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As filed with the Securities and Exchange Commission on May 17, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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E2ENET.COM, INC.
(Exact name of registrant as specified in its charter)
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Delaware 7389 52-2168495
(State or other (Primary standard (I.R.S. employer
jurisdiction of industrial identification number)
incorporation or classification code
organization) number)
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570 Lexington Avenue
23rd Floor
New York, New York 10019-5809
(212) 702-9500
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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Robert J. Smith
Chief Executive Officer
E2Enet.com
570 Lexington Avenue
23rd Floor
New York, New York 10019-5809
(212) 702-9500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
Steven A. Museles Hogan R.W. Smith, Jr. Piper &
& Hartson L.L.P. 555 Marbury L.L.P. 36 South
Thirteenth Street, N.W. Charles Street
Washington, D.C. 20004 Baltimore, MD 21201
(202) 637-5600 (410) 539-2530
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Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
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If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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<CAPTION>
Title Of Each Class Of Proposed Maximum Amount Of
Securities To Be Registered Aggregate Offering Price Registration Fee(1)
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<S> <C> <C>
Common Stock, $.01 par value....... $172,500,000 $47,955
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</TABLE>
(1) Determined pursuant to Rule 457(o) under the Securities Act of 1933.
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The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with the provisions
of section 8(a) of the Securities Act of 1933, as amended, or until this
Registration Statement shall become effective on such date as the Securities
and Exchange Commission, acting pursuant to said section 8(a), may determine.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities, and we are not soliciting an offer to buy +
+these securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
May 17, 1999
Shares
E2Enet.com
Common Stock
This is the initial public offering of our common stock, and no public market
currently exists for our stock. We expect the initial public offering price
will be between $ and $ per share. The price per share in this offering
may not reflect the price of our shares in the public market after this
offering is complete. We intend to have our common stock trade on the Nasdaq
National Market under the symbol "ETOE."
Investing in our common stock involves risks. Please read the Risk Factors
beginning on page 4 before making a decision to invest in our common stock.
<TABLE>
<CAPTION>
Per Share Total
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<S> <C> <C>
Public offering price....................................... $ $
Underwriting Fees........................................... $ $
Proceeds, before expenses, to E2Enet.com.................... $ $
</TABLE>
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these shares of common stock or
determined if this prospectus is truthful or complete. It is illegal for any
person to tell you otherwise.
-----------
E2Enet.com has granted the underwriters the right, at any time until 30 days
after the date of this prospectus, to purchase up to an additional shares
to cover any over-allotments of shares the underwriters may make in this
offering.
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BT Alex. Brown
, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Summary.................................................................. 2
Risk Factors............................................................. 4
Use of Proceeds.......................................................... 13
Dividend Policy.......................................................... 13
Capitalization........................................................... 14
Dilution................................................................. 15
Selected Financial Data.................................................. 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
Business................................................................. 19
Management............................................................... 29
Transactions with Related Parties........................................ 37
Principal Stockholders................................................... 38
Description of Capital Stock............................................. 39
Shares Available for Future Sale......................................... 43
Underwriting............................................................. 45
Experts.................................................................. 47
Validity of the Shares................................................... 47
Additional Information................................................... 47
</TABLE>
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SUMMARY
The following summary highlights selected information from this prospectus
and may not contain all the information that is important to you. To understand
our business and this offering fully, you should read this entire prospectus
carefully, including the financial statements and the related notes beginning
on page F-1.
E2Enet.com
Our Business
We intend to create, develop and support Internet-related enterprises by
becoming a leading source of capital and operational support for Internet
entrepreneurs and by entering into strategic partnerships or joint ventures
with non-Internet companies seeking to develop Internet-related enterprises. We
believe that Internet entrepreneurs require strategic guidance as well as
capital to rapidly develop and differentiate their products and services in the
increasingly competitive Internet industry. We intend to meet these needs by
providing these companies with business development support through access to
the experienced entrepreneurs who lead our management team, serve on our
advisory board and manage our other partner companies. Members of our
management team, board of directors and advisory board have extensive
experience working with leading growth companies, including America Online, AOL
Digital Cities, Blockbuster, CNBC/Dow Jones Business Video, FTD.com, IBM, the
National Football League, Showtime/The Movie Channel and TicketMasterOnline-
CitySearch.
We intend to capitalize on two primary opportunities: incubating and
developing entrepreneurial start-up Internet businesses and entering into
strategic partnerships or joint ventures with non-Internet companies seeking to
develop an Internet presence. Although traditional sources of start-up capital
provide some level of support, we believe this support is minimal and, in-turn,
may limit the ability of entrepreneurs to realize their business objectives. In
addition, we believe our emphasis on developing companies makes us an
attractive alternative to the traditional sources of capital. We intend to
offer the following business development support and advisory services to our
partner companies:
. strategic guidance, branding and business positioning;
. rapid product or service deployment support;
. human resources services;
. back-office support services; and
. access to the ideas, technologies, products and services of our other
portfolio companies.
We also intend to provide technical and Internet industry expertise to
traditional non-Internet businesses seeking partners as they enter the Internet
marketplace. By partnering with E2E and letting us direct their Internet
process, these traditional businesses can establish a presence on the Internet
without distracting management from its core focus and without negatively
impacting their financial statements.
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Our Strategy
Our strategy is to achieve attractive returns for our stockholders, realize
long-term capital appreciation and build shareholder value by:
. becoming the Internet entrepreneur's partner of choice;
. creating a community of partner companies;
. utilizing our management team's extensive industry contacts and
relationships;
. building the E2E brand; and
. influencing the decision-making processes of our partner companies.
Initial Investments
We have invested or entered into agreements to acquire equity interests in
four Internet and interactive media businesses for aggregate consideration of
$6.8 million in cash and 666,669 shares of our common stock. These businesses
are:
. a gift giving electronic commerce site;
. an urban entertainment online network;
. a women's premium online buying agent; and
. an online auction network.
Additionally, we are currently pursuing numerous Internet opportunities
particularly in the business-to-business sector. None of these opportunities is
probable at this time.
Our Structure
We will conduct our operations and investment activities directly, through
subsidiaries or, possibly, through strategic alliances or joint ventures. Our
executive offices are located at 570 Lexington Avenue, 23rd Floor, New York,
New York 10019-5809. The telephone number of our principal executive office is
(212) 702-9500.
THE OFFERING
The following table summarizes this offering.
<TABLE>
<C> <S>
Stock offered by E2Enet.com.......... shares of common stock.
Stock outstanding after this shares of common stock, assuming
offering............................. the underwriters do not exercise their
over-allotment option. We also will
have outstanding options to purchase
1,650,000 shares of common stock at the
initial public offering price.
Proposed Nasdaq symbol............... ETOE
Dividend policy...................... We do not anticipate paying cash
dividends on our common stock.
</TABLE>
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RISK FACTORS
You should consider carefully the following risks before you decide to buy
our common stock. Many of these risks will affect our partner companies and
will, as a result, affect our company to the extent of our interest in the
affected partner company. If any of the following risks actually occur, our
business, financial condition or results of operations would likely suffer. In
addition, the trading price of our common stock could decline, and you may lose
all or part of the money you paid to buy our common stock.
Our strategy may not be successful because we have no track record. We began
operations in September 1998, and to date we have agreed to acquire equity
interests in four companies for aggregate consideration of up to $6.8 million
in cash and 666,669 shares of our common stock. We will be applying business
selection criteria and a strategy that have not yet been tested. We cannot
assure you that our strategy or selection criteria will lead us to identify
partner companies that will result in positive returns or otherwise enhance
value for our stockholders.
We will not have earnings for the foreseeable future. To date, we have only
engaged in start-up activities and the negotiation of agreements and letters of
intent to purchase ownership interests in partner companies. We intend to make
a significant number of investments in Internet-focused businesses that have
limited or no revenues. We do not expect our partner companies to generate
income for us for the foreseeable future and they may never produce income for
us. In addition, our expenses will increase as we build an infrastructure to
implement our business model. We intend to increase our operating expenses to
develop business support services. Our future operating results will depend to
a significant degree on our ability to successfully manage our growth and
investments. Furthermore, the companies in which we invest may not be
successful, and we may lose all of the money we have invested in these
companies.
To generate significant income we must sell our interests in our partner
companies, and our ability to make sales may be limited. A significant amount
of our cash will be derived from disposing of our interests in our partner
companies. These dispositions may occur through sales of our interests in the
partner companies in private or public transactions and business combinations
involving these companies. Absent these dispositions, we do not expect a cash
return on our investments in our partner companies since we do not expect them
to pay dividends. Market, regulatory, contractual and other conditions largely
beyond our control will affect:
. our ability to dispose of our interests in our partner companies;
. the timing of these dispositions; and
. the amount of proceeds from these dispositions.
For these reasons, we may not be able to dispose of the equity interests we
have acquired, or if we are able to sell, we may not be able to sell at an
opportune time or at a favorable price. If we are unable to dispose of our
interests in our partner companies at favorable prices, our income, if any,
will be lower than anticipated.
If we do not find suitable businesses to create, develop or invest in, the
return on your investment in our company may be reduced. Our financial results
depend on our
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ability to identify desirable businesses to develop and invest in and on our
ability to successfully negotiate the terms of those investments. We will have
broad discretion over how we invest the proceeds of this offering. We may not
identify or complete enough attractive investments to generate income or a
return for our stockholders. Even if we successfully identify and make
investments, it may take considerable time to use all the proceeds of this
offering. Until favorable investments are identified and completed, the
proceeds from this offering will be invested in interest-bearing, U.S.
government securities. Those securities will generate only limited interest
income. Some of the net proceeds of this offering will also be used to pay for
offering, corporate overhead and administrative costs, which we believe will be
approximately $10 million for the 12 months following this offering.
We may be deemed an investment company, which would prohibit us from
engaging in business and could result in criminal and civil actions against
us. The Investment Company Act of 1940 regulates companies that primarily
invest in or own investment securities. In addition, any company that owns
investment securities with a value exceeding 40% of its total assets, excluding
cash and government securities, may be required to register as an investment
company and comply with the Investment Company Act. We believe that because of
the structure of our interests in our partner companies and the business
strategy we will pursue, we will not be regulated under the Investment Company
Act. If we temporarily fall under the definition of an investment company based
on our initial assets, we will rely on a SEC rule that will exempt us from
regulation under the Investment Company Act for up to one year. After that one-
year period, we intend to rely on another SEC rule that would exempt us from
investment company regulation by having at least 55% of our total assets
represented by, and at least 55% of our income, if any, derived from, assets
that meet the requirements of that exemption. We intend to structure our assets
to meet the conditions of this exemption.
We may not meet any of these exemptions from investment company regulation
for various reasons, including the fact that our interests in our partner
companies and their values will change. Our classification as an investment
company would significantly harm our business and results of operations. If we
fail to comply with the requirements of available exemptions or are for any
other reason required to register under the Investment Company Act, we would be
in violation of the Investment Company Act unless we were to register. If we
did not register when required to do so, we would be prohibited from engaging
in business or selling our securities and could be subject to civil and
criminal actions for doing so. In addition, our contracts would be
unenforceable unless a court were to require enforcement, and a court could
appoint a receiver to take control of our company and liquidate our business.
If we were obligated to register as an investment company, we would have to
comply with a variety of substantive requirements under the Investment Company
Act applicable to registered investment companies. These requirements include:
. limitations on capital structure;
. restrictions on specified investments;
. prohibitions on transactions with affiliates; and
. compliance with reporting, record keeping, voting, proxy disclosure and
other rules and regulations that would significantly change our
operations.
To maintain compliance with the Investment Company Act exemption, we may be
required to increase our ownership interest in our partner companies at a time
or on terms
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that may not be favorable to us. In addition, we may be required to liquidate
our interest in a partner company prematurely to maintain compliance with an
investment company exemption rather than as a result of our business strategy.
We also may have to forego an attractive opportunity to acquire an interest in
a partner company because it would cause us to fall out of compliance with the
investment company exemption requirements.
Competition for investments may result in lower returns. We will compete
with other companies seeking to develop and invest in Internet businesses. Many
of these potential competitors have more experience identifying, investing in
and advising Internet companies and may possess greater financial, personnel or
other resources or industry contacts than we have. Competition to invest in
Internet-focused businesses could cause us to pay higher prices for our
investments, resulting in lower returns on these investments.
Our success will depend on businesses that we may not control. Our primary
business will consist of acquiring ownership positions in our partner
companies. Although we generally will seek to participate in the management of
the companies in which we invest, we may have shared control or no control over
some of these companies. Our investments in which we share or maintain no
control will involve additional risks that could cause the performance of our
investments and our operating results to suffer, including:
. management of the partner company may have economic or business
interests or objectives which are inconsistent with ours; and
. businesses in which we invest may encounter financial or operating
difficulties which we would not be able to influence.
If the businesses we operate or invest in fail to adapt to rapid changes in
technology and customer and supplier demands, we may not become or remain
profitable. Our financial and operating success is dependent on the financial
and operating success of our partner companies. We cannot assure you that the
products and services of the businesses we operate or the businesses of our
partner companies will achieve market acceptance or commercial success; nor can
we assure you that our future businesses or those of our partner companies will
be successful or generate income for us. The markets for the Internet and
interactive media products and services of the businesses in which we intend to
engage or with which we intend to partner are characterized by:
. rapidly changing technology;
. evolving industry standards;
. frequent new product and service introductions;
. shifting distribution channels; and
. changing customer demands.
Our future success will depend on our partner companies' ability to adapt to
this rapidly evolving marketplace. They may not be able to adequately or
economically adapt their products and services or to develop new products and
services that can compete successfully. Those businesses may not be able to
establish and maintain effective distribution channels for their products and
services. If they are unable to offer competitive products and services and
maintain effective distribution channels, they will sell fewer products and
services and lose revenue,
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possibly causing us to lose money on our investment. In addition, we or our
partner companies may not be able to respond to the rapid technology changes
occurring in Internet products and services in an economically efficient manner
and our businesses may become or remain unprofitable.
Our stock price may not reflect the value of our assets. Our initial public
offering price has been determined based upon the number of shares we are
offering and the amount of money we are raising in this offering rather than
upon a multiple of earnings or revenues, since we have neither. We expect that
the future price of our stock will be dependent upon the market perception of
our partner companies. Our assets will primarily consist of ownership interests
in Internet-related businesses and technologies. Many of these businesses will
be private companies, which will make it difficult to determine the value of
our interest in them. In addition, it will be difficult to assess the potential
liquidity of our interests and at what time we may realize a return on an
investment in one or more of our partner companies. Due to various factors,
including the difficulty in valuing our partner companies, concerns about
liquidity, and possible adverse changes to or perceptions of the Internet
industry, the trading price of a share of our common stock may be below the
book value per share of our assets or the underlying value of our partner
companies.
Our stock price may be highly volatile. The market price of our common stock
is likely to be highly volatile and could be subject to wide fluctuations. In
particular, the Nasdaq Stock Market has experienced extreme price and volume
fluctuations that have particularly affected the market prices of equity
securities of many technology companies and have often been unrelated or
disproportionate to the operating performance of these companies. The trading
prices of many technology companies' stocks are at or near historical highs.
These high trading prices may not be sustainable. Market factors unrelated to
E2E's performance may adversely affect the market price of our common stock.
Our business will suffer if any of our systems, or the products or systems
of businesses in which we invest, fail to be year 2000 compliant. Many
currently installed computer systems and software products are coded to accept
only two digit entries in the date code field. These date code fields will need
to accept four digit entries to distinguish 21st century dates from 20th
century dates. As a result, many companies will need to update or replace their
software and computer systems to comply with year 2000 requirements. We will
evaluate the year 2000 compliance of any business in which we invest and of
third-party equipment and software that we use in both information technology
and non-information technology applications in our business. Examples of non-
information technology systems include our building security and voice mail
systems.
Based upon current information, we do not anticipate costs associated with
the year 2000 issue to have a material financial impact on us or any of our
partner companies. There may, however, be interruptions or other limitations of
financial and operating systems' functionality, and we may incur additional
costs to avoid these interruptions or limitations. In addition, businesses in
which we invest may incur substantial costs to avoid product and service
interruptions. Our expectations about future costs associated with the year
2000 issue are limited by uncertainties that could cause actual costs to have a
greater financial impact than currently anticipated. Factors that could
influence the amount and timing of future costs include:
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. the amount and magnitude of year 2000 issues encountered by Internet-
related businesses in which we invest, which could cause those
businesses to incur costs or losses or cause us to make additional
investments in those businesses to help pay for their costs of year 2000
compliance;
. our success in identifying systems and programs that contain two-digit
year codes;
. the nature and amount of programming required to upgrade or replace each
of the affected programs;
. the rate and magnitude of related labor and consulting costs; and
. our success in addressing year 2000 issues with third-parties with which
we do business.
Our inability or the inability of our partner companies to successfully
become year 2000 compliant could result in system failures or miscalculations,
causing disruptions of operations and reductions in revenues.
Internet commerce is new and evolving with few profitable business models,
and our partner companies may not be profitable. The market for Internet-based
products and services is rapidly evolving. While many Internet commerce
companies have grown in terms of revenue, few are profitable. We cannot assure
you that our partner companies will be profitable. As is typical for a new and
rapidly evolving industry, demand and market acceptance for recently introduced
services and products over the Internet face a high level of uncertainty and
there are few proven services and products. Moreover, since the market for the
services of our partner companies is new and evolving, it is difficult to
predict the future growth rate, and size of this market.
A drop in demand for Internet services and commerce or failure of components
of the Internet's infrastructure may cause a reduction in the value of partner
companies. The businesses of our partner companies, and thus our financial
results, will rely on demand for access to the Internet and for products and
services related to the Internet. Recently introduced Internet-related products
and services may not be accepted in the market. Commerce and communication over
the Internet may not continue to develop and expand as expected, and even if
they do, the Internet services offered by our partner companies may not become
widely adopted for these purposes.
Our partner companies will not grow as we expect if:
. the market for Internet services and commerce fails to continue to
develop;
. the Internet market develops more slowly than expected;
. the Internet market becomes saturated with competitors; or
. the Internet-related products and services offered by our partner
companies are not widely accepted.
The Internet's infrastructure may not be able to support the demands placed
on it by this continued growth without decreases in its performance or
reliability. Any outages or delays in services using the Internet could lower
the level of Internet usage. In addition, the
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infrastructure and complementary products and services necessary to make the
Internet a viable commercial marketplace may not continue to develop. If usage
of the Internet is curtailed due to infrastructure constraints or lack of
complementary products, we expect an adverse impact on the business of our
partner companies and a reduction in value of our partner companies.
Our partner companies will compete with other Internet businesses and may
require significant additional financing to do so. The market for Internet
products and services is highly competitive. In addition, the market for
Internet products and services lacks significant barriers to entry, making it
relatively easy for new businesses to enter this market. Competition in the
market for Internet products and services may intensify in the future. Numerous
well-established companies and smaller entrepreneurial companies are focusing
significant resources on developing and marketing products and services that
will compete with our partner companies' products and services. In addition,
many of these competitors will have greater financial, technical, operational
and marketing resources than our partner companies will have. Our partner
companies may not be able to compete successfully against these competitors in
selling their goods and services. Competitive pressures may also force prices
for Internet goods and services down and such price reductions likely would
reduce the revenues of our partner companies and, consequently, the return on
our investment. The businesses in which we invest may require significant
amounts of additional capital to compete successfully and to meet their
business objectives and produce revenues. We may not be able to accurately
predict these needs. We may decide to provide this additional capital. If we do
not, our interest may be diluted if the companies receive investments from
other sources.
Some employees, members of our board of directors and our advisory board may
have interests that conflict with ours. Some members of our management team,
board of directors and advisory board own or participate in, or may in the
future own or participate in, our partner companies or other companies that may
seek to make investments similar to ours. Their interests may conflict with
ours or those of our stockholders in matters of timing and other factors
relating to our investments in, control over, and exit strategies from our
partner companies. We cannot assure you that these management team members,
directors and advisory board members will not make decisions based on their own
best interests rather than those of our stockholders. For example, William
Phelan, one of our directors, is the founder and principal stockholder of the
online auction network in which we have agreed to invest. Also, members of our
advisory board are employees of TicketMasterOnline-CitySearch or other
companies that may seek to invest in or acquire the companies in which we are
seeking or may seek to invest. Their interests may conflict with ours in
evaluating and committing to investments. Although we intend to enter into
nondisclosure and noncompetition agreements with the members of our advisory
board, we cannot assure you that they will not act in the best interests of the
companies with which they are employed or otherwise affiliated, rather than in
the best interests of our stockholders. Our partner companies or partner
entities with which our directors or advisory board members are affiliated, may
compete with each other for other Internet related opportunities.
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Future governmental regulation affecting the Internet could reduce the sales
and increase the operating costs of our portfolio companies, resulting in
reduced earnings. With the exception of regulation applicable to businesses
generally, most Internet businesses are not currently regulated by any
government agency. Due to increasing popularity and use of the Internet,
however, it is possible that a number of laws may be adopted that will apply to
the Internet in the future which will affect our partner portfolio companies
and our financial results. These potential laws cover issues including:
. user privacy;
. dissemination of information;
. pricing of goods and services offered; and
. types of products and services offered.
An example of the types of laws that may be adopted to regulate use of the
Internet is the Telecommunications Act of 1996. The Telecommunications Act
prohibited the transmission over the Internet of some types of information.
Although the Telecommunications Act was held unconstitutional, similar laws may
be enacted in the future. Other nations, including Germany, have taken similar
actions to restrict the flow of information deemed to be objectionable on the
Internet. In addition, some telecommunications carriers continue to advocate
that telecommunications over the Internet should be regulated by the Federal
Communications Commission in the same manner as other telecommunications
services. These telecommunications carriers want to see the government
eliminate the current exemption from payment of telecommunications access
charges for Internet service providers.
If the government adopts any additional laws or regulations governing use of
the Internet, these actions could decrease the growth of the Internet or
increase the costs of doing business for Internet-focused companies. Finally,
the sales of goods and services by our partner companies may be reduced and the
costs of producing those goods and services may be increased if existing U.S.
state and federal laws and foreign laws governing issues such as commerce,
taxation, property ownership, defamation and personal privacy are increasingly
applied to the Internet.
If any member of our senior management team left our company, we would have
difficulties operating our business. Our performance is dependent on the
performance of our Chief Executive Officer and our Senior Vice Presidents. The
familiarity of these individuals with financial markets and the Internet
industry makes them especially valuable to our success. The loss of the
services of any of our senior management would harm our business. Competition
for this type of personnel as well as other technical and managerial talent is
intense, and if we are not able to attract, train or retain other highly
qualified technical and managerial personnel in the future, our investment
returns may decline.
Our failure to develop and maintain positive brand name awareness of the E2E
brand or for our partner companies could negatively affect the return on our
investments. We believe that establishing and maintaining the E2E brand name
and the brand names of our partner companies is a crucial aspect of our effort
to develop our
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partner companies. We think the importance of brand name recognition will
increase in the future due to the growing number of companies competing with us
in seeking partner companies and to the growing number of Internet companies
which will need to differentiate themselves. Promotion and enhancement of our
brand names will depend largely on our ability to provide our partner companies
with the business development support they need and on the ability of our
partner companies to provide consistently high quality products and services
and, if they are unable to provide high quality products and services, the
value of our brand names will decline. If we fail to differentiate ourselves as
a business development and Internet industry partner or if we fail to enter
into new business ventures that are not favorably received by consumers, the
value of our brand names could be diminished and our business may be hurt.
If the security measures of our partner companies fail, they may lose
customers or be sued, resulting in additional expenses and reduced
profitability. The secure transmission of confidential information over public
telecommunications facilities is a significant barrier to electronic commerce
and communications on the Internet. Many factors may cause compromises or
breaches of the security systems used by us or other Internet sites to protect
proprietary information, including:
. advances in computer and software functionality; or
. new discoveries in the field of cryptography.
A compromise of security on the Internet would have a negative effect on the
use of the Internet for commerce and communications. This in turn would have a
negative effect on our partner companies and our results of operations and
could have a negative effect on our stock price. Protecting against the threat
of security breaches or alleviating problems caused by breaches may require our
partner companies to expend significant capital and other resources. When the
activities of our partner companies involve the storage and transmission of
proprietary information, such as credit card numbers, security breaches may
expose them to a risk of loss or litigation and possible liability. There is no
guarantee that their security measures will prevent security breaches.
Our ownership is concentrated. Three stockholders beneficially owned an
aggregate of approximately 48.6% of our outstanding common stock as of May 14,
1999 and will own approximately % following this offering. As a result, these
holders possess significant influence over us on matters including the election
of our directors. The concentration of our share ownership may:
. delay or prevent a change in our control that may otherwise be in your
best interest;
. impede a merger, consolidation, takeover or other business combination
involving us that may otherwise be in your best interest;
. discourage a potential acquiror from making a tender offer or otherwise
attempting to obtain control of us; or
. influence decisions relating to investments and operating strategy at
the board of directors level.
11
<PAGE>
The book value of your common stock will be diluted in this offering. The
price you will pay for our common stock will be substantially higher than the
pro forma tangible book value per share of our outstanding common stock. As a
result, you will experience immediate and substantial dilution in tangible book
value per share, and the founders and executive officers of our company will
receive a material increase in the tangible book value per share of their
shares of common stock. The dilution to you in this offering will be
approximately $ per share.
Future sales of our common stock in the public market could lower our stock
price and impair our ability to raise funds in new stock offerings. Upon
completion of this offering, we will have shares of common stock
outstanding, of which 4,272,169 shares will be "restricted shares." In
addition, we may issue in the future additional shares of common stock as
consideration for our investments. Sales of a substantial amount of common
stock in the public market, or the perception that these sales may occur, could
adversely affect the market price of our common stock prevailing from time to
time in the public market and could impair our ability to raise funds in
additional stock offerings.
The shares of common stock sold in this offering will be freely tradable
without further restriction or further registration under the Securities Act,
except for shares purchased by an affiliate of ours, sales of which will be
limited by Rule 144 under the Securities Act. Holders of restricted shares
generally will be entitled to sell these shares in the public market without
registration either under Rule 144 or any other applicable exemption under the
Securities Act.
12
<PAGE>
USE OF PROCEEDS
We estimate that we will receive approximately $138.5 million in net
proceeds from this offering based on an assumed initial public offering price
equal to $ per share. This amount reflects deductions from the gross
proceeds of the offering of:
. approximately $10.5 million, which will be retained by the underwriters
as discounts and commissions; and
. $1.0 million, representing our estimated expenses for this offering.
$ of the proceeds to be raised in this offering will be used to repay a
note held by a stockholder of E2E. The note bears interest at the Morgan
Stanley Dean Witter prime rate and is secured by our interests in our initial
partner companies. The proceeds from the loan underlying the note were used to
make our investments in our initial partner companies and to fund operating
expenses.
We intend to use the remaining net proceeds raised in this offering to
create, develop and support Internet-related:
. entrepreneurial start-up businesses; and
. strategic partnerships or joint ventures with non-Internet companies
seeking partners with which to co-develop Internet-related enterprises.
We have not identified any businesses or other assets in which to use the
net proceeds of this offering. Until appropriate partner companies are
identified, we intend to invest those
net proceeds temporarily in U.S. Government securities. These securities are
expected to provide a lower return than we hope to achieve from our intended
investments in Internet-related and other interactive media companies.
This use of proceeds does not reflect the exercise of the underwriters'
over-allotment option. We estimate that we will receive $20.9 million in
additional net proceeds if the underwriters exercise their over-allotment
option in full.
DIVIDEND POLICY
We do not intend to pay dividends on our common stock in the foreseeable
future. Instead, we will retain our earnings to finance our investments and for
general corporate purposes.
13
<PAGE>
CAPITALIZATION
We present below our capitalization at March 31, 1999, (1) on an actual
basis and (2) on a pro forma as adjusted basis giving effect to our redemption
of 200,000 shares of common stock on May 7, 1999, our issuance of shares
of common stock resulting in a compensation charge of $ , and the sale of
shares of common stock valued at $ per share to initial partner
companies, and (3) on an as adjusted for IPO basis giving effect to the sale
of shares of common stock in this offering at a price of $ per share
after deducting the underwriting discounts and commissions and estimated
offering expenses payable by us. This table does not include 1,650,000 shares
of common stock issuable upon the exercise of stock options to be granted on
the date this offering begins. You should refer to our combined financial
statements and related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
March 31, 1999
----------------------------------
Pro Forma As Adjusted
Actual As Adjusted for IPO
--------- ----------- -----------
<S> <C> <C> <C> <C>
Due to Stockholder...................... $ 219,407 $219,407 $219,407
========= ======== ========
Promissory note from stockholder
Stockholders' Deficit:
Common stock, $.01 par value per
share:
100,000,000 shares authorized;
1,500,000(1) shares outstanding
actual; shares outstanding pro
forma as adjusted.................. $ 15,000
Additional paid-in capital.......... 100
Preferred stock, $.01 par value per
share:
10,000,000 shares authorized; no
shares outstanding actual or pro
forma as adjusted.................. -- --
Additional paid-in capital............
Deficit accumulated during development
stage................................ (362,816)
--------- -------- --------
Total stockholder's deficit....... $(347,716)
--------- -------- --------
Total capitalization.................... $(128,309)
========= ======== ========
</TABLE>
- --------
(1) On May 7, 1999, we redeemed 200,000 of these shares for $.01 per share,
or $2,000.
14
<PAGE>
DILUTION
E2Enet.com's pro forma as adjusted for the offering net tangible book value
at March 31, 1999 was $ , or $ per share of common stock. Pro forma as
adjusted for the offering net tangible book value per share is determined by
dividing the pro forma net tangible book value of our company by the number of
shares of common stock outstanding on a pro forma basis. E2Enet.com's pro forma
as adjusted net tangible book value at March 31, 1999 would have been $ , or
$ per share of common stock, assuming:
. no exercise of the underwriters' over-allotment option; and
. no changes in the pro forma as adjusted for the offering net tangible
book value of our company, other than to give effect to the sale of the
shares of common stock offered by this prospectus at an assumed initial
public offering price of $ per share, and the application of the net
offering proceeds as described under "Use of Proceeds."
This pro forma as adjusted net tangible book value represents an immediate
increase in net tangible book value of $ per share to existing stockholders
and an immediate dilution in pro forma as adjusted net tangible book value of $
per share to new investors purchasing shares in this offering. The
following table illustrates this per share dilution.
<TABLE>
<S> <C>
Assumed initial public offering price per share....................... $
Pro forma as adjusted for the offering net tangible book value per
share at March 31, 1999.............................................. $
Pro forma as adjusted for the offering increase per share attributable
to investors who buy shares in this offering.........................
Pro forma as adjusted net tangible book value per share after the
offering.............................................................
----
Pro forma as adjusted for the offering dilution per share to investors
who buy shares in this offering...................................... $
====
</TABLE>
The following table summarizes, as of March 31, 1999, on a pro forma as
adjusted basis after giving effect to this offering:
. the number of shares of our common stock purchased by existing
stockholders and the total consideration, and the average price per
share paid to us for these shares, valuing these shares at the initial
public offering price;
. the number of shares of common stock purchased by investors who buy
shares in this offering and the total consideration and the price per
share paid by them for these shares, before deduction of underwriting
discounts and commissions and estimated offering expenses payable by us;
and
. the percentage of shares purchased by the existing stockholders and
investors who buy shares in this offering and the percentages of
consideration paid to us for these shares by existing stockholders.
This table assumes:
. no exercise of the underwriters' over-allotment option; and
. no exercise of any stock options to be outstanding upon the closing of
this offering.
15
<PAGE>
<TABLE>
<CAPTION>
Shares Total
Purchased Consideration Average
-------------- -------------- Price
Number Percent Amount Percent Per Share
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders............... % $ % $
Purchasers in this offering.........
--- ----- ---- ----- ---
Total............................. 100.0% $ 100.0% $
=== ===== ==== ===== ===
</TABLE>
16
<PAGE>
SELECTED FINANCIAL DATA
The following tables contain selected financial data (1) as of December 31,
1998 and March 31, 1999, (2) for the period from September 8, 1998, which is
the date of inception, through December 31, 1998 and (3) the three months ended
March 31, 1999. We derived the selected financial data from E2Enet.com's
financial statements. The selected financial data should be read together with,
E2Enet.com's financial statements and the notes to those financial statements,
included elsewhere in this prospectus. Adjusted data reflect (a) the sale of
shares in this offering after deducting the underwriting discount and
estimated offering expenses payable by E2Enet.com, (b) the redemption of
200,000 shares on May 7, 1999, (c) shares of E2Enet.com issued to several
individuals resulting in a compensation charge of $ and (d) the payment of
the note due to a stockholder as part of the use of proceeds.
<TABLE>
<CAPTION>
September 8, 1998 Cumulative
(inception) to Three months ended since
December 31, 1998 March 31, 1999 inception
----------------- ------------------ ----------
<S> <C> <C> <C>
Statement of Operating Data:
General and administrative
expenses..................... $ 79,698 $ 283,118 $ 362,816
--------- --------- ---------
Total expenses................ $ 79,698 $ 283,118 $ 362,816
--------- --------- ---------
Net loss...................... $ (79,698) $(283,118) $(362,816)
========= ========= =========
Basic and diluted loss per
common share................. $ (.05) $ (.19) $ (.24)
========= ========= =========
Shares used in computing loss
per common share............. 1,500,000 1,500,000 1,500,000
</TABLE>
<TABLE>
<CAPTION>
March 31, 1999
------------------------------
December 31, 1998 Actual Pro Forma As adjusted
----------------- -------- --------- -----------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Current assets................ $ -- $ 16,851 $ $
Total assets.................. 6,288 23,363
Total liabilities............. 85,886 371,079
Total stockholders' deficit... 79,598 347,716
</TABLE>
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview and Results of Operations
E2E was founded in September 1998 to create, develop and support Internet
companies in all stages of development, and establish ventures with non-
Internet companies that wish to develop Internet-related enterprises. We have
generated no revenues since inception. As of March 31, 1999 we had incurred
expenses since inception of approximately $363,000 in connection with our
analyses of our initial investments. The net proceeds from the proposed sale of
the shares of common stock offered through this prospectus are estimated to
be approximately $138.5 million, and we will use these proceeds to repay
indebtedness, to fund our Internet investments and ventures and for our
operations. Because we expect that our investments, ventures and operations
will not directly provide revenues for a substantial period of time, our income
will represent interest on the investment of the net proceeds of this offering,
offset by our investment program, expenses, salaries and other operating costs.
Liquidity and Capital Resources
Following this offering, we will have cash and cash equivalents of
approximately $138.5 million, or $159.4 million if the underwriters exercise
their over-allotment option in full. We currently have no plan or intention to
obtain additional capital through debt or equity financing in the next 12
months. If and when we require additional financing to implement our business
strategy or for other capital requirements, we may be unable to obtain this
financing on terms that we deem acceptable. We may also use our common stock as
a source of capital to provide a portion of the consideration paid to acquire
an interest in partner or venture companies. We believe that the net proceeds
from this offering will be sufficient to fund our operations and investment
program through the end of June 2000.
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<PAGE>
BUSINESS
We intend to create, develop and support leading Internet-related
enterprises by becoming a leading source of capital and operational support for
Internet entrepreneurs and by entering into strategic partnerships or joint
ventures with non-Internet companies seeking to develop Internet-related
enterprises. We believe that both Internet entrepreneurs and non-Internet
companies require strategic guidance as well as capital to rapidly develop and
differentiate their products and services in the increasingly competitive
Internet industry. We intend to meet these needs by providing these companies
with business development support, Internet industry, technological and
marketing expertise and access to the experienced entrepreneurs who make up our
management team, our advisory board and our partner companies. Members of our
management team, board of directors and advisory board have extensive
experience working with leading companies, including AOL, AOL Digital Cities,
Blockbuster, CNBC/Dow Jones Business Video, FTD.com, IBM, NFL, Showtime/The
Movie Channel and TicketMasterOnline-CitySearch.
Entrepreneurial Opportunities
We believe emerging companies generally require operating support and
strategic guidance in addition to capital. Although traditional sources of
start-up capital provide some level of non-financial support, we believe this
support is minimal and, in-turn, may limit the ability of entrepreneurs to
realize their business objectives.
. Friends and Family. Friends and family investors generally offer
entrepreneurs a minimal amount of capital and little or no operating
expertise.
. Venture Capital Firms. The primary goal of venture capital firms is
to maximize their financial return within a short time frame. We
believe that venture capital firms typically focus solely on
providing capital and do not provide the business development and
operational support which emerging companies require to succeed. In
addition, venture capital firms often cause their portfolio
companies to engage prematurely in a public offering or sale.
. Corporate Strategic Investors. Corporate strategic investors are
typically large corporations that invest in emerging companies to
obtain access to a promising product, potential customers,
technology or skill set that the larger company does not possess or
cannot develop in a cost-effective or timely manner. While corporate
strategic investors can provide business development and sometimes
other managerial support, the goals of the strategic investor are
often incompatible with the business goals and entrepreneurial
spirit of the emerging company and its founders.
We believe our emphasis on developing companies will make E2E an attractive
alternative to the traditional sources of capital described above. We intend to
offer the following business development support and advisory services to our
partner companies:
. Strategic guidance, branding and business positioning. Our management
team and advisory board possess a combination of managerial, operational
and
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<PAGE>
technological experience, and have extensive relationships in various
Internet and other interactive media markets. We believe that this
experience will enable us to provide our partner companies with guidance
in developing and refining their business strategies, products and
branding concepts, as well as assisting them in positioning their
businesses once their strategy has been developed.
. Rapid product or service deployment support. We intend to employ or
outsource a staff of technology developers and marketing consultants. We
believe that providing our partner companies with technological
assistance will enable them to accelerate their development by allowing
them to focus on key business goals and to tailor their existing
technology and/or business models for their market segment. Further,
providing our partner companies with access to marketing consultants
will enable them to introduce their products to market more quickly and
to promote their brand more effectively. In addition, we will provide
our partner companies with legal and other assistance to guide and
assist them in developing and protecting their intellectual property.
. Human resources. We intend to assist our partner companies in attracting
and retaining management personnel by allowing them to utilize the
industry contacts and relationships of our management team and advisory
board.
. Back-office support services. Start-up companies generally need to
contract for numerous advisory services and develop a variety of plans
and documents. We intend to provide our development stage partner
companies with access to accounting, legal and other advisors to
complete necessary start-up tasks. We also are developing a start-up kit
that includes documents, such as benefit plan and nondisclosure
agreements, that can be tailored for the specific needs of each partner
company with minimal time, effort or expense required.
. Access to other partner companies. We intend to create a community of
Internet businesses that exchange and develop ideas, technologies,
products and services. We also expect cooperation among our partner
companies to cross-market their products and services where appropriate,
which we expect will increase brand recognition and penetration and
reduce marketing costs for each company.
Strategic Partnership Opportunities
Many traditional businesses are losing market share to emerging Internet
businesses due to the relative ease and convenience of Internet commerce and
the delayed entry of these traditional businesses into the Internet
marketplace. We believe these companies realize that to compete successfully
they need to build an Internet presence. Many of these companies want to
develop Internet-based business platforms but do not want to do so
independently, because the research and development and other start-up costs
of developing those platforms may negatively impact their operations or
financial statements. We believe that this presents an opportunity for these
companies to partner with third parties, such as E2E, to provide
20
<PAGE>
financial support and strategic guidance. We believe that the industry
relationships of our management team, board of directors and advisory board
will enable us to provide traditional businesses with the access to technical
expertise and Internet industry contacts that they require to create their
Internet-based business platforms. We intend to partner with these companies in
joint ventures or other similar relationships to co-develop their Internet
businesses. Many of these opportunities will focus on consumer and business-to-
business products and services.
Our Strategy
Our strategy is to use our industry, technological and capital markets
expertise to develop and grow our Internet businesses and partnerships to
achieve superior returns for our stockholders. We will focus on developing,
operating and entering into strategic alliances with companies conducting
business in what we believe to be the most compelling segments of the Internet.
We believe we can build value for our stockholders through the long-term
capital appreciation of partner companies, and anticipate realizing returns
from mergers, sales and/or initial public offerings of selected partner or
alliance companies. We intend to:
. Become the Internet entrepreneur's partner of choice. We intend to
provide entrepreneurs with the following business development resources:
. ongoing marketing, technical and financial expertise;
. strategic and general business development guidance;
. the expertise of our management team and members of our advisory
board to assist our partner companies in identifying and
capitalizing on business development and strategic partnership
opportunities; and
. enhanced visibility and cross-marketing opportunities for our
partner through our partner companies' affiliation with E2E and our
other partner companies.
. Create a community among our partner companies. We intend to create a
community of Internet businesses where the joint development and
exchange of ideas, technologies, products, and services is encouraged
and facilitated. E2E will also encourage the exchange of best practices
between partner companies in many areas, including business formation,
human resources management, sales and marketing and technology
development. We may develop or acquire companies that provide technical,
marketing and development support to other partner companies.
. Utilize the relationships of the E2E team. Our founders, together with
our management team, directors and advisory board, possess a broad
combination of managerial, operational and technological experience.
They have also developed extensive relationships in various Internet and
other interactive media markets. We intend to utilize our executives and
their contacts to provide our partner companies and strategic partners
with quick access to technology, strategic relationships, transactions
and personnel.
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<PAGE>
. Build the E2E brand. Our brand name, E2Enet.com, emphasizes our
Entrepreneur to Entrepreneur focus. We intend to promote this
entrepreneurial spirit by finding, supporting, and counseling
entrepreneurs. We believe that as we develop public awareness of our
brand, it will become valuable to our partner companies, providing them
with enhanced visibility and a strong network of strategic, technical
and managerial support.
. Influence the decision-making process. We will generally seek to acquire
equity interests in our Internet businesses and strategic partnerships
that are large enough to enable us to have a significant influence over
the management and policies of those companies or partnerships.
Our Internet Industry Focus
The Internet has become a global medium enabling millions of people to
obtain and share information, to communicate and to conduct business
electronically. The Internet has grown rapidly since its introduction to the
public in the early 1990s. At the end of 1998, there were in excess of 66
million Internet users in North America and 113 million Internet users
worldwide. Jupiter Communications estimates that by 2002 the number of Internet
users will increase to over 123 million in North America and over 247 million
worldwide. We intend to create, develop and operate companies competing in a
variety of Internet-related and other interactive media markets and segments.
Initially, we anticipate that our primary focus will be on business
opportunities in the following market segments:
. Internet direct marketing. Marketing and advertising over the Internet
enables companies to reach more prospective buyers at costs that are
much lower than those of traditional direct marketing techniques.
Marketing over the Internet also allows marketers to rapidly collect and
deploy meaningful demographic information and adapt their messages in
response to current events and consumer feedback. There are many
companies that enable both offline and online businesses to take
advantage of the interactive capability of the Internet to enhance
customer relationships, to develop business opportunities, and to
improve the management and results of their businesses. Jupiter
Communications estimates that total spending on Internet advertising in
the United States will grow from $1.9 billion in 1998 to $7.7 billion in
2002, representing a 42% compounded annual growth rate. In addition,
Jupiter Communications predicts that spending on direct marketing on the
Internet will grow from $190 million in 1998 to $1.3 billion in 2002, a
compounded annual growth rate of 62%.
. Consumer products, content, services and online communities. There is a
significant and growing demand among Internet users for online community
and commerce sites that offer a centralized means of accessing diverse,
personally created content, products, and services in an easy-to-
navigate environment. We believe that online communities allow
advertisers and businesses to reach highly targeted audiences within a
more personalized context, thereby to increasing advertising efficiency
and effectiveness. Jupiter Communications has projected that
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<PAGE>
retail consumer commerce will grow from $5.8 billion in 1998 to $37.5
billion in 2002, representing a 59% compounded annual growth rate. We
believe that the size of the content market will be driven by total
advertising expenditures on the Internet in the United States, which,
according to Jupiter, will grow from $1.9 billion in 1998 to $7.7
billion in 2002, representing a 42% compounded annual growth rate.
. Business-to-business transactions and product distribution. A growing
segment of the electronic commerce sector of the Internet is business-
to-business trade in products and services. We believe that the Internet
enables sellers to gather better information to reach more customers, to
target them more effectively, and to increase their level of service.
Buyers are able to compare products and prices more efficiently and
reduce transaction costs. Industry sources estimate that total Internet
expenditures on business-to-business products will grow from $132.4
billion in 1999 to $1.55 trillion in 2003, representing a 64% compounded
annual growth rate.
. Outsourcing Internet services and solutions. As more companies implement
applications on the Internet, the demand for the outsourced provision of
Internet infrastructure and services significantly increases. Companies
need assistance in establishing and managing their Internet presence and
in integrating Internet access with networked systems. They also require
assistance in managing intranets, extranets and e-mail systems. Although
many major packaged applications are currently on the market to assist
companies with their Internet presence and Internet-related systems, the
complexity of existing systems often requires substantial integration or
customization for efficient operation. The Internet outsourcing industry
includes consultants who assist companies in establishing an Internet
presence or integrating systems on a one-time basis, entities that
provide a turn-key Web presence with site management, and companies that
provide full management of Internet, intranet, extranet and e-mail
systems.
Our Initial Partner Companies
We believe that there are several key elements to evaluating the
potential success of a company. We intend to focus on companies exhibiting one
or more of the following characteristics:
. Management. The entrepreneurs who will guide the strategy or
technological development of a new venture are critical to its success.
We will focus on attracting and partnering with companies with
management teams that demonstrate leadership, marketing and/or
technology skills. We believe that the flexibility of an entrepreneur is
extremely important. Management may need to adapt and refine its
business plan to adjust to changes in market conditions, the
introduction of new competition and possible strategic failures.
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<PAGE>
. Multiple revenue streams. We believe that many successful Internet and
interactive media companies generate revenue from more than one source.
Potential sources of revenue include subscription processing and
licensing fees, advertising, electronic commerce, direct marketing.
. First mover advantage. Our partner companies preferably will be the
first or among the first entrants into their Internet market segment.
This may include providing products and services to an under-penetrated
market.
. Technology advantage. In addition to providing a new or unique product
or service, we believe that companies should have a technological
advantage or innovation to prevent competitors from easily entering
their niche market.
. Complementary companies. We will focus on companies that will be able to
interact with, cross-market with, or provide services or products that
are complementary to those offered by another partner company.
We have agreed to acquire equity interests in four companies for an
aggregate of $6.8 million in cash and 666,669 shares of common stock. Pursuant
to agreements we have also issued 600,002 shares to the founders of these
companies at a price of $.01 per share. Under these agreements, we will obtain
board representation, voting rights, preemptive rights and anti-dilution
protection in connection with our ownership positions. We also have the right
to veto major decisions, including the sale or merger of the company, the
incurrence of debt and the issuance of senior securities. These transactions
are summarized below.
. Gift giving electronic commerce site. We have agreed to invest $1.5
million and to issue 133,334 shares of our common stock in order to
purchase 40% of the equity ownership of a company which operates a Web
site focused on gift selection and related services. This business will
offer a wide variety of gift selections from branded retailers to make
the gift selection process fast, efficient and effective. The business
will complement these selctions with gift services, ideas and content.
Its search engines will allow the customer to search for a gift based on
a wide range of criteria. Each shopper will be provided with a host of
innovative organizing services, which are designed to greatly enhance
the gift giving experience. The business will derive revenues from
transaction fees with its product partners, as well as through
advertising. The business anticipates that its Web site and community
will be operational by the fourth quarter of 1999.
. Urban online entertainment network. We have agreed to invest $3.0
million and to issue 200,001 shares of our common stock to purchase 25%
of the equity of an online network for consumers of global urban
culture, information, entertainment and products. This company was
founded in 1998 by George Jackson, the former president of Motown
records, Frank Cooper, the former head of business operations for Def
Jam Records/Polygram Holding, Inc. and Adam Kidron, a record producer.
This company intends to build, develop and market online communities
centered around urban cultural icons, such as celebrities, musical
artists, athletes, political figures, filmmakers and entrepreneurs. This
network of sites will provide interest specific channels with content,
e-commerce,
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<PAGE>
community features and search capabilities. This company intends to
derive revenue from advertising, electronic commerce and subscription
and usage fees. This company intends to have its Web site operational by
late 1999.
. Women's premium online buying agent. We have invested $1.0 million and
issued 166,667 shares of our common stock in order to purchase 45% of
the equity ownership of a company that intends to efficiently source
premium products and services for busy professional women. This company
is building an online, upscale retail storefront which will:
. aggregate and merchandise thousands of premium women's products for
sale online, enabling the user to conduct one-stop shopping and one-
click ordering;
. provide women with recommendations and information from product and
service experts; and
. collect customer preference data and use that data to establish
innovative partnerships with product and service providers.
This company expects to generate revenue primarily through electronic
commerce, sponsorships and promotions and will make its products and
services available without charging membership fees. This company has
established numerous partnerships with product suppliers whose products
are in high demand and have not been available on the Internet. This
company intends to have its Web site operational by fall of 1999.
. Online auction network. We have agreed to invest $1.25 million and to
issue 166,667 shares of our common stock in order to purchase 34% of the
equity ownership of an early stage online auction business focused on a
specific special interest group consisting of highly fragmented buyers
and sellers. This business will operate as a service company, will carry
no inventory and will derive revenues from product listing fees and
sales commissions. This business's objective is to create a community
based on the needs of its interest group, offering content, chat and
commerce applications. This business intends to commence operations by
the end of 1999.
Investment Structure
We intend to acquire at least 25% equity interests in our partner companies
with our initial investment. These interests may represent a minority stake or
a controlling interest in the enterprise, depending on the stage of the
company's development and the entrepreneur's objectives. Over time as our
partner companies require more capital to meet their business objectives, we
intend to provide additional capital and business development support and
increase our ownership in those companies. We intend to structure substantially
all of our investments so that we have rights of participation in and control
over material decisions affecting the partner company, including the right to
approve business plans, mergers and acquisitions, management compensation,
stock and option issuances and corporate borrowings. We also expect to
negotiate to obtain additional rights, including registration rights, rights of
first refusal, buy/sell arrangements, anti-dilution protection and preemptive
rights relating to the partner company's issuance of additional equity. Members
of our
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<PAGE>
management team and/or advisory board will generally take seats on our partner
companies' boards of directors. Our management team will only participate in
the success of a venture through their E2E equity ownership, and will be
prohibited from co-investing in our partner companies. We anticipate that we
will realize returns from our investments through mergers, sales and initial
public offerings. We intend to carefully consider each of these liquidity
events with a focus on selecting an exit strategy that maximizes the value of
that partner company and, in turn, our value. Our effort to comply with an
exemption from the registration requirements of the Investment Company Act will
affect the structure and exit strategies of our investments. In this regard,
please see "Risk Factors--We may be deemed an investment company, which would
prohibit us from engaging in business and could result in criminal and civil
actions against us."
We expect our management team's and advisory board's relationships and
contacts in the Internet and other interactive media markets to generate many
opportunities for us to create, develop and/or invest in companies at all
stages of development and to enter into strategic alliances with established
companies attempting to enter the Internet marketplace. The executive committee
of the board of directors will review and approve all investments. The
executive committee will have the power to approve investments of up to $1.5
million. Investments over $1.5 million approved by the committee will be
brought before our board of directors for their consideration and approval.
Exit strategies will be evaluated and approved in the same manner.
Competition
We may encounter intense competition from other companies seeking to invest
in Internet-focused businesses. Traditional venture capital and private equity
firms have dominated investments in emerging high technology companies, and
their involvement has been particularly strong in areas such as Internet
enabling technology, vertical applications, electronic commerce, security and
enterprise software development. In addition, several public companies such as
Safeguard Scientifics, Inc., Rare Media Group, Inc., CMGI, Inc., private
ventures like idealab! and Internet Capital Group, Inc. devote significant
resources to providing capital and other resources to entrepreneurs and their
emerging Internet companies. Finally, corporate strategic investors include
Fortune 500 and other significant companies that are developing an Internet
strategy and capability. These strategic investors also include many of the
larger technology and established Internet companies, which are also a source
of competition for us, as these groups often partner with emerging Internet
companies to seek to obtain access to a promising product or technology.
Many of these potential competitors may have more experience identifying,
investing in and advising Internet-focused companies and may possess greater
financial, personnel or other resources or industry contacts than we have.
Competition to invest in a limited number of Internet-focused businesses could
cause us to pay higher prices for our investments. These inherent competitive
disadvantages to us may make acquisition or investment opportunities more
difficult to accomplish and may compel us to select less attractive investment
prospects. Further, we cannot assure you that our efforts to differentiate
ourselves from our competitors will prove to be effective or that we ultimately
will be able to compete effectively in the acquisition of equity stakes in
attractive Internet-focused businesses.
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<PAGE>
Government Regulation
With the exception of regulation applicable to businesses generally, most
Internet-related companies are not currently regulated by any government
agency. Due to increasing popularity and use of the Internet, however, it is
possible that a number of laws may be adopted that will apply to the Internet
in the future which will affect our portfolio companies and our financial
results. These potential laws cover issues including:
. user privacy;
. dissemination of information;
. pricing of goods and services offered; and
. types of products and services offered.
An example of the types of laws which may be adopted to regulate use of the
Internet is the Telecommunications Act of 1996. The Telecommunications Act
prohibited the transmission over the Internet of specific types of information.
Although the Telecommunications Act was held unconstitutional, similar laws may
be enacted in the future. Other nations, including Germany, have taken similar
actions to restrict the free flow of information deemed to be objectionable on
the Internet. In addition, some telecommunications carriers continue to
advocate that telecommunications over the Internet should be regulated by the
Federal Communications Commission in the same manner as other
telecommunications services. These telecommunications carriers want to see the
government eliminate the current exemption from payment of telecommunications
access charges for Internet service providers.
If the government adopts any additional laws or regulations governing use of
the Internet, these actions could decrease the growth of the Internet or
increase the costs of doing business for Internet-focused companies. Finally,
the sales of goods and services by our portfolio companies may be reduced and
the costs of producing those goods and services may be increased if existing
U.S. state and federal laws and foreign laws governing issues such as commerce,
taxation, property ownership, defamation and personal privacy are increasingly
applied to the Internet.
Personnel
As of May 14, 1999, we employed 9 persons, five of whom were employed as
executive officers.
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Properties
Our corporate offices are located at leased space at 570 Lexington Avenue,
23rd Floor, New York, New York 10019-5809. The telephone number of our
principal executive offices is (212) 702-9500.
Legal Proceedings
We are not a party to any material legal proceedings.
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<PAGE>
MANAGEMENT
Directors and Executive Officers
We show below information regarding our management team, directors and
director nominees:
<TABLE>
<CAPTION>
Name Age Position and Offices Held
---- --- -------------------------
<C> <C> <S>
Robert J. Smith 42 President, Chief Executive Officer and Director Nominee
Michael C. Wheeler 49 Senior Vice President--New Media and Director Nominee
Mark Lewyn 38 Senior Vice President--Content
Senior Vice President, Chief Financial Officer and
Steven J. Quamme 38 Director
David Ledecky 38 Senior Vice President
Neil Austrian 58 Director Nominee
Lynda Applegate 50 Director Nominee
William P. Phelan 42 Director Nominee
</TABLE>
Robert J. Smith has served as President, Chief Executive Officer of our
company since April 1999, and will serve as a Director of our company beginning
upon the consummation of this offering. From June 1998 until April 1999, Mr.
Smith was a private consultant to early-stage Internet companies. From July
1996 to March 1998, Mr. Smith was the Founder, Senior Vice President and
General Manager of Digital Cities, the network of local affiliates for America
Online. Under his leadership, Digital Cities grew to the fourth most visited
site on AOL and the largest local information site on the Web. He developed the
Digital Cities strategy, recruited the management and launched staffed
programming and sales operations. From January 1993 to July 1996, Mr. Smith
served as Vice President of Affiliate Development at AOL. Prior to that, he
served as the General Manager of Community Central and Manager of Business
Development at AOL. From May 1992 to December 1992, Mr. Smith served as the
General Manager of Congressional Quarterly, Inc. where he founded a magazine
called American Caucus.
Michael C. Wheeler has served as a Senior Vice President--New Media and a
Director of our company since May 1999, and will serve as a Director of our
company beginning upon the consummation of this offering. Mr. Wheeler was the
President of CNBC/Dow Jones Business Video from March 1996 to May 1999. Mr.
Wheeler was Senior Vice President and General Manager of NBC New Media from
June 1991 to March 1996, where he oversaw NBC's investments in new technology
platforms. Mr. Wheeler is also a founding member and Vice Chairman of the New
York Media Association and serves on the advisory boards of a number of start-
up Internet companies.
Mark Lewyn has served as Senior Vice President--Content of our company since
April 1999. From January 1998 until March 1999, Mr. Lewyn worked as a private
Internet consultant for a range of companies including Office.com, a joint-
venture between CBS and Winstar Communications Inc. where he helped develop the
company's e-commerce strategy. From April 1996 to January 1998, Mr. Lewyn
served as Director of Corporate Development of
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<PAGE>
TicketMasterOnline-CitySearch. Mr. Lewyn was instrumental in building the
editorial operations of TicketMasterOnline-CitySearch and establishing a range
of co-marketing and co-promotion deals with local TV and radio stations. From
June 1989 to April 1996, Mr. Lewyn served as the Washington, D.C. technology
correspondent for Business Week Magazine where he covered a wide variety of
technology companies, including AOL.
Steven J. Quamme has served as a Senior Vice President, Chief Financial
Officer and Director of our company since April 1999. Mr. Quamme was a partner
in International Equity Partners, L.P., a private equity firm making direct
investments in emerging markets from January 1993 through June 1999. From 1993
to 1997, Mr. Quamme was the founder and Chief Executive Officer of Mayfair
Partners, L.P., a diversified restaurant management and operating company. From
1990 to 1992, he was the co-founder and Chief Executive Officer of Atlantic
Entertainment Group, Inc. Prior to 1990, he was a mergers and acquisitions
attorney with Baker & Botts.
David Ledecky has served as a Senior Vice President of our company since May
1999. He was Executive Vice President and Chief Administrative Officer and a
director of Building One Services Corporation, formerly Consolidation Capital
Corporation from November 1997 to May 1999, where he was responsible for, among
other things, Internet-related marketing and brand development. From February
1997 through September 1997, Mr. Ledecky operated Ledecky Brothers, LLC, the
predecessor corporation to Consolidation Capital and Building One. From
December 1992 to February 1997, Mr. Ledecky was a litigation attorney at the
law firm of Corney Boyd & Luskin. Prior to 1992, he was an antitrust attorney
with the law firm of Shearman & Sterling, and Vice President of The Legacy
Fund, Inc., in Washington, D.C.
Neil Austrian will serve as a Director of our company beginning upon the
consummation of this offering. Mr. Austrian has served as President and Chief
Operating Officer of the National Football League since April 1991. He was a
Managing Director of Dillon, Read & Co. Inc. from October 1987 until March
1991. Mr. Austrian served as a director of Viking Office Products, Inc. from
1988 until August 1998. He also serves as a director of Bankers Trust New York
Corporation, REFAC Technology Development Corporation and Office Depot, Inc.
Lynda Applegate will serve as a Director of our company beginning upon the
consummation of this offering. She is the MBA class of 1952 Distinguished
Professor of Business Administration at Harvard Business School, teaching
courses in general management, management information systems and organization
design. Prior to joining the Harvard Business School faculty in 1986, she was
on the faculty of the University of Michigan, University of Washington and
University of Arizona. Dr. Applegate is also a member of the board of directors
of MicroAge, Inc. and Extraprise, Inc., and the strategic advisory boards for
Mainspring Communications, WebLine, Ventix and the Alliance Analyst. Dr.
Applegate is also member of the United States General Accounting Office
Executive Council on Information Management and Telecommunications.
William P. Phelan will serve as a Director of our company beginning upon the
consummation of this offering. Mr. Phelan is the founder, Chairman, President
and Treasurer
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<PAGE>
of the online auction network in which we have invested. Mr. Phelan was a co-
founder of Fidelity Investment Adviser in 1997, and he currently serves as a
Principal. He was Senior Vice President, Technology and a director of Florists
Transworld Delivery from 1995 to 1997. Mr. Phelan was a Partner of Fleet Equity
Partners from 1992 to 1995. Mr. Phelan is a director of Florists Transworld
Delivery, Inc. and Pearse EFT, Inc., a private equity firm.
Our board of directors will consist of between three and 15 directors. Each
director will serve for a term expiring at the annual meeting of stockholders
held in the year following their election and until their successors have been
duly elected and qualified or until any such director's earlier death,
resignation or removal.
Committees of the Board of Directors
Our board of directors intends to establish a compensation committee to
consist solely of non-employee directors. The compensation committee will
provide a general review of our compensation plans to ensure that they meet
corporate objectives and will administer our stock plans. Our board of
directors also intends to establish an audit committee which will be comprised
solely of independent directors. The responsibilities of the audit committee
will include:
. recommending to our board of directors the independent public
accountants to conduct the annual audit of our books and records;
. reviewing the proposed scope of the audit;
. approving the audit fees to be paid;
. reviewing accounting and financial controls with the independent public
accountants and our financial and accounting staff; and
. reviewing and approving transactions between us and our directors,
officers and affiliates.
The board of directors intends to create an executive committee to evaluate
and approve our acquisitions of interests in our partner companies, strategic
partnerships and joint ventures. A more detailed description of these
activities appears under "Business--Investment Structure."
Director Compensation
All directors who are not currently receiving compensation as officers,
employees or consultants of ours are entitled to receive an annual retainer fee
of $25,000, plus reimbursement of expenses for each meeting of our board of
directors and each committee meeting that they attend in person. In addition,
non-employee directors may receive grants of non-qualified stock options under
the 1999 Equity Compensation Plan consisting of an initial grant to purchase
50,000 shares at the market price upon becoming a director and subsequent
grants to purchase 5,000 shares on each annual meeting date.
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<PAGE>
Executive Compensation
No E2Enet.com executive officer received compensation during 1998. For
information regarding the compensation to be paid to our executive officers
following this offering, see "--Employment Agreements" below.
Employment Agreements
We have entered into senior management agreements with each of our executive
officers. Each agreement has an initial term of two years and will be extended
for two additional years unless we or the employee elects to terminate the
agreement within 60 days of the second anniversary of the date of employment.
Under these agreements, these employees will receive an initial annual base
salary that may be increased by our board of directors based on performance
objectives they establish, and an annual bonus based upon our performance.
These employees also will receive options to acquire shares of common stock at
the initial public offering price. With respect to all options granted to these
executive officers, one-fourth will vest on the first anniversary of the
closing date of this offering, and the remaining three-fourths of these options
will vest at a rate of 1/36th per month, provided that all these options will
vest in full upon a change in control. The following table shows compensation
information contained in the senior management agreements.
<TABLE>
<CAPTION>
Initial
Annual Maximum
Base Annual
Executive Officer Salary Bonus Options
----------------- -------- -------- -------
<S> <C> <C> <C>
Robert J. Smith $215,000 $107,500 275,000
Michael C. Wheeler $215,000 $107,500 275,000
Mark Lewyn $180,000 $ 90,000 175,000
Steven J. Quamme $180,000 $ 90,000 175,000
David Ledecky $180,000 $ 90,000 175,000
</TABLE>
If, during the term of one of these agreements, we terminate the employee's
employment without cause or the employee terminates his employment for good
reason, the employee will be entitled to receive his base salary and all
employee benefits for a period of one year from the date of the termination of
employment.
Under the terms of these agreements, these employees have agreed to preserve
the confidentiality and the proprietary nature of all information relating to
E2Enet.com, our partner companies and our business during the term of the
agreement and for two years after the term of the agreement ends. In addition,
each of these employees has agreed to non-competition and non-solicitation
provisions that will be in effect during the term of his or her agreement and
for two years after the term of the agreement ends.
Advisory Board
Consistent with our philosophy of operating and investing in entrepreneurial
ventures, we have created an advisory board whose members provide links to the
entrepreneurial community and a platform for the open discussion of management
and operational issues particular to emerging companies in the Internet and
interactive media markets. The advisory board will meet periodically at our
expense. In addition, we are in contact on a regular basis with various
individual members of the advisory board in connection with ongoing operations.
We expect to increase the size of our advisory board as appropriate. The
members of the advisory board qualify for grants of non-qualified stock options
under the 1999 Equity Compensation Plan.
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<PAGE>
Charles Conn III has served as a director of TicketMasterOnline-CitySearch
since March 1999, as Chief Executive Officer since September 1998 and as Chief
Executive Officer of CitySearch since he co-founded CitySearch in September
1995. Mr. Conn also served as President of CitySearch from September 1995 to
October 1996 and served as a director from September 1995 until September 1998.
From September 1990 to September 1995, he was a consultant at McKinsey &
Company, where he was elected Partner. From September 1986 to September 1988,
Mr. Conn worked with the Boston Consulting Group in Boston and Tokyo and in
1989 with Canon, Inc. Mr. Conn holds a B.A. from Boston University, a B.A. and
M.A. from Oxford University, where he was a Rhodes Scholar, and an M.B.A. from
Harvard Business School, where he was a Baker Scholar.
David C. Cole has been chairman of the Cole-Gilburne Fund, an investment firm
specializing in the early-stage development of companies in the information
sciences since 1986. Since 1997 Mr. Cole has been president of Aquaterra
Corporation a private investment management firm. Aquaterra Corporation is the
managing general partner of both Pan Pacific Ventures and Catalyst II,
investment partnerships. Mr. Cole served as an officer of AmericaOnline, Inc.,
from 1994 thru 1996, initially as president of AOL's Internet Services Company
and later as president of the AOL New Enterprises Group. He held operating
responsibility for AOL International, AOL Enterprises, Digital Cities and AOL
corporate development. Mr. Cole previously served as chairman, president and
CEO of Navisoft, Inc., an Internet-based software provider that AOL acquired in
1994. He also serves as a director of Healthnotes, Inc. and the Daily Wellness
Company.
Eric J. Gertler is currently President and Chief Executive Officer of
www.doublebill.com, an Internet start-up funded by Kleiner Perkins Caufield &
Byers. From April 1998 to September 1998, Mr. Gertler served as Chief Operating
Officer for U.S. News & World Report, The Atlantic Monthly and Fast Company.
From February 1997 to April 1998, Mr. Gertler was Executive Vice President of
U.S. News & World Report. In January 1997, Mr. Gertler was named President of
The New Media Group in which he developed, launched and oversaw the day-to-day
operations of the web site of The New York Daily News (www.nydailynews.com). In
January 1993, Mr. Gertler joined the New York Daily News as Vice President and
Secretary of Legal & Business Affairs. From February through December 1995, Mr.
Gertler served as Vice President, Editorial Administration, for the New York
Daily News. In February 1992, Mr. Gertler first joined U.S. News & World
Report. He also directed the global new media efforts of the other media
properties. Mr. Gertler also worked as a communications and media attorney for
the law firm Skadden, Arps, Slate, Meagher & Flom.
Scott Wieler is a Managing Director of BT Alex. Brown and is co-head of BT
Alex. Brown's Media and Communications group in Corporate Finance, focusing on
the strategic and financial challenges of clients in outdoor advertising,
education, publishing, Internet and emerging communications and information
services. Mr. Wieler joined BT Alex. Brown as a managing director in 1994.
Previously he held the position of co-head of Media and Communications Banking
at Bankers Trust.
1999 Stock Option and Incentive Plan
The E2Enet stock option plan authorizes the grant of:
. stock options;
. stock appreciation rights;
. restricted stock;
. deferred stock;
. unrestricted stock;
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<PAGE>
. dividend equivalents;
. other stock-based awards;
. performance awards; and
. annual incentive awards to provide incentives to attract and retain
executive officers, directors, employees and other key personnel.
A committee of our board of directors will administer the stock option plan.
The maximum number of shares available for issuance under the stock option plan
will be 2,500,000.
In each fiscal year, any person who is eligible to participate may not be
granted awards relating to more than 1,000,000 shares. In addition, the maximum
amount that may be earned
as an annual incentive award or other cash award in any fiscal year by any one
participant is $300,000 and the maximum amount that may be earned as an
incentive award or other cash award in respect of a performance period by any
one participant is $900,000. If and to the extent that the committee determines
that an award to be granted to a participant should qualify as "performance-
based compensation" for purposes of Section 162(m) of the Internal Revenue
Code, the grant, exercise and/or settlement of such award will be contingent
upon achievement of preestablished performance goals. The performance goals
shall be one or more of the following business criteria for E2Enet.com and/or
its specified subsidiaries or business units, except with respect to the total
stockholder return and earnings per share criteria:
(1) total stockholder return;
(2) total stockholder return as compared to total return, on a comparable
basis, of a publicly available index such as, but not limited to, the
Standard & Poor's 500 Stock Index;
(3) net income;
(4) pretax earnings;
(5) earnings before interest expense, taxes, depreciation and amortization;
(6) pretax operating earnings after interest expense and before bonuses,
service fees and extraordinary or special items;
(7) operating margin;
(8) earnings per share;
(9) return on equity;
(10) return on capital;
(11) return on investment;
(12) operating earnings;
(13) working capital; and
(14) ratio of debt to stockholders' equity.
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<PAGE>
Stock Options. Our stock option plan permits the granting of options to
purchase shares of common stock intended to qualify as incentive options under
the Internal Revenue Code and options that do not qualify as incentive options.
The exercise price of each option will be determined by the committee but may
not be less than 100% of the fair market value of our common stock on the date
of grant.
The term of each option will be fixed by the committee and may not exceed 10
years from the date of grant. The committee will determine at what time or
times each option may be exercised and the period of time, if any, after
retirement, death, disability or termination of employment during which options
may be exercised. Options may be made exercisable in installments. The
exercisability of options may be accelerated by the committee.
To exercise an option, the optionee must pay the exercise price in full
either in cash or cash equivalents by delivery of shares of common stock
already owned by the optionee. The exercise price may also be delivered by a
broker under irrevocable instructions to the broker from the optionee.
Restricted Stock. The committee may also award shares of common stock to
participants. These stock awards may be conditioned on the achievement of
performance goals and/or continued employment with us through a specified
restricted period. If the performance goals and any other restrictions are not
attained, the participants will forfeit their restricted shares. The purchase
price of restricted shares of common stock will be determined by the committee.
Deferred Stock. The committee may also award deferred stock units, which are
ultimately payable in the form of unrestricted shares of common stock. A
deferred stock award may be conditioned or restricted in whatever manner the
committee may determine. These conditions and restrictions may include the
achievement of performance goals and/or continued employment with us through a
specified restricted period. If the performance goals and other restrictions
are not attained, the participants will forfeit their deferred stock units.
During the deferral period, the deferred stock units may be credited with
dividend equivalent rights.
Unrestricted Stock. The committee may also grant shares of common stock at
no cost or for a purchase price determined by the committee which are free from
any restrictions under the stock option plan. Unrestricted shares of common
stock may be issued to participants in recognition of past services or other
valid consideration, and may be issued in lieu of cash compensation to be paid
to participants.
Performance Stock Awards. The committee may also grant performance stock
awards to participants entitling the participants to receive shares of common
stock upon the achievement of performance goals and other conditions determined
by the committee.
Dividend Equivalent Rights. The committee may grant dividend equivalent
rights entitling the recipient to receive credits for dividends that would be
paid if the recipient had held a specified number of shares of common stock.
Dividend equivalent rights may be
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<PAGE>
granted as a component of another award or as a freestanding award. Dividend
equivalent rights credited under the stock option plan may be paid currently or
be deemed to be reinvested in additional shares of common stock, and may accrue
additional dividend equivalent rights after reinvestment at fair market value
at the time of deemed reinvestment. Dividend equivalent rights may be settled
in cash, common stock or a combination of cash and shares, in a single
installment or installments, as specified in the award. Awards payable in cash
on a deferred basis may provide for crediting and payment of interest
equivalents.
Stock Appreciation Rights. The committee may grant a right to receive a
number of shares or, in the discretion of the committee, an amount in cash or a
combination of shares and cash, based on the increase in the fair market value
of the shares underlying the right during a stated period specified by the
committee. The committee may approve the grant of
these stock appreciation rights related or unrelated to stock options. Upon
exercise of a stock appreciation right that is related to a stock option
granted, the holder of the related option will surrender the option for the
number of shares as to which the stock appreciation right is exercised and will
receive payment of an amount computed as provided in the stock appreciation
right award.
Generally, a stock appreciation right granted in connection with a stock
option will be exercisable at the time or times, and only to the extent that,
the related stock option is exercisable, and will not be transferable except to
the extent that the related option may be transferable.
Performance and Annual Incentive Awards. Our stock option plan authorizes
the committee to grant multiyear and annual incentive awards based upon
achievement of pre-established performance goals, including awards that qualify
as "performance-based compensation" for purposes of the Internal Revenue Code.
The grant, exercise and/or settlement of a performance award may be made
contingent upon achievement of pre-established performance goals. Achievement
of performance goals will be measured over a performance period of up to 10
years, as specified by the committee.
The amount of an incentive award is based upon the achievement of a
performance goal or goals based on one or more of the business criteria
described above during the given performance period specified by the committee.
The committee may specify the amount of the incentive award as a percentage of
these business criteria, a percentage in excess of a threshold amount or as
another amount which need not bear a strictly mathematical relationship to
these business criteria.
Other Stock-Based Awards. The committee is authorized to grant to
participants other awards that may be based on or related to our common stock,
including:
. convertible or exchangeable debt securities;
. other rights convertible or exchangeable into shares;
. purchase rights for shares;
. incentive awards with value and payment contingent upon performance; and
. incentive awards valued by reference to the performance of specified
subsidiaries or business units.
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<PAGE>
TRANSACTIONS WITH RELATED PARTIES
Between February and May of this year, we entered into subscription
agreements with our sole director, director nominees, executive officers and
other persons affiliated with us. Under these subscription agreements, the
following persons purchased shares of common stock in the following amounts:
(1) Robert J. Smith, an executive officer and director nominee, purchased
432,500 shares of common stock at a purchase price of $.01 per share,
for an aggregate consideration of $4,325.
(2) Michael C. Wheeler, an executive officer and director nominee,
purchased 345,000 shares of common stock at a purchase price of $.01
per share, for an aggregate consideration of $3,450.
(3) Mark Lewyn, an executive officer, purchased 216,000 shares of common
stock at a purchase price of $.01 per share, for an aggregate
consideration of $2,160.
(4) Steven J. Quamme, an executive officer and sole director, purchased
216,000 shares of common stock at a purchase price of $.01 per share,
for an aggregate consideration of $2,160.
(5) David Ledecky, an executive officer, purchased 216,000 shares of common
stock at a purchase price of $.01 per share, for an aggregate
consideration of $2,160.
(6) Neil Austrian and Lynda Applegate, director nominees of our company,
each purchased 86,500 shares of common stock at a purchase price of
$.01 per share or $865.
(7) Charles Conn III, Eric S. Gertler and David C. Cole, members of our
advisory board, each purchased 43,500 shares of common stock at a price
of $.01 per share of $435.
(8) Jonathan J. Ledecky, a founder of E2Enet.com, purchased 1,300,000
shares of common stock at a purchase price of $0.01 per share, for an
aggregate consideration of $13,000.
In May 1999, we agreed to acquire a 34% interest in an online auction
network for $1.25 million in cash and 166,667 shares of our common stock.
William P. Phelan, a director nominee of our company is a shareholder and
Chairman, President and Treasurer of this online auction network.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following shows the number and percentage of outstanding shares of our
common stock that were owned as of May 14, 1999 and that will be owned
following this offering by:
. all persons known by us to own beneficially more than 5% of the common
stock;
. each director, director nominee and executive officer; and
. all directors, director nominees and executive officers as a group.
An asterisk indicates ownership of less than 1%.
As of May 14, there were 4,272,169 shares of common stock outstanding.
Following this offering, we will have outstanding shares of common stock,
assuming the underwriters do not exercise their over-allotment option. At the
time of the closing of this offering we will also have outstanding options to
purchase 1,650,000 shares of common stock at the initial public offering price,
none of which will be exercisable immediately following this offering.
<TABLE>
<CAPTION>
Before Offering After Offering
----------------------- --------------
Number of
Shares
Beneficially Percentage Percentage
Name and Address Owned Ownership Ownership
- ---------------- ------------ ---------- --------------
<S> <C> <C> <C>
Officers and Directors
Robert J. Smith...................... 432,500 10.1%
570 Lexington Avenue, 23rd Floor
New York, NY 10019-5809
Michael C. Wheeler................... 345,000 8.1%
570 Lexington Avenue, 23rd Floor
New York, NY 10019-5809
Mark Lewyn........................... 216,000 5.1%
570 Lexington Avenue, 23rd Floor
New York, NY 10019-5809
David Ledecky........................ 216,000 5.1%
570 Lexington Avenue, 23rd Floor
New York, NY 10019-5809
Steven J. Quamme..................... 216,000 5.1%
570 Lexington Avenue, 23rd Floor
New York, NY 10019-5809
William P. Phelan.................... 86,500 2.0%
570 Lexington Ave
23rd Floor
New York, NY 10019-5809
Neil Austrian........................ 86,500 2.0%
National Football League
280 Park Avenue, 17th Floor
New York, NY 10017
Lynda Applegate...................... 86,500 2.0%
Harvard Business School
Baker 474
Soldiers Field Road
Boston, MA 02163
All directors, director nominees and
executive officers as a group (8
persons)............................ 1,685,000 39.4%
5% Stockholder
Jonathan J. Ledecky.................. 1,300,000 30.4%
800 Connecticut Ave, N.W.
Suite 1111
Washington, D.C. 20006
</TABLE>
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 100,000,000 shares of common stock,
par value $0.01 per share, and 10,000,000 shares of preferred stock, par value
$0.01 per share. We do not have any outstanding shares of preferred stock.
Following this offering, we will have outstanding shares of common stock,
assuming the underwriters do not exercise their over-allotment option, or
shares of common stock, assuming the underwriters exercise their over-allotment
option in full.
The following is a description of our capital stock.
Common Stock
We are authorized to issue 100,000,000 shares of common stock. Each
stockholder of record will be entitled to one vote for each outstanding share
of our common stock owned by that stockholder on every matter properly
submitted to the stockholders for their vote. After satisfaction of the
dividend rights of holders of preferred stock, holders of common stock are
entitled to any dividend declared by the board of directors out of funds
legally available for this purpose, and, after the payment of liquidation
preferences to holders of preferred stock, holders of common stock are entitled
to receive, on a pro rata basis, all our remaining assets available for
distribution to the stockholders in the event of our liquidation, dissolution
or winding up. Holders of common stock do not have any preemptive right to
become subscribers or purchasers of additional shares of any class of our
capital stock. The outstanding shares of common stock are, and the shares of
common stock offered in this offering will be, when issued and paid for, fully
paid and nonassessable. The rights, preferences and privileges of holders of
common stock may be adversely affected by the rights of the holders of shares
of any series of preferred stock that we may designate and issue in the future.
Preferred Stock
Our certificate of incorporation allows us to issue without stockholder
approval preferred stock having rights senior to those of the common stock.
Following completion of this offering, no shares of preferred stock will be
outstanding. Our board of directors will be authorized, without further
stockholder approval, to issue up to 10,000,000 shares of preferred stock in
one or more series and to fix the rights, preferences, privileges and
restrictions of any series of preferred stock, including dividend rights,
conversion rights, voting rights, terms of redemption and liquidation
preferences, and to fix the number of shares constituting any series and the
designations of these series.
Our issuance of preferred stock may have the effect of delaying or
preventing a change in control. Our issuance of preferred stock could decrease
the amount of earnings and assets available for distribution to the holders of
common stock or could adversely affect the rights and powers, including voting
rights, of the holders of common stock. The issuance of preferred stock could
also have the effect of decreasing the market price of the common stock. We
currently have no plans to issue any shares of preferred stock.
39
<PAGE>
Limitation of Liability of Directors and Officers
As permitted by the Delaware General Corporation Law, our certificate of
incorporation provides that our directors shall not be personally liable to us
or our stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability:
. for any breach of the director's duty of loyalty to us or our
stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. under Section 174 of the Delaware General Corporation Law, relating to
unlawful dividends or unlawful stock purchases or redemptions, or
. for any transaction from which the director derives an improper personal
benefit.
As a result of this provision, we and our stockholders may be unable to
obtain monetary damages from a director for breach of his or her duty of care.
Our certificate of incorporation and bylaws provide for the indemnification
of our directors and officers to the fullest extent authorized by the Delaware
General Corporation Law, except that we will indemnify a director or officer in
connection with an action initiated by that person only if the action was
authorized by our board of directors. The indemnification provided under our
certificate of incorporation and the bylaws includes the right to be paid
expenses in advance of any proceeding for which indemnification may be had,
provided that the payment of these expenses incurred by a director or officer
in advance of the final disposition of a proceeding may be made only upon
delivery to us of an undertaking by or on behalf of the director or officer to
repay all amounts paid in advance if it is ultimately determined that the
director or officer is not entitled to be indemnified. Under our bylaws, if we
do not pay a claim for indemnification within 60 days after we have received a
written claim, the director or officer may bring an action to recover the
unpaid amount of the claim and, if successful, the director or officer also
will be entitled to be paid the expense of prosecuting the action to recover
these unpaid amounts.
Under our bylaws, we have the power to purchase and maintain insurance on
behalf of any person who is or was one of our directors, officers, employees or
agents, or is or was serving at our request as a director, officer, employee,
partner or agent of another corporation or of a partnership, joint venture,
limited liability company, trust or other enterprise, against any liability
asserted against the person or incurred by the person in any of these
capacities, or arising out of the person's fulfilling one of these capacities,
and related expenses, whether or not we would have the power to indemnify the
person against the claim under the provisions of the Delaware General
Corporation Law. We intend to purchase director and officer liability insurance
on behalf of our directors and officers.
Anti-Takeover Provisions
Our certificate of incorporation and bylaws contain provisions that are
intended to enhance the likelihood of continuity and stability in the
composition of our board of directors and in the policies formulated by our
board of directors. In addition provisions of
40
<PAGE>
Delaware law may hinder or delay an attempted takeover of E2Enet.com other than
through negotiation with our board of directors. These provisions could have
the effect of discouraging attempts to acquire us or remove incumbent
management even if some or a majority of our stockholders believe this action
to be in their best interest, including attempts that might result in the
stockholders' receiving a premium over the market price for the shares of
common stock held by stockholders.
Removal of Directors; Vacancies. Our certificate of incorporation provides
that directors may be removed only for cause. In addition, vacancies and newly
created directorships resulting from any increase in the size of the board of
directors may be filled only by the affirmative vote of a majority of the
directors then in office, even if they do not constitute a quorum, or by a sole
remaining director. These provisions would prevent stockholders from removing
incumbent directors without cause and filling the resulting vacancies with
their own nominees.
Advance Notice Provisions for Stockholder Proposals and Stockholder
Nominations of Directors. Our bylaws establish an advance notice procedure with
regard to the nomination, other than by the board of directors, of candidates
for election to the board of directors and with regard to matters to be brought
before an annual meeting of our stockholders by a stockholder. For nominations
and other business to be brought properly before an annual meeting by a
stockholder, the stockholder must deliver notice to us not less than 60 days
nor more than 90 days prior to the first anniversary of the preceding year's
annual meeting. Separate provisions based on public notice by us specify how
this advance notice requirement operates if the date of the annual meeting is
advanced by more than 30 days or delayed by more than 60 days from the
anniversary date. The stockholder's notice must set forth specified information
regarding the stockholder and its holdings, as well as background information
regarding any director nominee, together with that person's written consent to
being named in the proxy statement as a nominee and to serving as a director if
elected, and a brief description of any business desired to be brought before
the meeting, the reasons for conducting the business at the meeting and any
material interest of the stockholder in the business proposed. In the case of a
special meeting of stockholders called for the purpose of electing directors,
nominations by a stockholder may be made only by delivery to us, no later than
10 days following the day on which public announcement of the special meeting
is made, a notice that complies with the above requirements. Although our
bylaws do not give our board of directors any power to approve or disapprove
stockholder nominations for the election of directors or any other business
desired by stockholders to be conducted at an annual meeting, the bylaws:
. may have the effect of precluding a nomination for the election of
directors or precluding the conduct of business at a particular annual
meeting if the proper procedures are not followed; or
. may discourage or deter a third party from conducting a solicitation of
proxies to elect its own slate of directors or otherwise attempting to
obtain control, of E2Enet.com, even if the conduct of this solicitation
or the attempt to obtain control might be beneficial to E2Enet.com and
our stockholders.
41
<PAGE>
Special Stockholders' Meetings. Under our certificate of incorporation and
bylaws, special meetings of stockholders, unless otherwise prescribed by
statute, may be called only:
. by the board of directors or by our Chairman or President; or
. by the holders of at least a majority of the securities of E2Enet.com
outstanding and entitled to vote generally in the election of directors.
Limitations on Stockholder Action by Written Consent. Our certificate of
incorporation also provides that any action required or permitted to be taken
at a stockholders' meeting may be taken without a meeting, without prior notice
and without a vote, if the action is taken by persons who would be entitled to
vote at a meeting and who hold shares having voting power equal to not less
than the minimum number of votes of each class or series that would be
necessary to authorize or take the action at a meeting at which all shares of
each class or series entitled to vote were present and voted.
Section 203 of Delaware Law. In addition to the foregoing provisions of our
certificate of incorporation and bylaws, we will be subject to the provisions
of Section 203 of the Delaware General Corporation Law. Section 203 prohibits
publicly held Delaware corporations from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless
the business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sales and other transactions resulting in
a financial benefit to the interested stockholder. Generally, an "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within three years did own, 15% or more of the corporation's voting stock.
These provisions could have the effect of delaying, deferring or preventing a
change in control of E2Enet.com or reducing the price that investors might be
willing to pay in the future for shares of our common stock.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is .
42
<PAGE>
SHARES AVAILABLE FOR FUTURE SALE
Following this offering, we will have shares of common stock
outstanding, assuming no exercise of the underwriters' over-allotment option.
All the shares we sell in this offering will be freely tradable without
restriction or further registration under the Securities Act, except that any
shares purchased by our affiliates, as that term is defined in Rule 144, may
generally only be sold in compliance with the limitations of Rule 144 described
below.
4,272,169 shares of common stock outstanding following this offering will be
restricted shares under the terms of the Securities Act. Sales of the
restricted shares to be outstanding upon completion of this offering will be
limited by lock-up agreements with the underwriters and with us as described
below.
Rule 144
In general, under Rule 144, a stockholder who owns restricted shares that
have been outstanding for at least one year is entitled to sell, within any
three-month period, a number of these restricted shares that does not exceed
the greater of:
. one percent of the then outstanding shares of common stock, or
approximately shares immediately after this offering; or
. the average weekly trading volume in the common stock on the Nasdaq
Stock Market during the four calendar weeks preceding the sale.
In addition, our affiliates must comply with the restrictions and
requirements of Rule 144, other than the one-year holding period requirement,
to sell shares of common stock which are not restricted securities.
Under Rule 144(k), a stockholder who is not currently, and who has not been
for at least three months before the sale, an affiliate of ours and who owns
restricted shares that have been outstanding for at least two years may resell
these restricted shares without compliance with the above requirements. The
one- and two-year holding periods described above do not begin to run until the
full purchase price is paid by the person acquiring the restricted shares from
us or an affiliate of ours.
Common Stock and Options Issuable under our Equity Compensation Plans
Simultaneously with the completion of this offering, we will issue options
to acquire 1,650,000 shares of common stock at the initial public offering
price to our management team and other key employees, which generally will vest
over four years from the date of this offering.
Lock-up Agreements
Our officers and directors and some of our other stockholders, who will hold
an aggregate of 4,272,169 shares of common stock upon completion of this
offering, have agreed that they will not, without the prior written consent of
BT Alex. Brown Incorporated, offer, sell, pledge or otherwise dispose of any
shares of our capital stock or any securities
43
<PAGE>
convertible into or exercisable or exchangeable for, or any rights to acquire
or purchase, any of our capital stock, or publicly announce an intention to
effect any of these transactions, for a period of 180 days after the date of
the underwriting agreement, other than shares of common stock transferred in
connection with a pledge agreement or disposed of as bona fide gifts approved
by BT Alex. Brown Incorporated. BT Alex. Brown Incorporated has no current
intention to consent to any other disposition of any shares covered by these
lock-up agreements but will consider each request for its consent at the time
and under the circumstances of the request.
In addition, all of our executive officers and other key employees have
agreed that they will not, without prior written consent, transfer any of the
shares of common stock they own, except for transfers made as part of a pledge,
hedging or similar transaction:
.with respect to 50% of their shares, for a period of one year following this
offering;
^^. with respect to an additional 25% of their shares, for a period of 18
months following the offering; and
. with respect to their remaining shares, for a period of two years
following this offering.
44
<PAGE>
UNDERWRITING
The underwriters named below, through their representative BT Alex. Brown
Incorporated, have severally agreed to purchase from E2Enet.com the following
numbers of shares of common stock at the public offering price less the
underwriting discounts and commissions shown on the cover page of this
prospectus.
<TABLE>
<CAPTION>
Number of
Underwriter Shares
- ----------- ---------
<S> <C>
BT Alex. Brown Incorporated...........................................
</TABLE>
We have entered into an underwriting agreement with the underwriters which
provides that the underwriters are obligated to purchase all of the shares of
common stock we are offering to sell in this offering, other than shares
covered by the over-allotment option described below, if any of the shares are
purchased. We expect to issue these shares on .
The underwriters propose to offer the shares of common stock to the public
at the public offering price set forth on the cover page of this prospectus and
to dealers at a price that represents a concession not in excess of $ per
share under the public offering price. The underwriters may allow, and dealers
may re-allow, a concession not in excess of $ per share to other dealers.
After the initial offering, the offering price and other selling terms may be
changed by the representatives of the underwriters.
Until , 1999, or 25 days after this offering begins, all dealers that
buy, sell or trade these shares of common stock, whether or not participating
in this offering, may be required to deliver a prospectus. This is in addition
to the dealers' obligation to deliver a prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
We have granted to the underwriters an option, exercisable not later than 30
days after the date of this prospectus, to purchase up to additional shares
of common stock at the public offering price less the underwriting discounts
and commissions set forth on the cover page of this prospectus. The
underwriters may exercise this option only to cover over-allotments made in
connection with the sale of the common stock offered in this offering. To the
extent that the underwriters exercise this option, each of the underwriters
will become obligated to purchase approximately the same percentage of
additional shares of common stock as the number of shares of common stock to be
purchased by it in the above table bears to , and we will be obligated to
sell these shares to the underwriters to the extent they exercise the option.
If any additional shares of common stock are purchased, the underwriters will
offer these additional shares on the same terms as those on which the initial
shares are being offered.
45
<PAGE>
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to shares of the common stock for purchase by our
directors, officers and employees and their business associates and related
persons. The number of shares of our common stock offered to the public will be
reduced to the extent these persons purchase these reserved shares. The
underwriters will offer to the public on the same basis as the other shares any
reserved shares that are not purchased by these persons.
We have agreed to indemnify the underwriters against liabilities in
connection with this offering, including liabilities under the Securities Act.
We have agreed with the underwriters that we will not issue any additional
shares of common stock for 180 days following the date of this offering, except
that we may issue, and grant options or warrants to purchase, shares of common
stock or any securities convertible into, exercisable for or exchangeable for
shares of common stock, upon the exercise of outstanding options and warrants
and our issuance of options and stock granted under the existing stock option
and stock purchase plans and in connection with acquisition transactions.
The representative of the underwriters has advised us that the underwriters
do not intend to confirm sales to any account over which they exercise
discretionary authority.
To facilitate the offering of the common stock, the underwriters may engage
in transactions that stabilize, maintain or otherwise affect the market price
of the common stock. Specifically, the underwriters may over-allot shares of
the common stock in connection with this offering by creating a short position
in the common stock for their own accounts. Additionally, to cover these over-
allotments or to stabilize the market price of the common stock, the
underwriters may bid for, and purchase, shares of common stock in the open
market. Finally, the representatives, on behalf of the underwriters, also may
reclaim selling concessions allowed to an underwriter or dealer if the
underwriting syndicate repurchases shares distributed by that underwriter or
dealer. Any of these activities may maintain the market price of our common
stock at a level above that which might otherwise prevail in the open market.
The underwriters are not required to engage in these activities and, if
commenced, may end any of these activities at any time.
Pricing of this Offering
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for our common stock has
been determined by negotiation between us and the representatives of the
underwriters. Among the factors considered in determining the public offering
price were:
. the opportunity to invest in and develop start-up companies and form
strategic alliances in the Internet industry;
. an assessment of our management team;
. prevailing market conditions in the U.S. economy and the industry in
which we compete; and
46
<PAGE>
. the market capitalizations and stages of development of other companies
which the representatives of the underwriters believe to be comparable
to us.
EXPERTS
The combined financial statements of E2Enet.com for the three months ended
March 31, 1999 and the period ended September 8, 1998 (date of inception)
through December 31, 1998 included in this prospectus have been so included in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
VALIDITY OF THE SHARES
The validity of shares of common stock will be passed upon on our behalf by
Hogan & Hartson L.L.P., Washington, D.C. Legal matters will be passed upon for
the underwriters by Piper & Marbury L.L.P., Baltimore, Maryland.
ADDITIONAL INFORMATION
You may rely on the information contained in this prospectus. Neither we nor
the underwriters have authorized anyone to provide information different from
that contained in this prospectus. When you make a decision about whether to
invest in our common stock, you should not rely upon any information other than
the information in this prospectus. Neither the delivery of this prospectus nor
sale of common stock means that information contained in this prospectus is
correct after the date of this prospectus. This prospectus is not an offer to
sell or solicitation of an offer to buy these shares of our common stock in any
circumstances under which the offer or solicitation is unlawful.
We have filed with the SEC a registration statement, including exhibits,
schedules and amendments. This prospectus is a part of the registration
statement and includes all of the information which we believe is material to
an investor considering whether to make an investment in our common stock. We
refer you to the registration statement for additional information about
E2Enet.com, our common stock and this offering, including the full texts of the
exhibits, some of which have been summarized in this prospectus. The
registration statement is available for inspection and copying at the SEC's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The
public may obtain information about the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an
Internet site that contains the registration statement. The address of the
SEC's Internet site is "http://www.sec.gov."
We intend to furnish our stockholders annual reports containing financial
statements audited by our independent accountants.
47
<PAGE>
E2Enet.com, Inc.
and Ironbound Partners LLC
development stage enterprises
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants F-1
Combined Balance Sheets as of March 31, 1999 and December 31, 1998 F-2
Combined Statements of Operations for the period September 8, 1998
(inception) through December 31, 1998, the three months ended March
31, 1999, and cumulative since inception. F-3
Combined Statements of Changes in Stockholder's Deficit for the
period September 8, 1998 (inception) through December 31, 1998, the
three months ended March 31, 1999, and cumulative since inception. F-4
Combined Statement of Cash Flows for the period September 8, 1998
(inception) through December 31, 1998, the three months ended March
31, 1999, and cumulative since inception. F-5
Notes to Combined Financial Statements F-6
Unaudited Pro Forma Combined Financial Statements:
Introduction F-13
Unaudited Pro Forma Combined Balance Sheets F-14
Unaudited Pro Forma Combined Statement of Operations F-15
Notes to Unaudited Pro Forma Combined Financial Statements F-16
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Boards of Directors and Stockholder of
E2Enet.com, Inc. and Ironbound Partners LLC
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations, of changes in stockholder's deficit and of
cash flows present fairly, in all material respects, the combined financial
position of E2Enet.com, Inc. (the "Company") and Ironbound Partners LLC
("Ironbound"), development stage enterprises, at March 31, 1999 and December
31, 1998, and the combined results of their operations and their cash flows for
the three months ended March 31, 1999, for the period from September 8, 1998
(date of inception) through December 31, 1998 and cumulative since inception,
in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
McLean, VA
May 14, 1999
F-1
<PAGE>
E2Enet.com, Inc.
and Ironbound Partners LLC
development stage enterprises
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
------------ ---------
<S> <C> <C>
ASSETS
Current assets:
Prepaid expenses...................................... $ -- $ 16,851
-------- --------
Total current assets.................................... -- 16,851
Equipment, net.......................................... 6,288 6,512
-------- --------
Total assets............................................ $ 6,288 $ 23,363
======== ========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Liabilities:
Due to stockholder.................................... $ 72,172 $219,407
Accrued expenses...................................... 13,714 151,672
-------- --------
Total liabilities................................... 85,886 371,079
-------- --------
Commitments and contingencies (Note 6)
Stockholder's deficit:
Preferred stock, par value $.01, 10,000,000 shares
authorized, no shares issued and outstanding.........
Common stock, par value $.01, 100,000,000 shares
authorized, 1,500,000 issued and outstanding......... 15,000
Additional paid-in-capital............................ 100 100
Deficit accumulated during development stage.......... (79,698) (362,816)
-------- --------
Total stockholder's deficit......................... (79,598) (347,716)
-------- --------
Total liabilities and stockholder's deficit......... $ 6,288 $ 23,363
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE>
E2Enet.com, Inc.
and Ironbound Partners LLC
development stage enterprises
COMBINED STATEMENTS OF OPERATIONS
for the period from September 8, 1998 (date of inception) through December
31, 1998, the three months ended March 31, 1999, and cumulative since inception
<TABLE>
<CAPTION>
September 8,
1998 through Three months Cumulative
December 31, ended March 31, Since
1998 1999 Inception
------------ --------------- ----------
<S> <C> <C> <C>
Expenses:
General and administrative............ $ 79,698 $ 283,118 $ 362,816
--------- --------- ---------
Total expenses.................... 79,698 283,118 362,816
--------- --------- ---------
Net loss before income taxes.......... (79,698) (283,118) (362,816)
Provision for income taxes............ -- -- --
--------- --------- ---------
Net loss.............................. $ (79,698) $(283,118) $(362,816)
========= ========= =========
Comprehensive loss.................... $ (79,698) $(283,118) $(362,816)
========= ========= =========
Basic and diluted loss per common
share................................ $ (.05) $ (.19) $ (.24)
========= ========= =========
Shares used in computing loss per
common share......................... 1,500,000 1,500,000 1,500,000
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
E2Enet.com, Inc.
and formerly Ironbound Partners LLC
development stage enterprises
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDER'S DEFICIT
for the period from September 8, 1998 (date of inception)through December 31,
1998 and the three months ended March 31, 1999
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other Deficit during
----------------- Paid-In Comprehensive development
Shares Amount Capital Income (Loss) Stage Total
--------- ------- ---------- ------------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 8,
1998
(date of inception)
Sale of member
interests.............. $100 $ 100
Net loss................ $ (79,698) (79,698)
--------- ------- ---- --- --------- ---------
Balance, December 31,
1998................... 100 -- (79,698) (79,598)
--------- ------- ---- --- --------- ---------
Issuance of common stock
upon incorporation..... 1,500,000 $15,000 15,000
Net loss................ (283,118) (283,118)
--------- ------- ---- --- --------- ---------
Balance, March 31,
1999................... 1,500,000 $15,000 $100 -- $(362,816) $(347,716)
========= ======= ==== === ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
E2Enet.com, Inc.
and Ironbound Partners LLC
development stage enterprises
COMBINED STATEMENTS OF CASH FLOWS
for the period from September 8, 1998 (date of inception) through December 31,
1998, the three months ended March 31, 1999 and cumulative since inception
<TABLE>
<CAPTION>
September 8,
1998 through Three months Cumulative
December 31, ended March 31, Since
1998 1999 Inception
------------ --------------- ----------
<S> <C> <C> <C>
Operating activities:
Net loss.............................. $(79,698) $(283,118) $(362,816)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization....... 370 601 971
Changes in operating assets and
liabilities:
Increase in prepaid expenses....... - (16,851) (16,851)
Increase (decrease) in accrued
expenses.......................... 13,714 137,958 151,672
-------- --------- ---------
Total adjustments.................. 14,084 121,708 135,792
-------- --------- ---------
Net cash used in operating
activities........................... (65,614) (161,410) (227,024)
-------- --------- ---------
Investing activities:
Purchases of equipment................ (6,658) (825) (7,483)
-------- --------- ---------
Net cash used in investing
activities........................... (6,658) (825) (7,483)
-------- --------- ---------
Financing activities:
Sale of member interest............... 100 - 100
Issuance of common stock.............. - 15,000 15,000
Due to stockholder.................... 72,172 147,235 219,407
-------- --------- ---------
Net cash provided by financing
activities........................ 72,272 162,235 234,507
-------- --------- ---------
Net increase in cash and cash
equivalents.......................... - - -
Cash and cash equivalents, beginning
of period............................ - - -
-------- --------- ---------
Cash and cash equivalents, end of
period............................... $ - $ - $ -
======== ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
E2Enet.com, Inc.
and Ironbound Partners LLC
development stage enterprises
NOTES TO COMBINED FINANCIAL STATEMENTS
for the period from September 8, 1998 (date of inception) through December 31,
1998 and the three months ended March 31, 1999
1. Business and Organization
E2Enet.com, Inc., a Delaware corporation (the "Company") was incorporated on
February 9, 1999, to acquire equity interests in and provide a wide range of
business development support services to businesses primarily engaged in
Internet related commerce, media, technology and services. The Company will
also provide technical and Internet industry expertise to traditional non-
internet businesses seeking partners to provide that expertise as they enter
the Internet marketplace. The Company has not made any investments as of March
31, 1999 and no revenues have been generated since the inception of the
Company. On May 7, 1999, the Company declared a 15,000 to one common stock
split. All Common Stock amounts reflected in these financial statements have
been restated to reflect this stock split.
Ironbound Partners LLC ("Ironbound" or the "LLC"), a limited liability
corporation formed pursuant to and in accordance with the laws of the state of
Delaware, commenced operations in September 1998. Ironbound did not have any
operations which generated revenues. Expenses incurred through March 31, 1999
have been incurred by Ironbound and have been solely for the establishment of
Ironbound and costs in connection with the analysis of the potential initial
investments of the Company.
Effective May 14, 1999, Ironbound was merged into the Company.
2. Summary of Significant Accounting Policies
Basis of Presentation
The Company and Ironbound are both 100% owned by the same individual and are
under common control. In accordance with the original intent of the
stockholder, the accompanying financial statements have been presented on a
combined basis at historical cost. This presentation assumes that the Company
is not considered an investment company. If the Company was considered an
investment company, the Company would be required to record its investments at
fair market value. All intercompany transactions have been eliminated.
Use of Estimates
The financial statements are prepared on the accrual basis of accounting in
conformity with generally accepted accounting principles. 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
F-6
<PAGE>
E2Enet.com, Inc.
and Ironbound Partners LLC
development stage enterprises
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reported period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less at the time of purchase to be cash and cash
equivalents. Cash and cash equivalents are carried at cost plus accrued
interest which approximates market.
Accounting for Investments
Investments in companies in which the Company owns 50% or less of the
outstanding voting securities and exercises significant but not controlling
influence, are accounted for on the equity method of accounting. Significant
influence is presumed at a 20% ownership level; however, the Company applies
the equity method for certain companies in which it owns less than 20% of the
voting interest when it exerts significant influence through representation on
those companies' Boards of Directors and other means. The amount by which the
Company's carrying value exceeds its share of the underlying net assets of
equity affiliates is amortized on a straight-line basis which adjusts the
Company's share of the affiliates' earnings or losses. All other investments
are accounted for on the cost method. Certain cost method investments are
classified as available-for-sale and are recorded at fair value, based on
quoted market prices, with the unrealized gains or losses, net of tax, included
as other comprehensive income and a separate component of shareholder's equity.
If quoted market prices are not available, fair value is determined by
management through the analysis of the portfolio company performance and other
relevant factors.
All investments are stated at the lower of cost or net realizable value. The
Company continually evaluates investments for indications of impairment based
on the fair market value of each investment relative to cost, financial
condition, near-term prospects of the investment, and other relative factors.
Equipment
Equipment, which consists of office computers, is stated at cost, less
accumulated depreciation. The cost of additions and improvements are
capitalized, while maintenance and repairs are charged to expense when
incurred. Depreciation is provided on the straight-line basis over estimated
useful life of the equipment, three years. The Company recognizes gains or
losses on the sale or disposal of equipment in the period of disposal. Long-
lived assets held and utilized by the Company are reviewed for impairment
whenever changes in circumstances indicate the carrying value of such assets
may not be recoverable.
F-7
<PAGE>
E2Enet.com, Inc.
and Ironbound Partners LLC
development stage enterprises
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Organization Costs
The Company accounts for organization costs under the provisions of
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities"
which requires that all organization costs be expensed as incurred.
Income Taxes
The Company accounts for income taxes in accordance with the liability
method. Deferred income taxes are recognized for the tax consequences in future
years for differences between the tax bases of assets and liabilities and their
financial reporting amounts at the end of each period, based on enacted laws
and statutory rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the expected realizable amount. The
provision (benefit) for income taxes consists of the current tax provision
(benefit) and the change during the period in deferred tax assets and
liabilities.
Ironbound was a limited liability company and was taxed as a partnership for
federal income tax purposes. All of the expenses for the periods presented were
incurred by Ironbound, and as a result of this election, Ironbound's taxable
loss accrues to the individual member who is responsible for all related income
taxes and therefore, no benefit for income taxes has been presented in these
financial statements. The Company incurred no income or expenses during the
periods presented in the accompanying financial statements.
Loss Per Common Share
Basic loss per common share is computed using the weighted average number of
shares of common stock outstanding during the period. Diluted loss per common
share is computed using the weighted average number of shares of common stock
outstanding, adjusted for the dilutive effect of potential common shares
consisting of common stock options and warrants and contingently issuable
shares of common stock. Potential common shares are calculated using the
treasury stock method. There are no stock options, warrants or contingently
issuable shares of common stock outstanding at December 31, 1998 or March 31,
1999, and accordingly, there is no reconciliation between basic and diluted
loss per common share for each of the periods presented.
F-8
<PAGE>
E2Enet.com, Inc.
and Ironbound Partners LLC
development stage enterprises
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" ("SFAS 123"), permits entities to choose between a fair
value based method of accounting for employee stock options and similar equity
instruments and the intrinsic value based method of accounting prescribed under
Accounting Principles Board Opinion No. 25 ("APB 25"). The Company has elected
to apply the intrinsic value based method of APB 25 in accounting for its
employee stock based compensation programs and will disclose the proforma net
income and earnings per share as if the fair value method had been applied. All
non-employee stock-based compensation plans are accounted for under the fair
value based method of SFAS 123. No such equity instruments have been issued by
the Company.
Comprehensive Income
Statement of Financial Accounting Standards No.130, "Reporting Comprehensive
Income" requires the presentation and disclosure of all changes in equity from
non-owner sources as "Comprehensive Income". The Company had no items of
Comprehensive income in the period from the date of inception through December
31, 1998 or the three months ended March 31, 1999.
Recent Pronouncements
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131") replaces the
industry segment approach under previously issued pronouncements with the
management approach. The management approach designates the internal
organization that is used by management for allocating resources and assessing
performance as the source of the Company's reportable segments. SFAS 131 also
requires disclosures about products and services, geographic areas and major
customers. The disclosures required under SFAS 131 will be provided as the
Company makes its investments in potential portfolio companies.
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"), establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging.
SFAS 133 is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. Currently, as the Company has no derivative instruments, the
adoption of SFAS 133 would have no impact on the Company's financial condition
or results of operations.
F-9
<PAGE>
E2Enet.com, Inc.
and Ironbound Partners LLC
development stage enterprises
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
3. Stockholder's Deficit
Common Stock
At September 8, 1998, the sole member of Ironbound invested $100 for 100% of
the member interest in the LLC. All LLC units were converted to common stock of
the Company effective May 14, 1999. For presentation purposes all such LLC
ownership interests are presented as additional paid in capital of the Company.
On February 9, 1999, the stockholder of the Company invested $15,000 for
1,500,000 shares of common stock. On May 7, 1999, the Company repurchased
200,000 of these shares at the original purchase price of $.01.
1999 Stock Option and Incentive Plan
The Company's Board of Directors plans to adopt a stock option and incentive
plan (the "1999 Plan"). Management expects that the 1999 Plan will authorize
the grant of stock, stock options, stock appreciation rights, restricted stock,
deferred stock, dividend equivalents and other stock-based, performance and
annual incentive awards to provide incentives to attract and retain executive
officers, directors, employees and other key personnel. The terms of the grants
under the 1999 Plan are expected to be administered by a committee of the
Company's Board of Directors. As of March 31, 1999, there have been no grants
to employees under the 1999 Plan. Non-employee directors will each receive
grants of non-qualified stock options under the 1999 Plan consisting of an
initial grant to purchase 50,000 shares at an exercise price equal to the fair
value of the Company's common stock on the date of grant, upon becoming a
director and subsequent grants to purchase 5,000 shares on each annual meeting
date. As of March 31, 1999, there have been no options granted to non-employee
directors under the 1999 Plan.
4. Equipment, net
Equipment consists of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
------------ ---------
<S> <C> <C>
Computer equipment.................................... $6,658 $7,483
Less: accumulated depreciation........................ (370) (971)
------ ------
Equipment, net........................................ $6,288 $6,512
====== ======
</TABLE>
Depreciation expense was $370 and $601 for September 1, 1998 (date of
inception) through December 31, 1998 and the three months ended March 31, 1999,
respectively.
F-10
<PAGE>
E2Enet.com, Inc.
and Ironbound Partners LLC
development stage enterprises
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
5. Due to Stockholder
As of December 31, 1998 and March 31, 1999, the stockholder of Ironbound has
advanced $72,172 and $219,407, respectively, to pay certain organizational and
start-up costs. Such advances bear interest on the unpaid principal balance at
an annual rate equal to the prime rate. Principal and accrued interest owed
under this arrangement are due and payable in full on the demand by the
stockholder.
6. Commitments and Contingencies
The Company leases certain buildings and equipment for use in its operations
under noncancelable operating lease agreements. The leases generally provide
for renewal terms and the Company is required to pay a portion of the common
areas' expenses. Rent expense was $2,000 and $2,895 for the period of inception
through December 31, 1998 and the three months ended March 31, 1999,
respectively. The minimum future rental commitments over the next five years
under the existing noncancelable operating leases at March 31, 1999 are as
follows:
<TABLE>
<S> <C>
1999.............................................................. $ 190,974
2000.............................................................. 259,195
2001.............................................................. 259,195
2002.............................................................. 252,870
2003.............................................................. 251,605
Thereafter........................................................ 1,446,732
----------
Total........................................................... $2,660,571
==========
</TABLE>
7. Related Party Transactions
The Company currently utilizes an insignificant amount of idle facilities
from an affiliated company. The affiliated company does not expect
reinbursement for the use of these idle facilities.
8. Subsequent Events
On May 7, 1999, the Company sold 2,305,500 shares of the Company's common
stock to certain employees, directors and other individuals at $.01 per share
for gross proceeds of $23,055. The issuance of these shares also resulted in
the Company recording compensation expense equal to the fair value of the
Company's stock on the date of issuance. This compensation expense will be
recorded in the Company's operations for the three months ending June 30, 1999.
F-11
<PAGE>
E2Enet.com, Inc.
and Ironbound Partners LLC
development stage enterprises
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
In May 7, 1999 the Company entered into a promissory note with its
stockholder. The promissory note provides for the Company to receive advances
up to $10 million. Interest accrues on the unpaid principal balance at a rate
equal to the prime rate. Principal and accrued interest owed under this
promissory note are due and payable in full on demand by the stockholder. These
advances will be used to make investments and support the Company's current
operations.
Subsequent to March 31, 1999, the Company made investments in four companies
for cash and common stock. In return for its investment, the Company received
convertible preferred stock. The Company also obtained board representation,
voting rights, preemptive rights and antidilution protection. As part of these
investments, the Company sold 666,669 common shares to the partner company
owners for $0.01. These three partner companies represent early stage internet
companies.
The investments are summarized as follows:
. Gift giving electronic commerce site. The Company purchased 40% of the
equity ownership of a company which operates a web site focused on gift
selection and related services.
. Women's premium online buying agent. The Company purchased 45% of the equity
ownership of a company that intends to efficiently service premium products
and services for busy professional women.
. Online auction network. The Company purchased 33% of the equity ownership of
an early stage online auction business.
. Urban online entertainment network. The Company purchased 25% of the equity
of an online network for consumers of global urban culture, information,
entertainment and products.
F-12
<PAGE>
E2Enet.com, Inc.
and Ironbound Partners LLC
development stage enterprises
Introduction to Unaudited Pro Forma
Combined Financial Statements
The following unaudited pro forma combined financial statements give effect
to the investments by E2Enet.Com, Inc. ("the Company") in two companies each of
which was consummated on May 14, 1999. In return for these investments, the
Company received convertible preferred stock. The presentation of the pro forma
combined financial statements assumes that the Company is not considered an
investment company. If the Company was considered an investment company, the
Company would be required to record its investments at fair market value.
The unaudited pro forma combined balance sheet gives effect to the
investments as if they had occurred on March 31, 1999. The unaudited pro forma
combined statements of operations give effect to the Company's investments in
the two partner companies as if such events had occurred on the date the two
partner companies were incorporated. The two partner companies were
incorporated and began operations on January 5, 1999 and February 16, 1999,
respectively. The third and fourth partner company that an agreement has been
reached with was not incorporated prior to March 31, 1999 and accordingly is
not reflected in those unaudited pro forma combined financial statements.
The pro forma amounts are based on estimates, available information and
certain assumptions and may be revised as additional information becomes
available. The pro forma financial data do not purport to represent what the
Company's financial position or results of operations would actually have been
if such transactions in fact had occurred on those dates and are not
necessarily representative of the Company's financial position or results of
operations for any future period. Since the companies were not under common
control or management, historical combined results may not be comparable to, or
indicative of, future performance. The unaudited pro forma combined financial
statements should be read in conjunction with the other financials statements
and notes thereto included elsewhere in this Registration Statement.
F-13
<PAGE>
E2Enet.com, Inc.
and Ironbound Partners LLC
development stage enterprises
UNAUDITED PRO FORMA COMBINED BALANCE SHEETS
As of March 31, 1999
<TABLE>
<CAPTION>
Partner Partner
Company Company Pro Forma
E2Enet.com, Inc. (A) (B) Combined
ASSETS ---------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Current assets:
Prepaid expenses......... $ 16,851 $ -- $ -- $ 16,851
--------- ---------- ---------- ----------
Total current assets...... 16,851 -- -- 16,851
--------- ---------- ---------- ----------
Investments............... -- 3,500,000 3,000,000 6,500,000
Current investment
activity................. -- (86,997) (36,748) (123,745)
--------- ---------- ---------- ----------
Investments, net......... -- 3,413,003 2,963,252 6,376,255
Equipment, net............ 6,512 -- -- 6,512
--------- ---------- ---------- ----------
Total assets.............. $ 23,363 $3,413,003 $2,963,252 $6,399,618
========= ========== ========== ==========
LIABILITIES AND
STOCKHOLDER'S DEFICIT
Liabilities:
Due to stockholder....... $ 219,407 $ -- $ -- $ 219,407
Accrued expenses......... 151,672 27,072 9,130 187,874
Promissory note.......... -- 1,500,000 1,000,000 2,500,000
--------- ---------- ---------- ----------
Total liabilities......... 371,079 1,527,072 1,009,130 2,907,281
--------- ---------- ---------- ----------
Commitments and
contingencies
Stockholder's deficit:
Common stock............. 15,000 20,000 20,000 55,000
Additional paid-in-
capital................. 100 1,980,000 1,980,000 3,960,100
Deficit accumulated
during
development stage....... (362,816) (114,069) (45,878) (522,763)
--------- ---------- ---------- ----------
Total stockholder's
deficit.................. (347,716) 1,885,931 1,954,122 3,492,337
--------- ---------- ---------- ----------
Total liabilities and
stockholder's deficit.... $ 23,363 $3,413,003 $2,963,252 $6,399,618
========= ========== ========== ==========
</TABLE>
F-14
<PAGE>
E2Enet.com, Inc.
and Ironbound Partners LLC
development stage enterprises
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the Three Month Period Ending March 31, 1999
<TABLE>
<CAPTION>
Partner Partner
Company Company Pro Forma
E2Enet.com, Inc. (A) (B) Combined
---------------- --------- -------- ---------
<S> <C> <C> <C> <C>
Expenses:
General and administrative.. $ 283,118 $ 27,072 $ 9,130 $ 319,320
--------- --------- -------- ---------
Equity in net loss before
taxes of investees......... -- 5,497 1,448 6,945
Goodwill amortization....... -- 81,500 35,300 116,800
--------- --------- -------- ---------
Equity in loss of
investees................. -- 86,997 36,748 123,745
--------- --------- -------- ---------
Total expenses............... 283,118 114,069 45,878 443,065
--------- --------- -------- ---------
Net loss before income
taxes....................... (283,118) (114,069) (45,878) (443,065)
Provision for income taxes... -- -- -- --
--------- --------- -------- ---------
Net loss..................... (283,118) (114,069) (45,878) (443,065)
--------- --------- -------- ---------
Basic and diluted loss per
common share................ $ (0.30)
=========
Shares used in computing loss
per common share............ 1,500,000
=========
</TABLE>
F-15
<PAGE>
E2Enet.com, Inc.
and Ironbound Partners LLC
development stage enterprises
Notes to Unaudited Pro Forma Combined Financial Statements
----------------
1. General
E2Enet.com, Inc. (the "Company") was established to acquire equity interests
in and provide a wide range of business development support services to
businesses primarily engaged in Internet related commerce, media, technology
and services. The Company will also provide technical and Internet industry
expertise to traditional non-internet businesses seeking partners to provide
that expertise as they enter the Internet marketplace.
The period included in these pro forma financial statements for the Company
and the two partner companies from January 1, 1999, or the date of inception of
the partner companies through March 31, 1999. The audited financial statements
of the Company are included elsewhere in this registration statement.
2. Investment
The unaudited historical financial statements as of and for the three month
period ended March 31, 1999 of the two partner companies is as follows:
<TABLE>
<CAPTION>
Portfolio Portfolio
Investment Investment
(A) (B)
---------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash..................................................... $6,783
-------- -------
Total current assets...................................... -- 6,783
Equipment,net............................................. $2,916 --
-------- -------
Total assets.............................................. $2,916 $6,783
======== =======
LIABILITIES and STOCKHOLDER'S DEFICIT
Liabilities:
Accrued expenses......................................... -- --
-------- -------
Total liabilities......................................... -- --
Stockholder's deficit:
Common stock.............................................. -- --
Additional paid in capital................................ $ 16,659 $10,000
Deficit accumulated during development stage.............. (13,743) (3,217)
-------- -------
Total stockholder's deficit............................... 2,916 6,783
-------- -------
Total liabilities and stockholder's deficit............... $ 2,916 $ 6,783
======== =======
</TABLE>
F-16
<PAGE>
E2Enet.com, Inc.
and Ironbound Partners LLC
development stage enterprises
Notes to Unaudited Pro Forma Combined Financial Statements
<TABLE>
<CAPTION>
Portfolio Portfolio
Investment Investment
(A) (B)
---------- ----------
<S> <C> <C>
REVENUES
Total Revenues........................................... $ -- $ --
EXPENSES
General and administrative............................... $ 13,743 $ 3,217
-------- -------
Total Expenses.......................................... 13,743 3,217
-------- -------
Net loss before income taxes.............................. (13,743) (3,217)
Provision for income taxes................................ -- --
-------- -------
Net loss.................................................. $(13,743) $(3,217)
======== =======
</TABLE>
The Company contributed cash of $1.5 million in exchange for convertible
preferred stock of partner company "A". Upon conversion of the preferred stock,
the Company will own 40% of company "A". The Company contributed cash of $1
million in exchange for convertible preferred stock of partner company "B".
Upon conversion of the preferred stock, the Company will own 45% of company
"B".
The owners of the partner investment companies acquired shares of the
Company's common stock.
3. Promissory Note
On May 7, 1999, the Company entered into a promissory note with its
stockholder. The promissory note provides for the Company to receive advances
of up to $10 million. Interest accrues on the unpaid principal balance at a
rate equal to the prime rate which at March 31, 1998 was 7.75%. Principal and
accrued interest owed under this promissory note are due and payable in full on
demand by the stockholder. Advances will be used to make investments and
support the Company's current operations. For purposes of the unaudited Pro
Forma Combined Financial Statements, interest expense was imputed during the
period since each partner company's incorporation. Imputed interest expense was
$36,202 ($27,072 and $9,130 for Company "A" and "B," respectively). If the
interest rate were to fluctuate by 1/8%, it would have an impact of
approximately $4,000 for the period ended March 31, 1999.
4. Amortization of Investment amount in excess of Book Value of Net Assets
The amount by which the investment amount exceeds each partner company's
book value of net assets is as follows:
<TABLE>
<CAPTION>
Partner Partner
Company Company
(A) (B)
----------- -----------
<S> <C> <C>
Purchase Price........................................ $ 3,500,000 $ 3,000,000
Net Assets............................................ (2,916) (6,783)
----------- -----------
Goodwill.............................................. $3,497,084 $2,993,217
=========== ===========
</TABLE>
Company "A" was incorporated on January 5, 1999 and Company "B" was
incorporated on February 16, 1999.
The excess investment will be amortized over a period of 10 years on a
straight-line basis. The pro-rated amount of amortization expense for the
period ended March 31, 1999 is $81,500 and $35,300 for partner company "A" and
"B", respectively.
F-17
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
E2Enet.com
Common Stock
------------
PROSPECTUS
------------
BT Alex. Brown
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth all fees and expenses, other than the
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of the Common Stock being registered. All amounts shown are
estimates except for the SEC registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
Amount
-------
<S> <C>
SEC registration fee................................................ $47,955
NASD filing fee..................................................... 17,750
Nasdaq National Market listing fee.................................. *
Accounting fees and expenses........................................ *
Legal fees and expenses............................................. *
Printing and engraving expenses..................................... *
Blue Sky qualification fees and expenses............................ *
Transfer agent and registrar fees................................... *
Miscellaneous expenses.............................................. *
-------
Total............................................................. *
=======
</TABLE>
- --------
* To be completed by amendment.
Item 14. Indemnification of Directors and Officers
The Certificate of Incorporation and Bylaws of the Registrant provide for
the indemnification of the Registrant's directors and officers to the fullest
extent authorized by, and subject to the conditions set forth in the General
Corporation Law of the State of Delaware (the "DGCL"), except that the
Registrant will indemnify a director or officer in connection with a proceeding
(or part thereof) initiated by the person only if the proceeding (or part
thereof) was authorized by the Registrant's Board of Directors. The
indemnification provided under the Certificate of Incorporation and Bylaws
includes the right to be paid by the Registrant the expenses (including
attorneys' fees) in advance of any proceeding for which indemnification may be
had in advance of its final disposition, provided that the payment of such
expenses (including attorneys' fees) incurred by a director or officer in
advance of the final disposition of a proceeding may be made only upon delivery
to the Registrant of an undertaking by or on behalf of the director or officer
to repay all amounts so paid in advance if it is ultimately determined that the
director or officer is not entitled to be indemnified. Pursuant to the Bylaws,
if a claim for indemnification is not paid by the Registrant within 60 days
after a written claim has been received by the Registrant, the claimant may at
any time thereafter bring an action against the Registrant to recover the
unpaid amount of the claim and, if successful in whole or in part, the claimant
will be entitled to be paid also the expense of prosecuting the action.
As permitted by the DGCL, the Registrant's Certificate of Incorporation
provides that directors of the Registrant shall not be liable to the Registrant
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any
II-1
<PAGE>
breach of the director's duty of loyalty to the Registrant or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the DGCL, relating to unlawful payment of dividends or unlawful stock
purchase or redemption or (iv) for any transaction from which the director
derived an improper personal benefit. As a result of this provision, the
Registrant and its stockholders may be unable to obtain monetary damages from
a director for breach of his or her duty of care.
Under the Bylaws, the Registrant has the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the Registrant, or is or was serving at the request of the
Registrant as a director, officer, employee, partner (limited or general) or
agent of another corporation or of a partnership, joint venture, limited
liability company, trust or other enterprise, against any liability asserted
against the person or incurred by the person in any such capacity, or arising
out of the person's status as such, and related expenses, whether or not the
Registrant would have the power to indemnify the person against such liability
under the provisions of the DGCL. The Registrant intends to purchase director
and officer liability insurance on behalf of its directors and officers.
Item 15. Recent Sales of Unregistered Securities
(a) On February 9, 1999, in connection with its formation, the Registrant
sold 1,300,000 shares of its common stock, $.01 par value per share
("Common Stock"), to Jonathan J. Ledecky. This sale was effected without
registration under the Securities Act of 1933, as amended (the
"Securities Act"), in reliance upon the exemption from registration
contained in Section 4(2) of the Securities Act.
(b) Between May 7, 1999 and May 14, 1999, 30 investors and employees of the
Company purchased 2,972,169 shares of Common Stock at a price per share
of $0.01 for an aggregate consideration of $29,722. This sale was
effected without registration under the Securities Act in reliance upon
the exemption from registration contained in Section 4(2) of the
Securities Act.
Each of the foregoing transactions was effected without the use of an
underwriter.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<S> <C>
1.1* Form of Underwriting Agreement
3.1* Certificate of Incorporation of the Registrant
3.2* Bylaws of the Registrant
4.1* Form of Common Stock Certificate
5.1* Opinion of Hogan & Hartson L.L.P.
10.1* Stock Purchase Agreement By and Among [Online Auction Network] and the
Registrant dated May 14, 1999
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
10.2* Employment Agreement between the Registrant and Robert S. Smith dated
May 12, 1999
10.3* Employment Agreement between the Registrant and Michael C. Wheeler dated
May 12, 1999
10.4* Employment Agreement between the Registrant and Mark Lewyn dated
May 12, 1999
10.5* Employment Agreement between the Registrant and Steven J. Quamme dated
May 7, 1999
10.6* Employment Agreement between the Registrant and David Ledecky dated
May 7, 1999
23.1* Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1)
23.2 Consent of PricewaterhouseCoopers LLP
23.3 Consent of Lynda Applegate, as Director Nominee
23.4 Consent of Neil Austrian, as Director Nominee
23.5 Consent of William P. Phelan, as Director Nominee
23.6 Consent of Robert J. Smith, as Director Nominee
23.7 Consent of Michael Wheeler, as Director Nominee
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by Amendment
(b) Financial Statement Schedules
Schedules have been omitted because the information required to be set forth
therein is not applicable or is included elsewhere in the Financial Statements
or the notes thereto.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes to provide to the underwriter
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as may be required by the
underwriter to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 of this
Registration Statement, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. If a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration
II-3
<PAGE>
Statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in New York, New York, on the 14th day
of May, 1999.
E2Enet.com
By /s/ Robert J. Smith
----------------------------------
Robert J. Smith
Chairman, President and Chief
Executive Officer
POWER OF ATTORNEY
Each individual whose signature appears below constitutes and appoints both
of Robert J. Smith and Steven J. Quamme, such person's true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
for such person and in such person's name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement, and to any other registration
statement for the same offering that is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act, and to file the same, with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto each said attorney-in-fact and agent full
power and authority to do and perform each and every act and thing requisite
and necessary to be done in and about the premises, as fully to all intents and
purposes as such person might or could do in person, hereby ratifying and
confirming all that any said attorney-in-fact and agent, or any substitute or
substitutes of any of them, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons as of May 14,
1999 in the capacities indicated.
Signature Title
/s/ Robert J. Smith Chief Executive
- ------------------------------------- Officer, President
Robert J. Smith
/s/ Steven J. Quamme Senior Vice
- ------------------------------------- President and Chief
Steven J. Quamme Financial Officer
and Director
II-5
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated May 5, 1999 relating to the financial statements of
E2ENET.COM, INC., which appears in such Registration Statement. We also consent
to the references to us under the headings "Experts" and "Selected Financial
Data" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
McLean, VA
May 14, 1999
<PAGE>
Exhibit 23.3
CONSENT OF DIRECTOR NOMINEE
To E2Enet.com, Inc.:
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, I hereby consent to the references in the Registration Statement of
E2Enet.com, Inc. (the "Company") on Form S-1, and any amendments thereto, which
indicate that I have accepted a nomination to become a director of the Company
following the closing of the Company's initial public offering.
/s/ Lynda Applegate
Lynda Applegate
Dated: May 13, 1999
<PAGE>
Exhibit 23.4
CONSENT OF DIRECTOR NOMINEE
---------------------------
To E2Enet.com, Inc.:
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, I hereby consent to the references in the Registration Statement of
E2Enet.com, Inc. (the "Company") on Form S-1, and any amendments thereto, which
indicate that I have accepted a nomination go become a director of the Company
following the closing of the Company's initial public offering.
/s/ Neil Austrian
---------------------
Neil Austrian
Dated: May 13, 1999
<PAGE>
EXHIBIT 23.5
CONSENT OF DIRECTOR NOMINEE
To E2Enet.com, Inc.:
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, I hereby consent to the references in the Registration Statement of
E2Enet.com, Inc. (the "Company") on Form S-1, and any amendments thereto, which
indicate that I have accepted a nomination to become a director of the Company
following the closing of the Company's initial public offering.
/s/ William P. Phelan
----------------------
William P. Phelan
Dated: May 14, 1999
<PAGE>
EXHIBIT 23.6
CONSENT OF DIRECTOR NOMINEE
To E2Enet.com, Inc.:
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, I hereby consent to the references in the Registration Statement of
E2Enet.com, Inc. (the "Company") on Form S-1, and any amendments thereto,
which indicate that I have accepted a nomination to become a director of the
Company following the closing of the Company's initial public offering.
/s/ Robert J. Smith
------------------------
Robert J. Smith
Dated: May 14, 1999
<PAGE>
EXHIBIT 23.7
CONSENT OF DIRECTOR NOMINEE
To E2Enet.com, Inc.:
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, I hereby consent to the references in the Registration Statement of
E2Enet.com, Inc. (the "Company") on Form S-1, and any amendments thereto,
which indicate that I have accepted a nomination to become a director of the
Company following the closing of the Company's initial public offering.
/s/ Michael Wheeler
------------------------
Michael Wheeler
Dated: May 14, 1999
<TABLE> <S> <C>
<PAGE>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> SEP-08-1998
<PERIOD-END> MAR-31-1999
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