<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 2, 1999
REGISTRATION NO. 333-88511
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
B2BSTORES.COM INC.
(NAME OF ISSUER IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7389 11-3500746
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE) IDENTIFICATION NUMBER)
</TABLE>
------------------------
<TABLE>
<S> <C>
249 EAST OCEAN BOULEVARD WOO JIN KIM, CEO
LONG BEACH, CALIFORNIA 90802 B2BSTORES.COM INC.
562/491-7180 249 EAST OCEAN BOULEVARD
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S LONG BEACH, CALIFORNIA 90802
PRINCIPAL EXECUTIVE OFFICES AND PRINCIPAL PLACE OF BUSINESS) 562/491-7180
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
</TABLE>
------------------------
Copies to:
<TABLE>
<S> <C>
DAVID ALAN MILLER, ESQ. LAWRENCE FISHER, ESQ.
GRAUBARD MOLLEN & MILLER ORRICK, HERRINGTON & SUTCLIFFE LLP
600 THIRD AVENUE 666 FIFTH AVENUE
NEW YORK, NEW YORK 10016 NEW YORK, NEW YORK 10103
TELEPHONE: (212) 818-8800 TELEPHONE: (212) 506-5000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
possible after the effective date of this registration statement.
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. /x/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please 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 statement of the earlier effective registration
statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following box and list the
Securities Act registration statement 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. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM OFFERING PROPOSED
TITLE OF EACH CLASS AMOUNT TO BE PRICE PER MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common stock, par value $0.01........................ 3,500,000 $10.00 $35,000,000 $ 9,730.00
Common stock(2)...................................... 525,000 10.00 5,250,000 1,460.00
Representatives' warrants to purchase shares of
common stock(3)...................................... 350,000 .0001 -- --
Common stock(4)...................................... 350,000 12.00 4,200,000 1,168.00
Total........................................................................................................ $12,358.00*
</TABLE>
* Previously paid.
(1) Estimated solely for the purpose of calculating the registration fee under
Rule 457 of the Securities Act of 1933.
(2) Represents the shares of our common stock that may be purchased by the
underwriters solely to cover over-allotments, if any.
(3) No registration fee is required under Rule 457(g) under the Securities Act.
(4) Represents the shares of our common stock purchasable by the representatives
upon exercise of warrants being issued to them in connection with this
offering.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON THAT DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SEC, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
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 it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED DECEMBER 2, 1999
PROSPECTUS
3,500,000 SHARES
B2BSTORES.COM INC.
COMMON STOCK
------------------------
[Logo]
This is the initial public offering of shares of our common stock. In
considering this offering, you should know that:
o no public market exists for our shares prior to this offering;
o we have applied to have the shares quoted on the Nasdaq National
Market under the symbol "BTBC;"
o we anticipate that the per-share price will be $10.00;
o this offering is made on a firm-commitment basis; and
o we have granted the underwriters a 45-day option to purchase up to
525,000 additional shares of our common stock solely to cover
over-allotments, if any.
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public offering price............................................................. $ $
Underwriting discount and commissions............................................. $ $
Proceeds to b2bstores.com Inc..................................................... $ $
</TABLE>
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS FOR INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
Gaines, Berland Inc. on behalf of the underwriters, expects to deliver the
shares on or about December , 1999.
GAINES, BERLAND INC. NOLAN SECURITIES, INC.
------------------------
The date of this prospectus is , 1999
<PAGE>
[THIS PAGE IS THE INSIDE COVER OF THE PROSPECTUS AND CONTAINS ARTWORK DEPICTING
EXAMPLES OF WEB PAGES AVAILABLE AT WWW.B2BSTORES.COM]
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................................................................................... 4
Risk Factors............................................................................................... 7
Use of Proceeds............................................................................................ 16
Dilution................................................................................................... 18
Capitalization............................................................................................. 19
Plan of Operations......................................................................................... 20
Business................................................................................................... 28
Management................................................................................................. 39
Principal Stockholders..................................................................................... 45
Certain Transactions....................................................................................... 47
Description of Securities.................................................................................. 50
Underwriting............................................................................................... 52
Where You Can Find More Information........................................................................ 55
Legal Matters.............................................................................................. 55
Experts.................................................................................................... 55
Index to Financial Statements.............................................................................. F-1
</TABLE>
---------------------------------------------
Unless otherwise noted, the information in this prospectus gives effect to
a 4-for-3 split of our common stock on September 28, 1999.
Unless otherwise noted, the information in this prospectus does not give
effect to or include:
o any exercise of the underwriters' over-allotment option;
o 1,000,000 shares of common stock issuable upon exercise of options
that will be granted to some of our officers on the effective date of
this prospectus;
o 200,000 shares of common stock issuable upon exercise of options that
may be granted to some of our officers during 2000 under our 1999
Performance Equity Plan upon the attainment by us of operational and
financial criteria;
o 1,800,000 additional shares of common stock that would be issuable
upon exercise of other options that we may grant under our plan; and
o 350,000 shares of common stock issuable upon exercise of warrants
being issued to the representatives in connection with this offering.
---------------------------------------------
UNTIL , 2000, ALL DEALERS SELLING SHARES OF THE COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
3
<PAGE>
PROSPECTUS SUMMARY
GENERAL
b2bstores.com(Trademark) is an Internet web site specifically designed to
assist business customers in the operation and development of their businesses.
b2bstores.com provides user-friendly online access to business products and
supplies. We are currently expanding our web site to provide access to business
services, auctions and business-related information and content. We began our
commercial operations in September 1999 and have generated only nominal revenues
to date.
Historically, businesses have had to access a number of separate sources
through non-Internet mediums to obtain the supplies, services and information
necessary for their operations. Businesses are now increasingly utilizing the
Internet as a valuable tool to access these sources and to operate more
efficiently. However, the vast majority of business web sites focus on only one
of three business solutions:
o the sale of business products;
o online referrals to business services; or
o business content.
We believe that b2bstores.com will provide business customers with access
to all three of these business solutions. Our web site will provide our
customers with the combined abilities to purchase a broad range of quality
products, access a wide variety of business-related services and research
comprehensive business information, all at a single, user-friendly web site.
OUR OBJECTIVE AND STRATEGY
Our objective is to become a leading, one-stop Internet destination for
business customers--a place where they conduct their business-to-business
transactions, build relationships with customers, suppliers and colleagues, and
conduct their business-related research. The key elements of our strategy
include:
o Creating awareness of the b2bstores.com brand through intensive
marketing;
o Expanding our product offerings;
o Creating and expanding our business referral services;
o Creating marketing and distribution alliances with other Internet
companies;
o Enhancing web site utility through the creation of community among
our customers and the provision of business content;
o Creating and exploiting advertising revenues; and
o Acquiring content and technology that is complementary to our
business site.
4
<PAGE>
CORPORATE BACKGROUND
b2bstores.com Inc. was formed under the laws of the State of Delaware in
June 1999. Our principal offices are located at 249 East Ocean Boulevard,
Suite 620, Long Beach, California 90802. Our phone number is 562-491-7180. Our
web site is available at http://www.b2bstores.com. Information contained in our
web site is not part of this prospectus.
Enviro-Clean of America, Inc. is a principal stockholder of b2bstores.com
Inc. Richard Kandel, our founder and chairman of the board, is also the chairman
of the board, chief executive officer and principal stockholder of Enviro-Clean.
You should refer to the sections of this prospectus entitled "Risk Factors" and
"Certain Transactions" for a description of the relationships between
b2bstores.com, Enviro-Clean, Mr. Kandel and other persons.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered...................... 3,500,000 shares
Common stock outstanding prior to the
offering............................... 4,021,643 shares
Common stock to be outstanding after the
offering............................... 7,521,643 shares
Use of proceeds........................... We intend to use the net proceeds of this offering:
o for sales and marketing activities, including brand promotion;
o to fund the development of our web site and customer support
operations;
o to repay loans made to us by Enviro-Clean;
o to pay cash bonuses to some of our officers; and
o for working capital and general corporate purposes.
Proposed Nasdaq National Market symbol.... BTBC
</TABLE>
If the underwriters fully exercise their over-allotment option to purchase
additional shares, the total number of shares to be offered in this offering
will be 4,025,000 and the total number of shares outstanding after this offering
will be 8,046,643.
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
This summary financial information should be read in conjunction with the
section of this prospectus entitled "Plan of Operations" and our financial
statements and related notes included elsewhere in this prospectus. The
financial information as of August 31, 1999 has been derived from our audited
financial statements. The historical results presented in this prospectus are
not necessarily indicative of our future financial position or results of
operations.
We began our commercial operations in September 1999 and have generated
only nominal revenues to date. Accordingly, our income statement information is
not presented since it is not meaningful.
BALANCE SHEET DATA
<TABLE>
<CAPTION>
AUGUST 31, 1999
------------------------
ACTUAL AS ADJUSTED
-------- -----------
<S> <C> <C>
Working capital................................................................ $365,849 $30,905,685
Total assets................................................................... 753,906 31,061,455
Total liabilities.............................................................. 303,272 123,436
Stockholders' equity........................................................... 450,634 30,990,470
</TABLE>
The information presented in this table under the "As Adjusted" column
assumes:
o an offering price of $10.00 per share;
o the sale of 3,500,000 shares of our common stock in this offering;
o that we will receive net proceeds of $30,675,000 in this offering;
and
o that we will immediately apply a portion of the net proceeds as
described in the section of this prospectus entitled "Use of
Proceeds."
6
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making a
decision to invest in b2bstores.com. Our business, financial condition and
results of operations could be adversely affected by these risks. You should be
able to bear a complete loss of your investment.
RISKS RELATING TO OUR FINANCIAL CONDITION
WE HAVE A VERY SHORT OPERATING HISTORY UPON WHICH YOU CAN EVALUATE US.
ACCORDINGLY, INVESTMENT DECISIONS MUST BE MADE BASED ON OUR BUSINESS PROSPECTS
RATHER THAN OUR HISTORICAL FINANCIAL PERFORMANCE. WE MAY NOT BE ABLE TO GROW OUR
BUSINESS AS PLANNED.
We began our commercial operations in September 1999 and have generated
only nominal revenues to date. Because of this very limited operating history,
there are no meaningful financial results which you can use to evaluate the
merits of making an investment in us. Accordingly, investment decisions must be
made based on our business prospects. We may not be able to grow our business as
planned or ever become a profitable business. Our business prospects are subject
to all the risks, expenses and uncertainties encountered by any new company. We
also face the risks inherent in operating in the rapidly evolving markets for
Internet products and services. The numerous risks we face are described in this
section. If we are unable to successfully address these risks or grow our
business as planned, the value of our common stock will be diminished.
WE WILL SPEND A LARGE AMOUNT OF MONEY TO EXPAND OUR BUSINESS. THIS MONEY WILL BE
SPENT IN ADVANCE OF OUR ABILITY TO GENERATE SIGNIFICANT REVENUES FROM
OPERATIONS. ACCORDINGLY, WE WILL INCUR SIGNIFICANT LOSSES IN THE NEAR TERM.
We expect to incur significant operating expenses and make relatively high
capital expenditures as we develop our Internet business. These operating
expenses and capital expenditures will initially outpace revenues and result in
significant losses in the near term. We may never be able to reduce these
losses.
Our near-term losses will be increased as a result of charges to earnings
that we must recognize. Specifically, we have an obligation to grant options to
some of our officers on the effective date of this prospectus. We will incur
non-cash compensation charges as a result of these option grants. These charges
will be recognized as the options vest. The amount of the charges will be equal
to the number of shares purchasable under the options multiplied by (a) the
aggregate market value on the effective date of the shares of common stock
purchasable under the options, less (b) the aggregate exercise price of the
options. Based on an assumed market price of $10.00 per share, these charges
will be:
o $400,000 in 1999;
o $750,000 in 2000;
o $425,000 in 2001; and
o $425,000 in 2002.
7
<PAGE>
Our loss in 1999 also will be increased as a result of our issuance of
21,643 shares of common stock to consultants and directors in September 1999.
For these issuances, we will incur a non-cash compensation charge of $216,430.
In addition, upon consummation of this offering, we will be required to pay cash
bonuses aggregating $130,000 to some of our officers. These payments will
further increase our losses during 1999.
OUR ACCOUNTANTS HAVE INCLUDED AN EXPLANATORY PARAGRAPH IN THEIR REPORT. THIS
PARAGRAPH STATES THAT THERE IS SUBSTANTIAL DOUBT THAT WE CAN CONTINUE OPERATIONS
WITHOUT THE PROCEEDS OF THIS OFFERING.
Our independent certified public accountants' report for the period from
our inception on June 28, 1999 through August 31, 1999 contains an explanatory
paragraph. This paragraph states that our limited working capital position prior
to our receipt of the net proceeds of this offering raises substantial doubt
about our ability to continue as a going concern. Accordingly, if we do not
consummate this offering, we may not be able to continue our operations.
ONE OF OUR OPERATING AGREEMENTS REQUIRES US TO SHARE A SIGNIFICANT PORTION OF
THE REVENUES WE GENERATE WITH A THIRD-PARTY. ACCORDINGLY, WE WILL NOT RETAIN ALL
REVENUES GENERATED THROUGH OUR WEB SITE AND IT WILL BE MORE DIFFICULT FOR US TO
BECOME A PROFITABLE BUSINESS.
We have an agreement with Netgateway, Inc under which it provides us with
e-commerce processing and other technology services integral to our business.
During the term of this agreement, we are obligated to share equally with
Netgateway all advertising and "click-through" revenues generated through our
web site. We also pay Netgateway a small percentage of all revenues generated
through sales of products through our web site. Accordingly, we will not retain
all revenues generated through our web site and it will be more difficult for us
to become a profitable business.
WE WILL NEED TO SPEND SIGNIFICANT CAPITAL TO FUND OUR FUTURE GROWTH. IF WE
CANNOT ACCESS THIS CAPITAL WHEN WE NEED IT, WE WILL NOT BE ABLE TO SUSTAIN THE
GROWTH OF OUR OPERATIONS.
The expansion of our web site and business requires substantial capital
investments. In addition, we must fund operating losses as we expand our
business. If we cannot generate sufficient cash from our operations or otherwise
obtain capital as needed, we will not be able to continue the expansion of our
operations. We anticipate that the net proceeds of this offering will satisfy
our capital requirements for at least the 18-month period following the
consummation of this offering. Thereafter, we must either generate cash from our
operations sufficient to fund our continued growth, or access sufficient capital
from external sources. These sources could include the public or private markets
for our equity or debt securities. However, external sources of capital may not
be available when or in the amounts needed. If our plans change or our
assumptions prove to be inaccurate, we may need to seek additional financing
sooner than currently anticipated or curtail our operations.
8
<PAGE>
WE MAY NEED TO SELL MORE OF OUR COMMON STOCK OR OTHER EQUITY SECURITIES OR DEBT
SECURITIES IN THE FUTURE TO RAISE ADDITIONAL CAPITAL. THERE MAY NOT BE A MARKET
FOR THESE SECURITIES WHEN SOUGHT OR THE SALE OF THESE SECURITIES COULD BE
DETRIMENTAL TO THE SHORT-TERM INTEREST OF OUR STOCKHOLDERS. ISSUANCES OF OUR
EQUITY WOULD DILUTE THE INTERESTS OF OUR STOCKHOLDERS. ISSUANCES OF OUR DEBT
COULD PLACE CONSTRAINTS ON HOW WE CONDUCT OUR BUSINESS.
We will use the proceeds of this offering to grow our business. If we are
unable to grow our business to profitability prior to using all of the proceeds
of this offering, or if we accelerate our growth, we will seek to obtain needed
capital through financings. However, there may not be a market for our
securities when sought. If financing is not available when and as we require, we
could be forced to slow down the growth of our business, reduce our operations,
or suspend operations entirely. Any issuance of equity securities would dilute
the interest of our stockholders. If we incur debt, our cash flow may be
insufficient to pay the principal and interest on that debt. Further, the
instruments governing any debt we incur will typically contain extensive
covenants restricting our activities. These restrictions could have important
consequences for our business, including:
o limiting our ability to access the additional capital we will need to
sustain and grow our business;
o limiting our flexibility in planning for, or reacting to, changes in
our business; and
o placing us at a competitive disadvantage to less leveraged
competitors, which could have more capital to invest in their
operations.
RISKS RELATING TO OUR OPERATIONS
BECAUSE WE ARE A NEW AND RELATIVELY SMALL COMPANY, WE MAY NOT BE ABLE TO COMPETE
SUCCESSFULLY IN OUR MARKETS.
We are a new and relatively small company. We may not able to compete
successfully against current or future competitors in our markets. The
business-to-business e-commerce market is new, rapidly evolving and intensely
competitive. We expect competition to intensify in the future. Barriers to entry
are minimal, and competitors may develop and offer similar services in the
future. Virtually all of our current and potential competitors have longer
operating histories, larger customer bases and greater brand recognition in the
business products and Internet markets. They also have significantly greater
financial, marketing, technical and other resources. These superior resources
could allow competitors to:
o devote significantly greater resources to marketing and promotional
campaigns than we can,
o adopt pricing policies that are more aggressive than ours,
o attract greater numbers of users than we can by offering services for
free,
o devote substantially more resources to the development of their
products and services than we can.
9
<PAGE>
Increased competition is likely to result in numerous factors which could
harm our business, including:
o reductions in the prices we are able to charge our customers,
o reductions in gross margins on the products and services we sell, and
o greater difficulty in attaining and retaining market share.
IF WE DO NOT EXPAND OUR SYSTEMS AND INTRODUCE NEW PRODUCTS AND SERVICES IN A
TIMELY MANNER, OUR FINANCIAL RESULTS WILL BE HARMED.
The e-commerce marketplace is characterized by:
o changes in customer requirements as they become more Internet savvy,
o the evolution of Internet-based technologies and capabilities,
resulting in frequent new service and product introductions, and
o evolving industry standards.
Accordingly, we must be able to develop new products and services that
address the increasingly sophisticated and varied needs of our customers and
prospective customers. If we are unable to expand our systems and introduce new
products and services in a timely manner, our financial results will be harmed.
Numerous factors could prevent us from responding effectively to changes in our
markets, including:
o our lack of control over a substantial portion of the technology we
use in our business, which could limit our ability to effectively
adapt new technologies into our business;
o our limited operating history and our limited number of personnel,
which could compromise our ability to recognize changes in consumer
preferences and translate them into the development of new products
and services; and
o the nonacceptance by the market of any new products and services we
introduce.
WE DEPEND EXTENSIVELY ON THIRD-PARTIES FOR THE TECHNOLOGY WE USE TO OPERATE OUR
WEB SITE AND FOR THE SUPPLY OF THE PRODUCTS AND SERVICES WE SELL AT OUR WEB
SITE. IF ANY OF THESE PARTIES FAIL TO MEET OUR REQUIREMENTS, OUR BUSINESS COULD
BE HARMED.
We rely on several third-parties for the provision of the technology,
products and services that are the fundamental components of our business. If
one or more of these parties are unable or unwilling to provide us with adequate
service, our business and brand name could be substantially harmed. Our
providers may determine to curtail the services they provide us or stop
providing these services altogether for numerous reasons, including as a result
of:
o their entering into exclusive agreements with one or more of our
competitors which prohibit them from engaging in business with us;
o their entering into direct competition with us; or
o their technology and systems experiencing outages or failures which
render them incapable of providing services.
10
<PAGE>
If any of our providers becomes unwilling or unable to provide us with adequate
service, we may not be able to secure alternative sources for these services in
a timely fashion or on acceptable terms.
THE GENERAL MARKET FOR PRODUCTS AND SERVICES PURCHASED THROUGH THE INTERNET MAY
NOT CONTINUE TO GROW. EVEN IF IT DOES CONTINUE TO GROW, BUSINESSES MAY NOT
ACCEPT OUR PRODUCTS AND SERVICES.
The markets for Internet-based products and services and business
information services are at early stages of development and are rapidly
evolving. These markets may not grow substantially in the coming years. If the
market for Internet commerce does not grow in general, it will be difficult to
expand our business. A number of factors could prevent the continued growth of
e-commerce, including the following:
o e-commerce is at an early stage and buyers may be unwilling to shift
their purchasing from traditional vendors to online vendors;
o the necessary network infrastructure for substantial growth in usage
of the Internet may not be adequately developed;
o increased government regulation or taxation may adversely affect the
viability of e-commerce;
o insufficient availability of, or changes in, telecommunication
services could result in slower response times for Internet users or
increased costs; and
o adverse publicity and consumer concern about the security of
e-commerce transactions could discourage its acceptance and growth.
Even if the Internet commerce market enjoys widespread general growth, the
market may simply not accept our products or services or find our web site
useful. If the market does not accept our products and services, our business
will be substantially harmed.
WE PROVIDE BUSINESS INFORMATION THROUGH OUR WEB SITE. THE PROVISION OF THIS
CONTENT COULD SUBJECT TO US TO VARIOUS CLAIMS, INCLUDING CLAIMS FOR DEFAMATION
AND COPYRIGHT INFRINGEMENT. THESE CLAIMS COULD HARM OUR BUSINESS.
We provide business information through our web site. It is possible that
this content could serve as the basis of claims for defamation, negligence,
copyright or trademark infringement or claims based on other legal theories.
These types of claims could harm our business. These types of claims have been
brought successfully against online services in the past. We also could be
subjected to claims based upon other web sites' content that is accessible from
our web site through hyperlinks or content and materials posted by persons in
our community bulletin boards. Our insurance, which covers commercial general
liability, may not adequately protect us against these types of claims.
BECAUSE WE SELL PRODUCTS THROUGH OUR WEB SITE, WE COULD FACE PRODUCT LIABILITY
CLAIMS. THESE CLAIMS COULD HARM OUR BUSINESS.
Business customers may sue us if any of the products that we sell are
defective, fail to perform properly or injure the user. Liability claims could
require us to spend significant time and money in litigation or to pay
significant damages. Any claims, whether or not successful, could seriously
damage our reputation and our business.
11
<PAGE>
WE INTEND TO DERIVE A PORTION OF OUR REVENUES THROUGH THE SALE OF ONLINE
ADVERTISING AT OUR WEB SITE. HOWEVER, THE EFFECTIVENESS OF AND DEMAND FOR THIS
TYPE OF ADVERTISING IS UNCERTAIN. ADVERTISERS MAY DETERMINE THAT ONLINE
ADVERTISING IN GENERAL AND ADVERTISING AT OUR SITE SPECIFICALLY IS NOT
DESIRABLE.
We expect to derive revenues from advertising. However, we may not be able
to generate these revenues as planned if the market for Internet advertising
does not continue to grow or we do not generate sufficient traffic of the type
attractive to Internet advertisers. The demand and market acceptance for
Internet advertising is uncertain. There are currently no standards for the
measurement of the effectiveness of Internet advertising, and the industry may
need to develop standard measurements to support and promote Internet
advertising as a significant advertising medium. If standards do not develop,
existing advertisers may not continue their levels of Internet advertising.
Advertisers in general may determine that Internet advertising does not market
their products and services as effectively as traditional media advertising.
Furthermore, advertisers that have relied upon traditional advertising media may
be reluctant to advertise on the Internet.
BECAUSE WE ARE A RELATIVELY SMALL BUSINESS, OUR ABILITY TO GROW WILL DEPEND ON
OUR ABILITY TO RECRUIT TALENTED PERSONNEL. THE MARKET FOR TALENTED PERSONNEL IN
THE INTERNET INDUSTRY IS VERY COMPETITIVE. WE MAY NOT BE ABLE TO HIRE THE
PERSONNEL WE NEED.
We are a relatively small company within our industry. As we grow, we will
need to hire and retain numerous, talented personnel to manage and support our
operations. We may not be able to hire talented employees in sufficient number
to support our intended growth. The market for talented personnel in the
Internet industry is extremely competitive. We may not be able to compete with
the compensation packages that larger Internet companies offer prospective
employees. In addition, prospective employees may be apprehensive to work for a
relatively small company.
Because we are a small company, we are currently dependent on the efforts
of a limited number of management personnel, including a small number of persons
possessing relevant e-commerce experience. Each member of our management team
supervises the operation and growth of one or more integral parts of our
business. We believe that, given the development stage of our business and the
large amount of responsibility being placed on each member of our management
team, the loss of the services of any member of this team at the present time
would harm our business.
OUR EXECUTIVE OFFICERS LACK SIGNIFICANT MANAGEMENT EXPERIENCE. FURTHER OUR
SYSTEMS AND RESOURCES ARE RELATIVELY LIMITED. BECAUSE OF THESE FACTORS, WE MAY
NOT BE ABLE TO EFFECTIVELY MANAGE OUR GROWTH.
We may not be able to effectively manage our growth. None of our executive
officers has significant experience in managing a company or overseeing a
company's rapid growth. The growth of our business may place a significant
strain on our management team. Further, because our systems and resources are
relatively limited, we will be required to expand these systems and resources as
we grow. Our inability to upgrade our existing technology and network
infrastructure to accommodate increased traffic at our web site could cause
decreased levels of customer service and satisfaction.
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<PAGE>
IF WE CANNOT DEVELOP CONSUMER AWARENESS OF OUR BRAND, "B2BSTORES.COM," WE WILL
NOT BE ABLE TO EFFECTIVELY GROW OUR BUSINESS. WE MAY NOT BE ABLE TO EFFECTIVELY
PROTECT OUR URL "WWW.B2BSTORES.COM." ANY INABILITY TO PROTECT THIS INTELLECTUAL
PROPERTY COULD HARM OUR BRAND NAME AND OUR BUSINESS.
In order to grow our business, we will have to develop awareness of our
"b2bstores.com"brand and our web site. We may not be successful in creating this
brand awareness. Despite planned expenditures of significant capital for
advertising our brand and web site, our marketing plan may not be effective. In
addition, if we fail to provide customers with quality products and services and
a high-level of customer satisfaction, our brand will suffer.
Our inability to protect our "b2bstores.com" domain name in particular may
adversely affect our business. We may be unable to prevent third parties from
acquiring Internet domain names that are similar to ours. We anticipate that
many web sites will use the term "b2b" as part of their URL or brand name.
Creating brand awareness for a brand containing the term "b2b" may prove
difficult if the markets confuse, or are unable to differentiate among, the
numerous web sites branded with the term "b2b."
THE EXTENT OF GOVERNMENT REGULATION ON INTERNET COMMERCE BUSINESSES SUCH AS OURS
IS CURRENTLY UNCLEAR. NEW REGULATIONS MAY BE ADOPTED THAT MAKE IT MORE DIFFICULT
AND COSTLY TO CONDUCT OUR BUSINESS, WHICH WOULD HURT OUR FINANCIAL RESULTS.
The laws governing Internet transactions remain largely unsettled. The
adoption or modification of laws relating to the Internet could increase our
cost of doing business or otherwise make it more difficult for us to operate as
we plan. We may not be able to afford to operate under stringent laws that may
be adopted with respect to e-commerce businesses. The growth and development of
e-commerce markets may result in the adoption of stringent laws governing
consumer protection and the taxation of e-commerce. In addition, it may take
years to determine whether and how existing laws such as those governing
intellectual property, privacy, libel, consumer protection and taxation apply to
business conducted through the Internet.
COMPUTER PROGRAMS AND MICROPROCESSORS THAT HAVE TIME-SENSITIVE SOFTWARE MAY
RECOGNIZE A DATE USING "00" AS THE YEAR "1900" RATHER THAN THE YEAR "2000," OR
NOT RECOGNIZE THE DATE AT ALL. THIS COULD RESULT IN SYSTEM FAILURES OR
MISCALCULATIONS.
We are currently reviewing whether the systems on which we rely are
vulnerable to potential errors and failures after December 31, 1999. If the
systems do experience these errors or failures, our operations could be
diminished or halted until the errors and failures are remedied. These errors
and failures could occur as a result of computer programs being written using
two digits, rather than four digits, to define the applicable year.
Specifically, some computer programs have time-sensitive software which
recognizes a date using "00," such as January 1, 2000, as January 1, 1900. This
type of error could result in system failures or miscalculations. The long-term
impact of any failure of this type is not certain. However, the impact could be
material, causing us to lose customers.
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<PAGE>
RISKS RELATING TO THIS OFFERING AND OUR COMMON STOCK
A SIGNIFICANT PORTION OF THE PROCEEDS OF THIS OFFERING ARE NOT ALLOCATED FOR A
SPECIFIC PURPOSE. ACCORDINGLY, WE WILL HAVE BROAD DISCRETION AS TO HOW THESE
PROCEEDS ARE APPLIED TO OUR BUSINESS AND WE MAY NOT APPLY THEM EFFECTIVELY.
FURTHER, WE WILL USE SOME OF THE PROCEEDS TO PAY DEBT OWED TO A PRINCIPAL
STOCKHOLDER OF THE COMPANY AND CASH BONUSES TO SOME OF OUR OFFICERS. THIS
PORTION OF THE PROCEEDS WILL NOT BE AVAILABLE FOR USE IN OUR BUSINESS.
Approximately $9,745,000 of the net proceeds of this offering will be used
for working capital and for general corporate purposes. Accordingly, our
management will have significant flexibility in applying these proceeds, which
they may not apply effectively. The failure of our management to apply these
funds effectively could have a material adverse effect on our business.
Additionally, approximately $300,000 of the net proceeds of this offering will
be used to repay debt owed to one of our principal stockholders. An additional
$130,000 will be used to pay cash bonuses to some of our officers that will be
due upon consummation of this offering. Accordingly, an aggregate of
approximately $430,000 of the net proceeds will not be available for use in
connection with the development of our web site and business operations.
UPON COMPLETION OF THIS OFFERING, OUR CHAIRMAN OF THE BOARD WILL CONTINUE TO
CONTROL B2BSTORES.COM. ACCORDINGLY, YOUR ABILITY AS A STOCKHOLDER TO INFLUENCE
THE MANAGEMENT OF B2BSTORES.COM WILL BE EXTREMELY LIMITED. HE IS ALSO CHAIRMAN
OF THE BOARD AND CHIEF EXECUTIVE OFFICER OF OUR PRINCIPAL STOCKHOLDER. HIS
INTERESTS, AT TIMES, COULD CONFLICT WITH THE INTERESTS OF B2BSTORES.COM AND OUR
STOCKHOLDERS.
Richard Kandel, our chairman of the board, is also chairman of the board
and chief executive officer of Enviro-Clean, a principal stockholder of
b2bstores.com. Mr. Kandel is deemed to beneficially own the shares of our common
stock he holds directly as well as the shares of common stock owned by other
entities he controls, including Enviro-Clean. Accordingly, Mr. Kandel
beneficially owns approximately 80.4% of our outstanding common stock prior to
this offering, and will own approximately 43.0% upon completion of this
offering. He will be in a position to significantly influence any matter put to
a vote of our stockholders, including with respect to the election of our
directors. As a result, your ability as a stockholder to influence the
management of b2bstores.com will be extremely limited.
Given his roles with both b2bstores.com and Enviro-Clean, Mr. Kandel's
interests, at times, could conflict with the interest of b2bstores.com and our
stockholders. Enviro-Clean maintains an online presence at www.b2bgoods.com and
through this web site sells products related to its janitorial and sanitary
maintenance operations. All of these products are also available through our web
site. In this regard, Enviro-Clean could be deemed a competitor of ours.
WE HAVE ISSUED AND WILL CONTINUE TO ISSUE OPTIONS AND WARRANTS TO PURCHASE OUR
COMMON STOCK IN ORDER TO ATTRACT PERSONNEL AND FINANCING TO OUR COMPANY. THE
EXERCISE OF THESE OPTIONS AND WARRANTS WILL INCREASE OVER TIME THE NUMBER OF
SHARES AVAILABLE IN THE MARKET. THIS WILL DILUTE YOUR PERCENTAGE OWNERSHIP AND
COULD DEPRESS OUR STOCK PRICE.
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<PAGE>
The exercise of options and other securities to purchase our common stock
may adversely affect the market price for our common stock and will dilute the
percentage ownership of our other stockholders. The dilutive effect upon the
exercise of these securities might also adversely affect our ability to obtain
additional capital. The holders of these securities may be expected to exercise
them when we would be able to obtain additional equity capital on terms more
favorable than these securities.
At the date of consummation of this offering, there will be outstanding
options to purchase 1,000,000 shares of our common stock. We also have
obligations under existing employment agreements which may cause us to grant
additional options to purchase up to 200,000 shares of our common stock under
our 1999 Performance Equity Plan during 2000. We also may grant options to
purchase up to an additional 1,800,000 shares of common stock under our plan and
other options and warrants to purchase common stock outside of the plan. We will
also issue warrants to the representatives to purchase up to 350,000 shares of
our common stock in connection with this offering.
THE VAST MAJORITY OF OUR COMMON STOCK OUTSTANDING PRIOR TO THIS OFFERING WILL
BECOME ELIGIBLE FOR SALE IN THE PUBLIC MARKET AT APPROXIMATELY THE SAME TIME.
SALES OF A LARGE NUMBER OF OUR SHARES IN THE PUBLIC MARKET COULD DEPRESS OUR
STOCK PRICE.
Substantially all of the 4,021,643 shares of our common stock outstanding
prior to this offering will be saleable under Rule 144 of the Securities Act
after June 2000, with the balance becoming saleable in August and September
2000. Although the holders of these shares of common stock have signed
agreements with the underwriters under which they are restricted from selling
the common stock during the 12-month period following consummation of this
offering, the underwriters may consent to the waiver of these restrictions at
any time without notice. Sales or the expectation of sales of a substantial
number of shares of our common stock in the public market could adversely affect
the prevailing market price of our common stock.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS. THESE STATEMENTS MAY PROVE
TO BE INACCURATE.
Some of the statements under "Prospectus Summary," "Risk Factors," "Plan of
Operations" and "Business" and elsewhere in this prospectus are forward-looking
statements that involve risks and uncertainties. These forward-looking
statements include statements about our plans, objectives, expectations,
intentions and assumptions that are not statements of historical fact. You can
identify these statements by words such as:
o "may," o "plans,"
o "will," o "expects,"
o "should," o "believes,"
o "estimates," o "intends"
and similar expressions. We cannot guarantee our future results, performance or
achievements. Our actual results and the timing of corporate events may differ
significantly from the expectations discussed in the forward-looking statements.
You are cautioned not to place undue reliance on any forward-looking statements.
15
<PAGE>
USE OF PROCEEDS
Assuming an offering price of $10.00 per share, we estimate that we will
receive net proceeds from this offering of approximately $30,675,000. If the
underwriters exercise their over-allotment option in full, the net proceeds will
be approximately $35,373,750. In either case, the net proceeds will reflect
underwriting discounts and commissions and other expenses payable by us. We
estimate that these discounts, commissions and expenses will be an aggregate of
approximately $4,325,000 or $4,876,250, if the over-allotment option is fully
exercised.
We intend to use the net proceeds as set forth below. The information
regarding our use of the proceeds assumes no exercise of the over-allotment
option.
<TABLE>
<CAPTION>
APPLICATION OF PROCEEDS AMOUNT PERCENT
- -------------------------------------------------------------------------- ----------- -------
<S> <C> <C>
Sales and marketing....................................................... $18,000,000 58.7%
Development of our web site and customer support operations............... 2,500,000 8.1
Repayment of debt to principal stockholder................................ 300,000 0.9
Payment of bonuses to officers............................................ 130,000 0.4
Working capital and general corporate purposes............................ 9,745,000 31.9
----------- -----
Total.................................................................. $30,675,000 100%
----------- -----
----------- -----
</TABLE>
We intend to use approximately $18,000,000 of the net proceeds for sales
and marketing activities and operations. An important part of these activities
will be the development of the "b2bstores.com" brand and promotion of our web
site and product and service offerings. These activities include:
o the advertising of our web site in trade journals and
magazines,
o direct mailings to businesses,
o online marketing initiatives,
o the hiring of sales and marketing personnel, and
o the making of up-front payments that may be required by
fulfillment agents prior to their actual delivery of products
to our customers.
We intend to use approximately $2,500,000 of the proceeds for the continued
technological development of our web site, including:
o the in-house development of proprietary software and related
technologies,
o the hiring of design and technology personnel,
o the purchase or leasing of hardware and third-party
technologies that we believe will enhance our web site's ease
of use and sense of community, and
o the expansion of our customer support operations, including our
24-hour customer service telephone operations and live, online
customer service chat area.
We will use approximately $300,000 of the net proceeds to repay loans made
to us by Enviro-Clean, one of our principal stockholders. These loans were made
in the aggregate principal amount of approximately $290,000 in June, July and
November 1999. They bear interest at the annual rate of 8%. All principal and
interest is payable by us on the earlier of (a) December 31, 1999, and (b) the
date this offering is consummated.
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<PAGE>
We will use approximately $130,000 of the net proceeds to pay cash bonuses
to some of our officers. These payments are required under their employment
agreements.
We intend to use the remaining net proceeds for working capital and general
corporate purposes. These purposes may include:
o the payment of salaries of additional management and
back-office personnel,
o expenditures of capital for the expansion of our financial and
accounting infrastructure; and
o considerations paid for acquisitions, investments or strategic
alliances domestically or abroad which have not yet been
identified.
Our management will have broad discretion in allocating the proceeds to be
applied for working capital and general corporate purposes. If the underwriters
exercise their over-allotment option in full, we intend to use the net proceeds
from the sale of the shares sold under of the over-allotment option for working
capital and general corporate purposes.
Based upon current plans and assumptions relating to our business plan, we
anticipate that the net proceeds of this offering will satisfy our capital
requirements for at least the 18-month period following the consummation of this
offering. However, if our plans change or our assumptions prove to be
inaccurate, we may need to seek additional financing sooner than currently
anticipated or curtail our operations.
Pending application of the net proceeds as described above, we intend to
invest the net proceeds in:
o short-term, interest-bearing investment grade securities,
o money market accounts,
o certificates of deposit, or
o direct or guaranteed obligations of the United States
government.
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<PAGE>
DILUTION
A company's net tangible book value is equal to its total tangible assets,
minus its total liabilities. A company's net tangible book value per share is
calculated by dividing its net tangible book value, by the total number of
shares of common stock outstanding. As of August 31, 1999, we had a net tangible
book value of $398,183, or approximately $.10 per share of common stock.
As of August 31, 1999, after adjusting for the issuance of 3,500,000 shares
of our common stock in this offering, our as adjusted net tangible book value
would have been approximately $30,990,470, or approximately $4.13 per share of
common stock. This adjustment assumes a per-share offering price of $10.00. Upon
completion of this offering, there will be an immediate increase in our net
tangible book value of approximately $4.03 per share of common stock to existing
stockholders and an immediate dilution of approximately $5.87 per share, or
approximately 59%, to new investors.
The following table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................................. $ 10.00
Net tangible book value per share as of August 31, 1999................ .10
Increase per share attributable to sale of shares in this offering..... 4.03
---------
As adjusted net tangible book value per share of common stock after this
offering..................................................................... 4.13
---------
Dilution per share of common stock to investors in this offering................ $ 5.87
---------
---------
</TABLE>
Assuming the exercise in full of the underwriters' over allotment option,
the as adjusted net tangible book value of our company at August 31, 1999 would
have been approximately $4.45 per share. This represents an immediate increase
in net tangible book value of $4.35 per share to our company's existing
stockholders and an immediate dilution in net tangible book value of $5.55 per
share to new investors.
The next table summarizes, as of August 31, 1999:
o the number and percentage of shares of common stock purchased from
b2bstores.com,
o the amount and percentage of the cash consideration paid for those
shares, and
o the average price per share paid by existing stockholders and by new
investors in this offering.
The information in the table assumes an initial public offering price of $10.00
per share. It does not give effect to underwriting discounts and offering
expenses that we will pay in connection with the offering.
<TABLE>
<CAPTION>
TOTAL CASH
SHARES PURCHASED CONSIDERATION AVERAGE
----------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 4,000,000 53.3% $ 636,000 1.8% $ 0.16
New investors............. 3,500,000 46.7% 35,000,000 98.2% 10.00
----------- ----- ----------- -----
Total.................. 7,500,000 100.0% $35,636,000 100.0%
----------- ----- ----------- -----
----------- ----- ----------- -----
</TABLE>
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of August 31, 1999 on
an actual and as adjusted basis. The "As Adjusted" column shows our
capitalization adjusted to reflect:
o the issuance of 3,500,000 shares in this offering at an assumed
public offering price of $10.00 per share,
o the repayment of all of our short-term debt, and
o the payment of cash bonuses to some of our executive officers that
will be due upon completion of this offering.
<TABLE>
<CAPTION>
AUGUST 31, 1999
---------------------------
ACTUAL AS ADJUSTED
---------- --------------
<S> <C> <C>
Short-term debt................................................................. $ 179,836 $ --
---------- ------------
---------- ------------
Stockholders' equity:
Preferred stock, par value $0.01 per share, 5,000,000 shares authorized; no
shares issued, actual and as adjusted..................................... $ -- $ --
Common stock, par value $0.01 per share, 25,000,000 shares authorized;
4,000,000 issued and outstanding, actual; and 7,500,000 shares issued and
outstanding, as adjusted.................................................. 40,000 75,000
Additional paid-in capital................................................... 2,497,500 33,137,500
Deficit accumulated during development stage................................. (2,086,866) (2,222,030)
---------- ------------
Total stockholders' equity................................................ 450,634 30,990,470
---------- ------------
Total capitalization...................................................... $ 450,634 $ 30,990,470
---------- ------------
---------- ------------
</TABLE>
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<PAGE>
PLAN OF OPERATIONS
OVERVIEW
We commercially introduced our web site, b2bstores.com, in September 1999.
Since its introduction, our web site has provided our customers with the ability
to purchase online business products and supplies in a growing number of
categories.
In addition to regularly adding new categories of available products, we
are currently in the process of expanding our web site to provide our customers
with access to:
o online auctions;
o business referral services; and
o business information and content.
We expect to be providing commercial access to each of these areas through our
web site by the end of the first quarter of 2000. We may, however, encounter
problems or unexpected costs in connection with the introduction of any of these
areas as described below.
EXPANSION OF OUR PRODUCT CATEGORIES
We regularly seek to expand our product categories by establishing
relationships with additional fulfillment agents. These fulfillment agents are
vendors that actually supply the products purchased by our customers through our
web site. The terms of any agreement governing a relationship with a new
fulfillment agent must be negotiated and will vary on a case-by-case basis. If
we cannot negotiate agreements on commercially reasonable terms, we will not be
able to expand our product offerings. Further, in each instance where we are
able to establish a relationship with a new fulfillment agent, we must integrate
that agent's electronic inventory and ordering system with the e-commerce system
used by our web site. To successfully integrate our respective systems, we must
work closely with the personnel of technology suppliers to the fulfillment
agent. This integration can be time consuming. Although we are not required to
make any advance payments under our existing fulfillment arrangements, these
type of payments could be required under future arrangements.
IMPLEMENTATION OF AUCTION FUNCTIONS
We are currently integrating the necessary technology to provide online
auctions at our web site. The technology we are using for the auction functions
is being developed internally. Our auction functions are currently in beta
testing. Once commercially available, our auction functions will provide our
customers with utility only to the extent other customers place items up for
auction. Accordingly, we will have to spend material amounts of time and capital
to market and promote our web site's auction functions. We will face intense
competition from established web sites that provide auction access to users.
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<PAGE>
INTRODUCTION OF BUSINESS SERVICE REFERRALS
We are currently negotiating with providers of financial services,
accounting services, legal services and other services to serve as service
providers to customers at our web site. We are spending significant time in
connection with our efforts to assemble a group of service providers willing to
utilize our web site for the promotion of their services. For each provider, we
must negotiate the terms of our referral relationship, including the amount of
commission to be paid to us for each customer we refer. Some industries, such as
the financial services industry, may have stringent guidelines relating to the
payment of commissions for referral services. We must ensure in each instance
that we are in compliance with these guidelines. Additionally, in each case, we
must design and integrate into our web site a link to the web site of the
service provider. This will require us to expend significant time and capital.
PROVISION OF BUSINESS INFORMATION AND CONTENT
We have already begun to provide business information and other content to
our customers. This information is supplied by third-party content providers. We
are required to pay a fee for the content we make available through our web
site. We intend to expand our roster of content providers and the information
available through our web site. The arrangement we have with each content
provider varies on a case-by-case basis.
SOURCES OF REVENUE
We believe that we will derive our revenues from the following sources:
o product sales;
o service referral fees and commissions;
o advertising; and
o "click through" fees.
PRODUCT SALES
We sell products from our expanding catalog of products -- from cleaning
products to office supplies to computers. We also intend to provide our business
customers with the ability to purchase ancillary products such as flowers,
collectibles and vacation packages. We expect a substantial majority of our
revenue to come from the online sale of products. We intend to account for each
product sold through our web site as a sale by us directly to our business
customer. The entire amount paid for the product by customer is accounted by us
as revenue.
SERVICE REFERRAL FEES
We will provide our business customers with access to a broad range of
business services. Subject to regulation in applicable industries, we will
generate revenues from our service referral activities through the collection of
commissions and referral fees from the service providers to which we direct our
business customers.
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<PAGE>
ADVERTISING REVENUE
Revenue from advertising on the Internet is driven by the size and quality
of a web site's audience. We believe that our target audience -- business
customers -- will give us the ability to structure attractive transactions with
advertisers. Advertising revenue, if any, will be earned from:
o the sale of advertising banners,
o the placement of pop-up windows and
o the sale of other sponsorship or promotional rights placed on our web
site. We believe that advertising on our web site will be an
important source of our revenue in the future.
In order to effectively sell advertising on our web site, we believe we
will need to consistently achieve more than 1,000,000 hits per month. As of
November 30, 1999, our monthly run rate for hits is approximately 40,000.
The rates that we charge our advertisers for the placement of the
advertisements at our web site will range from $0.005 to $0.02 per hit, based
upon the amount of advertising purchased and the relative placement of such
advertising within our web site. During the term of our agreement with
Netgateway, we are obligated to share equally with Netgateway all advertising
revenue generated through our web site.
"CLICK-THROUGH" REVENUE
We will participate in affiliate programs with online retail partners by
placing "click-through" tags in our web site. When a business customer points
his or her mouse to one of these click-through tags and clicks the mouse, he or
she will be brought to the e-commerce web site of one of our retail partners.
Our click-through tags will allow us to generate revenues through the collection
of sales commissions from our click-through retail partners. Commissions from
our click-through initiatives will vary. During the term of our agreement with
Netgateway, we are obligated to share equally with Netgateway all revenues
generated through our "click-through" arrangements.
EXPENSES
Our expenses are composed of:
o salaries;
o sales and marketing costs;
o costs of products;
o web site and technology development costs;
o customer satisfaction operations; and
o general and administrative costs.
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<PAGE>
SALARIES
We believe that there are four key components to our success. They are:
o effective marketing of our web site to vendors, advertisers and
business customers;
o efficient management of fulfillment agents, which are the entities
that will supply and distribute products purchased at our web site;
o availability of useful and attractive web site features and
leading-edge technology; and
o effective execution of our operations.
In order to excel in all of these areas, we must hire talented personnel.
Competition for qualified, experienced personnel in the high-tech market is
intense. In order to compete effectively in this labor market, we must provide
generous compensation plans. Accordingly, we will incur significant expense in
hiring and retaining the personnel we need to grow our business.
SALES AND MARKETING COSTS
We will use a significant portion of the proceeds of this offering for our
sales and marketing activities. These activities will be extremely important to:
o the development of our brand name,
o the creation of traffic to our web site, and
o the promotion of our business, products and services.
We will incur significant expenses in connection with:
o advertising,
o promotional and public relations activities,
o merchandising,
o market research and consultancy, and
o customer database management.
COSTS OF PRODUCTS
Product orders are actually fulfilled by one of our fulfillment agents,
which charges us a negotiated price for the product. Generally, upon shipment of
a product from one of our fulfillment agent's premises, we assume title to the
product. Accordingly, risk of loss is assumed by us until the product is
received by our customer. The amounts we are charged by our fulfillment agents
for the products we purchase from them are expensed by us as part of our cost of
sales.
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<PAGE>
WEB SITE AND TECHNOLOGY DEVELOPMENT COSTS
Competition for user traffic among business-related web sites is intense.
Web sites can differentiate themselves from others by providing users with an
online experience that is easy, efficient and useful. By providing an online
experience that is also informative and entertaining and visually pleasing, web
sites can increase the percentage of first time users that return to the web
site again. The quality of the online experience is directly related to the
underlying technologies utilized by the web site. This technology includes:
o web site content,
o design,
o operational software,
o transaction processing systems, and
o telecommunications infrastructure.
We will be required to consistently update our hardware and software systems in
order to deliver leading-edge technical solutions on our web site and provide
users with an online experience superior to that provided by competitors.
Accordingly, we will incur significant ongoing expense with respect to our
technology.
Currently, we rely heavily on Netgateway for our technical infrastructure
and to host and deliver our web site. For these services we paid Netgateway an
up-front fee, with additional nominal operating fees payable to Netgateway based
on the number of hits on our web site. We also are required to pay Netgateway a
small percentage of all revenues generated from sales processed through our
e-commerce backbone. The percentage we must pay varies according to sales
volume. We must pay this percentage for sales of products by us and sales by
other web sites to which we provide vendor management or processing services.
We believe that by initially outsourcing a large portion of our technology
infrastructure, we will be able to reduce the up-front costs associated with
constructing and expanding a complex e-commerce and business information
community, pay for a large portion of the services provided by third-party
technology providers only as we generate revenues from our web site, and harness
the proven experience of these technology providers. Over time, as our web site
and operations mature, we intend to internally develop or otherwise internalize
a significant portion of the technology used to operate our business.
CUSTOMER SATISFACTION OPERATIONS
In order to effectively compete with traditional retailers, as well as
overcome any hesitancy potential customers may have in purchasing products over
the Internet, we have implemented a customer satisfaction program. We believe
that most e-commerce companies do not provide users with real customer service.
We intend to differentiate our web site from other business web sites by
providing live, attentive customer service. Our customer satisfaction system
manages customer service issues 24 hours a day, seven days a week both in person
and online. We will incur substantial ongoing costs in connection with the
24
<PAGE>
operation of this system, including fees payable to companies to which we
outsource parts of our customer satisfaction program.
As part of our customer satisfaction program, we plan to offer customers
the guarantee that they will get the products they ordered, in a timely fashion,
and in working order. If our customers are dissatisfied with a product, they
will have 30 days to return it, and we will refund their money. Accordingly, we
may be required to make significant reserves for returns and to defer
recognition of revenues for periods of time.
GENERAL AND ADMINISTRATIVE COSTS
We will incur significant expense in connection with the salary, benefits
and staff costs for general management and administrative employees, costs
relating to our facilities and professional services.
RESULTS OF OPERATIONS
We have a very limited operating history and our activities to date have
been limited to launching our service, establishing relationships with
e-commerce partners and refining our product presentation. As a result, our
historical financial information is not necessarily indicative of our future
financial performance.
We have cash commitments of approximately $897,000 during 2000 and $972,000
during 2001. These commitments arise under:
o our agreements with our officers; and
o operating leases.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, our working capital requirements have been satisfied
through:
o capital contributions by our current stockholders, including Richard
Kandel, our chairman of the board, and Enviro-Clean of America Corp.,
a principal stockholder of b2bstores.com and
o loans made to us by Enviro-Clean.
In June 1999, we sold 3,666,667 shares of our common stock to Mr. Kandel,
Enviro-Clean and others for $27,500 in the form of $11,000 cash and the transfer
to us of all right, title and interest in www.b2bstores.com and all related
assets, including intellectual property.
In June, July and November 1999, Enviro-Clean made loans to us in the
aggregate principal amount of approximately $290,000. These loans bear interest
at the rate of 8% per annum and are repayable on the earlier of
(a) December 31, 1999 and (b) the date this offering is consummated.
In August 1999, we raised proceeds of $625,000 through the sale of 333,333
shares of our common stock to Mr. Kandel and other affiliates of Enviro-Clean at
$1.88 per share.
In September 1999, we issued:
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o an aggregate of 16,643 shares of our common stock to various persons
in consideration of accounting services rendered by them to us during
our start-up phase.
o 2,500 shares of our common stock to each of John Higgins and Phillip
Ellett in consideration of their becoming directors of our company.
Our working capital at August 31, 1999 was $365,849. Our independent
certified public accountants' report for the period from our inception on
June 28, 1999 through August 31, 1999 states that our limited working capital
position prior to our receipt of the net proceeds of this offering raises
substantial doubt about our ability to continue as a going concern. Accordingly,
the continuation of our operations is dependent upon our receipt of the net
proceeds of this offering. Based upon current plans and assumptions relating to
our business plan, we anticipate that the net proceeds of this offering, will
satisfy our capital requirements for at least the 18-month period following the
consummation of this offering.
SEASONALITY
Although we have a limited operating history, we expect to experience
seasonal variations in our e-commerce and advertising revenue, especially during
the summer period, when user traffic levels are expected to decline. Our
e-commerce revenue may be affected by stronger consumer goods sales during the
fourth calendar quarter of the year. In addition, our advertising revenue may
experience the same seasonal and cyclical patterns as those in traditional
media, where advertising increases ahead of the year-end holiday buying season.
YEAR 2000 COMPLIANCE
Many existing computer programs use only two digits to identify a year.
These programs were designed and developed without addressing the impact of the
upcoming change in the century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond the year
2000. We utilize software, computer technology and other services internally
developed and provided by third-party vendors that may fail due to the year 2000
problem. We also depend on telecommunications providers to maintain network
reliability.
Our year 2000 compliance program covers proprietary and internal systems as
well as third party systems.
PROPRIETARY AND INTERNAL SYSTEMS
Our program involves the following phases:
Systems Review. We are in the process of doing a comprehensive review of
all internal financial, informational and operational systems. To date, we have
not found any year 2000 problems.
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Testing. This phase involves defining test plans, establishing a test
environment, developing test cases, performing testing and certifying and
documenting the results. We expect to complete testing by December 1999.
Contingency Planning. This phase involves reducing the risk of year
2000-induced business disruption by confirming that we are able to produce a
minimum acceptable level of service in the event of internal or external
critical systems failure. We expect to complete contingency planning by December
1999.
THIRD PARTY SYSTEMS
Third parties provide and support much of our service. A large part of our
year 2000 program involves confirming that these third party systems are year
2000 compliant. In particular, we depend on telecommunications providers to
maintain network reliability and Netgateway to manage the computer servers for
our web site. Netgateway has informed us that it has completed the evaluation of
its own internal year 2000 compliance and that it believes it is year 2000
compliant.
YEAR 2000 COMPLIANCE COSTS
We have not incurred any costs to date in connection with revising our
systems to ensure that they are year 2000 compliant. We do not expect to incur
any significant costs in connection with our ongoing efforts to ensure that our
systems and the systems of our third-party technology suppliers are year 2000
compliant.
YEAR 2000 RISKS
There can be no assurance that we will be completely successful in our
efforts to address year 2000 issues in our proprietary and internal systems. In
addition, we depend significantly on a number of third parties. An extended year
2000-related disruption could cause our business customers to seek alternative
web sites or cause an unmanageable burden on our technical and customer support
services. This could materially and adversely affect our business, financial
condition and results of operations.
In addition, there can be no assurance that governmental bodies, utility
companies, Internet access companies and others outside of our control will be
year 2000 compliant. The failure by such entities to be year 2000 compliant
could result in a systemic failure beyond our control, such as prolonged
Internet, telecommunications or electrical failure. This could prevent us from
delivering our services to our customers and decrease the use of the Internet or
prevent users from accessing web sites. This could materially and adversely
affect our business, financial condition and results of operations.
It is likely that the computer equipment used by some of our business
customers may not be year 2000 compliant. As a result, some of our business
customers may not be able to access our service for some time during the
beginning of 2000 which may result in a decrease in the number of our active
registered accounts and in our revenue generally.
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BUSINESS
GENERAL
b2bstores.com is an Internet web site specifically designed to assist
business customers in the operation and development of their businesses. Our
objective is to become a leading, one-stop Internet destination that enables
business customers to conduct e-commerce, communications and other online
interaction with their customers, suppliers and colleagues.
The concept for b2bstores.com was created by Richard Kandel. Mr. Kandel
offered the "b2bstores.com" concept to Enviro-Clean. However, the board of
directors of Enviro-Clean determined that Enviro-Clean would not focus its
business operations on the concept. In turn, Mr. Kandel was given permission by
Enviro-Clean to form b2bstores.com. b2bstores.com was formed in June 1999. In
exchange for a nominal contribution to capital and the transfer to b2bstores.com
of any right or title Enviro-Clean would otherwise have in b2bstores.com,
Enviro-Clean was issued 2,000,000 shares of our common stock.
OUR OPPORTUNITY
THE GROWTH OF THE INTERNET
The Internet is a mass communications medium, enabling millions of people
worldwide to share information and interact with one another. This ability to
interact serves to create community among individuals with similar interests and
objectives. In August 1999, Jupiter Communications projected that the number of
Internet users in the United States will grow from 100 million in 1999 to
150 million in 2003.
The interactive nature of the Internet allows online merchants to
communicate effectively with one another, and with customers, and allows
advertisers to target customer bases having specific demographic characteristics
and interests. As a result, the Internet is emerging as an attractive, and in
many cases, preferred medium for the transaction of business, including
e-commerce activities. In November 1998, Forrester Research projected
business-to-business e-commerce to grow from $100 billion in 1999 to
$1.3 trillion in 2003.
THE ADVENT OF BUSINESS WEB SITES
We believe that businesses have historically had to go to a number of
separate, traditional sources to obtain the products, supplies, services and
information necessary for their operations. Similarly, they have used a variety
of traditional channels, such as trade magazine, trade shows, buyer's guides,
direct mail initiatives and trade journals for the advertising and marketing of
their products and services. While these traditional channels have historically
served a valuable purpose in facilitating commerce, information delivery and
communication, they have inherent inefficiencies. These inefficiencies include
the following:
o trade magazines have limited circulation and are not published in
real-time;
o trade shows are held infrequently and are expensive for attendees and
exhibitors;
o buyer's guides are cumbersome to search and provide limited depth of
product and vendor content;
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o direct mail responses often provide limited information about the
prospective customer; and
o trade journal advertising can be cost prohibitive for smaller
advertisers.
Businesses are now increasingly utilizing the Internet as a valuable tool
to access customers and suppliers, to communicate with partners and to operate
more efficiently. Currently, the vast majority of business web sites focus on
the offering of one of the following three types of solutions:
o Product sites. These web sites focus primarily on the online sale
of products. Many of these web sites historically have focused on
computer hardware and software, with limited diversification into
other products. These web sites are often designed for the retail
consumer, with little specialization in products intended for
business customers.
o Service referral sites. These web sites focus primarily on the
referral of business customers to services provided by other
companies. We believe that most of these web sites historically have
functioned as simple directories and have offered referrals in only a
limited number of business categories to business customers in a
limited number of geographical locations. Typically, the listings on
these web sites have no detailed information about the businesses to
which they are referring business customers.
o Business content sites. These web sites primarily offer business
customers access to a wide array of articles, information and news
services that are aimed at the business customer. These web sites
seek to generate revenues through the sale of business information
and by attracting high-volume traffic and then leveraging this
traffic into advertising revenue.
We believe that b2bstores.com will provide business customers with the
combined abilities to purchase a broad range of quality products, access a wide
variety of business-related services and research comprehensive business
information, all at a single, user-friendly web site.
OUR OBJECTIVE AND STRATEGY
We are creating an easy-to-use Internet web site that provides our business
customers with access to quality products and supplies, a premier network of
business services and a broad menu of business content. Our objective is to
become a leading one-stop Internet destination for business customers--a place
where they conduct their business-to-business transactions, build relationships
with customers, suppliers and colleagues, and conduct their business-related
research. The key elements of our strategy include:
CREATING AWARENESS OF THE B2BSTORES.COM BRAND. It is imperative that we
create awareness of the b2bstores.com brand in order to attract business
customers to our web site, garner advertisers for our web pages and place our
company in a favorable position when creating our relationships with vendors and
other fulfillment partners. We intend to conduct extensive marketing activities,
including the placement of advertisements online and in print publications such
as trade journals, in order to create and enhance awareness of the b2bstores.com
brand. Our marketing efforts strive to present b2bstores.com as an enjoyable,
easy-to-use Internet web site that helps businesses work more efficiently and
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cost effectively. We intend to use a significant portion of the proceeds of this
offering to build awareness of our brand and drive traffic to our web site.
EXPANDING OUR PRODUCT OFFERINGS. We regularly seek to expand our product
offering categories and the breadth of products available in these categories
through the creation of relationships with vendors and distributors. We
anticipate that the sale of products and supplies through our web site will
account for the majority of our revenues. We also will be introducing auction
capabilities to our web site. Auctions will allow us to increase the types of
products available at b2bstores.com and provide our business customers with the
opportunity to transact business directly with one another. We believe that one
of b2bstores.com's competitive strengths will be our highly diverse product mix,
allowing us to offer low margin commodity products as well as higher-margin
specialty goods.
CREATING AND EXPANDING OUR BUSINESS REFERRAL SERVICES. In the first
quarter of 2000, we will begin to offer our business customers access to many
business services on a referral basis. It is currently anticipated that these
service will include 401(k) consulting; accounting; insurance; advertising;
leasing services; brokerage services; legal services; and telecommunications
services. Our customers will be able to research service providers and interact
with them and, in many cases, engage their services without leaving our web
site.
CREATING MARKETING AND DISTRIBUTION ALLIANCES. In order to increase the
number of business customers that visit our web site, and to enhance our product
and service offerings and e-commerce infrastructure, we are actively pursuing
relationships with:
o providers of business, business related and ancillary products;
o suppliers of industry specific raw materials and raw goods;
o providers of business and professional services;
o proprietary online services;
o operators of leading Internet portals; and
o producers of Internet content.
ENHANCING WEB SITE UTILITY THROUGH THE CREATION OF COMMUNITY AND THE
PROVISION OF BUSINESS CONTENT. Our web site strives to create community among
our business customers and their customers, suppliers and colleagues. Our web
site's community and business information functions are designed to provide easy
interaction between the business customer and the web site, and the business
customer and other business customers. Our web site also will provide our
business customers with access to highly specific information and interactive
capabilities that would be impossible or cost prohibitive to provide in other
mediums, such as trade journals or broadcast.
CREATING AND EXPLOITING ADVERTISING REVENUE OPPORTUNITIES. Our web site
is specifically designed for business customers and we will spend a significant
amount of capital on marketing efforts designed to drive business customer
traffic to our site. We believe that a concentrated user base of business
customers will possess characteristics highly desirable to business-to-business
advertisers, and will differentiate our web site from most other e-commerce web
sites.
ACQUIRING COMPLEMENTARY CONTENT AND TECHNOLOGY. We will regularly seek to
acquire business content and e-commerce technologies that are complementary to
our business focus and community objective. We may acquire content and/or
technologies
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through the purchase of assets or the acquisition of companies possessing these
assets. We may pay for any asset purchase or acquisition in cash, through the
issuance of our securities or a combination of cash and securities.
THE B2BSTORES.COM WEB SITE
Our web site moves business-to-business transactions and other business
operations away from traditional modes to the Internet. Our web site is designed
as a community mall--a place where business customers can visit a "virtual
storefront" or product category of their choice, seek out services from
professionals, research issues important to their business and meet and
communicate with customers, suppliers, colleagues and competitors. We strive to
make our web site user friendly and to create an experience that is highly
useful, efficient, enjoyable and informative for the business customer.
PRODUCT CATEGORIES
Our business customers have access to a growing number of product
categories online. The products in these categories are sold by us. All product
fulfillment will be done through our vendors and other third parties. We believe
that there are numerous sources of products for each of our product categories.
The various product catalogs available at our web site are designed to be
visually attractive, informative and easy to use. Our online product catalogs
provide our vendors with the ability to monitor and evaluate e-commerce
activity, and provide our web site advertisers with the ability to track the
number of visitors and leads generated from a particular catalog, product
category or banner advertisement.
We currently offer business and business-related products in the following
categories:
<TABLE>
<S> <C>
o office supplies o safety and industrial supplies
o janitorial supplies o desktop computer systems
o computer supplies o computer peripherals, such as
o notebook computer systems monitors and disk drives
o software o financial products, such as mutual
o office furniture funds
</TABLE>
During 2000, we intend to expand our product offerings to include the
following additional categories:
<TABLE>
<S> <C>
o books o music
o printing supplies o pre-paid calling cards
o promotional products o executive travel accessories
o time management products o fitness products
o videos o stationery
o travel o magazine subscriptions
</TABLE>
Enviro-Clean is one of our fulfillment agents for janitorial and sanitary
maintenance products offered through our web site. All Enviro-Clean products
purchased through our web site are distributed directly to our customers by
Enviro-Clean through this fulfilment relationship. See the section of this
prospectus entitled "Certain Transactions" for a description of this
relationship.
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SERVICE REFERRALS
The operation of a business requires not only the purchase of supplies and
business products, but also the use of professional services. In the first
quarter of 2000, we will begin to offer our business customers online access to
business and professional services on a referral basis. The service categories
will include, among others, the following:
<TABLE>
<S> <C>
o 401(k) consulting and products o event planning services
o accounting services o human resources consulting
o advertising agencies o insurance brokerage services
o leasing services o Internet service providers
o legal services o brokerage services
o commercial real estate brokerages o telecommunications services
o computer networking services o marketing agencies and services
o e-commerce merchant hosting o computer repair services
services through which businesses o payroll services
can have their e-commerce initiatives handled o executive recruiters
by third-party providers
</TABLE>
BUSINESS CONTENT AND COMMUNITY
We believe that the creation of an active online community at our web site
and the provision of valuable business information will create loyalty among our
business customers and promote repeat visitation and web site use. We are
designing our web site to provide business customers with access to:
o information and reviews relating to products and services offered
through our web site;
o e-commerce tools and solutions to help business customers buy and
sell products and services through the Internet efficiently and
cost-effectively;
o industry specific news and publications;
o chat rooms and bulletin boards, where industry specific and general
topics relevant to the community interest are discussed;
o an events calendar, which publishes the dates, time and other
relevant information relating to events that are important to web
site users, such as trade shows and online chat sessions.
o a personal calendar, which is a customizable interactive calendar
that allows the business customer to schedule and keep track of
important dates, times and other information and receive e-mail
reminders;
o classified advertisements, where job listings and other business
relevant advertising may be placed and reviewed;
o educational resource centers;
o up to the minute national and regional news;
o stock quotes;
o yellow and white page directory services;
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o business products and services auction web site;
o franchise and other business opportunities; and
o trade association newsletters and information.
SALES AND MARKETING
SALES AND DISTRIBUTION
When an order is placed at our web site, the order is electronically
processed by our systems and then forwarded to the inventory management system
of one of our fulfillment agents. Our fulfillment agent then packages and
delivers the order to the business customer. We bill the business customer
directly and collect the purchase price. We pay our fulfillment agents directly
for their services and supplies.
Business services accessible through our web site will be provided to our
business customers by third-party professionals and other businesses. Subject to
regulation in applicable industries, we will generate revenues from our service
referral activities through the collection of commissions and referral fees from
the service providers to which we direct our business customers.
As is the case with most web sites, we also will place "click-through" tags
in our web site. When a business customer points his or her mouse to one of
these click-through tags and clicks the mouse, he or she will be brought to the
e-commerce web site of one of our retail partners. These click-through tags will
allow b2bstores.com to generate revenues through the collection of sales
commissions from our click-through retail partners.
MARKETING
We will use a variety of marketing programs to increase awareness of the
"b2bstores.com" brand and to drive traffic to our web site. Our marketing
strategy contains a mix of print advertising, outbound e-mail, telemarketing,
new media banner campaigns, trade shows and direct mail. We also will
participate in industry specific events, industry association activities and
partnerships with interactive services companies.
An important part of our strategy to drive traffic to our web site is to
market our web site through online advertising and hyperlinks maintained by
other Internet companies. If we cannot secure or maintain marketing agreements
with other Internet companies, our business will be harmed. We may not be able
to enter into marketing agreements with these companies on favorable terms or at
all. Web sites that also seek to sell products and services to businesses may be
unwilling to advertise our web site. In addition, other e-commerce companies
that advertise on popular web sites may have exclusive advertising relationships
with these web sites or may otherwise object to our attempts to enter into
marketing agreements with these web sites.
TECHNOLOGY
We have entered, and continue to seek to enter, into relationships with
technology providers in connection with the development, operation and
maintenance of our web site. We rely on Netgateway for the design, development,
maintenance and hosting of our web site. As part of this relationship, we also
have use of Netgateway's state-of-the-art data center and its experienced staff
of software and e-commerce technology developers.
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In conjunction with our original agreement with Netgateway, we recently
entered into a development agreement with Netgateway. Under this ancillary
agreement, our internal technology personnel are able to customize the
Netgateway technology we currently use for applications relating to our web site
and related business. All customization and improvements created in connection
with this agreement will be owned by Netgateway. Upon the termination of our
agreements with Netgateway, we will retain a perpetual license to utilize the
modifications we develop in the operation of our web site and business.
We are assembling a staff of in-house designers and programers to
continually add functionality to our site. Our technology staff updates our
site's look and feel, and ensures that all content stays current and useful. We
believe that an internal technology staff will enable us to address specific
customer requirements for functionality, as well as handle custom integration
issues which may arise from large vendor partners or business customers.
In structuring our technology backbone, we ensure that the resulting
platform has the following characteristics:
SCALABILITY. We require our backbone to be scalable for the rapid
deployment of functions, features and content as required to meet the demand of
our business customers while maintaining desired performance standards. In the
rapidly changing Internet environment, the ability to update an application to
stay current with new technologies is important. Our site system and related
technologies allow for the addition, modification, or replacement of web site
based applications in a cost-efficient and expeditious manner.
RELIABILITY AND SECURITY. We use leading-edge software to protect our web
servers. The majority of our hardware and software is maintained by Netgateway,
which provides us with professional data center hosting facilities and redundant
high-speed Internet connectivity. Netgateway monitors and supports our systems
24 hours a day, seven days a week. We also are currently developing our own
content and web site management tools to facilitate the maintenance and updating
of our web site.
We must ensure that our business customers do not experience significant or
frequent disruptions in their access to our web site. Web site failures could
result in loss of existing customers and opportunities to garner additional
customers. Our business also is highly dependent on our systems to process, on a
daily basis, transactions across numerous and diverse markets. We rely heavily
on our data processing systems, as well as our telecommunications systems. If
any of these systems do not operate properly or are unavailable due to problems
with our physical infrastructure, we could suffer disruptions to our business.
These disruptions could expose us to liabilities to clients, regulatory
interventions or damage to our reputation and the development of our brand name.
The need to securely transmit confidential information over the Internet
has been a significant barrier to e-commerce and communications. We are
potentially vulnerable to attempts by unauthorized computer users to penetrate
our network security. If successful, those individuals could cause serious
interruptions in our services. We may be required to expend significant capital
and resources to protect against the threat of security breaches or to alleviate
resulting problems. Despite efforts we make to maintain network security, we may
not be successful.
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If third parties are able to successfully penetrate our network security
and misappropriate our business customer's personal or credit card information,
we could be subject to liability. This could include claims for unauthorized
purchases with credit card information, impersonation or other similar fraud
claims. We also could be subject to claims for violation of data protection
rights. Any of these claims could result in litigation. Publicized acts of
misappropriation of our customers' information would also likely harm our
reputation.
PROPRIETARY RIGHTS
We regard the protection of our intellectual property, including our URL
"www.b2bstores.com" and our "b2bstores.com" trademark, as critical to our
success. A URL is a website's address, which when entered by a user into a web
browser, takes the user to the desired web site. We also rely on the proprietary
technology of third parties, including Netgateway. Unauthorized use of the
intellectual property used in our business by third parties may damage our brand
and our reputation. We rely on intellectual property laws and confidentiality
and license agreements with our employees, customers, partners and others to
protect our intellectual property rights.
VENDOR MANAGEMENT SERVICES
We intend to utilize our capabilities in the management of vendor
relationships to provide commerce management services to other web sites. We
will allow other business-related web sites to access our product offerings and
offer these products to their own users. Product orders placed through these web
sites will be processed through our systems, and fulfilled by our fulfillment
agents. We will charge our e-commerce web site partners negotiated commissions
based on sales of our product offerings generated through their web sites.
Enviro-Clean operates its own product web site at www.b2bgoods.com. This
web site offers janitorial, sanitary maintenance and products in a limited
number of other categories. We provide Enviro-Clean with access to web site
transaction processing and e-commerce services for its b2bgoods.com web site
through our e-commerce backbone. See section of this prospectus entitled
"Certain Transactions" for a description of this relationship.
GOVERNMENT REGULATION
We are subject to various laws and regulations relating to our business.
Few laws or regulations are currently directly applicable to access to the
Internet. However, because of the Internet's popularity and increasing use, new
laws and regulations may be adopted. These laws and regulations may cover issues
such as:
o user privacy;
o pricing;
o tax;
o content;
o copyrights;
o distribution; and
o characteristics and quality of products and services.
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In addition, the growth of the Internet and e-commerce, coupled with
publicity regarding Internet fraud, may lead to the enactment of more stringent
consumer protection laws. These laws may impose additional burdens on our
business. The enactment of any additional laws or regulations may impede the
growth of the Internet, which could decrease our potential revenues from
electronic commerce or otherwise adversely affect our business, financial
condition and operating results.
Our ability to generate revenues from the sale of advertising on our web
site depends on demonstrating to advertisers that our web site traffic is
comprised of users that are attractive to these advertisers. Advertisers focus
their efforts on reaching particular demographic groups, which are groups of
users having common characteristics such as similar buying habits, similar
income levels or which reside in the same geographic locations. If we are not
able to legally share information regarding our customers with potential
advertisers, our ability to generate advertising revenues will suffer. The
public is becoming increasingly concerned about issues relating to privacy on
the Internet. This increased sensitivity could result in the adoption of
stringent legislation that prevents or limits our ability to use personal and
other data about our customers.
Laws and regulations directly applicable to e-commerce or Internet
communications are becoming more prevalent. The most recent session of Congress
enacted Internet laws regarding online copyright infringement. Although not yet
enacted, Congress also is considering laws regarding Internet taxation. These
are all recent enactments, and there is uncertainty regarding their marketplace
impact. In addition, various jurisdictions already have enacted laws that are
not specifically directed to e-commerce but that could affect our business. The
applicability of many of these laws to the Internet is uncertain and could
expose us to substantial liability.
Any new legislation or regulation regarding the Internet, or the
application of existing laws and regulations to the Internet, could materially
adversely affect us. If we were alleged to violate federal, state or foreign,
civil or criminal law, even if we could successfully defend such claims, it
could materially adversely affect us.
We believe that our use of third-party material on our web site is
permitted under current provisions of copyright law. However, because legal
rights of certain aspects of Internet content and commerce are not clearly
settled, our ability to rely upon exemptions or defenses under copyright law is
uncertain.
Several telecommunications carriers are seeking to have telecommunications
over the Internet regulated by the Federal Communications Commission in the same
manner as other telecommunications services. Additionally, local telephone
carriers have petitioned the Federal Communications Commission to regulate
Internet providers and online service providers in a manner similar to long
distance telephone carriers and to impose access fees on such providers. If
either of these petitions is granted, the costs of communicating on the Internet
could increase substantially. This, in turn, could slow the growth of use of the
Internet. Any such legislation or regulation could materially adversely affect
our business, financial condition and operating results.
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COMPETITION
Our web site competes with numerous other web sites that offer any
combination of e-commerce capabilities, business content and online community
access. Our competitors vary in size and in the scope and breadth of the
services they offer. In addition to competition from several e-commerce trade
communities, we primarily encounter competition from business related e-commerce
web sites such as PurchasePro.com, VerticalNet and OnVia.com, enterprise
software purchasing systems providers such as Ariba, Commerce One and TRADE'ex,
large Internet companies such as Yahoo.com, E-Bay and AOL, and traditional
business product vendors, such as Office Depot and Staples, who are establishing
their own Internet presence.
E-COMMERCE
The markets for business products and services offered through traditional
channels and Internet channels are intensely competitive. We expect competition
in these markets to increase.
There are few barriers to the business e-commerce market. The rapid growth
of the Internet in general, and online e-commerce activity specifically, has
attracted the attention of numerous companies, including business product
manufacturers and suppliers who have historically operated through traditional
channels. Competitors could enter into exclusive distribution arrangements with
our vendors and deny us access to their products. Increased competition also
could result in pricing pressures, increased marketing expenditures and loss of
market share, and could have a material adverse effect on our company.
COMMUNITY SERVICES
The market for community services is highly competitive, and we expect
competition to continue to increase significantly. There are no substantial
barriers to entry in these markets. We compete with many providers of community
services, including companies that attempt, as we do, to target specific types
of consumers, such as businesses consumers. We believe that to successfully
compete, our communities must be structured around themes that are important to
our users. Further, our community functions must be easily accessible at our web
site through simple mouse clicks. Ultimately, our communities must provide users
with utility. This utility can only be provided if meaningful dialog and user
interaction develops within the communities.
CONTENT AND INFORMATION
A large number of web sites and online services offer information features
and content, such as news, stock quotes, industry specific content, Yellow
Pages, e-mail listings, job listing and other content and features that are
competitive with the content we plan to offer.
ADVERTISING OPPORTUNITIES
We compete with all types of online companies for advertisers. We also
compete with traditional media such as television, radio and print for a share
of advertisers' total advertising budgets. We believe the number of companies
selling web-based advertising
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and the available inventory of advertising space have increased substantially
during recent periods.
We believe that the principal competitive factors in our markets are:
o brand recognition;
o ease of use;
o comprehensiveness;
o breadth and quality of products, services and content offered;
o access to customers; and
o with respect to advertisers and sponsors, the number of users,
duration and frequency of visits and user demographics.
Many of our competitors in all of our target markets have significantly
greater financial, technical, marketing and distribution resources. In addition,
providers of Internet tools and services may be acquired by, receive investments
from, or enter into other commercial relationships with larger, well-established
and well-financed companies.
EMPLOYEES
As of September 30, 1999, we had six full-time employees and one part-time
employee. We also use six to eight independent contractors on a
project-to-project basis. We consider our relationships with our employees to be
good. None of our employees are covered by collective bargaining agreements.
PROPERTIES
Our corporate headquarters are located in approximately 4,000 square feet
of space at 249 East Ocean Boulevard, Long Beach, California. We lease these
premises at a monthly rental of $6,381. Currently all servers utilized in the
operation of our site are managed by Netgateway and housed at an Exodus
Communications data center in Irvine, California. Our server location is
monitored 24 hours a day, seven days per week, and connected to multiple,
redundant Internet access points and power sources.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------- --- -----------------------------------------------
<S> <C> <C>
Richard Kandel................................. 47 Chairman of the board and director
Woo Jin Kim.................................... 32 Chief executive officer, president and director
Jeffrey Crandell............................... 32 Chief technology officer
Mark Voorhis................................... 52 Chief financial officer and chief operating
officer
Shannon Jessup................................. 29 Executive vice president of business
development
Brian Wharton.................................. 32 Executive vice president of development
John Higgins................................... 53 Director
Phillip Ellett................................. 45 Director
</TABLE>
Richard Kandel founded our company in June 1999 and has been our chairman
of the board since inception. He also was our president from inception until
August 1999. From 1974 through 1998, Mr. Kandel was the owner and president of
Kandel and Son, Inc., a sanitary supply distributor in the New York metropolitan
region. In January 1999, Mr. Kandel sold Kandel and Son to Enviro-Clean, a
distributor of janitorial and sanitary maintenance supplies and a principal
stockholder of b2bstores.com. Mr. Kandel served as president of Enviro-Clean
from January 1999 through September 1999. In September 1999, Mr. Kandel became
the chairman of the board and chief executive officer of Enviro-Clean. He
received his Bachelor of Science degree from Michigan State University.
Woo Jin Kim has served as our chief executive officer, president and a
director since August 1999. From December 1998 until joining our company in
August 1999, Mr. Kim was the senior vice president of channel development at
Netgateway, Inc., a provider of e-commerce, web design and web hosting services.
From June 1998 to December 1998, Mr. Kim was the director of channel sales for
Admor Memory Corporation, a supplier of third-party memory products. From
November 1996 to May 1998, Mr. Kim served as the director of distribution sales
for TechWorks, Inc., a manufacturer of third-party computer memory products.
From November 1994 to November 1996, Mr. Kim was a senior product manager for
Merisel, Inc., a distributor of computer products. From December 1992 to
November 1994, Mr. Kim served as the director of marketing for MIC Systems and
Software Corp, a provider of dealership automation systems to the automotive,
motorcycle and marine industries.
Jeffrey Crandell has served as our chief technology officer since August
1999. From June 1998 until joining our company in August 1999, he was senior
vice president of e-commerce for Netgateway. From June 1996 to June 1998, he
served as the chief operating officer of Digital Genesis, Inc., a provider of
e-commerce services. From October 1994 to June 1996, Mr. Crandell was the
manager of application systems at Mattel Toys, a
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<PAGE>
toy and games manufacturer. From June 1992 to October 1994, he was a systems
engineer for Fabrik Communications, an Internet e-mail service provider. From
January 1990 to June 1992, he was a systems operator for Dresser Industries
Inc., a supplier of equipment and services for the energy industry.
Mr. Crandell received his Bachelor of Science degree in computer science from
the University of Maryland.
Mark Voorhis has served as our chief financial officer and chief operating
officer since September 1999. In March 1999, Mr. Voorhis founded PC HouseCalls,
Inc., an Internet-based computer service company, where he served as chairman
and chief financial officer until joining our company in September 1999. From
November 1997 until February 1999, he served as chief financial officer and
chief operating officer for Admor. From October 1994 until November 1997,
Mr. Voorhis was an independent consultant. From November 1983 until September
1994, Mr. Voorhis worked with Montano Securities Corporation in several
different capacities, including as chief operating officer and chief financial
officer. Mr. Voorhis has a Bachelor of Arts degree in business administration
from California State University.
Shannon Jessup has served as our executive vice president of business
development since August 1999. From January 1999 until joining our company in
August 1999, she was the vice president of channel marketing for Netgateway.
From August 1994 to January 1999, she held several executive positions at
Merisel, including director of product marketing from June 1998 to January 1999
and director of North American strategic operations from January 1998 to June
1998. Prior to joining Merisel, from February 1992 to August 1994, she was the
manager of sales and marketing for ADAM systems, a value added reseller and
software solutions provider in the health care industry. Ms. Jessup received her
Bachelor of Arts degree in economics from the University of California.
Brian Wharton has served as our executive vice president of technology
development since August 1999. Mr. Wharton is also currently a member of
Microsoft's Internet advisory board. From June 1998 until joining our company in
August 1999, Mr. Wharton was the senior vice president of development at
Netgateway. From June 1996 to June 1998, Mr. Wharton was the chief technology
officer at Digital Genesis, a provider of e-commerce services, which was
acquired by Netgateway in June 1998. From May 1992 to June 1996, Mr. Wharton was
the lead developer at Mattel Toys. From May 1990 to May 1992, Mr. Wharton was
the manager of research and development at Tarp Information Systems Inc., a
software development company. Mr. Wharton received his Bachelor of Science
degree in geography from the University of Maryland.
John Higgins has served as a director of our company since September 1999.
Since May 1998, Mr. Higgins has been an executive vice president and a partner
at Reliant Innovations, a corporate reseller of computer products. From March
1997 to April 1998, Mr. Higgins served as the executive vice president of sales
and marketing for TechWorks. From February 1996 to February 1997, Mr. Higgins
was the senior vice president of Sales for Bell Microproducts Inc., an
industrial distributor of storage products to high-end value added and corporate
resellers. From June 1993 to January 1996, he was senior vice president of sales
and marketing at NCD Inc., a computer distributor, which was acquired by
Ameriquest Corp. during his tenure.
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<PAGE>
Phillip Ellett has served as a director of our company since September
1999. Mr. Ellett is currently an executive vice president and president of the
Americas division for Ingram Micro Inc., a wholesale distributor of computer
equipment, for which Mr. Ellett has worked since January 1996. From September
1989 to December 1995, Mr. Ellett held several positions with Gates/Arrow,
including as president of Gates/Arrow and chief executive officer. Mr. Ellett
received his HNC in electrical engineering from the Upper Thames College of
Technology in England.
BOARD OF DIRECTORS AND COMMITTEES
Our board of directors is divided into three classes, each of which
generally serves for a term of three years, with only one class of directors
being elected in each year. The term of office of the first class of directors,
currently consisting of Mr. Kandel, will expire in 2002, the term of office of
the second class of directors, currently consisting of Mr. Kim, will expire in
2001, and the term of office of the third class of directors, currently
consisting of Messrs. Higgins and Ellett, will expire in 2000. In each case,
each director will hold office until the next annual meeting of stockholders at
which his class of directors is to be elected, or until his successor is duly
qualified and appointed.
The board maintains an audit committee, currently composed of Messrs.
Higgins, Ellett and Kandel. The board also maintains a compensation committee
composed of Messrs. Higgins, Ellett and Kandel.
The responsibilities of the audit committee include, in addition to other
duties that the board may specify:
o recommending to the board the appointment of independent certified
public accountants;
o reviewing the timing, scope and results of the independent certified
public accountants' audit examination and the related fees;
o reviewing periodic comments and recommendations by our independent
certified public accountants and our responses to those comments;
o reviewing the scope and adequacy of internal accounting controls and
internal auditing activities; and
o making recommendations to the board with respect to significant
changes in accounting policies and procedures.
The responsibilities of the compensation committee include, in addition to
other duties that the board may specify:
o reviewing and recommending to the board the salaries, compensation
and benefits of our executive officers and key employees;
o reviewing any related party transactions on an ongoing basis for
potential conflicts of interest; and
o administering our stock option plans, if not administered by the full
board.
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<PAGE>
COMPENSATION OF DIRECTORS
Non-employee directors will be reimbursed for reasonable travel and lodging
expenses incurred in attending meetings of the board of directors and any
committee on which they may serve. Each non-employee director also will receive
$500 for each board or committee meeting he attends. Each director also will be
eligible to receive grants of options at the discretion of the compensation
committee. In September 1999, we issued 2,500 shares of our common stock to each
of Messrs. Higgins and Ellett in consideration of their becoming directors of
our company.
EXECUTIVE COMPENSATION
We have entered into employment agreements with each of our officers. Each
of our officers are full-time employees of b2bstores.com, except Richard Kandel,
our chairman of the board. Under his employment agreement with us, Mr. Kandel is
required to devote only 50% of his business time to b2bstores.com.
The basic terms of each employment agreement are as follows:
<TABLE>
<CAPTION>
TERM OF
NAME OF OFFICER AGREEMENT ANNUAL SALARY BONUS OPTIONS
- ------------------------------------- --------- ------------------- -------- ---------
<S> <C> <C> <C> <C>
Richard Kandel 11/1/99 1st Year: $150,000 -- --
Chairman of the board to 2nd Year: 200,000
10/31/02 3rd Year: 250,000
Woo Jin Kim 08/1/99 $175,000 $ 75,000 300,000
Chief executive officer to shares
07/31/02
Jeffrey Crandell 08/15/99 $130,000 $ 70,000 175,000
Chief technology officer to shares
08/14/02
Mark Voorhis 09/15/99 $140,000 $ 70,000 175,000
Chief financial officer to shares
09/14/02
Shannon Jessup 08/15/99 $130,000 $ 70,000 175,000
Executive vice president to shares
08/14/02
Brian Wharton 08/15/99 $130,000 $ 70,000 175,000
Executive vice president to shares
08/14/02
</TABLE>
The bonuses payable to Mr. Kim are due in installments upon the attainment
by b2bstores.com of performance objectives as follows:
o $25,000 upon the hiring of qualified persons to fill certain key
management positions. This has been accomplished.
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<PAGE>
o $25,000 upon the introduction of 25 or more product categories at our
web site.
o $25,000 upon consummation of this offering.
The bonuses payable to the other officers set forth above will be payable
upon the attainment by b2bstores.com of performance objectives. This will
include a payment of $20,000 to each of these officers upon consummation of this
offering. The remaining objectives are as follows:
GOALS FOR CASH BONUSES
<TABLE>
<CAPTION>
Q4-1999 Q1-2000 Q2-2000 Q3-2000
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue................................ $626,000 $1,867,500 $4,252,000 $7,280,000
Margin................................. 6.00% 6.00% 7.00% 7.00%
Avg. hits per month.................... 333,333 750,000 1,300,000 2,083,333
</TABLE>
Each of Mr. Crandell, Mr. Voorhis, Ms. Jessup and Mr. Wharton will be
granted options upon the effective date of this prospectus with an exercise
price equal to 80% of the offering price in this offering. These options will
vest as follows:
o Mr. Kim's options vest with respect to 150,000 shares upon completion
of this offering. Options to purchase an additional 50,000 shares
will vest in each of August 2000, 2001 and 2002.
o Each of Mr. Crandell's and Mr. Wharton's options vest with respect to
87,500 shares, 43,750 shares and 43,750 shares in August 2000, 2001
and 2002, respectively.
o Mr. Voorhis' options vest with respect to 87,500 shares, 43,750
shares and 43,750 shares in September 2000, 2001 and 2002,
respectively.
o Shannon Jessup's options with respect to 50,000 shares vest upon
consummation of this offering. Options to purchase an additional
62,500 shares, 31,250 shares and 31,250 shares will vest in August
2000, 2001 and 2002, respectively.
In addition, each of Mr. Crandell, Mr. Voorhis, Ms. Jessup and Mr. Wharton
will also be entitled to receive options to purchase up to 50,000 additional
shares at fair market value on the date the option is granted during 2000 upon
the attainment by b2bstores.com of performance objectives. These objectives are
as follows:
GOALS FOR STOCK BONUSES
<TABLE>
<CAPTION>
Q4-1999 Q1-2000 Q2-2000 Q3-2000
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue................................ $688,600 $2,054,250 $4,677,200 $8,008,000
Margin................................. 6.60% 6.60% 7.70% 7.70%
Avg. hits per month.................... 366,666 825,000 1,430,000 2,291,666
</TABLE>
Our employment agreement with each of these officers contains provisions
prohibiting competition with us during their employment with us and for
prescribed periods of time after termination of employment. However, some state
courts may not enforce one or more of these provisions as a matter of public
policy. In these circumstances, we may not be
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<PAGE>
able to prevent an officer from competing with us, which could have an adverse
impact on our business.
POTENTIAL CONFLICTS OF INTEREST
Mr. Kandel's position as a director, officer and stockholder of each of
b2bstores.com and Enviro-Clean may create or appear to create potential
conflicts of interest when he is faced with decisions that could have different
implications for b2bstores.com and Enviro-Clean. These decisions may relate to:
o potential acquisitions of businesses,
o intercompany agreements,
o the establishment of e-commerce marketing arrangements and other
areas of competition,
o the issuance or disposition of securities, and
o the election of directors.
We have an intercompany agreement with Enviro-Clean relating to, among
other things, its provision to us of fulfillment services for some of our
products, and our provision to it of various e-commerce services. This
agreement, as well as other aspects of our relationship with Enviro-Clean are
described under the section of this prospectus entitled "Certain Transactions."
We believe that the terms of this agreement are no less favorable to us than
could have been obtained from an unaffiliated third party.
Our by-laws provide that we will not enter into new material agreements
with Enviro-Clean or any other affiliate unless those agreements are approved by
a majority of our directors who are not affiliated with that affiliate. This
provision of our by-laws can only be amended by a majority of our directors who
are not affiliated with Enviro-Clean.
It is our policy that future transactions with affiliates, if any, will be
on terms no less favorable to us than we could have obtained from third-party
businesses.
1999 PERFORMANCE EQUITY PLAN
In September 1999, the board of directors adopted, and the stockholders
approved our 1999 Performance Equity Plan. The plan authorizes the granting of
awards of up to 2,000,000 shares of common stock to our key employees, officers,
directors and consultants. Awards consist of nonqualified options and options
intended to qualify as "incentive" stock options under Section 422 of the
Internal Revenue Code of 1986, restricted stock awards, deferred stock awards,
stock appreciation rights and other stock-based awards, as described in the
plan. As of the date of this prospectus, no options are outstanding under the
plan. We are obligated to grant options to purchase up to an aggregate of
200,000 shares of common stock under our plan to some of our officers in 2000 if
we achieve defined operating objectives. All of these grants would be at the
fair market value of our common stock at the date of grant. No person may be
awarded options to purchase more than 200,000 shares of common stock under the
plan in any year.
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<PAGE>
The plan is administered by the board of directors which determines the
persons to whom awards will be granted, the number of awards to be granted and
the specific terms of each grant, including the vesting of the options, subject
to the provisions of the plan.
In connection with incentive stock options, the exercise price of each
option may not generally be less than 100% of the fair market value of the
common stock on the date of grant. With respect to a grantee holding more than
10% of our outstanding stock the exercise price of each option may not be less
than 110% of that fair market value. The aggregate fair market value of shares
for which incentive stock options are exercisable for the first time by an
employee during any calendar year may not exceed $100,000. Nonqualified stock
options granted under the plan may be granted at a price determined by the board
of directors, not to be less than the fair market value of the common stock on
the date of grant.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Our by-laws include provisions permitted under Delaware law by which our
officers and directors are to be indemnified against various liabilities. These
provisions of the by-laws have no effect on any director's liability under
federal securities laws or the availability of equitable remedies, such as
injunction or recission, for breach of fiduciary duty. We believe that these
provisions will facilitate our ability to continue to attract and retain
qualified individuals to serve as our directors and officers.
With respect to indemnification for liabilities arising under the
Securities Act of 1933 we have been advised that in the opinion of the
Securities and Exchange Commission this type of indemnification is against
public policy as expressed in the Securities Act and is unenforceable.
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the date of this prospectus, the
number of shares of our outstanding common stock beneficially owned by:
o each of our directors;
o each person who is known by us to beneficially own 5% or more of our
common stock; and
o all of our directors and executive officers as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING SHARES
AMOUNT AND NATURE OWNED
OF BENEFICIAL --------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP BEFORE OFFERING AFTER OFFERING
- -------------------------------------------------------- ----------------- --------------- --------------
<S> <C> <C> <C>
Richard Kandel.......................................... 3,233,333 80.4% 43.0%
Woo Jin Kim............................................. 150,000 3.7% 2.0%
Enviro-Clean of America, Inc.
211 Park Avenue
Hicksville, New York 11802........................... 2,000,000 49.7% 26.6%
</TABLE>
45
<PAGE>
<TABLE>
<S> <C> <C> <C>
Randall Davis
c/o Enviro-Clean of America, Inc.
211 Park Avenue
Hicksville, New York 11802........................... 2,333,333 58.0% 31.0%
John Higgins............................................ 2,500 -- --
Phillip Ellett.......................................... 2,500 -- --
All executive officers and directors as a group......... 3,438,333 81.4% 44.5%
</TABLE>
The address for each specified person, if not included under each person's
name, is c/o b2bstores.com Inc., at 249 East Ocean Boulevard, Suite 620, Long
Beach, California 90802.
A person is deemed to beneficially own voting securities that can be
acquired by that person within 60 days from the date of this prospectus upon the
exercise of options. Each beneficial owner's percentage ownership is determined
by assuming that the options held by that person, but not those held by any
other person, and which are exercisable within 60 days of the date of this
prospectus have been exercised. Unless otherwise noted, we believe that all
persons named in the table have sole voting and investment power with respect to
all shares of common stock beneficially owned by them.
The information for Mr. Kandel represents:
o 1,066,666 shares owned directly by Mr. Kandel,
o 100,000 shares owned by profit sharing plans controlled by
Mr. Kandel on behalf of Kandel & Sons, another company owned by him,
o 66,667 shares owned by Mint Corp. of N.Y., an entity controlled by
Mr. Kandel, and
o 2,000,000 shares owned by Enviro-Clean.
The information for Mr. Kim represents shares issuable upon exercise of
options that will vest upon consummation of this offering. It does not include
150,000 shares issuable upon exercise of options that will vest in three equal
annual installments commencing in August 2000.
The information for Mr. Davis represents (a) 333,333 shares owned directly
by Mr. Davis and (b) 2,000,000 shares owned by Enviro-Clean, a company of which
Mr. Davis is president and a principal stockholder.
This group is comprised of eight persons. The information for the group
includes:
o all the shares beneficially owned by Messrs. Kandel, Kim, Higgins and
Ellett; and
o includes 50,000 shares issuable to Shannon Jessup, our executive vice
president of business development, issuable upon exercise of the
options that will vest upon consummation of this offering.
The information for the group does not include:
o the shares specifically excluded from each person's ownership as
described above;
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<PAGE>
o 125,000 shares issuable to Ms. Jessup upon exercise of options that
will vest in annual installments commencing in August 2000;
o 175,000 shares issuable to Brian Wharton, our executive vice
president of technology development, upon exercise of options that
will vest in annual installments commencing in August 2000;
o 175,000 shares issuable to Jeffrey Crandell, our chief technology
officer, upon exercise of options that will vest in annual
installments commencing in August 2000; and
o 175,000 shares issuable to Mark Voorhis, our chief financial officer
and chief operating officer, upon exercise of options that will vest
in annual installments commencing in September 2000.
CERTAIN TRANSACTIONS
Enviro-Clean is a supplier of janitorial and maintenance products and
services. It is a principal stockholder of b2bstores.com. There are aspects of
our relationship with Enviro-Clean of which you should be aware, including the
following:
o Richard Kandel, our chairman of the board is also the chairman of the
board, chief executive officer and principal stockholder of
Enviro-Clean;
o Enviro-Clean sells through the Internet many of the same janitorial
and maintenance products that we sell, and may be deemed a competitor
of ours in this regard;
o Given Mr. Kandel's roles with both b2bstores.com and Enviro-Clean and
the potentially competitive position of each business, he may not
always be able to align his interest with the interests of both
businesses. The manner in which any conflict of interest in any
situation is resolved may not be the manner that would be most
beneficial to the interests of the stockholders of b2bstores.com;
o Under an agreement we have with Enviro-Clean, it is prohibited from
selling other types of products through its own web site until such
time as it owns less than 10% of our outstanding Common Stock;
o Under an agreement we have with Enviro-Clean, it is prohibited from
selling its products through any web site other than its own and ours
until such time as it owns less than 10% of our outstanding Common
Stock;
o Randall Davis, a principal stockholder of our b2bstores.com, is also
president and a principal stockholder of Enviro-Clean. Steven Etra, a
stockholder of b2bstores.com, also is a director and stockholder of
Enviro-Clean.
o Mr. Kandel is the founder of b2bstores.com.
The relationship between Enviro-Clean and b2bstores.com and their
affiliates is more fully described below.
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<PAGE>
EARLY FINANCING OF OUR COMPANY
Since our inception in June 1999, our working capital requirements had been
satisfied through:
o capital contributions made by our current stockholders, including
Mr. Kandel, Mr. Davis, Mr. Etra and Enviro-Clean, and
o loans made to us by Enviro-Clean.
In June 1999, Mr. Kandel, Mr. Davis, Mr. Etra, Enviro-Clean and others
purchased an aggregate of 3,666,667 shares of our common stock for $27,500 in
the form of $11,000 in cash and the transfer to us of all of rights and interest
in www.b2bstores.com and all related assets, including intellectual property.
In June, July and November 1999, Enviro-Clean made loans to us in the
aggregate principal amount of approximately $290,000. These loans bear interest
at the rate of 8% per annum and are repayable on the earlier of
(a) December 31, 1999 and (b) the date this offering is consummated. A portion
of the proceeds of this offering will be used to repay these loans, together
with interest.
In August 1999, we consummated a financing in which we raised proceeds of
$625,000 through the sale of 333,333 shares of our common stock to Mr. Kandel,
Mr. Etra and Mr. Etra's siblings.
In September 1999, we issued an aggregate of 16,643 shares of our common
stock to various persons in consideration of services rendered by them to
b2bstores.com. These persons also render services to or are employed by
Enviro-Clean. We also issued 2,500 shares of our common stock to each of John
Higgins and Phillip Ellett in consideration of their becoming directors of
b2bstores.com.
ENVIRO-CLEAN IS ONE OF OUR FULFILLMENT AGENTS
Enviro-Clean is one of our fulfillment agents for janitorial and sanitary
maintenance products offered through our web site. All Enviro-Clean products
purchased through our web site are distributed directly to our customers by
Enviro-Clean through this fulfilment relationship. Enviro-Clean charges us a
price for each product equal to its cost for the product. Enviro-Clean also is
entitled to receive a payment from us equal to a negotiated percentage of all
revenues generated by us through the sale of products supplied by Enviro-Clean.
We believe that the terms of our agreement with Enviro-Clean are comparable to
that which we will negotiate with other fulfillment agents.
ENVIRO-CLEAN HAS GUARANTEED SOME OF OUR OBLIGATIONS
Enviro-Clean has furnished some of our vendors with guarantees with respect
to our obligations to them as part of our early stage development. Although we
anticipate that our receipt of the net proceeds of this offering will eliminate
our need to supply similar guarantees to vendors in the future, if additional
guarantees should be necessary, Enviro-Clean has no obligation, and may not have
the financial ability, to provide them.
During its formation, b2bstores.com used the offices of Enviro-Clean as a
mailing and contact address. No commercial operations were ever conducted from
the offices of Enviro-Clean and no rent, fees or other consideration was paid to
Enviro-Clean in this
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<PAGE>
regard. Shortly after its formation, b2bstores.com obtained the office space
described in the "Business" section under the subsection entitled "Properties."
Because we are a development stage enterprise without an operating history, the
owner of the premises required a guarantor for the lease. Enviro-Clean signed
the lease as the guarantor. Enviro-Clean received no compensation or other
consideration for acting as our guarantor.
We will seek to have Enviro-Clean released from these guarantees upon
completion of the offering.
ENVIRO-CLEAN OPERATES ITS OWN BUSINESS PRODUCTS WEB SITE
Enviro-Clean operates its own product web site at www.b2bgoods.com. This
web site offers janitorial, sanitary maintenance and products in a limited
number of other categories. All of those products are also available at our web
site. Enviro-Clean's web site also offers hyperlink access to our web site.
Under our agreement with Enviro-Clean Enviro-Clean has agreed that, until it
owns less than 10% of our outstanding common stock, it will refrain from selling
its own products through any web sites other than its own or ours. It will also
refrain from offering any other types of products at its own web site.
We provide Enviro-Clean with web site transaction processing and e-commerce
services for its b2bgoods.com web site through our e-commerce backbone. For
these services we receive from Enviro-Clean a fee equal to the greater of
(a) 10% of Enviro-Clean's revenues generated through e-commerce activities
conducted through www.b2bgoods.com and (b) 50% of Enviro-Clean's gross profits
generated through e-commerce activities conducted at www.b2bgoods.com.
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<PAGE>
DESCRIPTION OF SECURITIES
GENERAL
Our authorized capital stock consists of 25,000,000 shares of common stock,
$.01 par value per share, and 5,000,000 shares of preferred stock, $.01 par
value per share. Upon consummation of this offering, there will be outstanding
7,521,643 shares of common stock and no shares of preferred stock.
COMMON STOCK
The holders of our common stock are entitled to one vote per share on all
matters to be voted upon by our stockholders. The holders of common stock do not
have cumulative voting rights, which means that the holders of more than 50% of
the outstanding shares can elect all of our directors. The holders of our common
stock are entitled to receive dividends, if any, as may be declared from time to
time by the board of directors out of legally available funds. In the event we
are liquidated or dissolved, the holders of our common stock are entitled to
receive all assets available for distribution to the stockholders. The holders
of common stock have no preemptive or other subscription rights, and there are
no conversion rights or redemption or sinking fund provisions with respect to
the common stock. All outstanding shares of common stock are, and the shares to
be issued in this offering will be, validly issued, fully paid and
nonassessable.
Prior to this offering, there has been no public market for our shares.
Although we have applied for quotation of our common stock on the Nasdaq
National Market, there can be no assurance that this application will be
approved. Even if this application is approved, an active trading market for our
shares may not develop. If an active trading market is not developed or
maintained, the liquidity and trading price of our common stock could be
adversely affected. The per-share price in this offering was determined by
negotiations between us and the underwriters. It may bear no relationship to the
price at which the shares will trade upon completion of this offering. It also
is not indicative of the future market performance of our common stock.
PREFERRED STOCK
We are authorized to issue preferred stock, which may be issued from time
to time in one or more series upon authorization by the board of directors. The
board of directors, without further approval of the stockholders, is authorized
to fix the dividend rights, voting rights, redemption rights and any other
rights, preferences, privileges and restrictions applicable to each series of
preferred stock. The issuance of preferred stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes could, among
other things, adversely affect the voting power of the holders of common stock
and, in some circumstances, make it more difficult for a third party to gain
control of our company, discourage bids for our common stock at a premium or
otherwise adversely affect the market price of the common stock.
50
<PAGE>
SHARES AVAILABLE FOR FUTURE SALE
Substantially all of the 4,021,643 shares of our common stock outstanding
prior to this offering will become saleable under Rule 144 of the Securities Act
in June 2000, with the balance becoming saleable in August and September 2000.
Although the holders of these shares of common stock have signed agreements with
the underwriters under which they are restricted from selling our common stock
during the 12-months period following consummation of this offering, sales or
the expectation of sales of a substantial number of shares of our common stock
in the public market could adversely affect the prevailing market price of our
common stock.
In general, under Rule 144 as currently in effect, a person who has owned
restricted shares of common stock beneficially for at least one year is entitled
to sell, within any three-month period, a number of shares that does not exceed
the greater of the then average weekly trading volume and 1% of the total number
of outstanding shares of the same class. Sales under Rule 144 are also subject
to manner of sale provisions, notice requirements and the availability of
current public information about us. A person who has not been one of our
affiliates for at least the three months immediately preceding the sale and who
has beneficially owned shares of common stock for at least two years is entitled
to sell the shares under Rule 144 without regard to any of the limitations
described above.
TRANSFER AGENT
Continental Stock Transfer & Trust Company, 2 Broadway, New York, New York
10004, acts as transfer agent for our common stock.
DIVIDENDS
We expect to retain all earnings generated by our operation for the
development and growth of our business, and do not anticipate paying any cash
dividends to our stockholders in the foreseeable future. The payment of future
dividends on the common stock and the rate of such dividends, if any, will be
determined by our board of directors in light of our earnings, financial
condition, capital requirements and other factors.
We have agreed with the representatives that we will not declare a dividend
during the eighteen-month period beginning on the effective date of this
prospectus without their prior written consent.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS
Provisions in our certificate of incorporation and bylaws may have the
effect of delaying or preventing a change of control or changes in our
management that a stockholder might consider favorable. These provisions
include, among others:
o the division of the board of directors into three separate classes;
o the right of the board to elect a director to fill a space created by
the expansion of the board;
51
<PAGE>
o the ability of the board to alter our bylaws; and
o the ability of the board to issue series of preferred stock without
stockholder approval.
Further, because we are incorporated in Delaware, we are subject to the
provisions of Section 203 of the Delaware General Corporation Law. These
provisions prohibit some stockholders, such as those owning 15% or more of the
outstanding voting stock, from consummating a merger or combination with a
corporation unless:
o 66 2/3% of the shares of voting stock not owned by the significant
stockholder approve the merger or combination; or
o our board of directors approves the merger or combination or the
transaction which resulted in the significant stockholder owning 15%
or more of our outstanding voting stock.
UNDERWRITING
Subject to the terms and conditions contained in the underwriting
agreement, b2bstores.com Inc. has agreed to sell to each of the underwriters
named below, and each of the underwriters, for which Gaines, Berland Inc. and
Nolan Securities, Inc. are acting as representatives, has severally, and not
jointly, agreed to purchase on a firm commitment basis the number of shares
offered in this offering set forth opposite their respective names below.
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- --------------------------------------------------------------------------------------- ---------
<S> <C>
Gaines, Berland Inc....................................................................
Nolan Securities, Inc..................................................................
---------
Total 3,500,000
---------
---------
</TABLE>
A copy of the underwriting agreement has been filed as an exhibit to this
registration statement.
The representatives have advised us that the underwriters propose to offer
the shares to the public at the initial public offering price on the cover page
of this prospectus. They may allow some dealers who are members of the NASD, and
some foreign dealers, concessions not in excess of $ per share and the
dealers who receive concessions may reallow a sum not in excess of $ per
share to other dealers who are members of the NASD and to some foreign dealers.
Upon completion of this offering, the offering price, the concession to selected
dealers, and the reallowance to other dealers may be changed by the
representatives. The representatives have informed us that they do not expect
discretionary sales by the underwriters to exceed five percent of the shares
offered by this prospectus.
We have agreed to pay to the representatives an expense allowance on a non-
accountable basis, equal to 2.0% of the gross proceeds derived from the sale of
shares offered in this offering. We paid an advance on this allowance in the
amount of $50,000.
52
<PAGE>
We have also granted to the underwriters an option, exercisable during the
45-day period commencing on the date of this prospectus, to purchase at the
public offering price per share, less the underwriting discount and commissions
and the non-accountable expense allowance, up to an aggregate of 525,000 shares
of common stock. The underwriters may exercise that option if the underwriters
sell more shares than the total number set forth in the table above. If any
shares are purchased pursuant to this option, the underwriters will severally
purchase shares in approximately the same proportion as set forth in the table
above. The underwriters may exercise this right of purchase only for the purpose
of covering over-allotments, if any, made in connection with the sale of shares.
The following table provides information regarding the amount of the
discount to be paid to the underwriters by b2bstores.com:
<TABLE>
<CAPTION>
TOTAL WITHOUT TOTAL WITH
EXERCISE OF EXERCISE OF
DISCOUNT OVER-ALLOTMENT OVER-ALLOTMENT
PER SHARE OPTION OPTION
--------- -------------- --------------
<S> <C> <C> <C>
b2bstores.com.................................................... $ $ $
</TABLE>
We have also agreed to sell to the representatives for nominal
consideration, the representatives' warrants to purchase up to 350,000 shares of
common stock. The representatives' warrants are exercisable for a period of four
years commencing one year after the date of this prospectus at an exercise price
per share equal to $ [120% of the public offering price].
The representatives' warrants may not be sold, transferred, assigned,
pledged, or hypothecated for a period of 12 months from the date of this
prospectus, except to officers or partners of the members of the selling group.
b2bstores.com has granted to the representatives one demand registration right
at b2bstores.com's expense for a period of five years from the effective date of
this offering and piggyback registration rights for a period of five years from
the effective date of this offering with respect to registration under the
Securities Act of the securities directly or indirectly issuable upon exercise
of the representatives' warrants.
The representatives' warrants contain anti-dilution provisions providing
for adjustments of the exercise price and number of shares issuable on exercise
of the representatives' warrants, upon the occurrence of some events, including
stock dividends, stock splits, and recapitalizations. The holders of the
representatives' warrants have no voting, dividend, or other rights as a
stockholder with respect to shares of common stock underlying the
representatives' warrants, unless the representatives' warrants shall have been
exercised.
In connection with this offering, we have granted the representatives the
right to designate one person for election to our board of directors for the
three-year period commencing on the closing date of this offering. In the event
the representatives elect not to exercise this right, then they may appoint an
observer to attend all meetings of our board of directors. This designee has the
right to notice of all meetings of the board of directors and to receive
reimbursement for all out-of-pocket expenses incurred to attend these meetings.
In addition, the designee will be entitled to indemnification to the same extent
as our directors.
53
<PAGE>
We, and each of our officers, directors, and stockholders, have entered
into lock-up agreements under which we and they have agreed not to offer,
assign, issue, sell, hypothecate, or otherwise dispose of any shares of common
stock or securities of b2bstores.com convertible into, or exercisable or
exchangeable for, shares of common stock, without the prior written consent of
the representatives for a period of at least twelve months after the date of
this prospectus. Each securityholder may transfer securities of b2bstores.com,
or a beneficial interest in those securities, in a private transaction under an
exemption from registration provided that the transferee agrees in writing to be
bound by the terms of the lock-up agreement. The representatives may, at any
time and without notice, waive the terms of the lock-up agreements.
Before this offering, there has been no public market for the common stock
of b2bstores.com. The public offering price, negotiated between b2bstores.com
and the representatives, is based upon b2bstores.com's financial and operating
history and condition, its prospects, the prospects for the industry we are in
and prevailing market conditions.
Rules of the Securities and Exchange Commission may limit the ability of
the underwriters to bid for or purchase shares before the distribution of the
shares is completed. However, the underwriters may engage in the following
activities in accordance with the rules:
o Stabilizing transactions. The underwriters may make bids or purchases for
the purpose of pegging, fixing or maintaining the price of the shares, so
long as stabilizing bids do not exceed a specified maximum.
o Over-allotments and syndicate coverage transactions. The underwriters may
create a short position in the shares by selling more shares than are set
forth on the cover page of this prospectus. If a short position is
created in connection with the offering, the representatives may engage
in syndicate covering transactions by purchasing shares in the open
market. The representatives may also elect to reduce any short position
by exercising all or part of the over-allotment option.
o Penalty bids. If the representatives purchase shares in the open market
in a stabilizing transaction or syndicate coverage transaction, they may
reclaim a selling concession from the underwriters and selling group
members who sold those shares as part of this offering.
Stabilization and syndicate covering transactions may cause the price of
the shares to be higher than it would be in the absence of these transactions.
The imposition of a penalty bid might also have an effect on the price of the
shares if it discourages resales of the shares.
Neither we nor the underwriters makes any representation or prediction as
to the effect that the transactions described above may have on the price of the
shares. These transactions may occur on the Nasdaq National Market, in the
over-the-counter market or on any trading market. If any of these transactions
are commenced, they may be discontinued without notice at any time.
54
<PAGE>
We have agreed to indemnify the underwriters against some liabilities,
including civil liabilities under the Securities Act, or to contribute to
payments the underwriters may be required to make in this respect.
WHERE YOU CAN FIND MORE INFORMATION
We will file annual, quarterly and special reports, proxy statements and
other information with the SEC. Our SEC filings will be available to the public
over the Internet at the SEC's web site at http://www.sec.gov. You may also read
and copy any document we file at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. These documents are also available at the
public reference rooms at the SEC's regional offices in New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms.
We have filed a registration statement on Form SB-2 under the Securities
Act of 1933 with the SEC. This prospectus is part of that registration statement
and, as permitted by the SEC's rules, does not contain all of the information
included in the registration statement. For further information about us and our
common stock, you may refer to the registration statement and its exhibits and
schedules. You can review and copy these documents at the public reference
facilities maintained by the SEC or on the SEC's web site as described above.
This prospectus may contain summaries of contracts or other documents. If
you would like complete information about a contract or other document, you
should read the copy filed as an exhibit to the registration statement.
LEGAL MATTERS
Legal matters in connection with this offering are being passed upon by the
law firm of Graubard Mollen & Miller, New York, New York. Orrick, Herrington &
Sutcliffe LLP is acting as counsel for the underwriters in connection with the
offering.
EXPERTS
The financial statements included in this prospectus and in the
registration statement have been audited by BDO Seidman, LLP, independent
certified public accountants to the extent and for the period set forth in their
report (which contains an explanatory paragraph indicating substantial doubt
about our ability to continue as a going concern) appearing elsewhere herein and
in the registration statement, and are included in reliance upon such report,
given upon the authority of BDO Seidman, LLP, as experts in auditing and
accounting.
55
<PAGE>
B2BSTORES.COM INC.
<TABLE>
<CAPTION>
INDEX
-----
<S> <C>
Report of Independent Certified Public Accountants........................................................ F-2
Financial Statements:
Balance Sheet.......................................................................................... F-3
Statement of Loss...................................................................................... F-4
Statement of Stockholders' Equity...................................................................... F-5
Statement of Cash Flows................................................................................ F-6
Summary of Business and Significant Accounting Policies................................................ F-7
Notes to Financial Statements.......................................................................... F-9
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Stockholders
b2bstores.com Inc.
Long Beach, California
We have audited the accompanying balance sheet of b2bstores.com Inc., a company
in the development stage, as of August 31, 1999, and the related statements of
loss, stockholders' equity and cash flows for the period from June 28, 1999
(inception) to August 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of b2bstores.com Inc. at August
31, 1999, and the results of its operations and its cash flows for the period
from June 28, 1999 (inception) to August 31, 1999, in conformity with generally
accepted accounting principles.
As discussed in Note 1, the accompanying financial statements have been prepared
assuming b2bstores.com Inc. will continue as a going concern. The Company is in
the development stage and has had nominal revenues from operations and will
require substantial additional funds for development and marketing of its
products. These matters raise substantial doubt about its ability to continue as
a going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty. The Company is pursuing
sources of additional financing (see Note 4) and there can be no assurance that
any such financing will be available to the Company on commercially reasonable
terms, or at all. Any inability to obtain additional financing will have a
material effect on the Company, including possibly requiring the Company to
significantly curtail or cease operations.
/s/ BDO Seidman, LLP
New York, New York
September 30, 1999
F-2
<PAGE>
B2BSTORES.COM INC.
BALANCE SHEET
AUGUST 31, 1999
<TABLE>
<S> <C>
ASSETS
Current:
Cash......................................................................................... $ 669,121
Security deposit................................................................................ 25,525
Deferred offering costs (Note 5)................................................................ 52,451
Property and equipment.......................................................................... 6,809
-----------
$ 753,906
-----------
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued expenses............................................................................. $ 123,436
Due to principal stockholder (Note 2)........................................................ 179,836
-----------
Total current liabilities....................................................................... 303,272
-----------
Commitments (Note 3)
Stockholders' equity (Notes 4 and 6):
Preferred stock, $.01 par value--shares authorized 5,000,000; none issued.................... --
Common stock, $.01 par value--shares authorized 25,000,000; issued 4,000,000................. 40,000
Additional paid-in capital................................................................... 2,497,500
Deficit accumulated during the development stage............................................. (2,086,866)
-----------
Total stockholders' equity...................................................................... 450,634
-----------
$ 753,906
-----------
-----------
</TABLE>
See accompanying summary of business and significant accounting policies and
notes to financial statements.
F-3
<PAGE>
B2BSTORES.COM INC.
STATEMENT OF LOSS
PERIOD FROM JUNE 28, 1999 (INCEPTION) TO AUGUST 31, 1999
<TABLE>
<S> <C>
Operating expenses:
General and administrative........................................................ $ 31,875
Sales and marketing............................................................... 23,060
Start-up costs.................................................................... 130,431
Stock-based compensation (Note 4)................................................. 1,901,500
-----------
Total operating expenses.......................................................... 2,086,866
-----------
Net loss............................................................................. $(2,086,866)
-----------
-----------
Loss per share (basic and diluted)................................................... $ (.56)
-----------
-----------
Weighted average common shares outstanding (basic and diluted)....................... 3,712,820
-----------
-----------
</TABLE>
See accompanying summary of business and significant accounting policies and
notes to financial statements.
F-4
<PAGE>
B2BSTORES.COM INC.
STATEMENT OF STOCKHOLDERS' EQUITY
PERIOD FROM JUNE 28, 1999 (INCEPTION) TO AUGUST 31, 1999
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING THE TOTAL
------------------- PAID-IN DEVELOPMENT STOCKHOLDERS'
SHARES AMOUNT CAPITAL STAGE EQUITY
--------- ------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock to
founding stockholders:
June 29, 1999................... 3,666,667 $36,667 $ -- $ -- $ 36,667
August 23, 1999................. 333,333 3,333 2,497,500 -- 2,500,833
Net loss........................... -- -- -- (2,086,866) (2,086,866)
--------- ------- ---------- ----------- -----------
Balance, August 31, 1999........... 4,000,000 $40,000 $2,497,500 $(2,086,866) $ 450,634
--------- ------- ---------- ----------- -----------
--------- ------- ---------- ----------- -----------
</TABLE>
See accompanying summary of business and significant accounting policies and
notes to financial statements.
F-5
<PAGE>
B2BSTORES.COM INC.
STATEMENT OF CASH FLOWS
PERIOD FROM JUNE 28, 1999 (INCEPTION) TO AUGUST 31, 1999
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss...................................................................................... $(2,086,866)
-----------
Adjustments to reconcile net loss to net cash used in operating activities:
Expense recognized in connection with issuance of common stock at a price below the
estimated fair value.................................................................. 1,901,500
Changes in assets and liabilities:
Increase in security deposit......................................................... (25,525)
Increase in accrued expenses......................................................... 123,436
-----------
Total adjustments.................................................................... 1,999,411
-----------
Net cash used in operating activities................................................ (87,455)
-----------
Cash flows from investing activities:
Capital expenditures.......................................................................... (6,809)
-----------
Cash flows from financing activities:
Deferred offering costs....................................................................... (52,451)
Loans from principal stockholders............................................................. 179,836
Proceeds from issuance of common stock to founding stockholders............................... 636,000
-----------
Net cash provided by financing activities........................................................ 763,385
-----------
Net increase in cash............................................................................. 669,121
Cash, beginning of period........................................................................ --
-----------
Cash, end of period.............................................................................. $ 669,121
-----------
-----------
</TABLE>
See accompanying summary of business and significant accounting policies and
notes to financial statements.
F-6
<PAGE>
B2BSTORES.COM INC.
SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Business
b2bstores.com Inc. ("b2bstores" or the "Company"), a development stage
enterprise, was incorporated on June 28, 1999 under the laws of the State of
Delaware. b2bstores is a branded Internet web site specifically designed to
assist business customers in the operation and development of their businesses.
The Company currently provides user-friendly online access to business products
and supplies, and will be expanded to provide access to business services,
auctions and business-related information and content.
Basis of Presentation
The financial statements have been prepared in accordance with the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 7,
"Accounting and Reporting by Development Stage Enterprises," which requires
development stage enterprises to employ the same accounting principles as
operating companies.
Property and Equipment
Property and equipment are stated at cost. Depreciation will be computed
using the straight-line method over the estimated useful lives of the assets,
which range from two to five years.
Fair Value of Financial Instruments
The carrying amounts of financial instruments, including cash and due to
principal stockholder, approximated fair value as of August 31, 1999 because of
the relatively short maturity of the instruments.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Comprehensive Income
The Company is required to report comprehensive income under SFAS No. 130,
"Reporting Comprehensive Income", which establishes standards for reporting and
display of comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity except those
resulting from investments by owners and distributions to owners. There were no
items of comprehensive income during the period presented.
F-7
<PAGE>
B2BSTORES.COM INC.
SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Income Taxes
The Company uses the liability method of accounting for income taxes in
accordance with SFAS No. 109, "Accounting for Income Taxes". Deferred income tax
assets and liabilities are recognized based on the temporary differences between
the financial statement and income tax bases of assets, liabilities and
carryforwards using enacted tax rates. Valuation allowances are established,
when necessary, to reduce deferred tax assets to the amount expected to be
realized.
The Company has net operating losses ("NOL") of approximately $60,000 which
expire in 2019. The deferred tax asset resulting from this NOL has been offset
with a valuation allowance.
Loss Per Share
Basic loss per share is based only on the average number of common shares
outstanding for the period. Diluted loss per share is similar to basic loss per
share except that the weighted average number of common shares outstanding is
increased to include the weighted average number of additional common shares
that would have been outstanding if dilutive potential common shares, such as
options and warrants, had been issued. Dilutive potential common shares are
excluded from the computation if their effect is antidilutive.
Stock-Based Compensation
The Company accounts for its stock option awards under the intrinsic value
based method of accounting prescribed by Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees". Under the intrinsic value
based method, compensation cost is the excess, if any, of the fair market value
of the stock at grant date or other measurement date over the amount an employee
must pay to acquire the stock. The Company will make pro forma disclosures of
net income and earnings per share as if the fair value based method of
accounting had been applied, as required by SFAS No. 123, "Accounting for
Stock-Based Compensation."
F-8
<PAGE>
B2BSTORES.COM INC.
NOTES TO FINANCIAL STATEMENTS
1. GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is in the development
stage and has had no revenues from operations since inception. There can be no
assurance that the Company will be able to obtain the substantial additional
capital resources necessary to pursue its business plan or that any assumptions
relating to its business plan will prove to be accurate. The Company is pursuing
sources of additional financing (see Note 4) and there can be no assurance that
any such financing will be available to the Company on commercially reasonable
terms, or at all. Any inability to obtain additional financing will have a
material adverse effect on the Company, including possibly requiring the Company
to significantly curtail or cease operations.
These factors raise substantial doubt about the ability of the Company to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
2. DUE TO PRINCIPAL STOCKHOLDER
At August 31, 1999, the Company had a promissory note payable to one
stockholder of $179,836 that bears interest at the rate of 8% per year.
Principal and interest are due and payable on the earlier of (i) December 31,
1999 or (ii) the date the Company consummates an offering of its equity
securities yielding gross proceeds of at least $2,000,000.
3. COMMITMENTS
Employment Agreements
In August and September 1999, the Company entered into employment
agreements with certain key employees providing for future minimum annual
compensation as follows:
<TABLE>
<CAPTION>
YEAR ENDING AUGUST 31,
- --------------------------------------------------------------------------------------------------
<S> <C>
2000.............................................................................................. $ 820,000
2001.............................................................................................. 895,000
2002.............................................................................................. 945,000
----------
$2,660,000
----------
----------
</TABLE>
Certain of these employees are entitled to receive aggregate bonuses of up
to $355,000 upon the attainment by the Company of certain objectives, including
the hiring of certain key employees and the consummation of an initial public
offering ("IPO") of the Company's common stock. Of this amount, $25,000 has been
subsequently earned and $105,000 will be earned upon consummation of the IPO.
These amounts will be paid out of the proceeds of the IPO.
F-9
<PAGE>
B2BSTORES.COM INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. COMMITMENTS--(CONTINUED)
These employees will also be granted on the effective date of the
registration statement for the Company's IPO (the "Effective Date") stock
options to purchase 1,000,000 shares of the Company's common stock at an
exercise price equal to 80% of the market price established on the Effective
Date. The options will have a contractual life of approximately 10 years. Of
these options, 200,000 will vest at the time of grant. The remaining options
will vest over a period of three years. In connection with the issuance of these
options, the Company will record compensation expense based on the excess of the
fair market value on the Effective Date and the exercise price of such options.
The agreements also provide for certain key employees, for each calendar
quarter during calendar year 2000, to be granted options under the 1999
Performance Equity Plan (the "Plan") (See Note 6) (if they are still employed)
to purchase 50,000 shares of common stock at a per share price equal to the last
sales price of the Company's common stock on the last trading day prior to the
date of grant, assuming the successful completion of the IPO, or fair value.
Lease Commitments
The Company leases office space for its corporate headquarters in Long
Beach, California under an operating lease through August 2001. The minimum
lease payments required under the noncancellable operating lease for the years
subsequent to August 31, 1999 are:
<TABLE>
<CAPTION>
YEAR ENDING AUGUST 31,
- ----------------------------------------------------------------------------------------------------
<S> <C>
2000................................................................................................ $ 77,000
2001................................................................................................ 77,000
--------
$154,000
--------
--------
</TABLE>
Total rent expense for the period ending August 31, 1999 was $3,000.
Service Agreement
During July 1999, the Company entered into an e-commerce system service
agreement with Netgateway pursuant to which Netgateway designs, develops,
maintains and houses the Company's web site. For these services the Company has
paid an up-front fee with additional nominal operating fees payable to
Netgateway based on the number of hits on the web site. Netgateway will also be
entitled to a small percentage of all revenues generated from sales (varying
according to sales volume) processed through the Company's e-commerce
infrastructure, whether as a result of sales of products by the Company or sales
by other web sites to which the Company provides vendor management or processing
services. The Company is also obligated to share equally with Netgateway all
advertising and "click-through" revenues generated through the Company's web
site. This service agreement extends through February 2001 and is subject to
automatic renewals for
F-10
<PAGE>
B2BSTORES.COM INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. COMMITMENTS--(CONTINUED)
successive one-year terms unless terminated by either party with six months
notice prior to the lapse of the initial term or any renewal term thereafter.
4. STOCKHOLDERS' EQUITY
Capital Stock
On June 28, 1999, the Company's Board of Directors authorized capital stock
consisting of 25,000,000 shares of common stock, $.01 par value per share, and
5,000,000 shares of preferred stock, $.01 par value per share.
Issuance of Common Stock
On June 29, 1999, the founding stockholders of the Company purchased
3,666,667 shares of common stock with an original par value of $27,500 for
$11,000 in cash with $16,500 recorded as a non-cash compensation charge to
operations for the intellectual property provided by the founding stockholders
and their services rendered in the formation of the Company. In connection with
the stock split of the Company's common stock (see Note 6), the Company recorded
an additional non-cash compensation charge to operations of approximately
$9,000.
On August 23, 1999, the Company sold 333,333 shares of its common stock for
$625,000 to certain investors including its Chairman and certain affiliates. In
connection with the August 23, 1999 issuance, the Company recorded a non-cash
compensation charge to operations of approximately $1,875,000, representing the
difference between the selling price of the stock and its estimated fair value.
In connection with the stock split of the Company's common stock (see Note 6),
the Company recorded an additional non-cash compensation charge to operations of
approximately $1,000.
5. DEFERRED OFFERING COSTS
The Company has incurred costs of $52,451, in connection with the IPO (see
Note 4). Upon consummation of the IPO, the deferred offering costs will be
charged to equity. Should the IPO prove to be unsuccessful, these deferred
costs, as well as additional expenses to be incurred, will be charged to
operations.
6. SUBSEQUENT EVENTS
Initial Public Offering
On September 27, 1999, the Board of Directors authorized the management of
the Company to file a registration statement for the IPO of the Company's common
stock. The Company plans to raise gross proceeds of $35,000,000. There can be no
assurance that the
F-11
<PAGE>
B2BSTORES.COM INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. SUBSEQUENT EVENTS--(CONTINUED)
financing will occur. The Company plans to issue 350,000 common stock purchase
warrants to representatives of the underwriters in connection with the IPO.
Stock Split
The Company's Board of Directors authorized a 4 for 3 split of its common
stock in the form of a stock dividend, effective September 28, 1999. All shares
and per-share amounts in the accompanying financial statements have been
restated to give effect to the stock split.
Issuance of Common Stock
In September 1999, the Company issued an aggregate of 16,643 shares of
common stock to consultants in connection with services rendered to the Company
and 5,000 shares to directors. The shares were valued at $10 per share.
1999 Performance Equity Plan
On September 30, 1999, the Board of Directors and stockholders approved the
Plan. The Plan authorizes the granting of awards up to 2,000,000 shares of
common stock to key employees, officers, directors and consultants. Awards
consist of stock options (both nonqualified options and options intended to
qualify as "Incentive" stock options under Section 422 of the Internal Revenue
Code of 1986, as amended), registered stock awards, deferred stock awards, stock
appreciation rights and other stock-based awards, as described in the Plan. No
options have been granted under the Plan.
F-12
<PAGE>
3,500,000 SHARES
B2BSTORES.COM INC.
COMMON STOCK
[LOGO]
------------------------
PROSPECTUS
------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF COMMON STOCK.
GAINES, BERLAND INC. NOLAN SECURITIES, INC.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law, as amended, authorizes
the Registrant to indemnify any director or officer under certain prescribed
circumstances and subject to certain limitations against certain costs and
expenses, including attorneys' fees actually and reasonably incurred in
connection with any action, suit or proceeding, whether civil, criminal,
administrative or investigative, to which such person is a party by reason of
being a director or officer of the Registrant if it is determined that such
person acted in accordance with the applicable standard of conduct set forth in
such statutory provisions. Article IV of the Registrant's By-Laws extends such
indemnities to the full extent permitted by Delaware law.
The Registrant may also purchase and maintain insurance for the benefit of
any director or officer which may cover claims for which the Registrant could
not indemnify such persons.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following statement sets forth the estimated expenses in connection
with the offering described in the Registration Statement, all of which will be
borne by the Registrant.
<TABLE>
<S> <C>
Securities and Exchange Commission Filing Fee....... $ 12,358
Nasdaq Filing Fees.................................. 69,375
NASD Filing Fees.................................... 4,945
Accountants' Fees................................... 100,000
Legal Fees.......................................... 175,000
Printing and engraving.............................. 200,000
Transfer Agent...................................... 10,000
Blue Sky Fees....................................... 50,000
Miscellaneous....................................... 28,322
--------
Total......................................... $650,000
--------
--------
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
We were formed in June 1999. In our initial round of capitalization on
June 28, 1999, we sold an aggregate of 3,666,667 shares of common stock to
sophisticated purchasers for $27,500 in the form of $11,000 cash and the
transfer to us of any right, title and interest they otherwise might have had in
b2bstores.com, including intellectual property rights, in reliance on the
exemption under Section 4(2) of the Securities Act of 1933. These persons were
given the opportunity to speak with our executive officers and ask questions
about our business and plans. No placement agent was engaged and no commissions
were paid. The shares were issued as follows:
II-1
<PAGE>
<TABLE>
<CAPTION>
HOLDER NUMBER OF SHARES
- ---------------------------------------------- ----------------
<S> <C>
Richard Kandel................................ 1,000,000
Randall Davis................................. 333,333
Steven Etra................................... 66,667
Enviro-Clean.................................. 2,000,000
C. Walter Stursburg........................... 66,667
HOM Advisors.................................. 133,333
Mint Corp. of NY.............................. 66,667
----------
Total................................... 3,666,667
----------
----------
</TABLE>
The principal of Mint Corp. of NY is Mr. Kandel. The principal of HOM
Advisors is Robert Ocko.
In August 1999, we raised additional capital of $625,000 through the
issuance of 333,333 shares of common stock to sophisticated purchasers for $1.88
per share in reliance on the exemption under Section 4(2). These persons were
given the opportunity to speak with our executive officers and ask questions
about our business and plans. No placement agent was engaged and no commissions
were paid. The shares were issued as follows:
<TABLE>
<CAPTION>
HOLDER NUMBER OF SHARES
- ---------------------------------------------- ----------------
<S> <C>
Richard Kandel................................ 66,666
K&S PSP....................................... 100,000
SRK Associates................................ 10,667
Steven Etra................................... 92,000
Richard Etra.................................. 26,667
Kenneth Etra.................................. 37,333
----------
333,333
----------
----------
</TABLE>
The principal of K&S PSP is Mr. Kandel. The principals of SRK Associates
are Steven Etra, Richard Etra and Kenneth Etra.
In September 1999, we issued 21,643 shares of our common stock to
sophisticated individuals in reliance on the exemption under Section 4(2).
16,643 of these shares were issued in consideration of professional services
rendered to us, including accounting services. The remaining 5,000 shares were
issued to two persons upon becoming directors of b2bstores.com. These shares
were valued at $216,430. Each person had the opportunity to meet with and ask
questions of our executive officers about our business and plans. No placement
agent was engaged and no commissions were paid. The shares were issued as
follows:
<TABLE>
<CAPTION>
HOLDER NUMBER OF SHARES
- ---------------------------------------------- ----------------
<S> <C>
Jan Pasternack................................ 10,000
Stephen Kirschner............................. 3,000
Irwin Gorelick................................ 1,143
Neil Koenig................................... 2,500
Philip Ellett................................. 2,500
John Higgins.................................. 2,500
----------
21,643
----------
----------
</TABLE>
II-2
<PAGE>
ITEM 27. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement*
3.1 -- Certificate of Incorporation*
3.1(a) -- Amendment to Certificate of Incorporation+
3.2 -- By-Laws*
3.2(a) -- Amended Bylaws+
4.1 -- Specimen Common Stock Certificate**
4.2 -- Form of Representatives' Warrant Agreement, including form of Repesentatives' Warrant*
5.1 -- Opinion of Graubard Mollen & Miller+
10.1 -- Employment Agreement with Woo Jin Kim*
10.2 -- Employment Agreement with Richard Kandel+
10.3 -- Employment Agreement with Shannon Jessup*
10.4 -- Employment Agreement with Brian Wharton*
10.5 -- Employment Agreement with Jeffrey Crandell*
10.6 -- Employment Agreement with Mark Voorhis*
10.7 -- Form of Stock Option Agreement with Woo Jin Kim*
10.8 -- Form of Stock Option Agreement with Shannon Jessup*
10.9 -- Form of Stock Option Agreement with Brian Wharton*
10.10 -- Form of Stock Option Agreement with Jeffrey Crandell*
10.11 -- Form of Stock Option Agreement with Mark Voorhis*
10.12 -- Services Agreement with Netgateway(1)*
10.13 -- Lease for 249 East Ocean Boulevard, Long Beach, California*
10.14 -- Web Site Services Agreement between b2bstores.com and Enviro-Clean(1)+
10.15 -- 1999 Performance Equity Plan*
10.16 -- Promissory Note with Enviro-Clean+
23.1 -- Consent of Graubard Mollen & Miller
(included in the Opinion filed as Exhibit 5.1)+
23.2 -- Consent of BDO Seidman, LLP+
27.1 -- Financial Data Schedule*
</TABLE>
- ------------------
* Previously filed
** To be filed by amendment
+ Filed herewith.
(1) We have requested or will request confidential treatment from the SEC
for certain portions of these agreements.
II-3
<PAGE>
ITEM 28. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities,
a post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement; and notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of
prospectus filed with Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement.
(iii) Include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement provided, however, that paragraphs (a)(1)(i) and
(a)(1)(ii) do not apply if the registration statement is on Form S-3,
Form S-8 or Form F-3, and the information required to be included in
post-effective amendment by those paragraphs is contained in periodic
reports filed with or furnished to the Commission by the registrant
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the registration statement.
(iv) Include any additional or changed material information on
the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered and the offering of the securities at that time to be the initial
bona fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(4) To provide to the underwriters at the closing specified in the
underwriting agreement certificates in such denominations and registered in
such names as required by the underwriters to permit prompt delivery to
each purchaser.
(5) "Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers
and controlling persons of the small business issuer pursuant to the
foregoing provisions, or otherwise, the small business issuer has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable."
II-4
<PAGE>
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred
or paid by a director, officer or controlling person of the small business
issuer 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 small business issuer 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.
(6) If the issuer relies on Rule 430A under the Securities Act, the
small business issuer will:
(1) For determining any liability under the Securities Act, treat
the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the small business issuer under
Rule 424(b)(1), or (4), or 497(h) under the Securities Act as part of
this registration statement as of the time the Commission declared it
effective.
(2) For determining any liability under the Securities Act, treat
each post-effective amendment that contains a form of prospectus as a
new registration statement for the securities offered in the
registration statement, and that offering of the securities at that
time as the initial bona fide offering of those securities.
II-5
<PAGE>
SIGNATURES
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS OF FILING ON FORM SB-2 AND HAS AUTHORIZED THIS REGISTRATION
STATEMENT OR AMENDMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, IN THE
CITY OF NEW YORK ON THE 30TH DAY OF NOVEMBER 1999.
b2bstores.com Inc.
By: /s/ WOO JIN KIM
----------------------------------
Woo Jin Kim
Chief Executive Officer
In accordance with the requirements of the Securities Act, this
registration statement or amendment was signed by the following persons in the
capacities and on the dates stated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ --------------------------------------- -------------------
<S> <C> <C>
* Chairman of the Board and November 30, 1999
- ------------------------------------------ Director
Richard Kandel
/s/ WOO JIN KIM Chief Executive Officer, November 30, 1999
- ------------------------------------------ President and Director
Woo Jin Kim
* Chief Financial Officer and November 30, 1999
- ------------------------------------------ Chief Operating Officer
Mark Voorhis
Director November 30, 1999
- ------------------------------------------
John Higgins
* Director November 30, 1999
- ------------------------------------------
Phillip Ellett
</TABLE>
- ------------------
* By power of attorney
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement*
3.1 -- Certificate of Incorporation*
3.1(a) -- Amendment to Certificate of Incorporation+
3.2 -- By-Laws*
3.2(a) -- Amended Bylaws+
4.1 -- Specimen Common Stock Certificate**
4.2 -- Form of Representatives' Warrant Agreement, including form of Repesentatives' Warrant*
5.1 -- Opinion of Graubard Mollen & Miller+
10.1 -- Employment Agreement with Woo Jin Kim*
10.2 -- Employment Agreement with Richard Kandel+
10.3 -- Employment Agreement with Shannon Jessup*
10.4 -- Employment Agreement with Brian Wharton*
10.5 -- Employment Agreement with Jeffrey Crandell*
10.6 -- Employment Agreement with Mark Voorhis*
10.7 -- Form of Stock Option Agreement with Woo Jin Kim*
10.8 -- Form of Stock Option Agreement with Shannon Jessup*
10.9 -- Form of Stock Option Agreement with Brian Wharton*
10.10 -- Form of Stock Option Agreement with Jeffrey Crandell*
10.11 -- Form of Stock Option Agreement with Mark Voorhis*
10.12 -- Services Agreement with Netgateway(1)*
10.13 -- Lease for 249 East Ocean Boulevard, Long Beach, California*
10.14 -- Web Site Services Agreement between b2bstores.com and Enviro-Clean(1)+
10.15 -- 1999 Performance Equity Plan*
10.16 -- Promissory Note with Enviro-Clean+
23.1 -- Consent of Graubard Mollen & Miller
(included in the Opinion filed as Exhibit 5.1)+
23.2 -- Consent of BDO Seidman, LLP+
27.1 -- Financial Data Schedule*
</TABLE>
- ------------------
* Previously filed
** To be filed by amendment
+ Filed herewith.
(1) We have requested or will request confidential treatment from the SEC for
certain portions of these agreements.
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 02:00 PM 10/28/1999
991458106 - 3062490
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
B2BSTORES.COM Inc.
Pursuant to Section 242 of the
General Corporation Law of Delaware
The undersigned, being the Chief Executive Officer of
b2bstores.com Inc., a Delaware corporation ("Corporation"), does hereby certify
as follows:
FIRST, that the Corporation's Certificate of Incorporation be
amended by striking out Article Fifth and substituting in lieu thereof the
following:
FIFTH: The following provisions are inserted for the
management of the business and for the conduct of the affairs of the
Corporation, and for further definition, limitation and regulation of
the powers of the Corporation and of its directors and stockholders.
(a) The number of directors shall be determined as set forth
in the By-Laws of the Corporation.
(b) Election of directors need not be by ballot unless the
by-laws of the Corporation so provide.
(c) The Board of Directors shall be divided into three
classes: Class A, Class B and Class C. The number of directors in each
class shall be as nearly equal as possible. The term of the directors
comprising Class A shall expire at the Annual Meeting of Stockholders
in 2000, the term of the directors comprising Class B shall expire at
the Annual Meeting of Stockholders in 2001 and the term of the
directors comprising Class C shall expire at the Annual Meeting of
Stockholders in 2002. Commencing at the first Annual Meeting of
Stockholders, and at each annual meeting thereafter, directors elected
to succeed those directors whose terms expire shall be elected for a
term of office to expire at the third succeeding annual meeting of
stockholders after their election. Except as the General Corporation
Law of Delaware may otherwise require, in the interim between annual
meetings of stockholders or special meetings of stockholders called for
the election of directors and/or
<PAGE>
the removal of one or more directors and the filling of any vacancy in
that connection, newly created directorships and any vacancies on the
Board of Directors, including unfilled vacancies resulting from the
removal of directors for cause, may be filled by the vote of a majority
of the remaining directors then in office, although less than a quorum,
or by the sole remaining director. All directors shall hold office
until the expiration of their respective terms of office and until
their successors shall have been elected and qualified. A director
elected to fill a vacancy resulting from the death, resignation or
removal of a director shall serve for the remainder of the full term of
the director whose death, resignation or removal shall have created
such vacancy and until his successor shall have been elected and
qualified.
(d) The directors in their discretion may submit any contract
or act for approval or ratification at any annual meeting of the
stockholders or at any meeting of the stockholders called for the
purpose of considering any such act or contract, and any contract or
act that shall be approved or be ratified by the vote of the holders of
a majority of the stock of the Corporation which is represented in
person or by proxy at such meeting and entitled to vote thereat
(provided that a lawful quorum of stockholders be there represented in
person or by proxy) shall be as valid and binding upon the Corporation
and upon all the stockholders as though it had been approved or
ratified by every stockholder of the Corporation, whether or not the
contract or act would otherwise be open to legal attack because of
directors' interest, or for any other reason.
(e) In addition to the powers and authorities hereinbefore or
by statute expressly conferred upon them, the directors are hereby
empowered to exercise all such powers and do all such acts and things
as may be exercised or done by the Corporation; subject, nevertheless,
to the provisions of the statutes of Delaware, of this Certificate of
Incorporation, and to any by-laws from time to time made by the
stockholders; provided, however, that no by-law so made shall
invalidate any prior act of the directors which would have been valid
if such by-law had not been made.
SECOND, that such amendment to the Certificate of
Incorporation was duly adopted by the Board of Directors of the Corporation and
by the affirmative vote of a majority of the outstanding shares entitled to vote
thereon in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned has subscribed this
Certificate of Amendment on the 15th day of October, 1999 and does hereby affirm
under the penalties of perjury that the statements contained herein are true.
By: /s/ Woo Jin Kim
--------------------------
Woo Jin Kim
Chief Executive Officer
2
<PAGE>
AMENDED AND RESTATED BY-LAWS
OF
b2bstores.com Inc.
ARTICLE I
OFFICES
-------
1.1 Registered Office: The registered office shall be
established and maintained at 9 East Loockerman Street, Kent County, Dover,
Delaware and National Corporate Research, Ltd. shall be the registered agent of
the corporation in charge thereof.
1.2 Other Offices: The corporation may have other offices,
either within or without the State of Delaware, at such place or places as the
Board of Directors may from time to time appoint or the business of the
corporation may require.
ARTICLE II
STOCKHOLDERS
2.1 Place of Stockholders' Meetings. All meetings of the
stockholders of the corporation shall be held at such place or places, within or
outside the State of Delaware as may be fixed by the Board of Directors from
time to time or as shall be specified in the respective notices thereof.
2.2 Date and Hour of Annual Meetings of Stockholders. An
annual meeting of stockholders shall be held each year at such place, either
within or without the State of Delaware, and at such time and date as the Board
of Directors, by resolution, shall determine and as set forth in the notice of
the meeting. In the event the Board of Directors fails to so determine the time,
date and place of meeting, the annual meeting of stockholders shall be held at
the main headquarters of the corporation on a day in the month of March as shall
be determined by the Board of Directors. If the date of the annual meeting shall
fall upon a legal holiday, the meeting shall be held on the next succeeding
business day.
2.3 Purposes of Annual Meetings. At each annual meeting, the
stockholders shall elect the members of the Board of Directors for the
succeeding year. At any such annual meeting any further proper business may be
transacted.
2.4 Special Meetings of Stockholders. Special meetings of the
stockholders or of any class or series thereof entitled to vote may be called by
the Chairman of the Board or by the Board of Directors, or at the request in
writing by stockholders of record owning at least 40% of the issued and
outstanding shares of Common Stock of the corporation, which request shall state
the purpose of the proposed meeting, and may be held at such time and place,
within or without the State of Delaware, as shall be stated in the notice of
meeting.
2.5 Notice of Meetings of Stockholders. Except as otherwise
expressly required or permitted by law, not less than ten days nor more than
sixty days before the date of every stockholders'
<PAGE>
meeting the Secretary shall give to each stockholder of record entitled to vote
at such meeting, written notice, served personally, by mail or by telegram,
stating the place, date and hour of the meeting and, in the case of a special
meeting, the purpose or purposes for which the meeting is called. Such notice,
if mailed, shall be deemed to be given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his address for notices to such
stockholder as it appears on the records of the corporation.
2.6 Quorum of Stockholders.
(a) Unless otherwise provided by the Certificate of
Incorporation or by law, at any meeting of the stockholders, the presence in
person or by proxy of stockholders entitled to cast a majority of the votes
thereat shall constitute a quorum.
(b) At any meeting of the stockholders at which a
quorum shall be present, a majority of those present in person or by proxy may
adjourn the meeting from time to time without notice other than announcement at
the meeting. In the absence of a quorum, the officer presiding thereat shall
have power to adjourn the meeting from time to time until a quorum shall be
present. Notice of any adjourned meeting, other than announcement at the
meeting, shall not be required to be given, except as provided in paragraph (d)
below and except where expressly required by law.
(c) At any adjourned session at which a quorum shall
be present, any business may be transacted which might have been transacted at
the meeting originally called but only those stockholders entitled to vote at
the meeting as originally noticed shall be entitled to vote at any adjournment
or adjournments thereof, unless a new record date is fixed by the Board of
Directors.
(d) If an adjournment is for more than thirty days,
or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting.
2.7 Chairman and Secretary of Meeting. The Chairman of the
Board, or, in his absence, the President, shall preside at meetings of the
stockholders. The Secretary or, in his absence, an Assistant Secretary, shall
act as secretary of the meeting, or if neither is present, then the presiding
officer may appoint a person to act as secretary of the meeting.
2.8 Voting by Stockholders. Except as may be otherwise
provided by the Certificate of Incorporation or these by-laws, at every meeting
of the stockholders each stockholder shall be entitled to one vote for each
share of stock standing in his name on the books of the corporation on the
record date for the meeting. All elections and questions shall be decided by the
vote of a majority in interest of the stockholders present in person or
represented by proxy and entitled to vote at the meeting.
2.9 Proxies. Any stockholder entitled to vote at any meeting
of stockholders may vote either in person or by proxy. Every proxy shall be in
writing, subscribed by the stockholder or his duly authorized attorney-in-fact,
but need not be dated, sealed, witnessed or acknowledged.
2.10 Inspectors. The election of directors and any other vote
by ballot at any meeting of the stockholders shall be supervised by at least two
inspectors. Such inspectors shall be appointed by the Board of Directors in
advance of the meeting. If one or both inspectors so appointed shall refuse to
serve or shall not be present, such appointment shall be made by the officer
presiding at the meeting.
2
<PAGE>
2.11 List of Stockholders.
(a) At least ten days before every meeting of
stockholders the Secretary shall prepare and make a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder.
(b) During ordinary business hours, for a period of
at least ten days prior to the meeting, such list shall be open to examination
by any stockholder for any purpose germane to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or if not so specified, at the place where the
meeting is to be held.
(c) The list shall also be produced and kept at the
time and place of the meeting during the whole time of the meeting, and it may
be inspected by any stockholder who is present.
(d) The stock ledger shall be the only evidence as to
who are the stockholders entitled to examine the stock ledger, the list required
by this Section 2.11 or the books of the corporation, or to vote in person or by
proxy at any meeting of stockholders.
2.12 Procedure at Stockholders' Meetings. Except as otherwise
provided by these by-laws or any resolutions adopted by the stockholders or
Board of Directors, the order of business and all other matters of procedure at
every meeting of stockholders shall be determined by the presiding officer. Not
less than 15 minutes following the presentation of any resolution to any meeting
of stockholders, the presiding officer may announce that further discussion on
such resolution shall be limited to not more than three persons who favor and
not more than three persons who oppose such resolution, each of whom shall be
designated by the presiding officer and shall thereupon be entitled to speak
thereon for not more than five minutes. After such persons, or such a lesser
number thereof as shall advise the presiding officer of their desire so to
speak, shall have spoken on such resolution, the presiding officer may direct a
vote on such resolution without further discussion thereon at the meeting.
2.13 Action By Consent Without Meeting. Unless otherwise
provided by the Certificate of Incorporation, any action required to be taken at
any annual or special meeting of stockholders, or any action which may be taken
at any annual or special meeting, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
2.14 Stockholder Proposals. Proposals to be submitted for
consideration at any meeting of stockholders may be made by any stockholder that
would be entitled to vote on such proposal ("Stockholder's Proposal") is
delivered to the Board of Directors by personal delivery or by United States
mail, postage prepaid, to the Secretary of the Corporation not later than 30
days in advance of such meeting; provided, however, that if less than 30 days'
notice of such meeting was provided to stockholders, then the Stockholder's
Proposal must be delivered not later than five days after such notice is given.
Each such notice shall set forth: (a) the name and address of the stockholder
making such proposal; (b) a representation that such stockholder is a holder of
record of stock of the Corporation entitled to vote at the meeting and intends
to appear in person or by proxy at the meeting to make the proposal specified in
the notice; (c) a description of the proposal and the reasons for making such
proposal; (d) a description of all arrangements, agreements and understandings
between such stockholder and any other person pursuant to which the proposal is
being made or relating to such stockholder's ability or obligation to vote his
stock of the Corporation at the meeting;
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and (e) such other information regarding the proposal as would be required to
be included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission. The chairman of any meeting of stockholders
and the Board of Directors may refuse to acknowledge and consider any
stockholder proposal not made in compliance with the foregoing procedures.
ARTICLE III
DIRECTORS
3.1 Powers of Directors. The property, business and affairs of
the corporation shall be managed by its Board of Directors which may exercise
all the powers of the corporation except such as are by the law of the State of
Delaware or the Certificate of Incorporation or these by-laws required to be
exercised or done by the stockholders.
3.2 Number, Method of Election, Terms of Office of Directors.
The number of directors which shall constitute the Board of Directors shall be
between one and five, such number to be fixed by resolution of the Board of
Directors. Each Director shall hold office until the next annual meeting of
stockholders and until his successor is elected and qualified, provided,
however, that a director may resign at any time. Directors need not be
stockholders.
3.3 Vacancies on Board of Directors; Removal.
(a) Any director may resign his office at any time by
delivering his resignation in writing to the Chairman of the Board or the
Secretary. It will take effect at the time specified therein or, if no time is
specified, it will be effective at the time of its receipt by the corporation.
The acceptance of a resignation shall not be necessary to make it effective,
unless expressly so provided in the resignation.
(b) Any vacancy, or newly created directorship resulting
from any increase in the authorized number of directors, may be filled by a
majority of the directors then in office, though less than a quorum, or by a
sole remaining director, and any director so chosen shall hold office until the
next annual election of directors by the stockholders and until his successor is
duly elected and qualified or until his earlier resignation or removal.
(c) Removal. Any director may be removed with or without
cause at any time by the affirmative vote of stockholders holding of record in
the aggregate at least a majority of the outstanding shares of stock of the
corporation, given at a special meeting of the stockholders called for that
purpose.
3.4 Meetings of the Board of Directors.
(a) The Board of Directors may hold their meetings,
both regular and special, either within or outside the State of Delaware.
(b) Regular meetings of the Board of Directors may be
held at such time and place as shall from time to time be determined by
resolution of the Board of Directors. No notice of such regular meetings shall
be required. If the date designated for any regular meeting be a legal holiday,
then the meeting shall be held on the next day which is not a legal holiday.
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(c) The first meeting of each newly elected Board of
Directors shall be held immediately following the annual meeting of the
stockholders for the election of officers and the transaction of such other
business as may come before it. If such meeting is held at the place of the
stockholders' meeting, no notice thereof shall be required.
(d) Special meetings of the Board of Directors shall
be held whenever called by direction of the Chairman of the Board or at the
written request of a majority of the Board of Directors.
(e) The Secretary shall give notice to each director
of any special meeting of the Board of Directors by mailing the same at least
three days before the meeting or by telegraphing, telexing, telefaxing, or
delivering the same not later than the day before the meeting. Unless required
by law, such notice need not include a statement of the business to be
transacted at, or the purpose of, any such meeting. Any and all business may be
transacted at any meeting of the Board of Directors. No notice of any adjourned
meeting need be given. No notice to or waiver by any director shall be required
with respect to any meeting at which the director is present.
3.5 Quorum and Action. Unless provided otherwise by law or the
Certificate of Incorporation, a majority of the whole board shall constitute a
quorum for the transaction of business; but if there shall be less than a quorum
at any meeting of the Board, a majority of those present may adjourn the meeting
from time to time. The vote of a majority of the directors present at any
meeting at which a quorum is present shall be necessary to constitute the act of
the Board of Directors.
3.6 Presiding Officer and Secretary of Meeting. The Chairman
of the Board, or in his absence, Chief Executive Officer, or, in their absence a
member of the Board of Directors selected by the members present, shall preside
at meetings of the Board. The Secretary shall act as secretary of the meeting,
but in his absence the presiding officer may appoint a secretary of the meeting.
3.7 Action by Consent Without Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes or proceedings of the Board or committee.
3.8 Action by Telephonic Conference. Members of the Board of
Directors, or any committee designated by such board, may participate in a
meeting of such board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in such a meeting shall
constitute presence in person at such meeting.
3.9 Committees.
(a) The Board of Directors may, by resolution or
resolutions passed by a majority of the whole board, designate one or more
committees, each committee to consist of two or more of the directors of the
corporation. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of any member of
such committee or committees, the member or members thereof present at any such
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member.
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(b) Any such committee, to the extent provided in the
resolution or resolution of the Board of Directors, or in these by-laws, shall
have and may exercise all the powers and authority of the Board of Directors in
the management of the business and affairs of the corporation, and may authorize
the seal of the corporation to be affixed to all papers which may require it;
but no such committee shall have the power of authority in reference to amending
the Certificate of Incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, recommending
to the stockholders a dissolution of the corporation or a revocation of a
dissolution, or amending the by-laws of the corporation; and unless the
resolution, these by-laws, or the Certificate of Incorporation expressly so
provide, no such committee shall have the power or authority to declare a
dividend or to authorize the issuance of stock.
3.10 Compensation of Directors. Directors shall receive such
reasonable compensation for their service on the Board of Directors or any
committees thereof, whether in the form of salary or a fixed fee for attendance
at meetings, or both, with expenses, if any, as the Board of Directors may from
time to time determine. Nothing herein contained shall be construed to preclude
any Director from serving the corporation in any other capacity and receiving
compensation therefor.
3.11 Contracts.
(a) Subject to the requirements in Section 7.5, no
contract or other transaction between this corporation and any other corporation
shall be impaired, affected or invalidated, nor shall any director be liable in
any way by reason of the fact that any one or more of the directors of this
corporation is or are interested in, or is a director or officer, or are
directors or officers of such other corporation, provided that such facts are
disclosed or made known to the Board of Directors.
(b) Subject to the requirements in Section 7.5, any
director, personally and individually, may be a party to or may be interested in
any contract or transaction of this corporation, and no director shall be liable
in any way by reason of such interest, provided that the fact of such interest
be disclosed or made known to the Board of Directors, and provided that the
Board of Directors shall authorize, approve or ratify such contract or
transaction by the vote (not counting the vote of any such director) of a
majority of a quorum, notwithstanding the presence of any such director at the
meeting at which such action is taken. Such director or directors may be counted
in determining the presence of a quorum at such meeting. This Section shall not
be construed to impair or invalidate or in any way affect any contract or other
transaction which would otherwise be valid under the law (common, statutory or
otherwise) applicable thereto.
ARTICLE IV
OFFICERS
4.1 Officers, Title, Elections, Terms.
(a) The elected officers of the corporation shall be
a Chairman of the Board, Chief Executive Officer, a President, one or more Vice
Presidents, a Treasurer and a Secretary, who shall be elected by the Board of
Directors at its annual meeting following the annual meeting of the
stockholders, to serve at the pleasure of the Board or otherwise as shall be
specified by the Board at the time of such election and until their successors
are elected and qualify.
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(b) The Board of Directors may elect or appoint at
any time, and from time to time, additional officers or agents with such duties
as it may deem necessary or desirable. Such additional officers shall serve at
the pleasure of the Board or otherwise as shall be specified by the Board at the
time of such election or appointment. Two or more offices may be held by the
same person.
(c) Any vacancy in any office may be filled for the
unexpired portion of the term by the Board of Directors.
(d) Any officer may resign his office at any time.
Such resignation shall be made in writing and shall take effect at the time
specified therein or, if no time be specified, at the time of its receipt by the
corporation. The acceptance of a resignation shall not be necessary to make it
effective, unless expressly so provided in the resignation.
(e) The salaries of all officers of the corporation
shall be fixed by the Board of Directors.
4.2 Removal of Elected Officers. Any elected officer may be
removed at any time, either with or without cause, by resolution adopted at any
regular or special meeting of the Board of Directors by a majority of the
directors then in office.
4.3 Duties.
(a) Chairman of the Board. The Chairman of the Board
shall be the chief executive officer of the corporation. The Chairman of the
Board of Directors shall supervise and control the overall business and affairs
of the corporation and he or she shall have and perform such other duties as
from time to time may be assigned to him by the Board of Directors.
(b) Chief Executive Officer. The Chief Executive
Officer shall be the principal executive officer of the Corporation and, subject
to the control of the Chairman of the Board and the Board of Directors, shall
supervise and control all the business and affairs of the Corporation. He shall
see that all orders and resolutions of the Board of Directors are carried into
effect (unless any such order or resolution shall provide otherwise), and in
general shall perform all duties incident to the office of chief executive
officer and such other duties as may be prescribed by the Chairman of the Board
and the Board of Directors from time to time.
(c) President. The President shall report to the
Chairman of the Board and the Chief Executive Officer. The President, subject to
the control of the Chairman of the Board and the Board of Directors, shall
supervise and control all the business and affairs of the Corporation. He shall
see that all orders and resolutions of the Board of Directors are carried into
effect (unless any such order or resolution shall provide otherwise), and in
general shall perform all duties incident to the office of president and such
other duties as may be prescribed by the Board of Directors from time to time.
(d) Vice President. Each Vice President, if any, shall
have such powers and perform such duties as the Board of Directors may determine
or as may be assigned to him by the Chairman of the Board or the Chief Executive
Officer. In the absence of the President or in the event of his death, or
inability or refusal to act, the Vice President (or in the event there be more
than one Vice President, the Vice Presidents in the order designated at the time
of their election, or in the absence of any designation, then in the order of
their election) shall perform the duties of the President, if and when so
directed by the Chairman of the Board or the Chief Executive Officer or the
Board of Directors, and when so acting, shall have all the powers and be subject
to all the restrictions upon the President.
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(e) Treasurer. The Treasurer shall (1) have charge and
custody of and be responsible for all funds and securities of the Corporation;
(2) receive and give receipts for moneys due and payable to the Corporation from
any source whatsoever; (3) deposit all such moneys in the name of the
Corporation in such banks, trust companies, or other depositaries as shall be
selected by resolution of the Board of Directors; and (4) in general perform all
duties incident to the office of treasurer and such other duties as from time to
time may be assigned to him by the Chairman of the Board, Chief Executive
Officer or by the Board of Directors. He shall, if required by the Board of
Directors, give a bond for the faithful discharge of his duties in such sum and
with such surety or sureties as the Board of Directors shall determine.
(f) Secretary. The Secretary shall (1) keep the
minutes of the meetings of the stockholders, the Board of Directors, the
Executive Committee (if designated), and all other committees, if any, of which
a secretary shall not have been appointed, in one or more books provided for
that purpose; (2) see that all notices are duly given in accordance with the
provisions of these by-laws and as required by law; (3) be custodian of the
corporate records and of the seal of the Corporation and see that the seal of
the Corporation is affixed to all documents, the execution of which on behalf of
the Corporation under its seal, is duly authorized; (4) keep a register of the
post office address of each stockholder which shall be furnished to the
Secretary by such stockholder; (5) have general charge of stock transfer books
of the Corporation; and (6) in general perform all duties incident to the office
of secretary and such other duties as from time to time may be assigned to him
by the Chairman of the Board, Chief Executive Officer or by the Board of
Directors.
(g) Assistant Secretaries and Assistant Treasurers.
At the request of the Secretary or in his absence or disability, one or more
Assistant Secretaries designated by him or by the Board of Directors shall have
all the powers of the Secretary for such period as he or it may designate or
until he or it revokes such designation. At the request of the Treasurer or in
his absence or disability, one or more Assistant Treasurers designated by him or
by the Board of Directors shall have all the powers of the Treasurer for such
period as he or it may designate or until he or it revokes such designation. The
Assistant Secretaries and Assistant Treasurers, in general, shall perform such
duties as shall be assigned to them by the Secretary or the Treasurer,
respectively, or by the Chairman of the Board, Chief Executive Officer or the
Board of Directors.
ARTICLE V
CAPITAL STOCK
5.1 Stock Certificates.
(a) Every holder of stock in the corporation shall be
entitled to have a certificate signed by, or in the name of, the corporation by
the Chairman, Chief Executive Officer, President or a Vice President, and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary,
certifying the number of shares owned by him.
(b) If such certificate is countersigned by a
transfer agent other than the corporation or its employee, or by a registrar
other than the corporation or its employee, the signatures of the officers of
the corporation may be facsimiles, and, if permitted by law, any other signature
may be a facsimile.
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(c) In case any officer who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer at the date of
issue.
(d) Certificates of stock shall be issued in such
form not inconsistent with the Certificate of Incorporation as shall be approved
by the Board of Directors. They shall be numbered and registered in the order in
which they are issued.
(e) All certificates surrendered to the corporation
shall be canceled with the date of cancellation, and shall be retained by the
Secretary, together with the powers of attorney to transfer and the assignments
of the shares represented by such certificates, for such period of time as shall
be prescribed from time to time by resolution of the Board of Directors.
5.2 Record Ownership. A record of the name and address of the
holder of each certificate, the number of shares represented thereby and the
date of issue thereof shall be made on the corporation's books. The corporation
shall be entitled to treat the holder of any share of stock as the holder in
fact thereof, and accordingly shall not be bound to recognize any equitable or
other claim to or interest in any share on the part of any other person, whether
or not it shall have express or other notice thereof, except as required by law.
5.3 Transfer of Record Ownership. Transfers of stock shall be
made on the books of the corporation only by direction of the person named in
the certificate or his attorney, lawfully constituted in writing, and only upon
the surrender of the certificate therefor and a written assignment of the shares
evidenced thereby. Whenever any transfer of stock shall be made for collateral
security, and not absolutely, it shall be so expressed in the entry of the
transfer if, when the certificates are presented to the corporation for
transfer, both the transferror and transferee request the corporation to do so.
5.4 Lost, Stolen or Destroyed Certificates. Certificates
representing shares of the stock of the corporation shall be issued in place of
any certificate alleged to have been lost, stolen or destroyed in such manner
and on such terms and conditions as the Board of Directors from time to time may
authorize.
5.5 Transfer Agent; Registrar; Rules Respecting Certificates.
The corporation may maintain one or more transfer offices or agencies where
stock of the corporation shall be transferable. The corporation may also
maintain one or more registry offices where such stock shall be registered. The
Board of Directors may make such rules and regulations as it may deem expedient
concerning the issue, transfer and registration of stock certificates.
5.6 Fixing Record Date for Determination of Stockholders of
Record. The Board of Directors may fix, in advance, a date as the record date
for the purpose of determining stockholders entitled to notice of, or to vote
at, any meeting of the stockholders or any adjournment thereof, or the
stockholders entitled to receive payment of any dividend or other distribution
or the allotment of any rights, or entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or to express consent to corporate
action in writing without a meeting, or in order to make a determination of the
stockholders for the purpose of any other lawful action. Such record date in any
case shall be not more than sixty days nor less than ten days before the date of
a meeting of the stockholders, nor more than sixty days prior to any other
action requiring such determination of the stockholders. A determination of
stockholders of record entitled to notice or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
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5.7 Dividends. Subject to the provisions of the Certificate of
Incorporation, the Board of Directors may, out of funds legally available
therefor at any regular or special meeting, declare dividends upon the capital
stock of the corporation as and when they deem expedient. Before declaring any
dividend there may be set apart out of any funds of the corporation available
for dividends, such sum or sums as the Board of Directors from time to time in
their discretion deem proper for working capital or as a reserve fund to meet
contingencies or for equalizing dividends or for such other purposes as the
Board of Directors shall deem conducive to the interests of the corporation.
ARTICLE VI
SECURITIES HELD BY THE CORPORATION
6.1 Voting. Unless the Board of Directors shall otherwise
order, the Chairman of the Board shall have full power and authority, on behalf
of the corporation, to attend, act and vote at any meeting of the stockholders
of any corporation in which the corporation may hold stock, and at such meeting
to exercise any or all rights and powers incident to the ownership of such
stock, and to execute on behalf of the corporation a proxy or proxies empowering
another or others to act as aforesaid. The Board of Directors from time to time
may confer like powers upon any other person or persons.
6.2 General Authorization to Transfer Securities Held by the
Corporation.
(a) The Chairman of the Board is authorized and
empowered to transfer, convert, endorse, sell, assign, set over and deliver any
and all shares of stock, bonds, debentures, notes, subscription warrants, stock
purchase warrants, evidence of indebtedness, or other securities now or
hereafter standing in the name of or owned by the corporation, and to make,
execute and deliver, under the seal of the corporation, any and all written
instruments of assignment and transfer necessary or proper to effectuate the
authority hereby conferred.
(b) Whenever there shall be annexed to any instrument
of assignment and transfer executed pursuant to and in accordance with the
foregoing paragraph (a), a certificate of the Secretary of the corporation in
office at the date of such certificate setting forth the provisions of this
Section 6.2 and stating that they are in full force and effect and setting forth
the names of persons who are then officers of the corporation, then all persons
to whom such instrument and annexed certificate shall thereafter come, shall be
entitled, without further inquiry or investigation and regardless of the date of
such certificate, to assume and to act in reliance upon the assumption that the
shares of stock or other securities named in such instrument were theretofore
duly and properly transferred, endorsed, sold, assigned, set over and delivered
by the corporation, and that with respect to such securities the authority of
these provisions of the by-laws and of such officers is still in full force and
effect.
ARTICLE VII
MISCELLANEOUS
7.1 Signatories. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the corporation shall be signed by such officer or officers or such other person
or persons as the Board of Directors may from time to time designate.
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7.2 Seal. The seal of the corporation shall be in such form
and shall have such content as the Board of Directors shall from time to time
determine.
7.3 Notice and Waiver of Notice. Whenever any notice of the
time, place or purpose of any meeting of the stockholders, directors or a
committee is required to be given under the law of the State of Delaware, the
Certificate of Incorporation or these by-laws, a waiver thereof in writing,
signed by the person or persons entitled to such notice, whether before or after
the holding thereof, or actual attendance at the meeting in person or, in the
case of any stockholder, by his attorney-in-fact, shall be deemed equivalent to
the giving of such notice to such persons.
7.4 Amendment of By-Laws.
(a) By Board of Directors. The by-laws of the
corporation may be altered, amended or repealed or new by-laws may be made or
adopted by the Board of Directors at any regular or special meeting of the
Board; provided that Section 3.3 and Section 7.4(b) of these By-Laws may be
altered, amended or repealed only by action of the stockholders acting pursuant
to Section 7.4(b) hereof; and provided further that Section 7.5 may only be
altered, amended or appealed by the majority vote of the corporation's
independent (i.e., non-employee) director.
(b) By Stockholders. The by-laws of the corporation
may also be altered, amended or repealed or new by-laws may be made or adopted
by the vote of a majority in interest of the stockholders represented and
entitled to vote upon the election of directors, at any meeting at which a
quorum is present.
(c) Indemnity. The corporation shall indemnify its
directors, officers, employees or agents to the fullest extent allowed by law.
7.5 Contracts with Affiliates. The corporation shall not enter
into any agreement, arrangement or understanding with any director, officer or
stockholder or any entity affiliated with any such person, unless the agreement,
arrangement or understanding has been approved by a majority of the
corporation's independent (i.e., non-employee) directors. Any such transaction
shall be on terms no less favorable to the corporation then could be obtained
from independent third parties.
7.6 Fiscal Year. Except as from time to time otherwise
determined by the Board of Directors, the fiscal year of the corporation shall
end on December 31.
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GRAUBARD MOLLEN & MILLER
600 Third Avenue
New York, New York 10016
December 2, 1999
b2bstores.com Inc.
249 East Ocean Boulevard
Long Beach, California 90802
Re: Initial Public Offering
Ladies and Gentlemen:
We have acted as counsel for b2bstores.com, Inc., a Delaware
corporation (the "Company"), in connection with the preparation of the
registration statement (the "Registration Statement") filed by the Company with
the Securities and Exchange Commission pursuant to the Securities Act of 1933,
as amended (the "Act"), relating to the public offering by the Company (the
"Offering") of (i) up to an aggregate of 4,025,000 shares (the "Company Shares")
of the Company's common stock, $.01 par value (the "Common Stock"), including
525,000 shares purchasable by the underwriters upon exercise of their
over-allotment option, (ii) warrants ("Representatives' Warrants") to purchase
up to an aggregate of 350,000 shares of Common Stock to be issued by the Company
to Gaines, Berland Inc. and Nolan Securities Inc., the representatives of the
underwriters of the Offering and (iii) up to an aggregate of 350,000 shares of
Common Stock issuable upon the exercise of the Representatives' Warrants. This
opinion is being furnished pursuant to Item 601(b)(5) of Regulation S-B under
the Act. In rendering the opinion set forth below, we have reviewed (a) the
Registration Statement and the exhibits thereto; (b) the Company's Certificate
of Incorporation, as amended; (c) the Company's Amended and Restated Bylaws; (d)
certain records of the Company's corporate proceedings as reflected in its
minute books; and (e) such statutes, records and other documents as we have
deemed relevant.
In our examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, and conformity
with the originals of all documents submitted to us as copies thereof. In
addition, we have made such other examinations of law and fact as we have deemed
relevant in order to form a basis for the opinion hereinafter expressed.
Based upon the foregoing, we are of the opinion that:
1. The Company Shares, upon issuance by the Company in the manner and
for the consideration contemplated in the Registration Statement, will be
validly issued, fully paid and nonassessable.
2. The Representatives' Warrants, when issued by the Company to the
Representatives when issued in accordance with the terms of the Representatives'
Warrants and in the manner provided in the Registration Statement, will be
legally issued, fully paid and nonassessable.
<PAGE>
3. The shares of Common Stock to be issued by the Company upon the
exercise of the Representatives' Warrants, when issued in accordance with the
terms of the Representatives' Warrants and in the manner provided in the
Registration Statement, will be legally issued, fully paid and nonassessable.
We hereby consent to the use of this opinion as an Exhibit to the
Registration Statement and to the references to this Firm under the caption
"Legal Matters" in the Registration Statement. In giving such consent, we do not
thereby admit that we are acting within the category of persons whose consent is
required under Section 7 of the Act and the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Graubard Mollen & Miller
----------------------------
GRAUBARD MOLLEN & MILLER
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT dated October 8, 1999 between RICHARD KANDEL, residing at 65
Coves Road, Syosset, NY 11791 ("Executive"), and B2BSTORES.COM INC., a Delaware
corporation having its principal office at 249 East Ocean Boulevard, Long Beach,
California 90802("Company").
WHEREAS, Executive possesses expertise in the areas of corporate
management, product and services sales and e-commerce;
WHEREAS, the Company desires to avail itself of Executive's expertise;
and
WHEREAS, the Company desires to employ Executive, and Executive desires
to be employed by Company, commencing on the date the Company's initial public
offering ("IPO") of its common stock is consummated (the "Start Date"), on the
terms set forth in this Agreement.
IT IS AGREED:
1. Employment, Duties and Acceptance.
----------------------------------
1.1 Commencing on the Start Date, the Company shall employ
Executive as its Chairman of the Board ("Chairman"). All of Executive's powers
and authority in any capacity shall at all times be subject to the direction
and control of the Company's Board of Directors.
1.2 The Board may assign to Executive such management and
supervisory responsibilities and executive duties for the Company or any
subsidiary of the Company as are consistent with Executive's status as
Chairman. The Company and Executive acknowledge that Executive's primary
functions and duties as Chairman shall be the general supervision of the
creation, expansion and operation of the Company and its subsidiaries and
divisions. Commencing on the Start Date and through the term of this Agreement,
Executive also shall be nominated for election as a director of the Company
and, if so elected by the stockholders of the Company, Executive shall be
obligated to serve as a director.
1.3 Executive accepts such employment and agrees to devote at
least 50% of his business time, energy and attention to the performance of his
duties hereunder beginning on the Start Date. Nothing herein shall be construed
as preventing Executive from (a) devoting 50% or less of his business time to
the operations of Enviro-Clean of America, Inc. ("Enviro-Clean") or (b) making
and supervising personal investments, provided they will not (i) except in
connection with Enviro-Clean, require any substantial services on his part in
the operation of the affairs of the companies in which such investments are
made, (ii) interfere with the performance of Executive's duties hereunder or (c)
violate the provisions of paragraph 5.4 hereof.
<PAGE>
2. Compensation and Benefits.
--------------------------
2.1 Commencing on the Start Date, the Company shall pay to
Executive a salary at the annual rate of $150,000 through the first anniversary
of the Start Date, $200,000 through the second anniversary of the Start Date
and $250,000 through the third anniversary of the Start Date. Executive's
compensation shall be paid in equal, periodic installments in accordance with
the Company's normal payroll procedures.
2.2 Commencing on the Start Date, Executive shall be entitled
to such medical, life, disability and other benefits as are generally afforded
to other senior executives of the Company, subject to applicable waiting
periods and other conditions.
2.3 Executive shall be entitled to two weeks of vacation in
each calendar year and to a reasonable number of other days off for religious
and personal reasons.
2.4 Commencing on the Start Date, the Company will pay or
reimburse Executive for all transportation, hotel and other expenses reasonably
incurred by Executive on business trips and for all other ordinary and
reasonable out-of-pocket expenses actually incurred by him in the conduct of
the business of the Company against itemized vouchers submitted with respect to
any such expenses and approved in accordance with customary procedures.
2.5 Executive acknowledges that he will be obligated to
render services hereunder wherever such services are reasonably required by the
Company, which will necessitate substantial travel by Executive, primarily in
North America.
3. Term and Termination.
---------------------
3.1 The term of Executive's employment shall commence on the
Start Date and shall continue through the third anniversary of the Start Date,
unless sooner terminated as herein provided.
3.2 Executive's employment hereunder shall terminate on the
date of his death, in which case the Company shall pay to the legal
representative of Executive's estate (i) the base salary due Executive pursuant
to paragraph 2.1 hereof through the date of Executive's death, (ii) all earned
and previously approved but unpaid bonuses, (iii) all valid expense
reimbursements through the date of the termination of this Agreement, and (iv)
all accrued but unused vacation pay.
3.3 The Company, by notice to Executive, may terminate
Executive's employment hereunder if Executive shall fail because of illness or
incapacity to render, for six consecutive months, services of the character
contemplated by this Agreement. Notwithstanding such termination, the Company
shall pay to Executive (i) the base
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salary due Executive pursuant to paragraph 2.1 hereof through the date of such
notice, less any amount Executive receives for such period from any
Company-sponsored or Company-paid source of insurance, disability compensation
or government program, (ii) all earned and previously approved but unpaid
bonuses, (iii) all valid expense reimbursements through the date of the
termination of this Agreement, and (iv) all accrued but unused vacation pay.
3.4 The Company, by notice to Executive, may terminate
Executive's employment hereunder for cause. As used herein, "Cause" shall mean:
(a) the refusal or failure by Executive to carry out specific directions of the
Board which are of a material nature and consistent with his status as
Chairman, or the refusal or failure by Executive to perform a material part of
Executive's duties hereunder; (b) the commission by Executive of a material
breach of any of the provisions of this Agreement; (c) fraud or dishonest
action by Executive in his relations with the Company or any of its
subsidiaries or affiliates, or with any customer or business contact of the
Company or any of its subsidiaries or affiliates ("dishonest" for these
purposes shall mean Executive's knowingly or recklessly making of a material
misstatement or omission for his personal benefit); or (d) the conviction of
Executive of any crime involving an act of moral turpitude. Notwithstanding the
foregoing, no "Cause" for termination shall be deemed to exist with respect to
Executive's acts described in clauses (a) or (b) above, unless the Company
shall have given written notice to Executive specifying the "Cause" with
reasonable particularity and, within thirty calendar days after such notice,
Executive shall not have cured or eliminated the problem or thing giving rise
to such "Cause;" provided, however, that a repeated breach after notice and
cure of any provision of clauses (a) or (b) above involving the same or
substantially similar actions or conduct, shall be grounds for termination for
"Cause" without any additional notice from the Company.
3.5 If Executive's employment hereunder is terminated for any
reason, then Executive shall, at the Company's request, resign as a director of
the Company and all of its subsidiaries, effective upon the occurrence of such
termination.
3.6 The Executive, by notice to the Company, may terminate
Executive's employment hereunder if a "Good Reason" exists. For purposes of
this Agreement, "Good Reason" shall mean the occurrence of any of the following
circumstances without the Executive's prior consent (either written or
demonstrated through his affirmative vote as a member of the Board of Directors
or any of the following): (a) a substantial and material adverse change in the
nature of Executive's title, duties or responsibilities with the Company that
represents a demotion from his title, duties or responsibilities as in effect
immediately prior to such change; (b) the commission by the Company of a
material breach of any of the provisions of this Agreement, and (c) a
transaction or related series of transactions that have not been approved by
the Company's Board of Directors resulting in any person or group of persons
acquiring more than 35% of the outstanding voting stock of the Company.
Notwithstanding the foregoing, no Good Reason shall be deemed to exist with
respect to the Company's acts described in clauses (a) or (b) above, unless the
Executive shall have given written notice to the Company specifying the Good
Reason with reasonable particularity and, within thirty calendar days after such
notice, the Company shall not have cured or eliminated the problem or thing
giving rise to such Good Reason; provided, however, that a repeated breach after
notice and cure of any provision of clauses (a) or (b) above involving
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the same or substantially similar actions or conduct, shall be grounds for
termination for Good Reason without any additional notice from the Executive.
3.7 In the event that Executive terminates his employment
hereunder for Good Reason, pursuant to the provisions of paragraph 3.6, or the
Company terminates his employment hereunder without "Cause," as defined in
paragraph 3.4, the Company shall make a lump sum payment to Executive (or in
the case of his death, the legal representative of Executive's estate or such
other person or persons as Executive shall have designated by written notice to
the Company), equal to the then present value of all payments required under
paragraph 2.1 hereof through the longer of (a) a period of 12 months and (b)
the then remaining term of this Agreement; provided, however, that Executive's
insurance coverage shall terminate upon the Executive becoming covered under a
similar program by reason of employment elsewhere.
4. Executive Indemnity
4.1 The Company agrees to indemnify Executive and hold
Executive harmless against all costs, expenses (including, without limitation,
reasonable attorneys' fees) and liabilities (other than settlements to which
the Company does not consent, which consent shall not be unreasonably withheld)
(collectively, "Losses") reasonably incurred by Executive in connection with
any claim, action, proceeding or investigation brought against or involving
Executive with respect to, arising out of or in any way relating to Executive's
employment with the Company or Executive's service as a director of the
Company; provided, however, that the Company shall not be required to indemnify
Executive for Losses incurred as a result of Executive's intentional misconduct
or gross negligence (other than matters where Executive acted in good faith and
in a manner he reasonably believed to be in and not opposed to the Company's
best interests). Executive shall promptly notify the Company of any claim,
action, proceeding or investigation under this paragraph and the Company shall
be entitled to participate in the defense of any such claim, action, proceeding
or investigation and, if it so chooses, to assume the defense with counsel
selected by the Company; provided that Executive shall have the right to employ
counsel to represent him (at the Company's expense) if Company counsel would
have a "conflict of interest" in representing both the Company and Executive.
The Company shall not settle or compromise any claim, action, proceeding or
investigation without Executive's consent, which consent shall not be
unreasonably withheld; provided, however, that such consent shall not be
required if the settlement entails only the payment of money and the Company
fully indemnifies Executive in connection therewith. The Company further agrees
to advance any and all expenses (including, without limitation, the fees and
expenses of counsel) reasonably incurred by the Executive in connection with any
such claim, action, proceeding or investigation, provided Executive first enters
into an appropriate agreement for repayment of such advances if indemnification
is found not to have been available.
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5. Protection of Confidential Information; Non-Competition.
--------------------------------------------------------
5.1 Executive acknowledges that:
(a) As a result of Executive's employment with the Company,
he has obtained and will obtain secret and confidential information concerning
the business of the Company and its subsidiaries and affiliates (referred to
collectively in Sections 5 and 6 as the "Company"), including, without
limitation, financial information, designs and other proprietary rights, trade
secrets and "know-how," customers and sources ("Confidential Information").
(b) The Company will suffer substantial damage which will be
difficult to compute if, during the term of this Agreement or thereafter,
Executive should enter a business competitive with the Company, or divulge
Confidential Information, or breach his obligations under Section 6.
Notwithstanding the foregoing, the business of Enviro-Clean as currently
conducted (including its operation of the site at b2bgoods.com as currently
structured and operated) shall not be deemed a competitive business.
(c) The provisions of this Agreement are reasonable and
necessary for the protection of the business of the Company.
5.2 Executive agrees that he will not at any time, either
during the term of this Agreement or thereafter, divulge to any person or
entity any Confidential Information obtained or learned by him as a result of
his role as consultant to or employment with the Company, except (i) in the
course of performing his duties hereunder, (ii) with the Company's express
written consent; (iii) to the extent that any such information is in the public
domain other than as a result of Executive's breach of any of his obligations
hereunder; or (iv) where required to be disclosed by court order, subpoena or
other government process. If Executive shall be required to make disclosure
pursuant to the provisions of clause (iv) of the preceding sentence, Executive
promptly, but in no event more than 72 hours after learning of such subpoena,
court order, or other government process, shall notify, by personal delivery or
by electronic means, confirmed by mail, the Company and, at the Company's
expense, Executive shall: (a) take all reasonably necessary and lawful steps
required by the Company to defend against the enforcement of such subpoena,
court order or other government process, and (b) permit the Company to
intervene and participate with counsel of its choice in any proceeding relating
to the enforcement thereof.
5.3 Upon termination of his employment with the Company,
Executive will promptly deliver to the Company all memoranda, notes, records,
reports, manuals, drawings, blueprints and other documents (and all copies
thereof) relating to the business of the Company and all property associated
therewith, which he may then possess or have under his control; provided,
however, that Executive shall be entitled to retain copies of such documents
reasonably necessary to document his financial relationship (both past and
future) with the Company.
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5.4 During the period commencing on the date hereof and
ending on the Non-Competition Termination Date (as hereafter defined),
Executive, without the prior written permission of the Company, shall not,
anywhere in the world, (i) be employed by, or render any services to, any
person, firm or corporation, other than EnviroClean, engaged in any business
which is directly or indirectly in competition with the Company in the
businesses described on Schedule 5.4 ("Competitive Business"); (ii) engage in
any Competitive Business for his or its own account; (iii) be associated with
or interested in any Competitive Business as an individual, partner,
shareholder, creditor, director, officer, principal, agent, employee, trustee,
consultant, advisor or in any other relationship or capacity; (iv) employ or
retain, or have or cause any other person or entity to employ or retain, any
person who was employed or retained by the Company while Executive was employed
by the Company; or (v) solicit, interfere with, or endeavor to entice away from
the Company, for the benefit of a Competitive Business, any of its customers or
other persons with whom the Company has a contractual relationship.
Notwithstanding the foregoing, this provision shall not preclude Executive from
investing his personal assets in the securities of any corporation or other
business entity which is engaged in a Competitive Business if such ownership is
in compliance with the requirements set forth in the last sentence of Section
1.3 hereof, such securities are traded on a national stock exchange or in the
over-the-counter market and if such investment does not result in his
beneficially owning, at any time, more than 1% of the publicly-traded equity
securities of such Competitive Business. The "Non-Competition Termination Date"
shall be the fourth anniversary of the Start Date; provided, however, that (a)
if this Agreement is terminated for "Good Reason" by Executive or the Company
without "Cause," the Non-Competition Termination Date shall be the later of the
one-year anniversary of such termination and the third anniversary of the Start
Date, and (b) if Executive's employment is terminated with "Cause" or Executive
terminates his employment without "Good Reason," the Non-Competition
Termination Date shall be the fifth anniversary of the Start Date.
5.5 If Executive commits a breach, or threatens to commit a
breach, of any of the provisions of Sections 5.2, 5.4 or 6, the Company shall
have the right and remedy:
(a) to have the provisions of this Agreement specifically
enforced by any court having equity jurisdiction, it being acknowledged and
agreed by Executive that the services being rendered hereunder to the Company
are of a special, unique and extraordinary character and that any such breach
or threatened breach will cause irreparable injury to the Company and that
money damages will not provide an adequate remedy to the Company; and
(b) to require Executive to account for and pay over to the
Company all monetary damages suffered by the Company as the result of any
transactions constituting a breach of any of the provisions of Sections 5.2,
5.4 or 6, and Executive hereby agrees to account for and pay over such damages
to the Company.
Each of the rights and remedies enumerated in this Section
5.5 shall be independent of the other, and shall be severally enforceable, and
such rights and remedies shall be in addition to, and not in lieu of, any other
rights and remedies available to the Company under law or equity.
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In connection with any legal action or proceeding arising out
of or relating to this Agreement, the prevailing party in such action or
proceeding shall be entitled to be reimbursed by the other party for the
reasonable attorneys' fees and costs incurred by the prevailing party.
5.6 If Executive violates any covenant contained in Section
5.4, the duration of such covenant so violated shall be automatically extended
for a period of time equal to the period of such violation.
5.7 If any provision of Sections 5.2 or 5.4 is held to be
unenforceable because of the scope, duration or area of its applicability, the
tribunal making such determination shall have the power to modify such scope,
duration, or area, or all of them, and such provision or provisions shall then
be applicable in such modified form.
5.8 The provisions of this paragraph 5 shall survive the
termination of this Agreement for any reason.
6. Inventions, Patents and Copyrights.
-----------------------------------
(a) All inventions and other creative works, including any
patent, copyright, trade secret, trademark or other intellectual property
rights developed or produced by Executive either alone or jointly with others
during Executive's employment with the Company and which relate to the
Company's business or technology or which are derived in the context of the
Company's business or operations (collectively, the "Intellectual Property")
shall be considered to have been prepared for the Company as a part of and in
the course of Executive's employment with the Company. Any such Intellectual
Property shall be owned by the Company regardless of whether it would otherwise
be considered a work made for hire. Such Intellectual Property shall include,
among other things, software and documentation therefor.
(b) The Company shall have full ownership of the Intellectual
Property, with no rights of ownership vested in Executive. Executive agrees
that in the event any Intellectual Property is determined by a court of
competent jurisdiction not to be a work for hire under the federal copyright
laws, this Agreement shall operate as an irrevocable assignment by him to the
Company of the copyright in the works, including all rights thereunder in
perpetuity. Under this irrevocable assignment, Executive hereby assigns to the
Company the sole and exclusive right, title, and interest in and to the
Intellectual Property, without further consideration, and agrees to assist the
Company in registering and from time to time enforcing all copyrights and other
rights and protections relating to the Intellectual Property in any and all
countries. Executive agrees that in the event of any dispute arising out of or
concerning this section, no actions by the Company or Executive undertaken for
the purpose of securing, maintaining, or preserving the copyright in the works,
including but not limited to recordation of this section with the United States
Copyright Office, shall be considered by any finder of fact or determiner of law
in determining the character of the work as work made for hire, unless expressly
authorized by the Company.
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(c) Executive shall communicate to the Company promptly and
fully in writing, in such format as the Company may deem appropriate, all
Intellectual Property made or conceived by Executive whether alone or jointly
with others from the date hereof until the date this Agreement is terminated
and to assign to the Company all Intellectual Property.
(d) Executive shall make and maintain adequate permanent
records of all Intellectual Property, in the form of memoranda, notebook
entries, drawings, printouts, or reports relating thereto, in keeping with then
current Company procedures. Executive agrees that these records, as well as the
Intellectual Property, shall be and remain the property of the Company at all
times.
(e) Executive shall cooperate with and assist the Company and
its nominees, at their sole expense, during the term of this Agreement and
thereafter, in securing and protecting patent, copyright or other similar
rights in the United States and foreign countries in the Intellectual Property.
In this connection, Executive specifically agrees to execute all papers which
the Company deems necessary to protect its interests including the execution of
assignments of invention and copyrights and to give evidence and testimony, as
may be necessary, to secure and enforce the Company's rights in the
Intellectual Property. Executive hereby appoints the Company as his agent and
attorney-in-fact to act for and in Executive's behalf and stead to execute,
register, and file any applications, and to do all other lawfully permitted
acts to further the registration, prosecution, issuance, renewals, and
extensions of patents, copyrights or other protections with the same legal
force and effect as if personally executed by Executive.
(f) The provisions of this Section 6 shall survive termination
of this Agreement for any reason.
7. Miscellaneous Provisions.
-------------------------
7.1 All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date delivered if delivered personally or by nationally
recognized overnight courier, by certified mail or facsimile to the parties at
the following addresses and numbers (or at such other address or number for a
party as shall be specified by like notice, except that notices of changes of
address or number shall be effective upon receipt):
If to Executive:
Richard Kandel
65 Coves Road
Syosset, NY 11791
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If to the Company:
b2bstores.com Inc.
249 East Ocean Boulevard
Long Beach, California 90802
Attn: Chief Executive Officer
With a copy to:
Graubard Mollen & Miller
600 Third Avenue
New York, New York 10016
Attn: David Alan Miller, Esq.
7.2 This Agreement sets forth the entire agreement of the
parties relating to the employment of Executive and is intended to supersede
all prior negotiations, understandings and agreements. No provisions of this
Agreement may be waived or changed except by a writing by the party against
whom such waiver or change is sought to be enforced. The failure of any party
to require performance of any provision hereof or thereof shall in no manner
affect the right at a later time to enforce such provision.
7.3 This Agreement shall be governed by and construed under
the law of the State of New York, disregarding any principles of conflicts of
law that would otherwise provide for the application of the substantive law of
another jurisdiction. Each of the parties (i) agrees that any legal suit,
action or proceeding arising out of or relating to this Agreement shall be
instituted exclusively in New York State Supreme Court, County of New York, or
in the United States District Court for the Southern District of New York, (ii)
waives any objection to the venue of any such suit, action or proceeding and
the right to assert that such forum is not a convenient forum, and (iii)
irrevocably consents to the jurisdiction of the New York State Supreme Court,
County of New York, and the United States District Court for the Southern
District of New York in any such suit, action or proceeding. Each of the
parties further agrees to accept and acknowledge service of any and all process
which may be served in any such suit, action or proceeding in the New York
State Supreme Court, County of New York, or in the United States District Court
for the Southern District of New York and agrees that service of process upon
it mailed by certified mail to its address shall be deemed in every respect
effective service of process upon it in any such suit, action or proceeding.
7.4 This Agreement shall inure to the benefit of and be
binding upon the successors and assigns of the Company. This Agreement shall
not be assignable by Executive, but shall inure to the benefit of and be
binding upon Executive's heirs and legal representatives.
7.5 Should any provision of this Agreement become legally
unenforceable, no other provision of this Agreement shall be affected, and this
Agreement shall continue as if the Agreement had been executed absent the
unenforceable provision.
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7.6 If, during the term hereof, Executive is nominated to
serve as a director of the Company but fails to be elected, he shall
nonetheless be invited to attend each meeting of the Board of Directors of the
Company through the remainder of the term hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date first above written.
B2BSTORES.COM INC.
/s/ Woo Jin Kim
-------------------------------------
By: Woo Jin Kim, Chief Executive Officer
/s/ Richard Kandel
-------------------------------------
RICHARD KANDEL
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Note: Certain technical and commercial information has been redacted from this
exhibit. All such redacted information is on file with the SEC.
Note: Asterisk or asterisks (****) indicate information for which confidential
treatment has been sought.
AGREEMENT
AGREEMENT, dated as of October 1, 1999, between B2BSTORES.COM INC., a
Delaware corporation having its principal offices at 249 East Ocean Boulevard,
Long Beach, California 90802 ("B2B"), and ENVIRO-CLEAN OF AMERICA, INC., a
Nevada corporation having its principal offices at 211 Park Avenue, Hicksville,
New York 11801 ("Enviro-Clean").
WHEREAS, Enviro-Clean owns and operates a web site at www.b2bgoods.com
("EC Site");
WHEREAS, Enviro-Clean sells products in the categories set forth on
Schedule 1 hereto through the EC Site and traditional distribution channels
(collectively, the "EC Products);
WHEREAS, B2B owns and operates a web site at www.b2bstores.com ("B2B
Site") through which it provides businesses with access to product and service
offerings, auctions, community functions, and business information;
WHEREAS, EC is a principal stockholder of B2B;
WHEREAS, B2B desires to sell EC Products through the B2B Site; and
WHEREAS, EC desires to process all e-commerce transactions generated at
the EC Site through B2B's e-commerce backbone (the "E-Commerce System").
IT IS AGREED:
1. Term. Subject to earlier termination pursuant to Section 10, this
Agreement shall remain in force and effect until October 1, 2004.
2. Sale of EC Products through B2B Site.
(a) During the term of this Agreement, B2B shall be entitled to
offer for sale, and to sell, through the B2B Site, any and all EC Products. The
price to be charged by B2B to its customers for each EC Product sold through the
B2B Site shall be established by B2B in its sole discretion.
(b) Enviro-Clean shall provide B2B with a full copy of its product
offerings and inventory database in electronic format, together with weekly
updates, including any EC Products that are not offered by EC through the EC
Site. Enviro-Clean shall cooperate with B2B, and take all necessary action
directed by B2B, to ensure that electronic data, including components of the EC
Site, such as HTMLs, needed to feature, depict and otherwise describe all
available EC Products are made available at the B2B Site without the need for
hyperlinking or other customer action that would take the customer outside of
the B2B Site.
<PAGE>
(c) All orders for EC Products placed through the B2B Site shall be
processed through the E-Commerce System and electronically transmitted to
Enviro-Clean and its vendors immediately through an interface or interfaces to
be established between the E-Commerce System and the electronic systems of
Enviro-Clean and its vendors pursuant to Section 4.
(d) Enviro-Clean shall supply, package and ship, or cause its
vendors to supply, package and ship, to B2B's customers all EC Products
purchased through the B2B Site and shall use its commercial best efforts to
ensure that each order is processed and shipped within one business day from the
date it is placed through the B2B Site. Enviro-Clean shall be responsible for
the payment of all costs to vendors, suppliers, packagers and carriers.
Enviro-Clean shall use (and shall instruct its vendors to use) such carriers as
directed by B2B for the delivery to customers of EC Products purchased through
the B2B Site. Enviro-Clean shall deliver to B2B written notice of any shipping
rate changes and the effective date of such changes as soon as practicable after
notification of Enviro-Clean of same by carriers. Enviro-Clean shall report lost
shipments when reported by carrier, to the extent to which said carrier notifies
Enviro-Clean. Enviro-Clean shall provide support for tracking shipments made via
carrier that has tracking capabilities (e.g. Federal Express). B2B shall obtain
title to each EC Product once it is placed in the possession of a carrier.
(e) Notwithstanding anything to the contrary contained herein: (i)
B2B shall be responsible for additional shipping and handling costs associated
with shipments not originally delivered as a result of incorrect customer
addresses provided through the B2B Site; (ii) Enviro-Clean shall be responsible
for additional shipping and handling costs associated with misshipments
resulting from errors or omissions committed by it or its vendors and for
damaged goods; (iii) if a B2B customer cancels the order as a result of the
misshipment (other than as a result of error inputted by the customer at or
generated through the B2B Site) or damaged goods, Enviro-Clean shall be
responsible for the original shipping and handling costs; and (iv) B2B shall be
responsible for shipments lost through carrier error.
(f) Enviro-Clean shall track and report product return information
to B2B electronically through the E-Commerce System in order that B2B may
appropriately credit accounts and communicate with its customers.****
(g) B2B shall be responsible for all credit authorizations for its
customers. B2B shall be responsible for all invoicing and collections, including
collection of applicable sales tax, and credit fraud, with respect to its
customers.
(h) Enviro-Clean shall deliver to B2B within 10 days of the end of
each month an invoice in an amount equal to the Enviro-Clean Costs (as defined
below) setting forth for each of the categories of EC Products listed on
Schedule 1 ("Categories") (i) the quantities of products in such Category
ordered through the B2B Site and actually supplied and shipped by Enviro-Clean
and its vendors during such month, and (ii) the amounts paid by Enviro-Clean
(i.e., Enviro-Clean's actual per-unit cost, giving effect to any discounts) to
(A) vendors for such
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products ("Stocking Cost"), (B) packagers for the packaging of such products and
(C) carriers for the delivery of such products to customers (collectively, the
"Enviro-Clean Costs"). B2B shall pay Enviro-Clean within 10 days of receipt of
each invoice an amount equal to the Enviro-Clean Costs. Upon reasonable request
by B2B, Enviro-Clean shall give B2B's officers and accountants access to the
books and records of Enviro-Clean to confirm the information contained in any
such statement.
(i) B2B shall deliver to Enviro-Clean within 45 days of the end of
each calendar quarter a statement setting forth the revenues collected by B2B
from the sale of EC Products in each Category through the B2B Site during such
quarter, net of all returns and uncollected customer payments which have not yet
been credited ("Category Revenues"). At the time each quarterly statement is
delivered to Enviro-Clean, B2B shall also deliver a payment equal to (x) the
Category Revenues generated during the quarter, multiplied by (y) the
corresponding percentage set forth on Schedule 1. Upon reasonable request by
Enviro-Clean, B2B shall give Enviro-Clean's officers and accountants access to
the books and records of B2B to confirm the information contained in any
invoice.
3. Vendor Management Services.
(a) During the term of this Agreement, B2B will provide
Enviro-Clean with vendor management and order processing services for the EC
Site ("Vendor Management Services"), pursuant to which all orders for EC
Products placed through the EC Site shall be routed to the E-Commerce System.
The E-Commerce System will then process all such orders, process customer credit
authorizations, electronically forward orders to the appropriate vendors and
create customer invoicing. B2B and Enviro-Clean will mutually agree upon all
detailed final specifications and subsequent modifications (the
"Specifications") for the Vendor Management Services. All such Specifications
shall be in writing and set forth on Schedule 2 hereto, as amended from time to
time, and incorporated by reference into this Agreement.
(b) The E-Commerce System, as it exists today and at any time in the
future, including any general enhancements to the E-Commerce System and/or the
Vendor Management Services, as well as new features that B2B incorporates into
the E-Commerce System, Vendor Management Service and/or other portions of its
e-commerce processing or vendor management systems, regardless of whether they
are initiated by B2B or any other party or developed by B2B or any other party
at the request of Enviro-Clean or any vendor or other third party, shall remain
the exclusive proprietary property of B2B.
(c) The Vendor Management Services will be available to Enviro-Clean
twenty-four (24) hours a day, seven (7) days a week. Notwithstanding the
foregoing, B2B reserves the right upon reasonable notice to Enviro-Clean to
limit or curtail holiday or weekend availability of the Vendor Management
Services when necessary for system upgrades, adjustments, maintenance or other
operational considerations.
(d) B2B shall provide such onsite training and other assistance as
the parties reasonably deem necessary to assure that Enviro-Clean's personnel
are able to make effective use
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of the Vendor Management Services. On-site training shall take place at such
times and places as are mutually agreeable to the parties. All costs associated
with such training (including travel and materials) shall be shared equally
between the parties.
(e) Enviro-Clean will timely supply B2B, in a form acceptable to
B2B, with all data necessary for B2B to perform the Vendor Management Services.
It is the sole responsibility of Enviro-Clean to insure the completeness and
accuracy of such data. B2B acknowledges that all records, data, files and other
input material relating to Enviro-Clean are confidential and shall take
reasonable steps to protect the confidentiality of such records, data, files and
other materials. B2B will provide reasonable security safeguards to limit access
to Enviro-Clean's files and records to Enviro-Clean and other authorized
parties. B2B will take reasonable steps to protect against the loss or
alteration of Enviro-Clean's files, records and data retained by B2B, but
Enviro-Clean recognizes that events beyond the control of B2B may cause such
loss or alteration. B2B will maintain backup file(s) containing all the data,
files and records related to Enviro-Clean. Enviro-Clean's file(s), records and
data shall, at no cost to Enviro-Clean, be released to Enviro-Clean on an
occurrence that renders B2B unable to perform hereunder, or upon the termination
of this Agreement as provided herein. B2B acknowledges that all records, data,
files and other input material relating to Enviro-Clean and its customers are
the exclusive property of Enviro-Clean. Notwithstanding the foregoing, B2B may
use such information for the compilation of general demographic statistics that
it may use to attract other vendor management services clients or advertisers.
(f) Enviro-Clean shall be responsible for the payment of all
federal, state or local sales, use, excise, ad valorem or personal property
taxes assessed in connection with purchases by its customers through the EC
Site. Enviro-Clean shall be responsible for all collections, including
collection of applicable sales tax, with respect to its customers. Enviro-Clean
shall be responsible for all credit fraud perpetrated through the EC Site.
(g) Enviro-Clean shall comply at all times with all applicable laws
and regulations relating to the provision of e-commerce, content, information or
other products or services over the Internet. Enviro-Clean acknowledges that B2B
exercises no control whatsoever over the content contained in or passing through
the EC Site, and that it is the sole responsibility of Enviro-Clean to ensure
that the information it transmits and receives complies with all applicable laws
and regulations.
(h) Within 20 business days of the date hereof (the last day of this
period being referred to as the "Insurance Due Date"), Enviro-Clean shall obtain
(and keep in full force and effect during the term of this Agreement): (i)
comprehensive general liability insurance in an amount not less than $3 million
per occurrence for bodily injury and property damage; (ii) employer's liability
insurance in an amount not less than $1 million per occurrence; and (iii)
workers' compensation insurance in an amount not less than that required by
applicable law. On or prior to the Insurance Due Date, Enviro-Clean will
furnish B2B with certificates of insurance which evidence the minimum levels of
insurance set forth above, and will notify B2B in writing in the event that any
such insurance policies are canceled. Enviro-Clean agrees that on or prior
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<PAGE>
to the Insurance Due Date, Enviro-Clean will cause its insurance provider(s) to
name B2B as an additional insured and notify B2B in writing of the effective
date thereof.
(i) Enviro-Clean shall deliver to B2B within 45 days of the end of
each calendar quarter a statement setting forth the amount of (i) "EC Site
Revenues" and (ii) "Gross Profits." "EC Site Revenues" shall mean any and all
revenues generated by Enviro-Clean through the EC Site during such quarter,
including the sale of products and services through the EC Site, the placement
of advertising on the EC Site, and the implementation of "click-through"
features. "Gross Profits" shall mean EC Site Revenues, less the costs of
purchasing products sold on the EC Site during the quarter from primary vendors
and packaging and delivering such products to customers. At the time each
quarterly statement is delivered to B2B, Enviro-Clean shall also deliver a
payment equal to****.
4. Technology Integration.
(a) B2B shall pay for, oversee and supervise the design,
implementation and installation of all software, protocols and interfaces
necessary to integrate the E-Commerce System, the B2B Site, the EC Site and the
related e-commerce, electronic ordering, inventory management, processing
systems and other systems of B2B, Enviro-Clean and Enviro-Clean's vendors to
ensure that the services to be rendered under this Agreement can be rendered as
contemplated.
(b) Enviro-Clean shall cooperate with B2B, and take all necessary
actions directed by B2B, to ensure that all systems of B2B, Enviro-Clean and
Enviro-Clean's vendors are properly integrated and interconnected as necessary
to render the services contemplated under this Agreement.
(c) All interfaces and other integrating technologies, adaptions and
improvements and related software, protocols and codes designed, created or
authored by B2B or any of its contractors shall be the sole property of B2B.
(d) Enviro-Clean shall be responsible for obtaining, at its cost and
expense, all consents of its primary vendors necessary for the integration of
systems and for the transactions contemplated by this Agreement.
(e) Both parties shall strive for maximum security of transaction
information being transferred through electronic interfaces. Neither party shall
use transaction information for any purpose except to render the services
contemplated by this Agreement.
(f) The parties shall retain electronic transaction data for a
minimum of twelve (12) months from the date it is first generated.
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5. Confidential Information.
(a) Each party acknowledges that it will have access to certain
confidential information of the other party concerning the other party's
business, plans, customers, technology and products, including the terms and
conditions of this Agreement ("Confidential Information"). Confidential
Information will include, but not be limited to, each party's proprietary
software and customer information. Each party agrees that it will not use in any
way, for its own account or the account of any third party, except as expressly
permitted by this Agreement, nor disclose to any third party (except as required
by law or to that party's attorneys, accountants and other advisors on a need to
know basis), any of the other party's Confidential Information and will take
reasonable precautions to protect the confidentiality of such Confidential
Information.
(b) Information will not be deemed Confidential Information
hereunder if such information: (i) is known to the receiving party prior to
receipt from the disclosing party directly or indirectly from a source other
than one having an obligation of confidentiality to the disclosing party; (ii)
becomes known (independently of disclosure by the disclosing party) to the
receiving party directly or indirectly from a source other than one having an
obligation of confidentiality to the disclosing party; (iii) becomes publicly
known or otherwise ceases to be secret or confidential, except through a breach
of this Agreement by the receiving party; or (iv) is independently developed by
the receiving party.
6. Representations and Warranties.
(a) Enviro-Clean represents and warrants that:
(i) The EC Products and EC's delivery of the services
contemplated by Section 2 and use of the services contemplated by
Section 3 of this Agreement do not and will not, during the term of
this Agreement, violate any applicable laws or regulations.
(ii) Enviro-Clean owns or has the right to use all material
contained in the EC Site, including all text, graphics, sound, video,
programming, scripts and applets;
(iii) The production, distribution and transmission of the EC
Site, or any information or materials contained in it does not: (A)
infringe or misappropriate any copyright, patent, trademark, trade
secret or any other proprietary rights of a third party; or (B)
constitute false advertising, unfair competition, defamation, an
invasion of privacy or violate a right of publicity.
(b) B2B represents and warrants that:
(i) B2B's use of the services contemplated by Section 2 and
delivery of the services contemplated by Section 3 of this Agreement do
not and will not, during the term of this Agreement, violate any
applicable laws or regulations.
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(ii) B2B owns or has the right to use the E-Commerce System for
the delivery of the services contemplated by this Agreement.
(iii) The production, distribution and transmission of the B2B
Site, or any information or materials contained in it does not: (A)
infringe or misappropriate any copyright, patent, trademark, trade
secret or any other proprietary rights of a third party; or (B)
constitute false advertising, unfair competition, defamation, an
invasion of privacy or violate a right of publicity.
7. Non-Competition.
(a) During the term of this Agreement, neither Enviro-Clean nor any
of its subsidiaries or affiliates (other than B2B) either directly or through
other persons or entities shall sell any products or services through the
Internet or any proprietary online service other than products in the Categories
set forth on Schedule 1.
(b) During the term of this Agreement, neither Enviro-Clean nor any
of its subsidiaries or affiliates (other than B2B) either directly or through
other persons or entities shall sell any EC Products through the Internet or any
proprietary online service other than through the EC Site and the B2B Site
pursuant to this Agreement.
(c) During the term of this Agreement, neither Enviro-Clean nor any
of its subsidiaries or affiliates (other than B2B) either directly or through
other persons or entities shall create, design, establish or operate any web
site or any proprietary online channel or other interactive service the primary
purpose of which is to provide businesses with integrated online availability of
product and service offerings, business information and content and community
functions, such as chat rooms and bulletin boards.
(d) During the term of this Agreement, both parties' agree not to
directly solicit for employment any employee of the other party. It is
acknowledged by both parties that Richard Kandel is an employee of each party.
8. Indemnification.
(a) Enviro-Clean shall indemnify and hold harmless B2B and its
officers, directors and employees ("B2B Indemnitees") from and against, and
shall reimburse them for, any losses, claims, damages and liabilities (including
costs and expenses attendant thereto, including reasonable attorneys' fees)
which may be sustained, suffered or incurred by the B2B Indemnitees, arising
from or in connection with (i) the breach of any of Enviro-Clean's
representations, warranties or covenants contained in this Agreement, (ii) any
content presented on the EC Site, except to the extent such content was provided
by B2B or (iii) the operation of the EC Site, including without limitation,
improper use of software and infringement of patents or other intellectual
property.
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(b) B2B shall indemnify and hold harmless Enviro-Clean and its
officer, directors and employees (the "EC Indemnitees") from and against, and
shall reimburse them for, any losses, claims, damages and liabilities (including
costs and expenses attendant thereto, including reasonable attorneys' fees)
which may be sustained, suffered or incurred by the EC Indemnitees, arising from
or in connection with (i) the breach of any of B2B's representations, warranties
or covenants contained in this Agreement, and (ii) any content presented on the
B2B Site, except to the extent such content was provided by Enviro-Clean or its
vendors.
(c) A party required to make an indemnification payment pursuant to
this Section ("Indemnifying Party") shall have no liability to make such payment
unless the party or parties entitled to receive such indemnification payment
(each an "Indemnified Party") gives notice to the Indemnifying Party specifying
(i) the covenant, representation or warranty contained herein which it asserts
has been breached, (ii) in reasonable detail, the nature and dollar amount of
any claim the Indemnified Party may have against the Indemnifying Party by
reason thereof under this Agreement, and (iii) whether the claim is a
third-party claim or a direct claim of the Indemnified Party against the
Indemnifying Party.
(d) If an Indemnified Party becomes aware of a third-party claim for
which an Indemnifying Party would be liable to an Indemnified Party hereunder,
the Indemnified Party shall, with reasonable promptness, notify in writing the
Indemnifying Party of such claim, identifying the basis for such claim and the
amount or the estimated amount thereof to the extent then determinable which
estimate shall not be conclusive of the final amount of such claim (the "Claim
Notice"); provided, however, that any failure to give such Claim Notice will not
be deemed a waiver of any rights of the Indemnified Party except to the extent
the rights of the Indemnifying Party are actually prejudiced by such failure.
The Indemnifying Party, upon request of the Indemnified Party, shall retain
counsel (who shall be reasonably acceptable to the Indemnified Party) to
represent the Indemnified Party and shall pay the reasonable fees and expenses
of such counsel with regard thereto; provided further, however, that any
Indemnified Party is hereby authorized, prior to the date on which it receives
written notice from the Indemnifying Party designating such counsel, to retain
counsel, whose reasonable fees and expenses shall be at the expense of the
Indemnifying Party, to file any motion, answer or other pleading and take such
other action which it reasonably shall deem necessary to protect its interests
or those of the Indemnifying Party until the date on which the Indemnified Party
receives such notice from the Indemnifying Party. After the Indemnifying Party
shall retain such counsel, the Indemnified Party shall have the right to retain
its own counsel, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Party unless (i) the Indemnifying Party and the
Indemnified Party shall have mutually agreed to the retention of such counsel or
(ii) the named parties of any such proceeding (including any impleaded parties)
included both the Indemnifying Party and the Indemnified Party and
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interests between them. If requested by the
Indemnifying Party, the Indemnified Party agrees to cooperate with the
Indemnifying Party and its counsel in contesting any claim or demand which the
Indemnifying Party defends. A claim or demand may not be settled by any party
without the prior written consent of the other party (which consent will not be
unreasonably withheld) unless, as part of such settlement, the Indemnified Party
shall receive a full and unconditional release
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reasonably satisfactory to the Indemnifying Party. Notwithstanding the
foregoing, the Indemnifying Party shall not settle any claim without the prior
written consent of the Indemnified Party if such claim is not exclusively for
monetary damages.
9. Late Payments and Resolution of Payment Disputes.
(a) Each party shall be entitled to charge the other party interest
at the rate of 10% per annum for any late payments due under the terms of this
Agreement. Each party shall be entitled to offset amounts owed to it by the
other party under the terms of this Agreement against amounts it owes to such
other party.
(b) For purposes of the procedures set forth in this section, a
"dispute" is a disagreement regarding amounts and timing of payments due under
this Agreement that the parties have been unable to resolve by the normal and
routine channels ordinarily used for such matters. In order to resolve a
dispute, the parties shall first follow the informal and escalating procedures
set forth below.
(i) The complaining party's representative will notify the
other party's representative in writing of the dispute, and the
non-complaining party will exercise good faith efforts to resolve the
matter as expeditiously as possible.
(ii) In the event that such matter remains unresolved thirty
(30) days after the delivery of the complainant party's written notice,
a senior representative of each party shall meet or confer within ten
(10) business days of a request for such a meeting or conference by
either party to resolve such matter.
(iii) In the event that the meeting or conference specified in
(ii) above does not resolve such matter, the senior officer of each
party shall meet or confer within ten (10) business days of a request
for such a meeting or conference by either party to resolve such
matter.
(iv) If the parties are unable to reach a resolution of the
dispute after following the above procedure, or if either party fails
to participate when requested, the parties may proceed in accordance
with paragraphs (c)-(e) below.
(c) Any dispute shall, after utilizing the procedures in this
section, be resolved by final and binding arbitration in New York, New York,
before a single arbitrator selected by, and in accordance with, the rules of
commercial arbitration of the American Arbitration Association. Each party shall
bear its own costs in the arbitration, including reasonable attorneys' fees, and
each party shall bear one-half of the cost of the arbitrator.
(d) The arbitrator shall have the authority to award such damages as
are not prohibited by this Agreement and may, in addition and in a proper case,
declare rights and order specific performance, but only in accordance with the
terms of this Agreement.
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(e) Any party may apply to a court of general jurisdiction to
enforce an arbitrator's award, and if enforcement is ordered, the party against
which the order is issued shall pay the costs and expenses of the other party in
obtaining such order, including reasonable attorneys' fees.
10. Early Termination.
(a) At any time when Enviro-Clean owns less than 10% of the
outstanding voting stock of B2B, based on the aggregate number of votes carried
by shares of common and preferred stock of B2B outstanding, each party shall
have the right to terminate this Agreement by giving 30 days written notice of
its election to terminate to the other party.
(b) Enviro-Clean may terminate this Agreement upon ten days prior
written notice if it experiences Repeated Unavailability of the Vendor
Management Services. "Repeated Unavailability" shall mean the unavailability of
the Vendor Management Services to process orders placed through the EC Site for
a sustained period of four or more hours on three or more occasions during any
one calendar month, excluding unavailability as a result of regularly scheduled
system maintenance, failures wholly related to error or omission by
Enviro-Clean, web hosts, system integrators or communications service providers
other than B2B or entities hired or contracted by B2B or Enviro-Clean in
connection with the Vendor Management Services, and regional or national
Internet or communications outages outside the control of B2B. In no event will
B2B be liable to any third party for any claims arising out of or related to
Repeated Unavailability for any lost revenue, lost profits, replacement goods,
loss of technology, rights or services, incidental, punitive, indirect or
consequential damages, loss of data, or interruption or loss of use of service
or Enviro-Clean's business, even if advised of the possibility of such damages,
whether under theory of contract, tort (including negligence), strict liability
or otherwise.
11. General Provisions.
(a) Neither party shall assign or otherwise transfer this Agreement
in whole or in part, or any of the rights and obligations hereunder, either
voluntarily or by operation of law, without the other's written consent.
(b) Neither party shall be deemed to be in default or have breached
any provision of this Agreement solely as a result of any delay, failure in
performance or interruption of service resulting directly or indirectly from any
act of God, civil or military authority, civil disturbance, war, laws,
regulations, acts or orders of any government or agency or official thereof, or
any other occurrences beyond the party's reasonable control.
(c) No waiver of any provision of this Agreement or of any rights or
obligations of either party hereunder shall be effective unless in writing and
signed by the party or parties waiving compliance, and any such waiver shall be
effective only in the specific instance and for the specific purpose stated in
such writing.
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(d) The execution and delivery of this Agreement shall not be deemed
to confer any rights or remedies upon, nor obligate any of the parties hereto,
to any person or entity other than such parties. Nothing in this Agreement shall
cause or be deemed to cause the parties to be partners or joint venturers with,
or agent or employees of, each other. The parties are independent contractors,
and neither party shall have any right or power to create any obligation or
responsibility on behalf of the other party.
(e) B2B shall not be liable to Enviro-Clean or to any third party
for any loss or damage, whether direct or indirect, resulting from delays or
interruptions of service due to mechanical electrical or wire defects or
difficulties, storms, strikes, walk-outs, equipment or systems failures, or
other causes over which B2B, its affiliates, employees, officers, or agents have
no reasonable control, or for loss or damage, direct or indirect, resulting from
inaccuracies, erroneous statements, errors of facts, omissions or errors in the
transmission or delivery of Vendor Management Services, or any data provided as
a part of the Vendor Management Services pursuant to this Agreement, except to
the extent caused by the gross negligence or wilful misconduct of B2B.
(f) All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been duly given or made
as of the date delivered if delivered personally or by nationally recognized
overnight courier or by facsimile to the parties at the following addresses and
numbers (or at such other address or number for a party as shall be specified by
like notice):
If to B2B:
b2bstores.com Inc. Corporation
249 East Ocean Boulevard
Long Beach, California 90802
Attention: Chief Executive Officer
(Facsimile No: 562/901-2014)
with a copy to:
Graubard Mollen & Miller
600 Third Avenue
New York, New York 10016
Attention: David Alan Miller, Esq.
(Facsimile No: 212/818-8881)
If to Enviro-Clean:
Enviro-Clean of America, Inc.
211 Park Avenue
Hicksville, New York 11801
Attention: Chairman of the Board
(Facsimile No: 516/931-3530)
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with a copy to:
Akin, Gump, Strauss, Hauer & Feld LLP
300 Convent Street, Suite 1500
San Antonio, Texas 78205
Attention: Alan Schoenbaum, Esq.
(Facsimile No: 210/224-2035)
(g) This Agreement shall be governed by and construed under the law
of the State of New York, disregarding any principles of conflicts of law that
would otherwise provide for the application of the substantive law of another
jurisdiction. Each of B2B and Enviro-Clean (i) agrees that any legal suit,
action or proceeding arising out of or relating to this Agreement (except
arbitrations under Section 9) shall be instituted exclusively in New York State
Supreme Court, County of New York, or in the United States District Court for
the Southern District of New York, (ii) waives any objection to the venue of any
such suit, action or proceeding and the right to assert that such forum is not a
convenient forum, and (iii) irrevocably consents to the jurisdiction of the New
York State Supreme Court, County of New York, and the United States District
Court for the Southern District of New York in any such suit, action or
proceeding. Each of B2B and Enviro-Clean further agrees to accept and
acknowledge service of any and all process which may be served in any such suit,
action or proceeding in the New York State Supreme Court, County of New York, or
in the United States District Court for the Southern District of New York and
agrees that service of process upon it mailed by certified mail to its address
shall be deemed in every respect effective service of process upon it in any
such suit, action or proceeding.
(h) No representations, warranties or agreements, oral or written,
express or implied, have been made to any party hereto, except as expressly
provided herein. This Agreement shall be binding upon the respective parties
hereto and their permitted successors and permitted assigns. In the event that
any provision hereof is found invalid or unenforceable pursuant to judicial
decree or decision, the remainder of this Agreement shall remain valid and
enforceable according to its terms. This Agreement constitutes the entire
understanding and agreement between the parties regarding the subject matter of
this Agreement, and supersedes all other prior written and oral communications
regarding this transaction, and may not be altered, modified or amended except
by a written amendment executed by both parties.
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IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute this Agreement as of the date set forth below.
B2BSTORES.COM INC.
By:/s/ Woo Jin Kim
-----------------------------
Woo Jin Kim
Chief Executive Officer
ENVIRO-CLEAN OF AMERICA CORP.
By:/s/ Randall Davis
-----------------------------
Randall Davis
President
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SCHEDULE 1
Product Categories:
Maintenance, Janitorial and Lunchroom products
Safety and Security products
Office Supplies
Computer Supplies and Data Storage products
Furniture and Accessories
Commission Schedule
Commissions earned by Enviroclean based on the Gross Profit Margin of
Enviroclean products sold. The schedule is as follows:
B2B Gross Profit Margin Enviroclean Commission
**** ****
<PAGE>
SCHEDULE 2
(As of October 1, 1999)
Specifications
The E-Commerce System will have functionality identical to that of
b2bstores.com, with differences in look, feel content, services and resources
only.
The E-Commerce Systems will be on the website www.b2bgoods.com.
Functionality similarities will be in the following areas, and the
b2bstores.com site will be used as a baseline for features and functionality.
o Pricing Management
o Shipping Methods
o Shipping methods and shipping/handling rates
o Taxation
o Discount schedules
o Specific order information required on each order (i.e. "order header"
items)
o Support for backorder and partial shipments
o Support for product varieties such as - size, color, style, finish
type, captured text fields for imprinting or other use
o Special instructions, requested delivery date, ship-to location for
each product ordered
o Product Navigation
o Product Search
o Detailed Product Descriptions
o Shopping Cart and Order Processing
o Online Customer Service
o Online Help Text
<PAGE>
PROMISSORY NOTE
Dated: July 1, 1999
FOR VALUE RECEIVED, b2bstores.com Inc., a Delaware corporation (the
"Maker"), hereby promises to pay to the order of Enviro-Clean of America, Inc.
(the "Payee"), at 211 Park Avenue, Hicksville, New York 11801, or such other
place as may from time to time be designated by notice thereof from the Payee
hereof to the Maker, the principal sum as shall have been advanced from time to
time from Payee to Maker (as set forth on the schedule to this Note ("Grid")),
together with interest on the unpaid principal sum outstanding at a rate equal
to eight percent per annum. Principal and interest shall be due and payable on
the earlier of (i) December 31, 1999 and (ii) the date the Maker consummates an
offering of its equity securities yielding gross proceeds of at least
$2,000,000.
Interest shall be payable on any installment of principal and interest not
paid to the Payee on its due date as set forth above at a per annum rate equal
to the lesser of (i) 18%, or (ii) the highest rate permitted by law, from the
date such installment was due and payable to the Payee until the date such
installment is fully paid.
If any of the following events shall occur:
(i) the Maker shall default in the payment of principal of, or interest on,
this Note or any indebtedness for borrowed money in excess of $50,000, or shall
default in the performance or observance of the terms of any instrument pursuant
to which such indebtedness was created or is secured, the effect of which
default is to cause or permit any holder of any such indebtedness to cause the
same to become due prior to its stated maturity;
(ii) any judgment against the Maker or any attachment, levy or execution
against any of its properties for any amount shall remain unpaid, or shall not
be released, discharged, dismissed, stayed or fully bonded for a period of 10
days or more after its entry, issue or levy, as the case may be; or
(iii) the Maker shall make an assignment for the benefit of creditors, or a
trustee, receiver or liquidator shall be appointed for the Maker or for any of
its property, or the commencement of any proceedings by the Maker under any
bankruptcy, reorganization, arrangement of debt, insolvency, readjustment of
debt, receivership, liquidation or dissolution law or statute, or the
commencement of any such proceedings without the consent of the Maker and such
proceedings shall continue undischarged for a period of 10 days;
then, in any such event, the Payee may declare the entire unpaid principal
amount of this Note, and all interest accrued and unpaid hereon, to be forthwith
due and payable, whereupon the same shall become and be forthwith due and
payable, without presentment, demand, protest or notice of any kind, all of
which are hereby expressly waived by the Maker.
<PAGE>
No failure on the part of the Payee to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise by Payee of any right hereunder preclude any other or
further exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
In the event this Note is turned over to an attorney for collection or
Payee otherwise seeks advice of an attorney in connection with exercise or
enforcement of its rights hereunder, the Maker agrees to pay all costs of
collection, including reasonable attorneys' fees and expenses, which amounts
may, at the Payee's option, be added to the principal hereof.
No amendment, modification or waiver of any provision of this Note, nor
consent to any departure by the Payee therefrom, shall be effective unless the
same shall be in writing and signed by the Payee, and then such waiver or
consent shell be effective only in the specific instance and for the specific
purpose for which it is given.
This Note has been executed and delivered in the State of New York and the
construction, validity and performance hereof shall be governed by the internal
laws of the State of New York without regard to the principles of conflict of
laws. Any action, suit or proceeding in respect of or arising out of this Note
may be brought by Payee in federal or state court located in Nassau County. In
any such action, suit or proceeding, Maker waives trial by jury, and Maker also
waives (i) the right to interpose any setoff or counterclaim of any nature or
description; (ii) any objection based on forum non-conveniens or venue; and
(iii) any claim for consequential, punitive, or special damages.
This Note shall be binding upon the Maker and its successors and assigns,
and the terms hereof shall inure to the benefit of the Payee and its successors
and assigns, including subsequent holders hereof.
All notices hereunder from the Payee to the Maker shall be in writing and
mailed to the Maker at the above address by registered or certified mail, return
receipt requested. All such notice shall be deemed given when mailed.
Maker hereby authorizes Payee to complete and revise the Grid and to
reflect thereon the making of any loan made to Maker hereunder. Payee shall send
a copy of the Grid to Maker promptly after any revision thereto. The Grid, as
completed and/or revised by Payee, shall be final and binding on Maker in the
absence of fraud or mathematical error.
IN WITNESS WHEREOF, the undersigned has duly executed this instrument on
the date set forth above.
b2bstores.com Inc.
By: /s/ Richard Kandel, Chairman
-----------------------------
Richard Kandel
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SCHEDULE TO PROMISSORY NOTE
Maker: b2bstores.com Inc. Date of Note: July 1, 1999
NAME OF PERSON
DATE AMOUNT OF ADVANCE MAKING NOTATION
---- ----------------- ---------------
June 10, 1999 25,000 Richard Kandel
July 15, 1999 2,586 Richard Kandel
July 19, 1999 25,000 Richard Kandel
July 26, 1999 27,250 Richard Kandel
July 30, 1999 100,000 Richard Kandel
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EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
b2bstores.com Inc.
Long Beach, CA
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated September 30, 1999, relating to the
financial statements of b2bstores.com Inc. (a development stage company), which
is contained in that Prospectus. Our report contains an explanatory paragraph
regarding the Company's ability to continue as a going concern.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman, LLP
New York, New York
November 30, 1999
