SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
July 28, 1998
(Date of Report)
SOFTLOCK.COM, INC.
(Exact Name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
33 - 37751 - D 84-1130229
(Commission File Number) (IRS Employer Identification Number)
399 Alexander Street, Rochester, New York 14607
(Address of principal executive offices including zip code)
(716) 546-1970
(Registrant's telephone number including area code)
Fieldcrest Corp., 2111 Canyon Crest Avenue, San Ramon, California 94583
(Former name or former address, if changed since last report)
This report consists of 41 sequentially numbered pages.
<PAGE>
Item 1. Changes in Control of Registrant.
As a result of the consummation of the Agreement and Plan of Reorganization
discussed under Item 2 below, control of the Registrant has changed.
Item 2. Acquisition or Disposition of Assets.
On July 28, 1998, Fieldcrest Corp. (the "Registrant") and SoftLock Services,
Inc. ("SoftLock Services"), a Delaware corporation, consummated a Plan and
Agreement of Reorganization (the "Agreement") whereby the Registrant acquired
all of the issued and outstanding shares of common stock of SoftLock Services
in exchange for 354,861,000 shares of the Registrant's "restricted" Common
Stock (7,097,220 shares after giving effect to a 1 for 50 reverse split,
effective August 10, 1998, discussed below), representing 90% of the total
shares outstanding.
The transaction has been accounted for as a reverse acquisition, with SoftLock
Services as the accounting acquiror. The Registrant has adopted the fiscal
year end of December 31, which is the reporting year of the accounting
acquiror.
Concurrently with the closing of the Agreement, the former officer and director
of the Registrant resigned, and the following persons were appointed and elected
to the positions indicated:
Name Age Position
Jonathan Schull 46 President and a Director
Martin Presberg 34 Vice President of Operations,
Secretary and a Director
Francis J. Knott 51 Director
Rodney Conard 51 Director
Maurice LaFlamme 46 Director
The directors of the Registrant are elected to hold office until the next
Annual meeting of shareholders or until a successor has been elected and
qualified. Officers of the Registrant are elected annually by the Board of
Directors and hold office until their successors are duly elected and
qualified.
There are no family relationships between the officers and directors of the
Registrant.
The Registrant presently has no nominating, audit or compensation committee.
The new Board of Directors plans to consider implementation of these
committees.
2
<PAGE>
Heather Anderson, the Registrant's former officer and director, will continue
to be actively involved in the Registrant, as an advisor to the Board.
In connection with the acquisition, the Registrant's Board of Directors and
shareholders approved several amendments to the Registrant's Certificate of
Incorporation to (i) change the name of the Registrant to "SoftLock.com, Inc.",
(ii) change the authorized number of shares of Common Stock to 25,000,000 and
(iii) change the par value of the Common Stock to $.01, and approved a 1 for
50 reverse stock split ("split") of the outstanding shares of Common Stock.
The effective date of the amendments to the Certificate of Incorporation and
the reverse split was August 10, 1998.
Business of the Registrant
The Registrant will continue the business of SoftLock Services, which, since
1992, has been providing tools and services for the protection and sale of
redistributable digital products over the Internet and on digital media.
Publishers of digital products, including research reports, newsletters,
electronic books and software, use the Registrant's tools to lock their
products. These products are then freely distributed on the Internet or by
CD-Rom. When a prospective customer receives a SoftLocked product, the
customer can view a portion of the final product (i.e. "demo" the product),
and, if the customer then wishes to purchase the product, the customer must
purchase a password. Passwords may be purchased 24 hours a day, seven days a
week, via World Wide Web, e-mail or fax. When entered, the password
permanently unlocks the product for that customer's use. However, when a
SoftLocked product is copied from one context to another, it automatically
relocks (returns to "demo" mode) and may not be installed, thereby inviting
another purchase.
SoftLock Services recently announced a strategic partnership with Inso
Corporation, which plans to incorporate the Registrant's technology into its
highly respected DynaText and DynaWeb enterprise publishing and content-
management systems.
The Registrant owns a seminal patent in the field of information commerce, and
operates several innovative information vending services at www.SoftLock.com
and at 1-800-SOFTLOCK. Additional information is available at
www.SoftLock.com.
3
<PAGE>
Item 7. Financial Statements and Exhibits.
(a) Financial Statements: The following financial statements of SoftLock
Services, Inc. are filed herewith:
Page
(i) Report of Independent Public Accountants 6
Balance Sheets - December 31, 1997 and 1996 7
Statements of Operations for the Years ended December 31, 1997
and 1996 and for the period from inception (May 11, 1992) to
December 31, 1997 8
Statements of Shareholders' Equity for the Years ended
December 31, 1997 and 1996 and for the period from inception
(May 11, 1992) through December 31, 1997 9
Statements of Cash Flows for the Year ended December 31, 1997
and 1996 and for the period from inception (May 11, 1992) to
December 31, 1997 10
Notes to Financial Statements 11-17
(ii) Balance Sheet (unaudited) - June 30, 1998 18
Statements of Operations (unaudited) for the Six Months ended
June 30, 1998 and 1997 and for the period from inception
(May 11, 1992) to June 30, 1998 19
Statements of Cash Flows (unaudited) for the Six Months ended
June 30, 1998 and 1997 and for the period from inception
(May 11, 1992) to June 30, 1998 20
Notes to Financial Statements (unaudited) 21
(b) Unaudited Pro Forma Financial Information:
Introduction to Unaudited Pro Forma Financial Data 22
SoftLock.com, Inc. (fka Fieldcrest Corp.) Unaudited Pro Forma
Balance Sheet as of June 30, 1998 23
SoftLock.com, Inc. (fka Fieldcrest Corp.) Unaudited Pro Forma
Statement of Operations - interim period ended June 30, 1998 24
SoftLock.com, Inc. (fka Fieldcrest Corp.) Unaudited Pro Forma
Statement of Operations - year ended March 31, 1998 25
Notes to Pro Forma financial statements 26
(b) Exhibits: The following exhibits are filed herewith:
2.1 Plan and Agreement of Reorganization dated May 22, 1998
(incorporated by reference to Exhibit 2.1 to the
Registrant's Annual Report on Form 10-KSB for the fiscal
Year ended March 31, 1998.)
3.1 Amended and Restated Certificate of Incorporation
of Fieldcrest Corp. 27-31
3.2 Amended and Restated Bylaws 32-39
10.1 Employment agreement, dated July 28, 1998, between the
Registrant and Jonathan Schull 40
23.1 Consent of Arthur Andersen LLP 41
4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: August 12, 1998 SOFTLOCK.COM, INC.
By : /s/ Jonathan Schull
Jonathan Schull
President
5
<Arthur Anderson Letterhead>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
SoftLock Services, Inc.:
We have audited the accompanying balance sheets of SoftLock Services,
Inc. (a Delaware corporation in the development stage) as of December
31, 1997 and 1996, and the related statements of operations,
shareholders' equity, and cash flows for each of the two years in the
period ended December 31, 1997 and for the period from inception
(May 11, 1992) through December 31, 1997. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of
SoftLock Services, Inc. as of December 31, 1997 and 1996, and
the results of its operations and its cash flows for each of the
two years in the period ended December 31, 1997 and for the period
from inception (May 11, 1992) through December 31, 1997 in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed
in Note 2 to the financial statements, the Company is in the
development stage and has suffered from recurring losses from
operations and has accumulated deficits that raise substantial
doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 2. The
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/Arthur Andersen LLP
Rochester, New York,
June 4, 1998, except for the
matter described in the first
paragraph of Note 8, as to
which the date is June 12, 1998
6
<PAGE>
SOFTLOCK SERVICES, INC.
-----------------------
(A Development Stage Company)
BALANCE SHEETS
--------------
DECEMBER 31, 1997 and 1996
--------------------------
ASSETS
------
<TABLE>
<S> <C> <C>
1997 1996
------------ ----------
CURRENT ASSETS:
Cash $ 119,563 $ 215,949
Other current assets 5,882 6,296
------------ ----------
Total current assets 125,445 222,245
------------ ----------
PROPERTY AND EQUIPMENT:
Office furniture and equipment 35,941 27,371
Less- Accumulated depreciation 19,866 6,986
------------ ----------
16,075 20,385
------------ ----------
$ 141,520 $ 242,630
============ ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 66,190 $ 53,719
Accrued compensation and related
liabilities 28,501 13,975
------------ ----------
Total current liabilities 94,691 67,694
------------ ----------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value:
Authorized - 6,000,000 shares in
1997 and 1,500,000 in 1996
Issued and outstanding - 1,436,164
shares in 1997 and 1,259,550 in
1996 14,362 12,596
Additional paid-in capital 1,683,964 998,559
Deficit accumulated during the
development stage (1,382,617) (567,339)
Less- Note receivable-exercise of
options (268,880) (268,880)
------------ ----------
46,829 174,936
------------ ----------
$ 141,520 $ 242,630
============ ==========
</TABLE>
The accompanying notes to financial statements are an integral part of
these balance sheets.
7
<PAGE>
SOFTLOCK SERVICES, INC.
-----------------------
(A Development Stage Company)
STATEMENTS OF OPERATIONS
------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND THE PERIOD FROM
------------------------------------------------------------------
INCEPTION (MAY 11, 1992) THROUGH DECEMBER 31, 1997
--------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Period
From
Inception
Through
December 31,
1997 1996 1997
---------- ---------- ------------
REVENUES $ 110,774 $ 48,792 $ 204,841
COST OF REVENUES: 20,346 28,498 112,842
---------- ---------- ------------
Gross profit 90,428 20,294 91,999
OPERATING EXPENSES: 924,862 414,603 1,493,648
---------- ---------- ------------
Loss from operations (834,434) (394,309) (1,401,649)
OTHER INCOME: 19,950 939 20,889
---------- ---------- ------------
Loss before income taxes (814,484) (393,370) (1,380,760)
INCOME TAX EXPENSE 794 463 1,857
---------- ---------- ------------
NET LOSS $ (815,278) $ (393,833) $ (1,382,617)
========== ========== ============
</TABLE>
The accompanying notes to financial statements are an integral part of
these statements.
8
<PAGE>
SOFTLOCK SERVICES, INC.
-----------------------
(A Development Stage Company)
STATEMENTS OF SHAREHOLDERS' EQUITY
----------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND THE PERIOD FROM
------------------------------------------------------------------
INCEPTION (MAY 11, 1992) THROUGH DECEMBER 31, 1997
--------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Deficit
Accumulated Note
Number Additional During the Receivable-
of Common Paid-in Development Exercise of
Shares Stock Capital Stage Options Total
------- -------- ----------- ------------ ----------- --------
Issuance of common stock
from inception through
December 31, 1995 376,350 $ 3,764 $ 170,236 $ - $ - 174,000
Net loss from inception
through December 31, 1995 - - - (173,506) - (173,506)
------- -------- ----------- ------------ ---------- -------
BALANCE, December 31, 1995 376,350 3,764 170,236 (173,506) - 494
Issuance of common stock 883,200 8,832 677,077 - - 685,909
Options issued in exchange
for services - - 151,246 - - 151,246
Note receivable-exercise of
options - - - - (268,880) (268,880)
Net loss - - - (393,833) - (393,833)
--------- -------- ----------- ------------ ---------- --------
BALANCE, December 31, 1996 1,259,550 12,596 998,559 (567,339) (268,880) 174,936
Issuance of common stock 176,614 1,766 658,021 - - 659,787
Options issued in exchange
for services - - 27,384 - - 27,384
Net loss - - - (815,278) - (815,278)
--------- -------- ----------- ------------ ---------- ---------
BALANCE, December 31, 1997 1,436,164 $ 14,362 $ 1,683,964 $ (1,382,617) $ (268,880) $ 46,829
========= ======== =========== ============ ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of
these statements.
9
<PAGE>
SOFTLOCK SERVICES, INC.
-----------------------
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND THE PERIOD FROM
------------------------------------------------------------------
INCEPTION (MAY 11, 1992) THROUGH DECEMBER 31, 1997
--------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Period
From
Inception
Through
December 31,
1997 1996 1997
---------- ---------- ------------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss $ (815,278) $ (393,833) $ (1,382,617)
Adjustments to reconcile
net loss to net cash
used in operating
activities-
Depreciation 12,880 6,986 19,866
Changes in assets and
liabilities-
Other assets 414 (5,640) (5,882)
Accounts payable 12,471 30,611 66,190
Accrued compensation
and related
liabilities 14,526 13,975 28,501
---------- ---------- ------------
Net cash used in operating
activities (774,987) (347,901) (1,273,942)
========== ========== ============
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of property and
equipment (8,570) (27,371) (35,941)
---------- ---------- ------------
Net cash used in investing
activities (8,570) (27,371) (35,941)
---------- ---------- ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of
common stock 659,787 417,029 1,250,816
Options issued in exchange
for services 27,384 151,246 178,630
---------- ---------- ------------
Net cash provided by
financing activities 687,171 568,275 1,429,446
---------- ---------- ------------
NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS (96,386) 193,003 119,563
CASH, beginning of period 215,949 22,946 -
---------- ---------- ------------
CASH, end of period $ 119,563 $ 215,949 $ 119,563
========== ========== ============
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the year
for Income taxes $ 794 $ 463 $ 1,857
========== ========== ============
SUPPLEMENTAL DISCLOSURE OF
NONCASH FINANCING
ACTIVITIES:
Note received for
exercise of options $ - $ 268,880 $ 268,880
========== ========== ============
</TABLE>
The accompanying notes to financial statements are an integral part of
these statements.
10
<PAGE>
SOFTLOCK SERVICES, INC.
-----------------------
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1997 and 1996
--------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
- -------------------------------------------
Description of the Business
- ---------------------------
SoftLock Services, Inc. (the Company) is a developer and marketer of
software tools and password vending services to allow for the secure
distribution and sale of software or content over digital media or
networks. The Company's customers are located throughout the
United States.
SoftLock Services, Inc. was formerly incorporated in Pennsylvania.
During 1997, the shareholders approved a merger agreement with
SoftLock Services Delaware, Inc. for purposes of moving the state
of incorporation from Pennsylvania to Delaware.
Since inception, the Company has devoted substantially all of its
efforts toward product research and development, raising capital,
and marketing products under development. Management anticipates
that substantially all future revenues will be derived from products
under development or those developed in the future. Principal risks
to the Company include the ability of the Company to obtain
adequate financing to fund future operations, dependence on key
individuals, competition from substitute products and larger
companies, and the successful development and marketing of commercial
products and services.
Revenue Recognition
- -------------------
Revenue from product sales is recognized when software tools and
passwords are provided to customers. The Company also enters into
license agreements for certain of its products. Revenues from
such agreements are recognized based on the terms of the agreements.
Property and Equipment
- ----------------------
Property and equipment are recorded at cost. Expenditures for renewals
and betterments are capitalized while expenditures for repairs and
maintenance are charged to operations as incurred. Upon sale or
retirement, the related cost and accumulated depreciation are
removed from the accounts and the related gain or loss is reflected
in operations.
11
<PAGE>
The Company reviews long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying value of the
asset is in excess of the sum of the undiscounted cash flows expected
to result from the use of the asset and its eventual disposition.
If such events or changes in circumstances are present, a loss is
recognized to the extent the carrying value of the asset is in
excess of the sum of the undiscounted cash flows expected to
result from the use of the asset and its eventual disposition.
Depreciation
- ------------
Depreciation on equipment is provided using the straight-line method
over the estimated useful lives of the assets, which range from
three to seven years.
Income Taxes
- ------------
The Company uses the liability method of accounting for income taxes.
Under the liability method, deferred tax assets and liabilities are
determined based on the difference between the financial statement
and tax basis of assets and liabilities (temporary differences) as
measured by the enacted tax rates which will be in effect when these
differences reverse. Deferred tax expense is the result of changes
in deferred tax assets and liabilities. In addition, the Company
recognizes deferred tax assets to the extent that realization of
such assets is more likely than not.
Deferred tax assets and liabilities are classified as current or
noncurrent, depending on the classification of the assets and
liabilities to which they relate. Deferred tax assets and
liabilities not related to an asset or liability are classified
as current or noncurrent, depending on the periods in which the
temporary differences are expected to reverse.
Research and Development
- ------------------------
Research and development costs are expensed as incurred. Such
expenses amounted to $90,852 and $19,035 in fiscal years 1997
and 1996, respectively.
Management's Use of Estimates and Judgement
- -------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
12
<PAGE>
2. GOING CONCERN:
--------------
The accompanying financial statements have been prepared on a going-
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As shown
in the financial statements for the years ended December 31, 1997,
December 31, 1996, and the period from inception (May 11, 1992) to
December 31, 1997, the Company incurred losses of $815,278, $393,833,
and $1,382,617, respectively. This factor among others raises
substantial doubt about the Company's ability to continue as a
going concern for a reasonable period of time.
The financial statements do not include any adjustments relating to
the recoverability of assets and classification of liabilities that might
be necessary should the Company be unable to continue as a going concern.
The Company's continuation as a going concern is dependent upon its
ability to generate sufficient cash flow to meet its obligations on
a timely basis, to obtain additional financing as may be required,
and ultimately to obtain profitability. As discussed in Note 8,
the Company has substantially completed an offering of stock to
raise $500,000 and has entered into a stock-for-stock arrangement
with Fieldcrest Corp. There can be no assurance that the
Company will be successful in the consummation of either of the
strategic alternatives.
3. LEASE COMMITMENT:
-----------------
The Company leases its principal operating location under a
month-to-month operating lease agreement, which expires when 60
days notice is given. The agreement provides for a monthly
rental of $1,400 and also requires the Company to pay certain
incremental costs incurred by the lessor and shared costs of the
property. Rent expense for fiscal years 1997 and 1996 was
$16,800 and $2,800, respectively.
4. INCOME TAXES:
- -------------
On November 4, 1996, the Company terminated its election to be
treated as an S corporation. Since then, the Company has had
net operating losses (NOLs) for tax purposes totaling
approximately $929,000. The NOLs expire beginning in the year 2012.
The deferred tax asset related to the NOLs has been fully
reserved.
13
<PAGE>
5. SHAREHOLDERS' EQUITY:
---------------------
Stock Split
- -----------
On January 23, 1997, the shareholders approved an increase in the
number of authorized common shares from 1,500,000 to 6,000,000.
On that date, the shareholders also approved a one hundred and
fifty to one stock split to be effected by the distribution of
one hundred and fifty shares for each share outstanding. Such
distribution was made during fiscal 1997 to shareholders of
record as of January 23, 1997. The shareholders also approved
a change in the par value of stock from $1 per share to $0.01
per share. Accordingly, the par value and all shares outstanding
have been restated to reflect the stock split.
Note Receivable - Exercise of Options
- -------------------------------------
In June 1996, several key employees entered into promissory notes
with the Company totaling $268,880 in order to exercise options
granted to them. These loans are due June 2006, and bear interest
at 7.04 percent per annum. Loans are secured by a collateral
pledge of the shares purchased.
Stock Option Plan
- -----------------
The 1996 Stock Option Plan (the Plan) was adopted by the Board of
Directors in January of 1997. Prior to this date, 729,150 options
were granted which were not issued under an option plan. Under
the terms of the Plan, the Company made available an aggregate of
300,000 shares of common stock for nonqualified stock options to
certain advisors (nonemployees) and incentive stock options to
certain employees. The Company has issued options for 161,217
shares of its common stock under this plan through December 31, 1997.
The Board of Directors intends to amend the Plan to increase the
aggregate number of shares available for stock options.
14
<PAGE>
A summary of option activity is as follows:
<TABLE>
<S> <C> <C> <C> <C>
Weighted Weighted
Shares Average Average
Under Exercise Options Exercise
Option Price Exercisable Price
-------- -------- ----------- --------
Options outstanding
at December 31, 1995 -
Options granted 729,150 $ 0.62
Options exercised (504,150) $ 0.53
---------
Options outstanding
at December 31, 1996 225,000 $ 0.81 225,000 $ 0.81
Options granted 161,217 $ 2.10
Options exercised - $ -
---------
Options outstanding
at December 31, 1997 386,217 $ 1.48 376,417 $ 1.36
=========
</TABLE>
The number of options available for grant under the Plan was $138,783
at December 31, 1997.
Price range of options:
Granted during fiscal 1997 $.35 - $3.50
Outstanding at December 31, 1997 $.35 - $3.50
Of the options granted, 14,700 expire 10 years from the date of grant
and vest at the rate of 33 percent each year over the succeeding
three years. The remainder of the options expire ten years from
the date of grant and vest immediately.
15
<PAGE>
Pro Forma Disclosure
- --------------------
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations
in accounting for its plan. In fiscal 1996, the Company elected
to adopt the disclosure only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation,"
(SFAS No. 123). Had the Company recognized the compensation cost
based on the fair value at the date of grants for awards under its
plan consistent with the alternative methodology of SFAS No. 123,
net loss would have been increased to the pro forma amounts as
follows for the years ending December 31:
1997 1996
------------------------ ------------------------
As Pro As Pro
Reported Forma Reported Forma
----------- ----------- ----------- -----------
Net loss $ (815,278) $ (941,551) $ (393,833) $ (526,403)
=========== =========== =========== ===========
The weighted average fair value of options granted during fiscal 1997
and 1996 was $1.30 and $0.56, respectively. The fair value of options
is estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions: risk-free
interest rate of 6.22 percent for fiscal 1997 and 6.91 percent for
fiscal 1996; expected life of 10 years for fiscal 1997 and 1996. The
dividend yield was 0 percent for fiscal 1997 and 1996. The volatility
in the calculation was also 0 percent as this is a privately held
company.
6. MAJOR CUSTOMERS:
----------------
For the years ended December 31, 1997 and 1996, two customers accounted
for a total of approximately 78 percent and 53 percent of revenues,
respectively.
7. LEGAL MATTERS:
--------------
SoftLock is one of a large group of defendants in an action in the
United States District Court for the Southern District of New York
entitled E-Data Corp. vs. CompuServe Inc. et al, filed August 23, 1995.
The action alleges infringement of the so-called Freeny patent.
The plaintiff seeks judgment declaring the validity of its patent
and further declaring that each of the defendants has infringed
the plaintiff's patent; enjoining further infringement; and treble
damages plus attorneys' fees and costs and disbursements. Softlock
has answered the plaintiff's complaint and has counterclaimed for a
declaratory judgment that the plaintiff's patent is invalid,
unenforceable, and is not infringed upon by SoftLock.
The Company is subject to this and other litigation from time to
time in the ordinary course of business. Although the amount of
the liability, if any, with respect to such litigation cannot be
determined, in the opinion of management, such liability, if any,
will not have a material adverse effect on the Company's financial
condition, results of operations, or cash flows.
16
<PAGE>
8. SUBSEQUENT EVENTS:
------------------
Stock Offering
- --------------
On April 13, 1998, the Board of Directors approved the offering of
142,857 shares of the Company's stock (the Offering) at a price of
$3.50 per share for a total of $500,000. The offering will
terminate on the earlier of the acceptance of an aggregate of
subscriptions for $500,000 in this Offering, or June 15, 1998
unless extended for an additional period in the sole discretion of
the Board. The Board may elect to terminate the offer at any time
before that date, at which time any shares subscribed shall be
deemed accepted and each investor shall have the rights associated
with the investment. Proceeds of the offering are expected to be
used for working capital and general business purposes. As of
June 12, 1998, the Offering was substantially complete.
Plan and Agreement of Reorganization
- ------------------------------------
On May 22, 1998, SoftLock Services, Inc. entered into a Plan and
Agreement of Reorganization with Fieldcrest Corp. (Fieldcrest), a
publicly held company. This proposed transaction would include a
transfer of all of the Company's outstanding common stock in exchange
for approximately 90 percent of the outstanding common stock of
Fieldcrest. This agreement is contingent on the Company's ability to
raise at least $500,000 in connection with the private placement as
described in the previous paragraph. Four shareholders/beneficial
owners of the Company are also investors in Fieldcrest. One of these
shareholders is also a member of the Board of Directors of Softlock
Services, Inc.
17
<PAGE>
SOFTLOCK SERVICES, INC.
(A Development Stage Company)
BALANCE SHEET
(Unaudited)
June 30, 1998
ASSETS
<TABLE>
<S>
<C>
CURRENT ASSETS:
Cash $ 450,171
Accounts receivable and other 32,183
Other current assets 19,987
--------
Total current assets 502,341
PROPERTY AND EQUIPMENT:
Office furniture and equipment 35,941
Less- Accumulated depreciation 23,246
--------
12,695
--------
$ 515,036
========
LIABILITIES AND SHAREHOLDERS' (INVESTMENT)/EQUITY
CURRENT LIABILITIES:
Accounts payable $ 158,950
Accrued compensation and
related liabilities 73,006
-------
Total current liabilities 231,956
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value,
6,000,000 authorized
Issued and outstanding -
1,579,021 shares 15,790
Additional paid-in capital 2,182,535
Deficit accumulated during the
development stage (1,646,365)
Less- Note receivable -
exercise of options (268,880)
---------
283,080
---------
$ 515,036
=========
</TABLE>
18
<PAGE>
SOFTLOCK SERVICES, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 AND 1997 AND THE PERIOD FROM
INCEPTION (MAY 11, 1992) THROUGH JUNE 30, 1998
<TABLE>
<S> <C> <C> <C>
Period
Six Six From
Months Months Inception
Ended Ended Through
June 30, June 30, June 30,
1998 1997 1998
REVENUES $ 61,619 $ 19,679 $ 266,460
COST OF REVENUES: 12,318 12,627 125,160
------ ------ -------
Gross profit 49,301 7,051 141,300
OPERATING EXPENSES: 332,062 351,432 1,825,711
------- ------- ---------
Loss from operations (282,761) (344,381) (1,684,411)
OTHER INCOME: 19,526 10,347 40,415
------- ------- ---------
Loss before income taxes (263,235) (334,034) (1,643,996)
INCOME TAX EXPENSE 513 793 2,369
-------- ------- ---------
NET LOSS $(263,748) $(334,827) $(1,646,365)
======= ======= =========
</TABLE>
19
<PAGE>
SOFTLOCK SERVICES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 AND 1997 AND THE PERIOD FROM
INCEPTION (MAY 11, 1992) THROUGH JUNE 30, 1998
<TABLE>
<S> <C> <C> <C>
Period
Six Six From
Months Months Inception
Ended Ended Through
June 30, June 30, June 30,
1998 1997 1998
CASH FLOWS FORM OPERATING ACTIVITIES:
Net loss $(263,748) $(334,827) $(1,646,365)
Adjustments to reconcile net loss
to net cash used in operating
activities-
Depreciation 3,380 5,726 23,246
Changes in assets and liabilities-
Accounts receivable and other (30,575) (46) (32,183)
Other current assets (15,713) (6,792) (19,987)
Accounts payable 92,760 3,309 158,950
Accrued compensation and related
liabilities 44,505 11,088 73,006
-------- ------- -------
Net cash used in operating
activities (169,391) (321,542) (1,443,333)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment - (8,570) (35,941)
-------- ------- -------
Net cash used in investing
activities - (8,570) (35,941)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 499,999 124,949 1,750,815
Options issued in exchange for services - - 178,630
------- ------- ---------
Net cash provided by financing
activities 499,999 124,949 1,929,445
------- ------- ---------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS 330,608 (205,163) 450,171
CASH, beginning of period 119,563 215,949 -
------- ------- -------
CASH, end of period $ 450,171 $ 10,786 $ 450,171
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the period for-
Income taxes $ 513 $ 793 $ 2,369
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF NONCASH
FINANCING ACTIVITIES:
Note received for exercise of options $ - $ - $ 268,880
======= ======== =======
</TABLE>
20
<PAGE>
SOFTLOCK SERVICES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998 AND 1997 AND THE PERIOD FROM
INCEPTION (MAY 11, 1992) THROUGH JUNE 30, 1998
1. Management's representation of interim financial information
------------------------------------------------------------
The accompanying financial statements have been prepared by SoftLock
Services, Inc. without audit pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted as allowed by such rules and regulations and management
believes that the disclosures are adequate to make the information presented
not misleading. These financial statements include all of the adjustments
which, in the opinion of management, are necessary to a fair
presentation of financial position and results of operations. All
such adjustments are of a normal and recurring nature. These financial
statements should be read in conjunction with the audited financial
statements at December 31, 1997 included elsewhere herein.
21
<PAGE>
SOFTLOCK.COM, INC.
fka Fieldcrest Corp.
(A Development Stage Company)
UNAUDITED PRO FORMA FINANCIAL DATA
On July 28, 1998, Fieldcrest Corp. ("Fieldcrest", "the Company") and
SoftLock Services, Inc. ("SoftLock") consummated a Plan and Agreement of
Reorganization ("the Agreement") whereby the Company acquired all
of the issued and outstanding shares of common stock of SoftLock in exchange
for 354,861,000 (7,097,220 post-split) shares of the Company's "restricted"
common stock. As a result of the transaction, the shareholders of SoftLock
became the owners of 90% of the company's common stock, and SoftLock became a
wholly owned subsidiary of the Company.
Shortly after the consummation of the transaction, the Company declared a
1 for 50 reverse stock split, and reduced the authorized shares from
520,000,000 to 27,000,000, of which 25,000,000 represent authorized common
shares, $0.01 par value, and 2,000,000 represent authorized preferred shares,
$0.01 par value. The name of the Company was changed to SoftLock.com, Inc.
The transaction has been accounted for as a reverse acquisition, with SoftLock
Services as the accounting acquiror. The Company has adopted the a fiscal year
end of December 31, which is the reporting year of the accounting acquiror.
Except as otherwise indicated, all share and per share amounts in these pro
forma combined financial statements have been adjusted to reflect the reverse
stock split.
The following unaudited pro forma financial statements are based on the
historical presentation of the financial statements of SoftLock Services, Inc.
("SoftLock") and SoftLock.com, Inc., formerly Fieldcrest Corp. ("Fieldcrest").
The unaudited pro forma statements of operations for the interim period ended
June 30, 1998 and for the year ended March 31, 1998 give effect to the
Agreement as if it had occurred on January 1, 1998 and January 1, 1997,
respectively. The unaudited pro forma balance sheet as of June 30, 1998
gives effect to the Agreement as if it had occurred on June 30, 1998. The
unaudited pro forma financial statements should be read in conjunction with
the historical financial statements, including notes thereto, of SoftLock
Services, Inc. and Fieldcrest Corp. previously filed or included herein.
The unaudited pro forma financial statements may not be indicative of the
results that actually would have occurred if the transaction had been in effect
on the dates indicated or which may be obtained in the future. These combined
pro forma statements do not reflect any potential savings which may result from
the combined operations of SoftLock and Fieldcrest.
22
<PAGE>
SOFTLOCK.COM, INC.
fka Fieldcrest Corp.
(A Development Stage Company)
UNAUDITED PRO FORMA BALANCE SHEET (1)
June 30, 1998
ASSETS
<TABLE>
<S>
<C> <C> <C> <C>
(2) (2) (3)
Fieldcrest SoftLock Pro Forma
June 30, June 30, June 30,
1998 1998 Adjustments 1998
CURRENT ASSETS:
Cash $ 3,338 $ 450,171 $ - $ 453,509
Accounts receivable and other - 32,183 - 32,183
Other current assets - 19,987 - 19,987
----- ------- -------
Total current assets 3,338 502,341 - 505,679
PROPERTY AND EQUIPMENT:
Office furniture and equipment - 35,941 - 35,941
Less- Accumulated depreciation - 23,246 - 23,246
------ ------- -------
- 12,695 - 12,695
------ ------- -------
$ 3,338 $ 515,036 $ - $ 518,374
====== ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts and short-term
notes payable $ 10,231 $ 158,950 $ - $ 169,181
Accrued compensation and
related liabilities - 73,006 - 73,006
------- ------- -------
Total current liabilities 10,231 231,956 - 242,187
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value,
25,000,000 authorized
Issued and outstanding -
788,580 shares 7,886 - (7,886) -
Common stock, $.01 par value,
6,000,000 authorized
Issued and outstanding -
1,436,164 shares - 15,790 (15,790) -
Common stock, $.01 par value,
25,000,000 authorized
Issued and outstanding -
7,885,800 shares - - 78,858 78,858
Additional paid-in capital 29,028 2,182,535 (55,182) 2,156,381
Deficit accumulated during the
development stage (43,807) (1,646,365) - (1,690,172)
Less- Note receivable -
exercise of options - (268,880) - (268,880)
------- --------- ----------
(6,893) 283,080 - 276,187
------- --------- ---------
$ 3,338 $ 515,036 $ - $ 518,374
======= ========= =========
</TABLE>
23
<PAGE>
SOFTLOCK.COM, INC.
fka Fieldcrest Corp.
(A Development Stage Company)
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS (1)
FOR THE INTERIM PERIOD ENDED JUNE 30, 1998
[C] [C] [C] [C]
(2) (2) (4)
Fieldcrest SoftLock Pro Forma
Three months Six months
June 30, June 30, June 30,
1998 1998 Adjustments 1998
REVENUES $ - $ 61,619 $ - $ 61,619
COST OF REVENUES: - 12,318 - 12,318
------ ------ ------
Gross profit - 49,301 - 49,301
OPERATING EXPENSES: 9,479 332,062 - 341,541
----- ------- -------
Loss from operations (9,479) (282,761) - (292,240)
OTHER INCOME: 19,526 - 19,526
------ ------- -------
Loss before income taxes (9,479) (263,235) - (272,714)
INCOME TAX EXPENSE - 513 - 513
------ ------- -------
NET LOSS $ (9,479) $(263,748) $ - $(273,227)
====== ======= =======
NET LOSS PER SHARE $ (0.01) n/a - $ (0.03)
===== ======= =======
Weighted average shares
outstanding 788,580 7,885,800
======= =========
The accompanying notes are an integral part of these pro forma financial
statements
24
<PAGE>
SOFTLOCK.COM, INC.
fka Fieldcrest Corp.
(A Development Stage Company)
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS (1)
FOR THE YEAR ENDED MARCH 31, 1998
<TABLE>
<S>
<C> <C> <C> <C>
(2) (2) (4)
Fieldcrest SoftLock Pro Forma
March 31, December 31, March 31,
1998 1997 Adjustments 1998
REVENUES $ - $ 110,774 $ - $ 110,774
COST OF REVENUES: - 20,346 - 20,346
------ ------- -------
Gross profit - 90,428 - 90,428
OPERATING EXPENSES: 3,851 924,862 60,000 988,713
----- ------- -------
Loss from operations (3,851) (834,434) (60,000) (898,285)
OTHER INCOME: - 19,950 - 19,950
------ ------- -------
Loss before income taxes (3,851) (814,484) (60,000) (878,335)
INCOME TAX EXPENSE - 794 794
------ -------- --------
NET LOSS $ (3,851) $(815,278) $(60,000)$(879,129)
====== ======== =======
NET LOSS PER SHARE $ (0.01) n/a $ (0.11)
====== ========
Weighted average shares
outstanding 776,876 7,768,759
======== =========
</TABLE>
25
<PAGE>
SOFTLOCK.COM, INC.
fka Fieldcrest Corp.
(A Development Stage Company)
Notes to Unaudited Pro Forma Financial Statements
(1) The unaudited pro forma financial data do not give effect to any potential
savings or other synergies that could result from the combination of
SoftLock and Fieldcrest. The pro forma data are not necessarily indicative
of the operating results or financial position that would have occurred had
the Agreement been consummated as of the dates indicated, nor are they
necessarily indicative of future operating results or financial position. The
pro forma adjustments are based on available information and upon certain
assumptions that management believes are reasonable under the circumstances.
(2) These columns represent historical results of operations and financial
position.
(3) The adjustments present the effect of merging the private operating company
(SoftLock) into the non-operating public shell corporation with nominal net
assets (Fieldcrest). The shareholders and management of SoftLock will have
effective operating control of the combined company after the transaction. The
transaction is considered to be a capital transaction in substance, rather than
a business combination and therefore purchase accounting has been applied,
except that no goodwill or other intangible has been recorded. Fieldcrest
issued a total of 354,861,000 (7,097,220 post-split) shares of Fieldcrest
common stock to effect the combination.
(4) The transaction has been accounted for as a recapitalization of the private
company. No goodwill or other intangible has been recorded. Direct expenses
related to the agreement and plan of reorganization have been charged to
operations in the interim period ended June 30, 1998 and are shown as an
adjustment in the fiscal year ended March 31, 1998. Management estimates
any remaining costs to be incurred with respect to the transaction will be
immaterial.
26
Exhibit 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
FIELDCREST CORP.
FIELDCREST CORP., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
The name of the Corporation is Fieldcrest Corp. (the "Corporation").
The date of filing of the Corporation's Certificate of Incorporation was
December 1, 1989.
The text of the Certificate of Incorporation of the Corporation is
hereby amended and restated to read as herein set forth in full.
FIRST: The name of this corporation is SoftLock.com, Inc. (the
"Corporation"). It shall have perpetual existence.
SECOND: The address of the Corporation's registered office in the
State of Delaware is 1013 Centre Road, Wilmington, Delaware 19805, County of
New Castle. The name of its registered agent at such address is The Company
Corporation.
THIRD: The purpose for which the Corporation is formed is to engage
in any lawful act or activity for which corporations may be organized under
the General Corporation Law of Delaware.
FOURTH: The aggregate number of shares which the Corporation shall
have authority to issue is Twenty-seven Million (27,000,000). Twenty-five
Million (25,000,000) shares shall be designated "Common Stock" and shall have
a par value of $.01 per share. Two Million (2,000,000) shares shall be
designated "Preferred Stock" and shall have a par value of $.01 per share.
All shares of the Corporation shall be issued for such consideration,
expressed in dollars, as the Board of Directors may, from time to time,
determine.
27
<PAGE>
In accordance with Section 242(a) of the General Corporation Law, a one-
for-fifty reverse stock split is declared with respect to all of the shares of
Common Stock issued and outstanding at the close of business on August 10,
1998 (the "Effective Time"), so that every fifty shares of Common Stock, par
value $0.00001 per share, outstanding at the Effective Time are combined into
one share of Common Stock, par value $0.01 per share, with the stated capital
of the Corporation being adjusted accordingly.
A description of the respective classes of stock and a statement of the
designations, powers, preferences, and rights and the qualifications,
limitations and restrictions thereof are as follows:
Common Stock. The Common Stock may be issued from time to time in one
or more classes or series in any manner permitted by law, as
determined by the Board of Directors and stated in the resolution
or resolutions providing for issuance thereof. Each class or
series shall be appropriately designated, prior to issuance of any
shares thereof, by some distinguishing letter, number or title.
All shares of each class or series of Common Stock shall be alike
in every particular and shall be of equal rank and have the same
power, preferences and rights, and shall be subject to the same
qualifications, limitations and restrictions, if any, as all other
shares of the same class or series. The Common Stock, and any
class or series thereof, may have such voting powers (including,
without limitation, multiple votes per share, or limited,
contingent, or no voting powers), such designations, preferences
and such qualifications, limitations and restrictions, as the
Board of Directors shall
28
<PAGE>
determine by resolution or resolutions.
Unless otherwise resolved by the Board of Directors, each Common
Stock share shall be of the same class and carry such voting
rights as elsewhere provided for in this Certificate, without any
designation, preference or relative, participating, optional or
other special rights, and subject to no qualification, limitation
or restriction.
Preferred Stock. The Preferred Stock may be issued from time to time in
series as determined by the Board of Directors and stated in the
resolution or resolutions providing for issuance thereof. The
Board of Directors is further authorized to fix and determine the
variations in the relative rights and preferences as between
series. Each such series shall be approximately designated, prior
to the issuance of any shares thereof, by some distinguishing
letter, number, or title. The Preferred Stock may have such
voting powers (including, without limitation, multiple votes per
share, or limited, contingent, or not voting powers), may have
special rights, and be subject to such qualifications, limitations
and restrictions, as the Board of Directors shall determine by
resolution or resolutions. The Preferred Stock further may be
made subject to redemption by the Company at its option or at the
options of the holders thereof and may be convertible into Common
Stock or exchangeable for other securities of the Company.
FIFTH: To the fullest extent permitted by the Delaware General
Corporation Law as the same exists or may hereafter be amended, a director of
this Corporation shall not be liable
29
<PAGE>
to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director.
SIXTH: The business and affairs of the Corporation shall be managed
by the Board of Directors, and the directors need not be elected by ballot
unless required by the Bylaws of the Corporation.
SEVENTH: In furtherance and not in limitation of the powers
conferred by the laws of the State of Delaware, the Board of Directors is
expressly authorized to adopt, amend or repeal the Bylaws of the
Corporation.
EIGHTH: The Corporation reserves the right to amend or repeal any
provision contained in this Certificate of Incorporation in the manner
prescribed by the laws of the State of Delaware. All rights herein
conferred are granted subject to this reservation.
The effective date of this Amended and Restated Certificate of Incorporation
shall be August 10, 1998.
This Amended and Restated Certificate of Incorporation was duly adopted
by written consent of the stockholders in accordance with the applicable
provisions of Sections 228, 242 and 245 of the General Corporation Law of
the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed
by its President and attested by its Secretary this 29th day of July, 1998.
FIELDCREST CORP.
By:/s/ Jonathan Schull
Jonathan Schull, President
30
<PAGE>
Attested:
By:
Martin Presberg, Secretary
31
<PAGE>
Exhibit 3.2
Certified to be a true and correct
copy of the Bylaws of the
Corporation, adopted by the Board
of Directors effective on August
10, 1998.
BYLAWS
-of-
SOFTLOCK.COM, INC.
ARTICLE I
SHAREHOLDER MEETINGS
SECTION 1.1. Annual Meeting. The annual meeting of the shareholders
shall be held within the four calendar months following the end of each fiscal
year of the Corporation, at such date and hour as may be fixed by the Board,
for the election of directors and for the transaction of such other business
as may properly be brought before the meeting.
SECTION 1.2. Special Meetings. Special meetings of the shareholders
may be held at any time in the interval between annual meetings. Special
meetings may be called by the Board, the Chairman of the Board, the President,
or by the Secretary upon the written request of the holders of not less than
twenty-five percent (25%) of the shares of stock outstanding entitled to vote,
which written request shall state the purpose or purposes of the meeting.
Shareholders requesting the meeting must pay, in advance, the reasonably
estimated cost of preparing and mailing notices of the meeting.
SECTION 1.3. Place of Meetings. Annual and special meetings of the
shareholders shall be held at the principal office of the Corporation or at
such other place within or without the State of New York as the Board or
other persons authorized to call such meetings may from time to time determine
and indicate in the notice.
SECTION 1.4. Notice of Meetings. Written notice shall be given
stating the place, date and hour of all meetings of the shareholders. The
notice shall state the purpose or purposes of the meeting and shall indicate
that it is being issued by or at the direction of the person or persons
calling the meeting. A copy of the notice of any meeting shall be given,
personally or by mail, not less than ten (10) nor more than fifty (50) days
before the date of the meeting, to each shareholder entitled to vote at the
meeting. If mailed, notice shall be deemed to have been given when deposited
in the United States mail, postage prepaid, directed to each shareholder at
his or her last known address as it appears on the records of the Corporation,
or, if he or she shall have filed with the Secretary a written request that
notices be mailed to some other address, then directed to him or her at such
other address. Notice must also be given to any shareholder who, by reason
of the action proposed at the meeting would be entitled to receive payment
for his or
32
<PAGE>
her shares, and the existence of this right must be stated in the
notice. No notice provided for in this Section is required to be given to
any shareholder who submits a signed waiver of notice, in person or by proxy,
whether before or after the meeting. The attendance of any shareholder at
the meeting, in person or by proxy, who does not protest prior to the
conclusion of the meeting the lack of notice of such meeting, shall constitute
a waiver of notice to the shareholder. No notice of any adjourned meeting of
shareholders need be given, unless the Board fixes a new record date for the
adjourned meeting.
SECTION 1.5. Record Date. For the purposes of determining the
shareholders entitled to notice of or vote at a shareholder's meeting or any
adjournment thereof, the Board may fix a date of record which shall not be
more than fifty (50) days nor less than ten (10) days before the meeting
date. For the purpose of determining shareholders entitled to express
consent to or dissent from any proposal without a meeting, or for determining
shareholders entitled to receive payment of a dividend or the allotment of
any rights, or for any other action, the Board may fix a date of record which
shall not be more than fifty (50) days prior to such action.
SECTION 1.6. Quorum. At all meetings of the shareholders, except as
otherwise provided by law, there shall be present, in person or represented
by proxy, shareholders owning a majority in number of the shares of the
Corporation issued and outstanding and entitled to vote thereat, in order to
constitute a quorum; but if there be no quorum, the holders of the share
present or represented may, by majority vote, adjourn the meeting from time
to time, but not for a period of over thirty (30) days at any one time,
without notice other than by announcement at the meeting, until a quorum
shall attend. At any such adjourned meeting at which a quorum shall attend,
any business may be transacted which might have been transacted at the
meeting as originally called. When a quorum is once present, it is not
broken by the subsequent withdrawal of any shareholder.
SECTION 1.7. Voting. At all meetings of the shareholders, each
shareholder entitled to vote thereat may vote in person or by proxy and
shall have one (1) vote for each share standing in his name on the books of
the Corporation, unless otherwise provided in the Certificate of
Incorporation. A plurality of votes cast shall be sufficient to elect
directors and a majority of votes cast shall be sufficient to take any other
corporate action, except as otherwise provided by law, the Certificate of
Incorporation, or the Bylaws.
SECTION 1.8. Proxies. No shareholder shall enter into a voting trust
agreement, proxy or other type of agreement vesting in another person, other
than another shareholder of the Corporation, or an officer or director of the
Corporation, the authority to exercise voting power of any or all of his or
her shares. Every proxy shall be in writing, subscribed by the shareholder
or his or her duly authorized attorney-in-fact and dated. No proxy which is
dated more than eleven (11) months before the meeting at which it is offered
shall be accepted, unless such proxy shall, on its face, name a longer period
for which it is to remain in force.
SECTION 1.9. Conduct of Meeting. Meetings of the shareholders shall
be presided over by the Chairman determined in accordance with the Bylaw
provisions relating to duties and successors of officers, or in the absence
of all such officers, by a Chairman to be chosen at the meeting. The
Secretary of the Corporation shall act as Secretary of the meeting, if
present, otherwise the Chairman shall appoint a Secretary.
33
<PAGE>
SECTION 1.10. Action Without a Meeting. Whenever shareholders are
required or permitted to take any action by vote, such action may be taken
without a meeting if permitted by the laws of the Company's State of
Incorporation or on written consent, setting forth the action so taken,
signed by the holders of all shares outstanding and entitled to vote
thereon. Such written consent shall have the same effect as a unanimous
vote of the shareholders entitled to vote thereon.
ARTICLE II
BOARD OF DIRECTORS
SECTION 2.1. Election and Powers. The Board of Directors shall have
the management and control of the affairs and business of the Corporation.
The Board may act at any duly held meeting by the vote of a majority of the
directors present, or it may act by unanimous written consent of all members
of the Board if permitted by the Company's State of Incorporation. The
directors shall be elected by the shareholders at each annual meeting of
shareholders and each director shall serve until a successor is elected and
qualified unless his or her directorship be therefore vacated by resignation,
death, legal disqualification pursuant to Article V, removal or otherwise.
SECTION 2.2. Number. The number of directors constituting the entire
Board shall be such number, not less than three (3), as shall be fixed by vote
of a majority of the entire Board from time to time. In absence of such
action, the number of directors shall be three (3). Notwithstanding the
provisions of this Section, where all of the shares are owned beneficially
and of record by fewer than three (3) shareholders, the number of directors
shall be equal to the number of shareholders, unless otherwise fixed by the
Board, which may fix a greater number.
SECTION 2.3. Vacancies. Vacancies and other openings in the Board,
created for any reason except removal of a director without cause, may be
filled by the Board or a majority of the directors then in office if less
than a quorum are in office.
SECTION 2.4. Removal. At any meeting of the shareholders duly called,
any director may be removed from office with or without cause by vote of the
holders of a majority of the shares entitled to vote in the election of
directors, and another may be elected by the shareholders in the place of the
person so removed to serve for the remainder of the term.
SECTION 2.5. Meetings. A regular meeting of the Board shall be held
as soon as practicable after the adjournment of the annual meeting of
shareholders for the election of officers, and the transaction of such
business as may be properly presented, including the designation of times
and places for additional regular meetings of the Board during the ensuing
year. Special meetings of the Board shall be held at any time, upon call
from the Chairman of the Board, if any, the President, or at least one-third
(1/3) of the directors.
SECTION 2.6. Place of Meetings. All meetings of the Board shall be
held at the principal office of the Corporation, or at such other place,
within or without the State of New York as may from time to time be
determined by the Board or the person or persons authorized to call the
meeting.
34
<PAGE>
SECTION 2.7. Notice of Meetings. No notice need be given of a
regular meeting of the Board. Notice of the place, day and hour of every
special meeting shall be given to each director by personal delivery or by
telegraph or facsimile or e-mail or leaving the same at the director's
residence or usual place of business, at least one (1) day before the
meeting, or shall be mailed to each director, postage prepaid and addressed
to the director at his or her last known address according to the records of
the Corporation, at least three (3) days before the meeting. No notice of
any adjourned meeting of the Board need be given other than by announcement
at the meeting, subject to the provisions of Section 2.9 of this Article.
SECTION 2.8. Waiver of Notice. Notice of a meeting need not be given
to any director who submits a signed written waiver thereof whether before,
during or after the meeting nor to any director who attends the meeting
without protesting, prior thereto or at its commencement, the lack of notice
to him or her.
SECTION 2.9. Quorum. A majority of the directors in office, but in
no event less than one-third (1/3) of the entire Board shall be necessary to
constitute a quorum for the transaction of business at each meeting of the
Board; but if at any meeting there be less than a quorum present, a majority
of those present may adjourn the meeting from time to time without notice
other than by announcement at the meeting, until a quorum shall attend. At
any such adjournment at which a quorum shall be present any business may be
transacted which might have been transacted at the meeting as originally
called.
SECTION 2.10. Presence at Meetings. Any one or more members of the
Board or any committee thereof may participate in a meeting of the Board or
such committee, by means of a conference telephone or similar communications
equipment allowing all persons participating in the meeting to hear each other
at the same time. Participation by such means shall constitute presence at a
meeting.
SECTION 2.11. Action Without a Meeting. Any action required or
permitted to be taken any action by the Board of Directors or by any
committee thereof at a duly held meeting may be taken without a meeting if
all members of the Board of Directors or of the committee, as the case may
be, consent in writing to the adoption of resolutions authorizing the
action. Such resolutions and such written consents shall be filed with
the minutes of the proceedings of the Board of Directors or of the
committee.
SECTION 2.12. Compensation. Directors as such shall not receive any
stated compensation for their services, but by resolution of the Board a fixed
sum and expenses of attendance may be allowed for the attendance at each
special or regular meeting thereof. Nothing in this Section will be construed
to preclude a director from serving the Corporation in any other capacity and
from receiving compensation therefor.
SECTION 2.13. Executive Committee and Other Committees. The Board
may, in its discretion, by an affirmative vote of a majority of the entire
Board appoint an Executive Committee, or any other committee, to consist of
three (3) or more directors. Unless limited by the Board, or by law, the
Executive Committee shall have and may exercise all power and authority of
the Board in the management of the business and affairs of the Corporation,
and other committees
35
<PAGE>
shall have those powers conferred upon them by the
Board, except that no committee shall have power to act in those areas
specifically prohibited by law. Any committee shall have the power to act
by unanimous written consent of all of its members in accordance with the
Business Corporation Law of New York.
ARTICLE III
OFFICERS
SECTION 3.1. Election of Officers. The officers of the Corporation
shall be a Chairman, a CEO, a President, a CFO, one or more Vice Presidents,
and a Secretary. The Board of Directors may appoint such other officers, and
assistant officers, as they may consider necessary, who shall be chosen in
such manner and hold their offices for such terms and have such authority and
duties as from time to time may be determined by the Board of Directors. The
salaries of all the officers of the Corporation shall be fixed by the Board
of Directors. One person may hold any two offices, except that no person may
simultaneously hold the offices of President and Secretary. In all cases where
the duties of any officer, agent or employee were not prescribed by the Bylaws
or by the Board of Directors, such officer, agent or employee shall follow the
orders and instructions of the President.
SECTION 3.2. Assistant and Subordinate Officers. The Board may elect
one or more Assistant Treasurers, one or more Assistant Secretaries and such
other subordinate officers or agents as it may deem proper from time to time,
who shall hold office at the pleasure of the Board. The Board may from time
to time authorize the President to appoint and remove such assistant and
subordinate officers and agents and prescribe the powers and duties thereof.
SECTION 3.3. Removal. Any officer of the Corporation may be removed
with or without cause by the Board.
SECTION 3.4. Compensation. The Board shall fix the compensation of
all officers of the Corporation who are elected by the Board. The Board may
authorize the President to fix the compensation of such assistant and
subordinate officers and agents as he is authorized to appoint and remove.
SECTION 3.5. Chairman of the Board. The Chairman of the Board, if
there be one, shall preside at all meetings of the shareholders and the Board,
and shall perform such other duties as the Board may direct.
SECTION 3.6. President. The President shall be the Chief Executive
Officer of the Corporation and shall, subject to the direction to the Board,
have the general management and control of the affairs and business of the
Corporation. The President shall preside at all meetings of the shareholders
and the Board, if there be no Chairman of the Board, or in his or her absence
or inability to act.
SECTION 3.7. Vice Presidents. During the absence or incapacity of
the President, the Vice President, or the most senior Vice President in terms
of duration in office, if there be more than one, shall perform the duties
and exercise the functions of the President. Any one or more of
36
<PAGE>
the Vice
Presidents may be designated by the Board as an Executive Vice President. At
the request of the President or in his or her absence or during his or her
disability, the Executive Vice President shall perform the duties and exercise
the functions of the President. Each Vice President shall have such other
powers and duties as may be properly designated by the Board, and the
President.
SECTION 3.8. Secretary. The Secretary shall keep full minutes of all
meetings of the shareholders and of the Board in books provided for this
purpose. The Secretary shall see that all notices are duly given in
accordance with the provisions of the Bylaws or as required by law. The
Secretary shall be the custodian of the records and of the seal or seals of
the Corporation. The Secretary shall affix the corporate seal to all
documents, the execution of which on behalf of the Corporation, under seal,
is duly authorized by the Board, and when so affixed, may attest the same.
The Secretary shall have such other powers ad duties as may be properly
designated by the Board, and the President.
SECTION 3.9. Treasurer. The Treasurer shall keep correct and complete
books and records of account for the Corporation. Subject to the control and
supervision of the Board, and the President, or such other officer as the
President may designate, the Treasurer shall establish and execute programs
for the provision of the capital required by the Corporation, including
negotiating the procurement of capital and maintaining adequate sources for
the Corporation's current borrowings from lending institutions. The Treasurer
shall maintain banking arrangements to receive, have custody of, and disburse
the Corporation's moneys and securities. The Treasurer shall invest the
Corporation's funds as required, establish and coordinate policies for
investment in pension and other similar trusts, and provide insurance coverage
as required. The Treasurer shall direct the granting of credit and the
collection of accounts due the Corporation, including the supervision of
special arrangements for financing sales, such as time payment and leasing
plans. The Treasurer shall have such other powers and duties as may be
properly designated by the Board, and the President.
ARTICLE IV
SHARE CERTIFICATES
SECTION 4.1. Form and Signatures. The interest of each shareholder of
the Corporation shall be evidenced by certificates for shares in such form not
inconsistent with law or the Certificate of Incorporation as the Board may
from time to time prescribe. The share certificates shall be signed by the
President or a Vice President and by the Secretary or an Assistant Secretary
or the Treasurer or an Assistant Treasurer, sealed with the seal of the
Corporation, and countersigned and registered in such manner, if any, as the
Board may by resolution prescribe. Where any share certificate is
countersigned by a transfer agent or registered by a registrar, other than the
Corporation itself or its employee, the signatures of any such President, Vice
President, Secretary, Assistant Secretary, Treasurer, or Assistant Treasurer,
and such corporate seal, may be facsimiles engraved or printed. In case any
officer who has signed or whose facsimile signature has been placed upon such
certificate shall have ceased to be such officer before the share certificate
is issued, such certificate may be issued by the Corporation with the same
effect as if such person had not ceased to be such officer.
SECTION 4.2. Transfer of Shares. The shares of the Corporation shall
be transferred on
37
<PAGE>
the books of the Corporation by the registered holder
hereof, in person or by his or her attorney, upon surrender for cancellation
of certificates for the same number of shares, with a proper assignment and
powers of transfer endorsed thereon or attached thereto, duly signed by the
person appearing by the certificate to be the owner of the shares represented
thereby, with such proof of the authenticity of the signature as the
Corporation or its agents may reasonably require. Such certificate shall have
fixed thereto all stock transfer stamps required by law. The Board shall have
power and authority to make all such other rules and regulations as it may
deem expedient concerning the issue, transfer and registration of certificates
for shares of the Corporation.
SECTION 4.3. Mutilated, Lost, Stolen or Destroyed Certificates. The
holder of any certificates representing shares of the Corporation shall
immediately notify the Corporation of any mutilation, loss, theft or
destruction thereof, and the Board may, in its discretion, cause one or more
new certificates for the same number of shares in aggregate to be issued to
such holder upon the surrender of the mutilated certificate, or in the case of
loss, theft or destruction of the certificate, upon satisfactory proof of
loss, theft or destruction and the deposit of indemnity by way of bond or
otherwise in such form and amount and with such sureties or securities as the
Board may require to indemnify the Corporation, its transfer agent and
registrar, if any, against loss or liability by reason of the issuance of such
new certificates; but the Board may in its discretion refuse to issue such new
certificates save upon the order of some court having jurisdiction in such
matters.
SECTION 4.4. Stock Ledgers. The stock ledgers of the Corporation
containing the names and addresses of the shareholders and the number of
shares held by them respectively shall be maintained at the principal office
of the Corporation, or if there be a transfer agent, at the office of such
transfer agent, as the Board shall determine.
SECTION 4.5. Transfer Agents and Registrars. The Corporation may have
one or more transfer agents and one or more registrars of its stock or of any
class or classes of its shares whose respective duties the Board may from time
to time determine.
ARTICLE V
INDEMNIFICATION
SECTION 5.1. Indemnification. The Corporation shall indemnify (a) any
person made or threatened to be made a party to any action or proceeding by
reason of the fact that he or she, his or her testator or intestate, is or was
a director or officer of the Corporation and (b) any director or officer of
the Corporation who served any other company in any capacity at the request of
the Corporation, in the manner and to the maximum extent permitted by the
corporate law of the Company's State of Incorporation, as amended from time to
time; and the Corporation may at the discretion of the Board indemnify all
other corporate personnel to the extent permitted by law.
SECTION 5.2. Authorization. The provisions for indemnification set forth in
Section 5.1 hereof shall not be deemed to be exclusive. The Corporation is
hereby authorized to further indemnify its directors and officers in the
manner and to the extent set forth in (i) a resolution of the shareholders,
(ii) a resolution of the directors, or (iii) an agreement providing for such
indemnification, so long as such indemnification shall not be expressly
prohibited by the provisions of the corporate law of the Company's State of
Incorporation.
38
<PAGE>
ARTICLE VI
FINANCES
SECTION 6.1. Dividends. Subject to law and to the provisions of the
Certificate of Incorporation, the Board may declare dividends on the stock of
the Corporation, payable upon such dates as the Board may designate.
SECTION 6.2. Reserves. Before payment of any dividend, there may be
set aside out of any funds of the Corporation available for dividends such sum
or sums, as the Board from time to time, in its absolute discretion, deems
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the Board shall deem conducive to the best interest
of the Corporation, and the Board may modify or abolish any such reserve in
the manner in which it was created.
SECTION 6.3. Bills, Notes, Etc. All checks or demands for money and
Notes or other instruments evidencing indebtedness or obligations of the
Corporation shall be made in the name of the Corporation and shall be signed
by the President or such other officer or officers or such other person or
persons as the Board may from time to time designate.
SECTION 6.4. Voting Shares Held by the Corporation. Unless otherwise
determined by the Board, the President of the Corporation is hereby designated
as the officer of the Corporation authorized to vote any and all shares of
stock held by the Corporation in other domestic or foreign corporations; he or
she shall have the power and authority to vote such shares in person or by
proxy, or by written consents in lieu of formal meetings.
ARTICLE VII
AMENDMENTS
SECTION 7.1. Power to Amend. The Board shall have the power to adopt,
amend or repeal the Bylaws of the Corporation by a majority vote of the entire
Board at any meeting, or by unanimous written consent of all members of the
Board. However, any Bylaws adopted by the Board may be amended or repealed at
any meeting of the shareholders.
SECTION 7.2. Notice of Amendment Affecting Election of Directors. If
any Bylaw regulating an impending election of directors is adopted, amended or
repealed by the Board, there shall be set forth in the notice of the next
meeting of shareholders for the election of directors, the Bylaw so adopted,
amended or repealed, together with a concise statement of the changes made.
39
<PAGE>
Exhibit 10.1
Employment Agreement
As a material stockholder, key employee, and key contributor to the vision
of SoftLock Services, Inc. and in consideration of continued employment by
SoftLock and/or Fieldcrest Corp. for the term specified below, the
undersigned agrees:
1) To continue to commit full-time efforts to the business of SoftLock
Services, Inc., for a period of two years, commencing August 1, 1998, for
compensation essentially the same as the current arrangement.
2) To refrain from any activities detrimental to SoftLock which directly or
indirectly support current or potential competitors to the current or
potential business of SoftLock Services, Inc.
3) To refrain from disclosing any information proprietary or confidential
to SoftLock Services, Inc. which may be injurious to the interests of The
Company.
4) To acknowledge SoftLock's exclusive ownership of any invention or
product made or developed by me during the course of my employment
relating to current or currently anticipated businesses of the company.
Signed /s/ Jonathan Schull
_______________________________
Jonathan Schull
SoftLock Services, Inc. Fieldcrest Corp.
/s/ Frank Knott /s/ Heather Zane Anderson
________________________ ____________________________
Frank Knott, Chairman of the Heather Zane Anderson, President
Board of Directors
40
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion in this
Form 8-K of our report dated June 4, 1998 except for the matter described in
the first paragraph of Note 8, as to which the date is June 12, 1998. It
should be noted that we have not audited any financial statements of the
company subsequent to December 31, 1997 or performed any audit procedures
subsequent to the date of our report.
Rochester, New York,
August 12, 1998
/s/ Arthur Andersen LLP
41
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
balance sheets and statements of operations included in Form 8-K and is
qualified in its entirety by reference to such 8-K dated July 28, 1998.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-END> JUN-30-1998 DEC-31-1997
<CASH> 450171 119563
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 502341 125445
<PP&E> 35941 35941
<DEPRECIATION> 23246 19866
<TOTAL-ASSETS> 515036 141520
<CURRENT-LIABILITIES> 231956 94691
<BONDS> 0 0
0 0
0 0
<COMMON> 15790 14362
<OTHER-SE> 267290 32467
<TOTAL-LIABILITY-AND-EQUITY> 515036 141520
<SALES> 61619 110774
<TOTAL-REVENUES> 61619 110774
<CGS> 12318 20346
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 332062 924862
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (263235) (814484)
<INCOME-TAX> 513 794
<INCOME-CONTINUING> (263748) (815278)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (263748) (815278)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
