affecting the
outstanding shares of ShopClue's Common Stock which occur prior to the issuance
of the Additional Shares.
3. Management of ShopClue.
3.1. On the Closing Date, the board of directors of ShopClue shall
consist of B. Schiller, Jeffrey Garnett, Leonard Jaffe, L. Schiller and three
designees of FINX and B. Schiller will be the President, L. Schiller will be the
Chairman of the Board and Chief Executive Officer, Jeffrey Garnett will be the
Chief Operating Officer and Leonard Jaffe will be the Chief Technical Officer of
ShopClue.
3.2. On the Closing Date, ShopClue will issue and deliver to FINX a
stock certificate for 1,000 shares of its Series A Preferred Stock, a copy of
the Certificate of Designation of which is annexed hereto as Exhibit D.
3.3. Within thirty (30) days after the Closing Date, ShopClue and FINX
will execute the FINX Management Agreement (hereinafter defined) and ShopClue
and The Trinity Group, Inc. ("Trinity") will execute the Trinity Management
Agreement (hereinafter defined) in both instances as hereinafter provided in
Paragraph 8 hereof.
3.4. Within thirty (30) days after the Closing Date, ShopClue and Carol
Schiller will enter into the Partnership Agreement (hereinafter defined).
4. Representations and Warranties of FINX. FINX hereby warrants to
ShopClue and the Stockholders as follows:
4.1. FINX is a corporation, duly organized, validly existing, and in
good standing under the laws of the State of Delaware and has all requisite
power and authority to own or lease its properties and carry on its business as
now conducted.
4.2. All action on the part of FINX necessary for the authorization,
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby, has been properly taken and obtained by it
and this Agreement constitutes a valid and legally binding obligation of FINX
enforceable in accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, reorganization, moratorium, or other laws affecting
generally the enforcement of creditors' rights and by general principles of
equity.
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4.3. There is no action, suit, proceeding, or investigation pending or,
to the knowledge of FINX, threatened against FINX which in any way relates to
the validity of this Agreement or the right of FINX to enter into or consummate
this Agreement and the transactions contemplated hereby.
4.4. The authorization, execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
result in any violation or be in conflict with or constitute, with or without
the passage of time or giving of notice, a default under FINX's Certificate of
Incorporation or By-Laws or any instrument, judgment, order, writ, decree or
agreement to which FINX is a party or by which it is bound.
4.5. No consent, approval, order, authorization, registration,
qualification, license, permit, designation or declaration of, or other filing
with or notification to, any foreign and/or domestic federal, state or local
governmental authority or agency or any third party is required in connection
with the authorization, execution, delivery and performance of this Agreement,
except for any filings with the Securities and Exchange Commission which are
required under applicable law.
4.6. All of the FINX Shares will, when issued on the Closing Date, be
duly authorized, validly issued, fully paid and non-assessable shares of FINX
Common Stock. FINX is authorized to issue 50,000,000 shares of common stock, par
value $.01 per share, and 1,000,000 shares of Preferred Stock, par value $.01
per share, of which there are an aggregate of 10,497,855 shares of such common
stock and 1,000 shares of Series A 4% Preferred Stock issued and outstanding on
the date hereof.
4.7. FINX will, on the Closing Date, issue and deliver the FINX Shares
to the Stockholders, free and clear of all liens, claims and encumbrances.
4.8. FINX understands and acknowledges that the ShopClue Shares to be
sold, transferred and assigned to it hereunder have not been and will not be
registered under the Securities Act and are being issued and delivered hereunder
pursuant to an exemption from the registration requirements of Section 5 of the
Securities Act inasmuch as the issuance of such shares involves a transaction by
an issuer not involving a public offering and that reliance upon such exemption
is predicated in part upon the following representations and warranties of FINX:
A. FINX is acquiring the ShopClue Shares for investment
purposes only, for its own account, and not for, with any view to, or in
connection with any distribution or public offering thereof within the meaning
of the Securities Act.
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B. FINX understands that the ShopClue Shares have not been
registered under the Securities Act or any state securities law by reason of
their issuance in a transaction which is exempt from the registration
requirements of the Securities Act and such laws and the ShopClue Shares must be
held indefinitely unless they are subsequently registered under the Securities
Act and such laws or a subsequent disposition thereof is exempt from
registration under the applicable provisions of the Securities Act and such
laws.
C. FINX has sufficient knowledge and expertise in business and
financial matters so as to enable it to analyze and evaluate the merits and
risks of the investment contemplated hereby and is able to bear the economic
risk of such investment, including a complete loss of its investment in the
ShopClue Shares.
D. FINX acknowledges that it has made detailed inquiry
concerning ShopClue and its business and that the officers of ShopClue have made
available to FINX any and all written information which it has requested and
have answered to FINX's satisfaction all inquiries made by FINX.
E. The transactions provided for in this Agreement with
respect to the ShopClue Shares are not part of any pre-existing plan or
arrangement for, and there is no agreement or other understanding with respect
to, the distribution by FINX of any of the ShopClue Shares.
4.9. FINX has no obligation or commitment to, and has no agreement or
understanding with, any broker or finder in connection with the transactions
contemplated by this Agreement.
4.10. Except as set forth in this Section 4 or as otherwise expressly
provided elsewhere in this Agreement, FINX has made no other representations or
warranties to the Stockholders in connection with this Agreement or the
transactions contemplated by this Agreement. FINX also acknowledges that no
representation has been made to it by ShopClue or the Stockholders as to the
future financial condition or results of operations of ShopClue and no assurance
has been given that ShopClue can or will ever operate profitably.
5. Representations and Warranties of ShopClue and the Stockholders.
ShopClue and the Stockholders hereby warrant and represent to FINX as follows:
5.1. ShopClue is a corporation, duly organized, validly existing, and
in good standing under the laws of the State of Delaware and has all requisite
power and authority to own or lease its properties and carry on its business as
now conducted.
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5.2. All action on the part of ShopClue and the Stockholders necessary
for the authorization, execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby, has been properly
taken and obtained by it and them and this Agreement constitutes a valid and
legally binding obligation of ShopClue and the Stockholders enforceable in
accordance with its terms, except as the same may be limited by bankruptcy,
insolvency, reorganization, moratorium, or other laws affecting generally the
enforcement of creditors' rights and by general principles of equity.
5.3. There is no action, suit, proceeding, or investigation pending or,
to the knowledge of ShopClue or the Stockholders, threatened against ShopClue or
the Stockholders which in any way relates to the validity of this Agreement or
the right of ShopClue or the Stockholders to enter into or consummate this
Agreement and the transactions contemplated hereby.
5.4. The authorization, execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
result in any violation or be in conflict with or constitute, with or without
the passage of time or giving of notice, a default under ShopClue's Certificate
of Incorporation or By-Laws or any instrument, judgment, order, writ, decree or
agreement to which ShopClue or the Stockholders are a party or by which any of
them are bound.
5.5. No consent, approval, order, authorization, registration,
qualification, license, permit, designation or declaration of, or other filing
with or notification to, any foreign and/or domestic federal, state or local
governmental authority or agency or any third party is required in connection
with the authorization, execution, delivery and performance of this Agreement.
5.6. All of the ShopClue Shares will, when delivered on the Closing
Date, be duly authorized, validly issued, fully paid and non-assessable shares
of ShopClue's Common Stock. ShopClue is authorized to issue 25,000,000 shares of
common stock, par value $.01 per share, and 1,000,000 shares of preferred stock,
par value $.01 per share, of which there are an aggregate of 1,000,000 shares of
such common stock and no shares of such preferred stock issued and outstanding
on the date hereof.
5.7. The Stockholders will, on the Closing Date, sell, transfer and
assign to FINX the ShopClue Shares, free and clear of all liens, claims and
encumbrances.
5.8. Each of the Stockholders understands and acknowledges that the
FINX Shares to be issued and delivered to them hereunder have not been and will
not be registered under the Securities Act and are being issued and delivered
hereunder pursuant to an exemption from the registration requirements of Section
5 of the Securities Act inasmuch as the issuance of the FINX Shares involves a
transaction by an issuer not involving a public offering and that reliance upon
such exemption is predicated in part upon the following representations and
warranties of the Stockholders:
A. The Stockholders are acquiring the FINX Shares for
investment purposes only, for their own account, and not for, with any view to,
or in connection with any distribution or public offering thereof within the
meaning of the Securities Act.
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B. Each of the Stockholders understands that the FINX Shares
have not been registered under the Securities Act or any state securities law by
reason of their issuance in a transaction which is exempt from the registration
requirements of the Securities Act and such laws and the FINX Shares must be
held indefinitely unless they are subsequently registered under the Securities
Act and such laws or a subsequent disposition thereof is exempt from
registration under the applicable provisions of the Securities Act and such
laws.
C. Each of the Stockholders have sufficient knowledge and
expertise in business and financial matters so as to enable them to analyze and
evaluate the merits and risks of the investment contemplated hereby and is able
to bear the economic risk of such investment, including a complete loss of their
investment in the FINX Shares.
D. Each of the Stockholders acknowledges that he or she has
made detailed inquiry concerning FINX and its business and that the officers of
FINX have made available to each of the Stockholders any and all written
information which they have requested and have answered to each of the
Stockholder's satisfaction all inquiries made by the Stockholders.
E. The transactions provided for in this Agreement with
respect to the FINX Shares are not part of any pre-existing plan or arrangement
for, and there is no agreement or other understanding with respect to, the
distribution by the Stockholders of any of the FINX Shares.
5.9. Neither ShopClue nor the Stockholders has any obligation or
commitment to, and has no agreement or understanding with, any broker or finder
in connection with the transactions contemplated by this Agreement.
5.10. Except as set forth in this Paragraph 5 or as otherwise expressly
provided elsewhere in this Agreement, neither ShopClue nor any of the
Stockholders has made any other representations or warranties to FINX in
connection with this Agreement or the transactions contemplated by this
Agreement. ShopClue and each of the Stockholders also acknowledge that no
representation has been made to them by FINX as to the future financial
condition or results of operations of FINX and no assurance has been given that
FINX can or will ever operate profitably.
6. Certificate Legends. The certificates for the ShopClue Shares and the
FINX Shares will, when delivered on the Closing Date, contain the following
legends:
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"The shares of ________ stock evidenced by this certificate
have been purchased for investment and may not be sold or
otherwise transferred unless there is delivered to the Company
an opinion of counsel satisfactory to the Company that either
such shares of __________ have been registered under the
Securities Act of 1933, as amended (the "Act"), and there is
in effect a current prospectus meeting the requirements of
subsection 10(a) of the Act which will be delivered to the
purchaser or transferee of such shares at or prior to the time
of delivery of such shares for sale or transfer or such shares
may be sold without violating Section 5 of the Act."
7. Executive Employment Agreement. Within thirty (30) days after the
Closing Date, ShopClue will enter into an Executive Employment Agreement with B.
Schiller (the "Employment Agreement"), which will provide for, among other
things:
(1) The engagement of B. Schiller as the President of ShopClue pursuant
to which B. Schiller will render all of his time and efforts to the performance
of his services thereunder;
(2) A term of ten (10) years (the "Term");
(3) A base salary of One Hundred Fifty Six Thousand Dollars ($156,000)
for each of the first three years of the Term (subject to increase to Two
Hundred Thousand Dollars ($200,000) at such time as ShopClue's aggregate gross
revenues exceed $200,000), Two Hundred Fifty Thousand Dollars ($250,000) for
each of the next three years of the Term and Three Hundred Seventy Five Thousand
($375,000) for each of the last four years of the Term, all of which shall be
payable monthly, in arrears, and subject to a cost of living increase on a year
to year basis commencing with the second year of the Term;
(4) An annual bonus in an amount equal to 20% of the net pre-tax income
of ShopClue, which bonus shall be payable within ninety (90) days after the end
of each year during the Term;
(5) Reimbursement of all ordinary and necessary business expenses
incurred in connection with the performance of B. Schiller's services;
(6) Customary fringe benefits, including medical and dental insurance,
life insurance and disability insurance;
(7) A restrictive covenant precluding B. Schiller from rendering
services to competitors of ShopClue in any state in which ShopClue is then doing
business during the Term and for a period of one (1) year after the expiration
or earlier termination thereof (except for any termination of such agreement as
a result of a breach by ShopClue);
(8) Severance compensation in an amount equal to the greater of ten
times B. Schiller's then base salary or five times B. Schiller's base salary and
bonus in the immediately preceding year in the event of the sale of all or
substantially all of the assets of ShopClue or the sale or transfer to a third
party (other than FINX or Trinity) of more than 50% of the outstanding shares of
common stock of ShopClue; (1)
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(9) The right to approve any hiring or firing of any employee,
consultant or agent of ShopClue or any supplier thereto in instances where the
amount involved is material,
(10) A key man life insurance policy in the face amount of $2,500,000
with ShopClue as the beneficiary and a life insurance policy in the face amount
of $2,500,000 with B. Schiller (or his designees) as the beneficiary.
8. Management Agreements; Consulting Agreement.
(1) Within thirty (30) days after the Closing Date, ShopClue will enter
into a management agreement with FINX (the "FINX Management Agreement") which
will provide for, among other things:
1. Management services to be provided by FINX consisting of general
management and financial support of ShopClue's activities (including assistance
from FINX's executive officers, financial personnel and legal counsel) and
advisory and support services with respect to ShopClue's marketing activities
for a period of ten (10) years (subject to mutually agreed upon renewals);
2. A management fee payable to FINX in the amount of $15,000 per month
and a contingent annual bonus of 10% of the net pre-tax profit of ShopClue, up
to an annual maximum of $1,250,000, such 10% fee to be payable to FINX on terms
specified therein.
(1) Within thirty (30) days after the Closing Date, ShopClue will enter
into a management agreement with The Trinity Group, Inc. ("Trinity"), which
agreement (the "Trinity Management Agreement") will provide for, among other
things:
3. Management services to be provided by Trinity consisting of general
management and other support services as specified therein, for a period of ten
(10) years (subject to mutually agreed upon renewals);
4. An annual contingent management fee payable to Trinity in an amount
equal to 10% of the net pre-tax profit of ShopClue, up to an annual maximum of
$1,250,000, such fee to be payable to Trinity on terms specified therein.
(c) Within thirty (30) days after the Closing Date, ShopClue will enter
into a partnership agreement with C. Schiller (the "Partnership Agreement"),
which agreement will provide for, among other things, C. Schiller to receive,
for a period of ten (10) years (subject to mutually agreed upon renewals), an
annual interest in 10% of the net pre-tax profit of ShopClue, up to an annual
maximum of $1,250,000, such amount to be payable to C. Schiller on terms
specified therein.
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9. Outstanding Indebtedness; Contingent Liabilities.
9.1. Set forth on Exhibit C hereto is a list of amounts due to certain
creditors of ShopClue as of June 30, 2000, each of which will receive from
ShopClue within thirty (30) days after the Closing Date, ShopClue's promissory
note in a principal amount equal to the amount of the indebtedness set forth
opposite each creditor's name on such Exhibit (plus all amounts loaned or
advanced to ShopClue by such creditors subsequent to June 30, 2000). All
principal and accrued interest on each such note shall be payable on the earlier
of two years from the Closing Date or the date, if any, on which ShopClue
receives net proceeds from any private placement or public offering of its
securities but only to the extent of an aggregate of 22.5% of such proceeds with
respect to all of such notes (if less than all of such notes are outstanding at
the time of ShopClue's receipt of any such proceeds, the aforementioned 22.5%
will be allocated equally among the number of the then outstanding notes). Each
of such notes shall bear interest at the rate of 9% per annum. All principal and
accrued interest on such notes shall be mandatorily prepayable from such
proceeds of any such private placement or public offering and from a mutually
agreeable percentage of ShopClue's net cash flow as defined and otherwise
provided in such notes.
9.2. In addition to the promissory notes referred to in Section 9.1
above, each of such creditors will receive, within thirty (30) days after the
Closing Date, a common stock purchase warrant of ShopClue (each a "Warrant"),
granting the holder thereof the right to purchase up to such number of shares of
ShopClue's common stock as shall be determined by dividing the amount of the
promissory note of ShopClue referred to in Section 9.1 which is delivered to the
holder by the Initial Offering Price (defined below), during a term of five
years at an exercise price equal to one hundred twenty percent (120%) of any
subsequent initial offering price of shares of ShopClue's common stock (the
"Initial Offering Price"). Each such Warrant shall also grant the holder thereof
customary "piggy-back" and demand registration rights with respect to the shares
of common stock issued to such holder upon the exercise of such warrant.
9.3. Also set forth on Exhibit C hereto is a list of certain contingent
liabilities of ShopClue which have been guarantied by Trinity. Trinity will
receive, within thirty (30) days after the Closing Date, a common stock purchase
warrant of ShopClue (the "Trinity Warrant"), granting the holder thereof the
right to purchase up to 393,803 shares of ShopClue's common stock during a term
of five years at an exercise price of $1.60 per share. The Trinity Warrant shall
also grant the holder thereof customary "piggy-back" and demand registration
rights with respect to the shares of common stock issuable to such holder upon
the exercise of such warrant. In the event that Trinity hereafter guaranties any
other or additional obligation or indebtedness of ShopClue, Trinity will receive
an additional common stock purchase warrant to purchase such number of shares of
ShopClue's common stock as shall be determined by dividing the aggregate maximum
amount of any such obligation or indebtedness by One Dollar ($1.00). Any such
common stock purchase warrant shall otherwise be on the same terms as the
Trinity Warrant.
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10. The Closing and Closing Documents.
10.1. The closing of this transaction (the "Closing") will take place
on July 25, 2000 hereof (the "Closing Date") at the offices of Widowski, Cassidy
& Steinhart, LLC, 425 Madison Avenue, Suite 700, New York, New York 10017 or on
such other date or place which FINX and the Stockholders may hereafter agree.
10.2. On the Closing Date, the Stockholders will deliver to FINX:
(a) Certificates for an aggregate of 800,000 of the ShopClue
Shares owned by them in the amounts with respect to each Stockholder set forth
opposite their names on Exhibit A hereto, each of which certificates will be
duly endorsed for transfer to FINX.
(b) A certificate for 1,000 shares of ShopClue's Series A
Preferred Stock registered in the name of FINX.
(c) A Registration Rights Agreement to which FINX and each of
the Stockholders is a party, executed by each of such Stockholders.
(d) A corporate resolution of ShopClue authorizing the
transactions contemplated by this Agreement to the extent such transactions
relate to ShopClue.
10.3. On the Closing Date, FINX will deliver to the Stockholders:
(a) Certificates for an aggregate of 1,000,030 FINX Shares
issued to each of the Stockholders in the amounts set forth opposite their names
on Exhibit A hereto.
(b) A Registration Rights Agreement to which FINX and each of
the Stockholders is a party, executed by FINX.
(c) A corporate resolution of FINX authorizing the
transactions contemplated by this Agreement.
11. Public Announcements. There shall be no press release or other public
announcement or disclosure of the transactions contemplated by this Agreement
without the prior written consent of FINX. FINX shall be permitted to make any
public announcement with respect to this Agreement or the transactions
contemplated hereby to the extent required under applicable law or as otherwise
determined to be necessary or appropriate by FINX.
11
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12. Miscellaneous.
12.1. This Agreement constitutes the sole and entire agreement between
the parties hereto with respect to the subject matter hereof and supersedes all
prior agreements, representations, warranties, statements, promises,
information, arrangements and understandings, whether oral or written, express
or implied, between the parties hereto with respect to the subject matter
hereof, including that certain Term Sheet between FINX, WebMall.com, Inc. and B.
Schiller dated January 25, 2000, and may not be changed or modified except by an
instrument in writing signed by the party to be bound thereby. No course of
conduct or dealing or trade usage or custom or course of performance by the
parties hereto shall constitute or be relied upon as a modification, supplement,
or waiver of any provision of this Agreement. This Agreement has been subject to
the mutual consultation, negotiation and agreement of the parties hereto and
shall not be construed for or against any party hereto on the basis of such
party having drafted this Agreement.
12.2. All notices, consents, requests, demands and other communications
required or permitted to be given under this Agreement (the "Notices") shall be
in writing and delivered personally, receipt acknowledged, or mailed by
registered or certified mail, postage prepaid, return receipt requested and
addressed to the parties hereto as follows (or to such other addresses as any of
the parties hereto shall specify by notice given in accordance with this
provision):
(a) If to FINX:
The FINX Group, Inc.
249 N. Saw Mill River Road
Elmsford, NY 10523
Attn: Lewis S. Schiller, President
with a copy to:
Jerold K. Levien, Esq.
Widowski Cassidy & Steinhart LLP
425 Madison Avenue, Suite 700
New York, NY 10017
(b) If to ShopClue:
ShopClue.com, Inc.
84 Business Park Drive, Suite 202
Armonk, New York 10504
Attn: Blake Schiller, President
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(c) If to the Stockholders:
Lewis S. Schiller
21634 Club Villa Terrace
Boca Raton, Florida 33433
All such Notices shall be deemed given when personally delivered as aforesaid,
or, if mailed as aforesaid, on the third business day after the mailing thereof
or on the day actually received, if earlier, except for a notice of a change of
address which shall be effective only upon receipt.
12.3. This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
Nothing contained in this Agreement is intended to confer upon any person or
entity, any rights, benefits, obligations, remedies or liabilities under or by
reason of this Agreement.
12.4. No waiver of any provision of this Agreement or of any breach
thereof shall be effective unless in writing and signed by the party to be bound
thereby. The waiver by any party hereto of a breach of any provision of this
Agreement, or of any representation, warranty, obligation or covenant in this
Agreement by any other party hereto, shall not be construed as a waiver of any
subsequent breach or of any other provision, representation, warranty,
obligation or covenant of such other party, unless the instrument of waiver
expressly so provides.
12.5. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York with respect to contracts made and to be
fully performed therein, without regard to the conflicts of laws principles
thereof (except as to matters pertaining to the issuance, delivery and
transferability of the ShopClue Shares and the FINX Shares which shall be
governed by the applicable provisions of Federal and state securities laws), and
shall be enforced exclusively in the federal or state courts located in the
City, County and State of New York. ShopClue and FINX hereby waive any defense
of forum non conveniens with respect to any action commenced in any such court.
12.6. This Agreement shall not be assigned by ShopClue, FINX, or any of
the Stockholders, without the prior consent of the non-assigning parties. Any
assignment contrary to the terms hereof shall be null and void and will not
confer any rights or benefits upon the assignee thereof.
12.7. The parties hereto hereby agree that, at any time and from time
to time after the date hereof upon the reasonable request of any other party
hereto, they shall do, execute, acknowledge and deliver, or cause to be done,
executed, acknowledged and delivered, such further acts, deeds, assignments,
transfers, conveyances, and assurances as may be reasonably required to more
effectively consummate this Agreement and the transactions contemplated thereby
or to confirm or otherwise effectuate the provisions of this Agreement.
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12.8. Each party hereto represents and warrants to the other that it
has been represented by counsel in connection with the negotiation, preparation,
and consummation of this Agreement. Except as expressly provided in this
Agreement, each of the parties hereto shall bear all of its respective costs and
expenses which are incurred in connection with the negotiation, preparation,
execution, consummation, performance and/or enforcement of this Agreement,
including, without limitation, the fees and disbursements of their respective
counsel, financial advisors and accountants. Notwithstanding the foregoing, in
the event of any action or proceeding instituted by any party hereto to enforce
the provisions of this Agreement, the party prevailing therein shall be entitled
to reimbursement by the other breaching party of the legal costs and expenses
incurred by the prevailing party in connection therewith.
12.9. This Agreement may be executed in one or more counterparts, each
of which, when executed and delivered, shall be deemed an original, but all of
which when taken together, shall constitute one and the same instrument.
12.10. The parties hereto each represent to the others that no person
or entity acted as a broker or finder in connection with this transaction.
12.11. The Paragraph headings used in this Agreement have been used for
convenience of reference only and are not to be considered in construing or
interpreting this Agreement.
12.12. If one or more provisions of this Agreement are held to be
unenforceable under applicable law, such provision(s) shall be excluded from
this Agreement and the balance of this Agreement shall remain in full force and
effect.
12.13. Unless expressly provided to the contrary, no remedy set forth
in this Agreement is exclusive of any other available remedy or remedies,
whether legal or equitable, but each remedy is cumulative and in addition to
every other right or remedy provided under this Agreement or now or hereafter
existing at law or in equity. Any party hereto may pursue its rights and
remedies concurrently or in any sequence and no exercise of one right or remedy
shall be deemed to be an election of remedies.
12.14. Unless the context of this Agreement clearly requires otherwise,
the plural includes the singular, the singular includes the plural, the part
includes the whole, "including" is not limiting, and "or" has the inclusive
meaning of the phrase "and/or". The words "hereof", "herein", "hereby",
"hereunder" and other similar terms in this Agreement refer to this Agreement as
a whole and not exclusively to any particular provision of this Agreement.
[SIGNATURES FOLLOW ON NEXT PAGE]
14
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IN WITNESS WHEREOF, the undersigned have signed this Agreement this
20th day of July, 2000.
WITNESS: THE FINX GROUP, INC.
________________________ By:____________________________________
Lewis S. Schiller
Chief Executive Officer and
Chairman of the Board
------------------------
Print Name
WITNESS: SHOPCLUE.COM, INC.
By:____________________________________
Blake Schiller
President
------------------------
Print Name
WITNESS:
------------------------- -----------------------------
Blake Schiller
-------------------------
Print Name
WITNESS:
------------------------- -----------------------------
Lewis S. Schiller
-------------------------
Print Name
WITNESS:
------------------------- -----------------------------
Carol Schiller
-------------------------
Print Name
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WITNESS:
------------------------- -----------------------------
Douglas Schiller
-------------------------
Print Name
WITNESS:
------------------------- -----------------------------
Grazyna B. Wnuk
-------------------------
Print Name
WITNESS:
------------------------- -----------------------------
Linda Schiller Egles
-------------------------
Print Name
16
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EXHIBIT A
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Stockholder Common Stock Owned Common Stock to be Exchanged FINX Shares Common Stock after
----------- ------------------ ---------------------------- ----------- ------------------
Blake Schiller 800,000 640,000 799,995 160,000
Lewis S. Schiller 45,625 36,500 0 9,125
Carol Schiller 79,375 63,500 100,055 15,875
Douglas Schiller 25,000 20,000 49,990 5,000
Grazyna Wnuk 25,000 20,000 0 5,000
Linda Schiller Egles 25,000 20,000 49,990 5,000
------ ------ ------ -----
Total 1,000,000 800,000 1,000,030 200,000
</TABLE>
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EXHIBIT B
FORM OF REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement, dated the ____ day of July, 2000,
is made by and between THE FINX GROUP, INC., a Delaware corporation with offices
at 249 N. Saw Mill River Road, Elmsford, NY 10523 (the "Company") and
___________, an individual residing at __________________ (the "Holder").
W I T N E S S E T H :
WHEREAS, on July __, 2000, the Holder, the Company, ShopClue.com, Inc.,
and certain other individuals entered into an Agreement and Plan of
Reorganization (the "Reorganization Agreement") pursuant to which the Holder
received _______ shares of the Company's common stock (the "FINX Shares"); and
WHEREAS, pursuant to the terms of the Reorganization Agreement, the
Company agreed to grant the Holder certain registration rights with respect to
the FINX Shares, in accordance with and subject to the terms and conditions
hereinafter set forth in this Registration Rights Agreement (the "Agreement").
NOW, THEREFORE, in consideration of the mutual covenants herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the undersigned do hereby agree as follows:
1. Definitions. For the purposes of this Agreement, the following
terms shall have the meanings set forth below:
(a) "Commission" shall mean the Securities and Exchange
Commission.
(b) "Common Stock" shall mean the $.01 par value per share
common stock of the Company.
(c) "Other Holders" shall mean all those persons or entities,
other than the Holder, who or which own shares of the Common Stock for which
registration rights have been granted by the Company.
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(d) "Registrable Securities" shall mean the Shares
(hereinafter defined) until such time as the Shares (i) are eligible for sale
pursuant to Rule 144(k) of the Commission under the Securities Act (hereinafter
defined), (ii) a Registration Statement (hereinafter defined) including all of
the Shares shall have become effective under the Securities Act and all of such
Registrable Securities shall have been disposed of in accordance with such
Registration Statement, or (iii) have been publicly sold pursuant to Rule 144 or
Rule 144A (or any successor provisions) under the Securities Act, or (iv) have
been otherwise transferred and new certificates for such securities not bearing
any legend restricting further transfers shall have been delivered by the
Company to the Holder, and the subsequent public sale of such securities shall
not require registration or qualification under the Securities Act or any state
securities or "blue sky" laws then in effect, or (v) cease to be outstanding.
(e) "Registration Statement" shall mean any Registration
Statement prepared and filed by the Company with the Commission pursuant to the
terms of this Agreement.
(f) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(g) "Shares" shall mean the lesser of _______ shares of Common
Stock received by the Holder pursuant to the Reorganization Agreement or the
number of such shares owned by the Holder on the date of any Registration Notice
(hereinafter defined).
2. Registration Rights.
2.1. If, at any time subsequent to the date hereof, the
Company proposes to register any of its equity securities for its own account or
for the account of any of the Other Holders in connection with a public offering
under the Securities Act (other than in connection with a merger, consolidation,
acquisition of stock or assets of another entity, securities to be offered to
officers, directors, employees and consultants of the Company or securities
registered pursuant to Form S-8 or S-4 or any subsequent similar or comparable
form of Registration Statement or securities issued solely for or in connection
with an employee benefit plan or securities offered for sale or sold pursuant to
Regulation A under the Securities Act or any so-called "shelf-registration"),
the Company will (subject to the provisions hereof) include the Registrable
Securities in any such Registration Statement or, if such registration involves
an underwritten public offering, the Company will request the managing
underwriter or underwriters of such underwritten public offering to include the
Registrable Shares in any such Registration Statement. The Company shall, at
such time, give the holder written notice of its intention to do so and of the
Holder's rights under this Section 2.1 (a "Registration Notice"), at least
thirty (30) days prior to each such filing of any Registration Statement. Upon
any written request of the Holder delivered to the Company within ten (10) days
after giving such Registration Notice, which request shall specify the
Registrable Securities intended to be included in such Registration Statement
and disposed of by such Holder and the intended method of disposition thereof,
the Company shall include such Registrable Securities in such Registration
Statement and use its commercially reasonable best efforts to effect the
registration under the Securities Act of all such Registrable Securities,
provided, however, that:
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<PAGE>
(a) If, at any time after giving a Registration Notice and
prior to the effective date of any Registration Statement filed by the Company
with the Commission in connection therewith, the Company shall determine not to
register or to withdraw or delay the registration of such Registrable
Securities, for any reason at its sole discretion, the Company may give notice
of such determination to the Holder and thereupon shall be relieved of its
obligation to register any Registrable Securities in connection with such
registration; and in the case of a determination by the Company to delay any
such registration, the Company shall thereupon be permitted to delay registering
any of such Registrable Securities for the same period as the delay in respect
of any other securities being registered pursuant to such Registration
Statement;
(b) If a registration pursuant to this Section 2.1 involves an
underwritten public offering and the managing underwriter or underwriter in any
such underwritten public offering shall advise the Company in writing that it
has determined not to include all or any portion of the Registrable Securities
requested by the Holder to be included in such Registration Statement, then such
Registrable Securities shall be excluded from such Registration Statement; in
case of an exclusion as to only a portion of such Registrable Securities, all
shares of Common Stock owned by the Holder and the Other Holders for which
registration has been requested shall be allocated among the Holder and the
Other Holders in accordance with the provisions of subparagraph 2.2 hereof.
(c) If the Registrable Securities are proposed to be included
in any Registration Statement in connection with an underwritten firm commitment
public offering, the Holder must sell the Registrable Securities to the managing
underwriter or underwriter on the same terms and conditions as apply to the
Company or any Other Holder, as applicable, with any such differences, including
any differences with respect to indemnification and liability insurance, as may
be customary or appropriate under the circumstances.
(d) If the Registrable Securities are proposed to be included
in any Registration Statement in connection with an underwritten public
offering, the Holder shall have the right to withdraw its request to include
such Registrable Securities therein by giving notice thereof to the Company at
least three (3) days prior to the filing of any such Registration Statement.
2.2. If securities proposed to be offered for sale pursuant to
any Registration Statement include securities owned by Other Holders and the
total number of securities to be included therein by the Holder and such Other
Holders is required to be reduced pursuant to a written request from any
managing underwriter or underwriter, then the aggregate number of Registrable
Securities to be included in such Registration Statement shall equal the number
of Registrable Securities which bears the same ratio to the maximum number of
securities that such managing underwriter or underwriter believes may be
included for the Holder and the Other Holders as the original number of
Registrable Securities proposed to be included therein by the Holder bears to
the total original number of securities proposed to be included therein by the
Holder and the Other Holders. In such event, the Company shall give the Holder
prompt notice of the number of Registrable Securities to be included in such
Registration Statement and the basis of the determination thereof.
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2.3. The Company's obligations pursuant to this Section 2
shall be subject to and conditioned upon the Holder providing the Company in a
timely manner with such information which the Company or any managing
underwriter or underwriter may request in connection with a Registration
Statement, including, but not limited to, information concerning the Holder, any
underwriter or broker-dealer engaged by the Holder, the proposed manner of
distribution of the Registrable Securities and any information requested by the
Commission.
2.4. The Holder hereby agrees to cooperate with the Company in
all respects in connection with this Agreement, including timely supplying all
information reasonably requested by the Company and executing and returning all
documents reasonably requested in connection with the registration and sale of
the Registrable Securities.
2.5. The Company shall bear the entire cost and expense of any
registration of Shares pursuant to this Section 2, including, without
limitation, (i) all registration and filing fees of the Commission and any stock
exchange or the National Association of Securities Dealers, Inc., (ii) all fees
and expenses incurred in complying with all applicable securities or "blue sky"
laws (including, if applicable, the fees and disbursements of counsel for the
underwriter in connection therewith), (iii) printing expenses, and (iv) all fees
and disbursements of Company counsel and accounting and audit fees and costs;
provided, that the Holder shall bear the fees and costs of his, her or its own
counsel and accountants, and all transfer taxes and all underwriting discounts
or commissions applicable to the Registrable Securities sold by it pursuant
thereto.
3. Registration Procedures. In connection with the registration of
any of the Registrable Securities in accordance with the terms of this
Agreement, the Company shall (except as otherwise provided in this Agreement),
as expeditiously as possible:
3.1. Prepare and file a Registration Statement with the
Commission and use its commercially reasonable best efforts to cause such
Registration Statement to become effective and remain effective until all of the
Registrable Securities covered thereby are sold or become legally capable of
being publicly sold without registration under the Securities Act.
3.2. Prepare and file with the Commission such amendments and
supplements to such Registration Statement and any prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective and
to comply with the provisions of the Securities Act with respect to the sale or
other disposition of all Registrable Securities covered by such Registration
Statement whenever the Holder shall desire to sell or otherwise dispose of the
Registrable Securities (including prospectus supplements with respect to the
sale of Registrable Securities from time to time in connection with a
Registration Statement pursuant to Rule 415 of the Commission).
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3.3. Furnish the Holder with such numbers of copies of a
summary prospectus or other prospectus, including a preliminary prospectus or
any amendment or supplement to any prospectus in conformity with the
requirements of the Securities Act, and such other documents as the Holder may
reasonably request in order to facilitate the public sale or other disposition
of the Registrable Securities covered by and pursuant to such Registration
Statement.
3.4. Use its commercially reasonable best efforts to register
and qualify the Registrable Securities covered by any such Registration
Statement under such other securities or "blue sky" laws of such jurisdictions
as the Holder shall reasonably request and do any and all other acts and things
which may be reasonably necessary or advisable to enable the Holder to
consummate the public sale or other disposition of the Registrable Securities in
such jurisdictions, except that the Company shall not, for any such purpose, be
required to qualify to do business as a foreign corporation in any jurisdiction
wherein it is not so qualified or to execute or file therein any general consent
to service of process.
3.5. Notify the Holder, at any time when a prospectus relating
to any such Registration Statement is required to be delivered under the
Securities Act, of the happening of any event of which the Company has
knowledge, as a result of which such prospectus, as then in effect, includes an
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances then existing.
3.6 Take such other actions as shall be reasonably requested
by the Holder to facilitate the registration and sale of the Registrable
Securities covered by such Registration Statement, provided, however, that the
Company shall not be obligated to take any actions not otherwise specifically
required elsewhere herein which, in the aggregate, would cost the Company in
excess of $5,000.
4. Indemnification.
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4.1. The Company shall indemnify and hold harmless the Holder
with respect to the Registrable Securities included in any Registration
Statement pursuant to this Agreement and each officer, director, shareholder,
and partner of such Holder, any underwriter (as defined in the Securities Act),
who may purchase from or sell any Registrable Securities for the Holder pursuant
to such Registration Statement, and each person, if any, who controls such
underwriter within the meaning of the Securities Act (collectively, the "Holder
Indemnitees") from and against any and all losses, claims, damages, liabilities,
costs and expenses (including attorneys' fees) (the "Losses") caused by any
untrue statement or alleged untrue statement of a material fact contained in any
Registration Statement or any prospectus included therein or any amendment or
supplement thereto, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading to which any Holder Indemnitee may become
subject under the Securities Act, the Securities Exchange Act of 1934, as
amended, or any other Federal or state laws, rules or regulations, at common law
or otherwise, except insofar as such Losses are caused by any such untrue
statement or alleged untrue statement or omission or alleged omission which is
based upon information furnished or required to be furnished to the Company by
any Holder Indemnitee expressly for use in preparing any Registration Statement.
In connection with the Company's aforementioned indemnification obligation, the
Company will reimburse, as incurred, the Holder Indemnitees for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such Loss.
4.2. The Holder shall indemnify and hold harmless the Company,
its officers and directors, and each person, if any, who controls the Company
within the meaning of the Securities Act, the Company's counsel, accountants,
any managing underwriter or underwriter (and each person who controls the
managing underwriter or the underwriter within the meaning of the Securities
Act), and each other person whose securities are being offered or sold pursuant
to such Registration Statement (collectively, the "Company Indemnitees"), from
and against any and all Losses caused by any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement or any
prospectus included therein or any amendment or supplement thereto, or caused by
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading to
which any of the Company Indemnitees may become subject under the Securities
Act, the Securities Exchange Act of 1934, as amended, or any other Federal or
state laws, rules or regulations, at common law or otherwise, insofar as such
Losses are caused by any untrue statement or alleged untrue statement or
omission or alleged omission which is based upon information furnished to the
Company by any Holder Indemnitee expressly for use in preparing any Registration
Statement.
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4.3. If any action or claim shall be brought or asserted by a
person or entity entitled to indemnification pursuant to subparagraphs 4.1 or
4.2 of this Agreement (an "Indemnified Party") against any person or entity who
or which is responsible to provide indemnification thereunder (an "Indemnifying
Party"), the Indemnified Party shall promptly notify the Indemnifying Party in
writing, of all of the particulars with respect thereto, and the Indemnifying
Party shall assume the defense of any action or proceeding relating thereto,
including the employment of counsel reasonably satisfactory to the Indemnified
Party and the payment of all legal and other expenses of such defense. The
failure of the Indemnified Party to so notify the Indemnifying Party will not
relieve the Indemnifying Party of any liability for indemnification which it may
have to the Indemnified Party hereunder, unless such failure materially
prejudices the rights of the Indemnifying Party. The Indemnified Party shall
have the right to employ separate counsel in any action or proceeding relating
to a claim for indemnification hereunder and to participate in the defense
thereof, but the fees and expenses of such counsel shall be borne by the
Indemnified Party unless (a) the employment thereof has been specifically
authorized by the Indemnifying Party, in writing, or (b) the Indemnifying Party
has failed to assume the defense and employ counsel as provided herein, or (c)
the named parties to any such action or proceeding (including any impleaded
parties) include both an Indemnified Party and an Indemnifying Party, and in the
judgment of the counsel for the Indemnifying Party or the Indemnified Party, it
is advisable for the Indemnified Party or controlling person to be represented
by separate counsel (in which case the Indemnifying Party shall not have the
right to assume the defense of such action or proceeding on behalf of the
Indemnified Party or such controlling person), it being understood, however,
that the Indemnifying Party shall, in connection with any one such action or
separate but substantially similar or related actions arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of only one separate firm of attorneys at any time in each jurisdiction
for all indemnified parties (including the Holder and the Other Holders and
whether pursuant to this Agreement or any other agreements granting registration
rights), which firm shall be designated in writing by all such indemnified
parties. The Indemnifying Party shall not be liable for any settlement of any
such action or proceeding which is effected by an Indemnified Party without the
written consent of the Indemnifying Party (which consent shall not be
unreasonably withheld), but if settled with such written consent, or if there be
a final judgment or decree for the plaintiff in any such action or proceeding by
a court of competent jurisdiction and the time to appeal shall have expired or
the last appeal shall have been denied, the Indemnifying Party agrees to
indemnify and hold harmless the Indemnified Party from and against any loss or
liability by reason of such settlement or judgment.
4.4. If the indemnification provided for in this Agreement is
held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any Loss, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party thereunder, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such Loss in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party, on the one hand and of the Indemnified Party, on the other hand, in
connection with the matters which resulted in such Loss, as well as any other
relevant equitable considerations. The relevant fault of the Indemnifying Party
and the Indemnified Party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission, or alleged omission to state a material fact relates to information
supplied by the Indemnifying Party or by the Indemnified Party and the party's
relative intent, knowledge, access to information and opportunity to correct or
prevent such statements or omissions. Notwithstanding the foregoing, the amount
that the Holder shall be obligated to contribute pursuant to this Agreement
shall be limited to an amount equal to the proceeds received by the Holder from
the Registrable Securities sold pursuant to the Registration Statement which
gives rise to such obligation to contribute (less the aggregate amount of any
damages which the Holder has otherwise been required to pay in respect of such
Loss).
Notwithstanding the foregoing, no person or entity who or which is found guilty
of a fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution hereunder from any person who
is not found guilty of any fraudulent misrepresentation.
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<PAGE>
4.5. The indemnification provided for by this Section 4 shall
be a continuing right to indemnification and shall survive the registration and
sale of any Registrable Securities pursuant to the Registration Statement which
gave rise to the indemnification obligation hereunder by any person or entity
entitled to indemnification hereunder and the expiration or termination of this
Agreement.
5. Assignment of Rights. The rights of the Holder to request
the Company to register Registrable Securities pursuant to this Agreement may
not be assigned by the Holder in the absence of the Company's prior written
consent thereto.
6. Miscellaneous.
6.1. Sole and Entire Agreement. This Agreement represents the
sole and entire agreement and understanding of the Company and the Holder with
respect to the subject matter hereof and may not be modified or amended except
by an instrument in writing signed by the party to be bound thereby.
6.2. Governing Law. This Agreement and the respective rights
and obligations of the Company and the Holder hereunder shall be governed by and
construed in accordance with the laws of the State of New York with respect to
contracts made and to be fully performed therein and without regard to the
principles of conflicts of laws thereof and shall be enforced solely in the
Federal or state courts located in the City, County and State of New York.
6.3. Binding Effect. This Agreement shall be binding upon
the Company and its successors and permitted assigns and shall inure to the
benefit of the Holder and its successors and assigns.
6.4. Severability. If any provision of this Agreement is held
to be invalid or unenforceable by a court of competent jurisdiction, the other
provisions of this Agreement shall remain in full force and effect and shall be
unaffected thereby and such invalid or unenforceable provision shall be deemed
amended so as to be valid and enforceable to the greatest extent possible under
applicable law.
6.5. No Waiver by Holder. The Holder shall not be deemed, by
any act of omission or commission, to have waived any of his, her or its rights
or remedies hereunder unless such waiver is in writing and signed by the Holder,
and then only to the extent specifically set forth in any such writing. A waiver
of one event shall not be construed as continuing or constitute a bar to or
waiver of any right or remedy with respect to a subsequent event.
6.6. Further Assurances. The Holder hereby agrees that,
at any time and from time to time after the date hereof, upon the reasonable
request of the Company, it shall do, execute, acknowledge and deliver, or cause
to be done, executed, acknowledged and delivered, such further acts, deeds,
assignments, transfers, conveyances, and assurances as may be reasonably
required to more effectively consummate this Agreement and the transactions
contemplated thereby or to confirm or otherwise effectuate the provisions of
this Agreement.
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6.7. Notices. All notices, consents, requests, demands and
other communications required or permitted to be given under this Agreement
shall be in writing and delivered personally, receipt acknowledged, or mailed by
registered or certified mail, postage prepaid, return receipt requested (or the
international equivalent thereof), addressed to the parties hereto at their
respective addresses set forth on the first page of this Agreement (or to such
other address as either the Company or the Holder shall specify by notice given
in accordance with this provision). All such notices, consents, requests,
demands and other communications shall be deemed given when personally
delivered, as aforesaid, or, if mailed as aforesaid, on the third business day
after the mailing thereof or on the day actually received, if earlier, except
for a notice of a change of address which shall be effective only upon receipt.
6.8. Inconsistencies. To the extent that there is any
inconsistency between the provisions of this Agreement and the provisions of the
Reorganization Agreement, the provisions of this Agreement shall control.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have caused this Agreement to be signed and dated the day and year above
written.
THE FINX GROUP, INC.
By:_________________________________
Lewis S. Schiller
Chief Executive Officer
------------------------------------
------------------------------------
Print Name
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EXHIBIT C
SHOPCLUE CREDITORS
Creditor Amount
-------- ------
Blake Schiller $ 35,338.96
The Trinity Group-I, Inc. $ 303,268.19
Universal International, Inc. $ 6,045.00
Carol Schiller $ 251,511.43
CONTINGENT LIABILITIES
Liability Amount
--------- ------
Lease Agreement with 84 Business Park $ 353,273
Associate (including renewals)
Dell Financial #0012128548003 $ 32,880
Dell Financial #0012128548002 $ 7,650
---------
Total $ 393,803
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EXHIBIT D
STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES,
PRIVILEGES AND RIGHTS OF THE SERIES A PREFERRED STOCK
OF SHOPCLUE.COM, INC.
ShopClue.com, Inc. (the "Corporation"), a corporation organized and
existing under the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
that, pursuant to the authority expressly contained in Article __ of
its Certificate of Incorporation and in accordance with the provisions of
Section 151 of the General Corporation Law of the State of Delaware, the Board
of Directors of the Corporation, by written consent dated ___________, 2000,
duly adopted the following Resolution, which Resolution remains in full force
and effect on the date hereof:
RESOLVED, that pursuant to the authority expressly granted to and
invested in the Board of Directors of the Corporation in accordance with the
provisions of its Certificate of Incorporation, a series of preferred stock of
the Corporation be and hereby is established, consisting of 1,000 shares, $.01
par value per share, to be designated as the "Series A Preferred Stock"
(hereinafter, the "Series A Preferred Stock"); that the Board of Directors be
and hereby is authorized to issue such shares of Series A Preferred Stock from
time to time and for such consideration and on such terms as the Board of
Directors shall determine; and that, subject to the limitations provided by law,
and by the Certificate of Incorporation of the Corporation, the powers,
preferences and relative rights thereof shall be as follows:
1. Designation and Number of Shares. The designation of this series of
one thousand (1,000) shares of capital stock, par value $.01 per share, created
by the Board of Directors of the Corporation pursuant to the authority granted
to it by the Certificate of Incorporation of the Corporation is "Series A
Preferred Stock," which is hereinafter referred to as the "Series A Preferred
Stock." In the event that the Corporation does not issue the maximum number of
shares of Series A Preferred Stock or in the event that the Corporation shall
acquire (whether by purchase, redemption or otherwise) and cancel any shares of
Series A Preferred Stock, the Corporation may, from time to time, by resolution
of the Board of Directors, reduce the number of shares of Series A Preferred
Stock authorized, provided that no such reduction shall reduce the number of
authorized shares to a number which is less than the number of shares of Series
A Preferred Stock then issued or reserved for issuance. The number of shares by
which the Series A Preferred Stock is reduced shall have the status of
authorized but unissued shares of preferred stock, without designation as to
class or series until such stock is once more designated as part of a particular
class or series by the Board of Directors.
2. Dividend Rights. The Series A Preferred Stock has no dividend
rights.
3. Voting Rights.
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3.1. Except as otherwise required by law and the rights of any
holders of any class or series of capital stock hereafter created by the Board
of Directors pursuant to the Certificate of Incorporation of the Corporation,
the holders of shares of Series A Preferred Stock shall vote as a class upon all
matters upon which the holders of the Common Stock, $.01 par value, of the
Corporation (the "Common Stock") shall have the right to vote.
3.2. In addition to the voting rights set forth in Paragraph
3.1 of this Statement of Designation, the holders of the Series A Preferred
Stock shall have the right, voting as a single class, to elect (i) three
directors if the number of directors is five or fewer directors, (ii) four
directors if the number of directors is six or seven, and (iii) a majority of
the directors if the number of directors is more than seven. For purposes of
this Paragraph 3.2, the number of directors shall be the number of directors
which constitutes the entire Board determined in the manner provided for in the
By-Laws of the Corporation, regardless of whether the number of directors
actually serving is less than the number that constitutes the entire Board.
3.3. In the event that, pursuant to applicable law, the
holders of the Series A Preferred Stock are required to vote as a single class,
separate and apart from the Common Stock, each holder of Series A Preferred
Stock shall be entitled to one vote per share of Series A Preferred Stock on
such matters.
3.4. The Corporation is not restricted from creating other
classes or series of Preferred Stock which may be junior to, senior to or in
parity with, the Series A Preferred Stock as to dividends and/or upon the
voluntary or involuntary dissolution, liquidation or winding up of the
Corporation without the consent of the holders of the Series A Preferred Stock.
3.5. The voting rights of the holders of the Series A
Preferred Stock may be exercised either by written consent or at a special
meeting of the holders of the shares of Series A Preferred Stock, called as
hereinafter provided, or at any annual meeting of stockholders held for the
purpose of electing directors. At any time during which the holders of the
Series A Preferred Stock have voting rights with respect thereto, and if such
rights shall not already have been exercised by written consent, a proper
officer of the Corporation may call and, upon the written request, addressed to
the Secretary of the Corporation, of the record holders of shares representing
25% of the voting power of the shares then outstanding of the Series A Preferred
Stock, shall call a special meeting of the holders of the Series A Preferred
Stock. Such meeting shall be held at the earliest practicable date upon the
notice required for annual meeting of stockholders of the Corporation at the
place for holding annual meetings of stockholders of the Corporation or, if
none, at a place designated by the Board of Directors.
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3.6. At any meeting held for the purpose of electing directors
at which the holders of the Series A Preferred Stock shall have the right to
elect directors as provided herein, the presence in person or by proxy of the
holders of shares representing more than 50% in voting power of the then
outstanding shares of Series A Preferred Stock having such right shall be
required and shall be sufficient to constitute a quorum for such class for the
election of directors by such class.
3.7. No consent of the holders of the Series A Preferred
Stock shall be required for the creation of any indebtedness of any kind of the
Corporation.
4. Conversion. The Series A Preferred Stock is not convertible
into Common Stock.
5. Redemption. The Series A Preferred Stock is not redeemable by
the Corporation.
6. Liquidation Rights.
6.1. In the event of the liquidation, dissolution or winding
up of the Corporation, whether voluntary or involuntary, holders of the Series A
Preferred Stock shall be entitled to receive One Dollar ($1.00) per share before
any payment or distribution upon dissolution, liquidation or winding up shall be
made on any series or class of capital stock ranking junior to the Series A
Preferred Stock as to such payment or distribution, and after all such payments
or distributions have been made on any series or class of capital stock ranking
senior to the Series A Preferred Stock as to such payment or distribution.
6.2. After payment of the preference set forth in Paragraph
6.1 of this Statement of Powers, Designations, Preferences, Privileges and
Rights ("Statement of Designation"), the holders of the Series A Preferred Stock
shall have no further rights on liquidation, dissolution or winding up.
6.3. The sale, conveyance, exchange or transfer (for cash,
shares of stock, securities or other consideration) of all or substantially all
of the property and assets of the Corporation shall be deemed a voluntary
dissolution, liquidation or winding up of the Corporation for purposes of this
Paragraph 6, except that the merger or consolidation of the Corporation into any
other corporation or the sale by the Corporation of all or substantially all of
its assets shall not be deemed to be a dissolution, liquidation or winding up,
voluntary or involuntary, for the purposes of this Paragraph 6 if either (i) the
holders of all shares of Series A Preferred Stock outstanding upon the
effectiveness of such merger or consolidation shall have the right, upon such
effectiveness, to receive for each share of Series A Preferred Stock held by
them upon such effectiveness, one share of preferred stock of the resulting or
surviving corporation or purchaser or the parent of any such corporation, which
shares shall have, to the extent practicable, voting rights and rights upon
dissolution, liquidation or winding up reasonably equivalent to those of such
shares of Series A Preferred Stock, or (ii) the merger, consolidation or sale or
other transaction was approved by the holders of a majority of the shares of
Series A Preferred Stock then outstanding either at a meeting of such
stockholders or by a written consent in lieu of a meeting. Any merger in which
the Corporation shall be the surviving corporation shall not be deemed a
dissolution, liquidation or winding up of the Corporation for purposes of this
Paragraph 6.
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6.4. In the event that the assets of the Corporation available
for distribution to the holders of shares of Series A Preferred Stock upon
dissolution, liquidation or winding up of the Corporation, whether voluntary or
involuntary, shall be insufficient to pay in full all amounts to which such
holders are entitled pursuant to Paragraph 6.1 of this Statement of Designation,
no such distribution shall be made on account of any shares of any other class
or series of capital stock of the Corporation ranking on a parity with the
shares of Series A Preferred Stock upon such dissolution, liquidation or winding
up unless proportionate distributive amounts shall be paid on account of the
shares of Series A Preferred Stock, ratably, in proportion to the full
distributable amounts for which holders of all such parity shares are
respectively entitled upon such dissolution, liquidation or winding up.
7. Rank of Class or Series. For purposes of this Statement of
Designation, any stock of any class or series of the Corporation shall be deemed
to rank:
7.1. senior to shares of the Series A Preferred Stock, upon
liquidation, dissolution or winding up, as the case may be, if the holders of
such class or classes shall be entitled to the receipt of dividends or of
amounts distributable upon dissolution, liquidation or winding up of the
Corporation, as the case may be, in preference or priority to the holders of
shares of Series A Preferred Stock;
7.2. junior to shares of the Series A Preferred Stock, upon
liquidation, dissolution or winding up, as the case may be, if such class shall
be Common Stock or if the holders of shares of the Series A Preferred Stock
shall be entitled to the receipt of dividends or of amounts distributable upon
dissolution, liquidation or winding up of the Corporation, as the case may be,
in preference or priority to the holders of shares of such class or classes.
8. No Preemptive Rights. No holder of the Series A Preferred Stock
shall, as such holder, be entitled as of right to purchase or subscribe for any
shares of stock of the Corporation of any class or any series now or hereafter
authorized or any securities convertible into or exchangeable for any shares, or
any warrants, options, rights or other instruments evidencing rights to
subscribe for or purchase any such shares, whether such shares, securities,
warrants, options, rights or other instruments be unissued or issued and
thereafter acquired by the Corporation.
9. Transfer Agent and Registrar. The Corporation may appoint a
transfer agent and registrar for the issuance and transfer of the Series A
Preferred Stock (or may act as its own transfer agent and registrar therefor).
10. Protective Provisions. For so long as any share of Series A
Preferred Stock is outstanding, the Corporation shall not, without the consent
of holders of a majority of the Series A Preferred Stock:
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<PAGE>
(a) amend, alter or repeal any provision of, or add any
provision to the Certificate of Incorporation or the By-Laws of the Corporation
in any manner which would alter or change the preferences, rights, privileges or
powers of or the restrictions provided for the benefit of the holders of the
Series A Preferred Stock;
(b) enter into any merger or consolidation where the
Corporation is not the surviving entity or where the Corporation is the
surviving entity but the majority of the stockholders of the Corporation were
not stockholders of the Corporation prior to the merger or consolidation;
(c) effect any sale, lease or other conveyance of all or
substantially all of the Corporation's assets or properties or any winding-up,
liquidation or dissolution of the Corporation;
(d) apply any of the Corporation's assets to the redemption,
retirement, purchase or other acquisition, directly or indirectly, through
subsidiaries or otherwise, of any shares of Common Stock or any other securities
of the Corporation or any rights, options or warrants to purchase, or securities
convertible into, securities of the Corporation, other the an the repurchase of
shares of the Common Stock owned by the officers, directors or consultants of
the Corporation in accordance with any pre-existing rights of such persons
relating to the repurchase of such shares; or
(e) change the authorized size of the Board of Directors of
the Corporation or any of the rights relating to the appointment of members of
the Board of Directors of the Corporation.
11. Severability of Provisions. If any powers, preferences and/or
rights of the Series A Preferred Stock set forth in this Statement of
Designation is determined to be invalid, unlawful or incapable of being enforced
by reason of any rule of law or public policy, all other powers, preferences and
rights of the Series A Preferred Stock set forth in this Statement of
Designation which can be give effect without the invalid, unlawful or
unenforceable powers, preferences and rights of the Series A Preferred Stock,
shall, nevertheless remain in full force and effect, and no powers, preferences
and/or rights of the Series A Preferred Stock set forth in this Statement of
Designation shall be deemed dependent upon any other such powers, preferences
and rights of the Series A Preferred Stock unless so expressed herein to the
contrary.
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IN WITNESS WHEREOF, the undersigned, being all of the directors of the
Corporation, have executed this Certificate for and on behalf of the Corporation
this __ day of July, 2000.
WITNESS:
____________________________ Lewis S. Schiller
WITNESS: ------------------------------
---------------------------- ------------------------------
Blake Schiller
WITNESS:
---------------------------- --------------------------------
Jeffrey Garnett
WITNESS:
---------------------------- --------------------------------
Leonard Jaffe
6
