<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 26, 2000
REGISTRATION NO. 333-88511
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 5
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.
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........................ 2,800,000 $10.00 $28,000,000 $ 7,392.00
Common stock(2)...................................... 420,000 10.00 4,200,000 1,108.00
Representatives' warrants to purchase shares of
common stock(3)...................................... 280,000 .0001 -- --
Common stock(4)...................................... 280,000 16.50 4,620,000 1,219.68
Total........................................................................................................ $ 9,720.48*
</TABLE>
*
The registrant has previously paid $12,358.00.
(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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 JANUARY 26, 2000
PROSPECTUS
2,800,000 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 SmallCap
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
420,000 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 8 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 February , 2000.
GAINES, BERLAND INC. NOLAN SECURITIES CORP.
------------------------
The date of this prospectus is , 2000
<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............................................................................................... 8
Use of Proceeds............................................................................................ 10
Dilution................................................................................................... 12
Capitalization............................................................................................. 13
Plan of Operations......................................................................................... 14
Business................................................................................................... 24
Management................................................................................................. 36
Principal Stockholders..................................................................................... 43
Certain Transactions....................................................................................... 46
Description of Securities.................................................................................. 48
Underwriting............................................................................................... 51
Where You Can Find More Information........................................................................ 54
Legal Matters.............................................................................................. 54
Experts.................................................................................................... 54
Index to Financial Statements.............................................................................. F-1
</TABLE>
---------------------------------------------
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.
TO NEW JERSEY RESIDENTS:
The Common Shares of b2bstores.com, Inc., may only be offered and sold,
during the initial distribution of the securities and for ninety days after the
initial distribution of the securities, to persons who come within any of the
following categories, or who the Company reasonably believes comes within any of
the following categories, at the time of the sale of the securities to that
person:
(1) Any bank as defined in section 3(a)(2) of the Securities Act of 1933
(the "Act"), or any savings and loan association or other institution as defined
in section 3(a)(5)(A) of the Act whether acting in its individual or fiduciary
capacity; any broker or dealer registered pursuant to section 15 of the
Securities Exchange Act of 1934; any insurance company as defined in section
2(13) of the Act; any investment company registered under the Investment Company
Act of 1940 or a business development company as defined in section 2(a)(48) of
that Act; Small Business Investment Company licensed by the U.S. Small Business
Administration under section 301(c) or (d) of the Small Business Investment Act
of 1958; any plan established and maintained by a state, its political
subdivisions, or any agency or instrumentality of a state or its political
subdivisions for the benefit of its employees, if such plan has total assets in
excess of $5,000,000; employee benefit plan within the meaning of the Employee
Retirement Income Security Act of 1974 if the investment decision is made by a
plan fiduciary, as defined in section 3(21) of such act, which is either a bank,
savings and loan association, insurance company, or registered investment
adviser, or if the employee benefit plan has total assets in excess of
$5,000,000 or, if a self-directed plan, with investment decisions made solely by
persons that are accredited investors;
(2) Any private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940;
(3) Any organization described in section 501(c)(3) of the Internal Revenue
Code, corporation, Massachusetts or similar business trust, or partnership, not
formed for the specific purpose of acquiring the securities offered, with total
assets in excess of $5,000,000.
(4) Any director, executive officer, or general partner of the issuer of
the securities being offered or sold, or any director, executive officer, or
general partner of a general partner of that issuer;
(5) Any natural person whose individual net worth, or joint net worth with
that person's spouse, at the time of his purchase exceeds $1,000,000;
(6) Any natural person who had an individual income in excess of $200,000
in each of the two most recent years or joint income with that person's spouse
in excess of $300,000 in each of those years and has a reasonable expectation of
reaching the same income level in the current year;
(7) Any trust, with total assets in excess of $5,000,000, not formed for
the specific purpose of acquiring the securities offered, whose purchase is
directed by a sophisticated person as described in ss.230.506(b)(2)(ii); and
(8) Any entity in which all of the equity owners are accredited investors.
3
<PAGE>
PROSPECTUS SUMMARY
GENERAL
b2bstores.com(TM) 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. 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.
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.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered......................... 2,800,000 shares
Common stock outstanding prior to the
offering.................................. 3,740,128 shares
Common stock to be outstanding after the
offering.................................. 6,540,128 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 of America, Inc.;
o to pay cash bonuses to some of our officers; and
o for working capital and general corporate purposes.
Nasdaq SmallCap Market symbol................ BTBC
Boston Stock Exchange symbol................. BTB
</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 3,220,000 and the total number of shares outstanding after this offering
will be 6,960,128.
Enviro-Clean 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.
The information in this prospectus concerning the number of shares of
common stock outstanding gives effect to a 0.93-for-one share stock split
effected on January 20, 2000.
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 audited
financial statements and related notes included elsewhere in this prospectus.
The financial information as of December 31, 1999 and for the period from our
inception on June 28, 1999 to December 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:
<TABLE>
<CAPTION>
JUNE 28, 1999
(INCEPTION) TO
DECEMBER 31, 1999
-----------------
<S> <C>
STATEMENT OF OPERATIONS DATA
Sales........................................................................................ $ 2,191
Cost of sales................................................................................ 3,495
-----------
Gross loss................................................................................ (1,304)
-----------
Operating expenses:
General and administrative................................................................ 709,810
Sales and marketing....................................................................... 23,060
Start-up costs............................................................................ 55,036
Stock-based compensation relating to general and administrative activities................ 216,430
Stock-based compensation relating to start-up activities.................................. 1,901,500
-----------
Total operating expenses............................................................... 2,905,836
-----------
Loss from operations......................................................................... (2,907,140)
Interest expense............................................................................. 23,097
-----------
Net loss..................................................................................... $(2,930,237)
-----------
-----------
Basic and diluted loss per share............................................................. $ (.81)
-----------
-----------
Weighted average common shares outstanding................................................... 3,637,025
-----------
-----------
</TABLE>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------
ACTUAL AS ADJUSTED
--------- -----------
<S> <C> <C>
Working capital (deficit)..................................................... $(880,344) $23,539,656
Total assets.................................................................. 815,581 24,387,648
Total liabilities............................................................. 991,888 143,955
Stockholders' equity (deficit)................................................ (176,307) 23,923,326
</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 2,800,000 shares of our common stock in this offering;
o that we will receive net proceeds of $24,550,000 in this offering;
and
6
<PAGE>
o that we will immediately apply a portion of the net proceeds to repay
loans made to us by Enviro-Clean and to pay cash bonuses due to some
of our officers upon completion of this offering.
Subsequent to December 31, 1999, we have continued to fund our operations
with proceeds from loans from Enviro-Clean. As of January 24, 2000, we had
borrowed an aggregate of $1,000,000 from Enviro-Clean. The repayment of the
principal and related interest under these loans as of the consummation date of
this offering will be made from the net proceeds of the offering. Our working
capital and total assets will be reduced by this same amount.
7
<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
BECAUSE WE HAVE A VERY SHORT OPERATING HISTORY, WE MAY NOT BE ABLE TO
SUCCESSFULLY MANAGE OUR BUSINESS OR ACHIEVE PROFITABILITY.
We may not be able to grow our business as planned or ever become a
profitable business. We began our commercial operations in September 1999.
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. 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. If we are unable to successfully address these risks or
grow our business as planned, the value of our common stock will be diminished.
BECAUSE OUR OPERATING EXPENSES AND CAPITAL EXPENDITURES WILL OUTPACE OUR
REVENUES, 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. We have generated only nominal revenues to date and have incurred an
aggregate net loss of $2,930,237 during the period from our inception to
December 31, 1999.
THE REPORT OF OUR INDEPENDENT ACCOUNTANTS CONTAINS A GOING CONCERN QUALIFICATION
WHICH STATES THAT WE MAY NOT BE ABLE TO CONTINUE OUR OPERATIONS IF WE DO NOT
RECEIVE THE PROCEEDS OF THIS OFFERING.
Our independent certified public accountants' report for the period from
our inception on June 28, 1999 through December 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.
8
<PAGE>
RISKS RELATING TO OUR OPERATIONS
BECAUSE ONE OF OUR OPERATING AGREEMENTS REQUIRES US TO SHARE A SIGNIFICANT
PORTION OF THE REVENUES WE GENERATE WITH A THIRD-PARTY, IT WILL BE MORE
DIFFICULT FOR US TO BECOME A PROFITABLE BUSINESS.
We will not retain all revenues generated through our web site, which
will make it more difficult for us to become a profitable business. We have an
agreement with Netgateway, Inc. through February 2001, 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.
BECAUSE OUR EXECUTIVE OFFICERS LACK SIGNIFICANT MANAGEMENT EXPERIENCE, WE MAY
NOT BE ABLE TO EFFECTIVELY MANAGE OUR GROWTH.
The growth of our business may place a significant strain on our management
team and 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.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS. THESE STATEMENTS MAY PROVE
TO BE INACCURATE.
Some of the statements 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
the following words:
<TABLE>
<S> <C>
o "may," o "plans,"
o "will," o "expects,"
o "should," o "believes,"
o "estimates," o "intends"
</TABLE>
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.
9
<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 $24,550,000. If the
underwriters exercise their over-allotment option in full, the net proceeds will
be approximately $28,330,000. 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 $3,450,000 or $3,870,000, 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..................................................... $16,000,000 65.2%
Development of our web site and customer support operations............. 2,500,000 10.2
Repayment of debt to principal stockholder.............................. 1,100,000 4.5
Payment of bonuses to officers.......................................... 130,000 0.5
Working capital and general corporate purposes.......................... 4,820,000 19.6
----------- -------
Total................................................................ $24,550,000 100.0%
----------- -------
----------- -------
</TABLE>
We intend to use approximately $16,000,000 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 appointment of one or more advertising agencies,
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 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,
o the expansion of our customer support operations, including our
24-hour customer service telephone operations and live, online
customer service chat area, and
o the commercial launch and expansion of our auction capabilities
and offerings, business referral services and business content
offerings.
10
<PAGE>
We will use approximately $1,100,000 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 $1,000,000 in June,
July, November and December 1999 and January 2000. They bear interest at the
annual rate of 8%. All principal and interest is payable by us on the earlier of
(a) March 1, 2000, and (b) the date this offering is consummated.
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 consideration 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.
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.
11
<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 December 31, 1999, we had a net
tangible deficit of $(496,674), or approximately $(.13) per share of common
stock.
As of December 31, 1999, after adjusting for the issuance of 2,800,000
shares of our common stock in this offering, our as adjusted net tangible book
value would have been approximately $24,243,693, or approximately $3.71 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 $3.84 per share of common stock to
existing stockholders and an immediate dilution of approximately $6.29 per
share, or approximately 63%, 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 December 31, 1999.............. (.13)
Increase per share attributable to sale of shares in this offering..... 3.84
---------
As adjusted net tangible book value per share of common stock after this
offering..................................................................... 3.71
---------
Dilution per share of common stock to investors in this offering................ $ 6.29
---------
---------
</TABLE>
Assuming the exercise in full of the underwriters' over allotment option,
our adjusted net tangible book value at December 31, 1999 would have been
approximately $4.03 per share. This represents an immediate increase in net
tangible book value of $4.16 per share to our existing stockholders and an
immediate dilution in net tangible book value of $5.97 per share to new
investors.
The next table summarizes, as of December 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 or the exercise of the
underwriters' over-allotment option.
<TABLE>
<CAPTION>
TOTAL CASH
SHARES PURCHASED CONSIDERATION AVERAGE
----------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 3,740,128 57.2% $ 636,000 2.2% $ 0.17
New investors............. 2,800,000 42.8% 28,000,000 97.8% 10.00
----------- ----- ----------- -----
Total.................. 6,540,128 100.0% $28,636,000 100.0%
----------- ----- ----------- -----
----------- ----- ----------- -----
</TABLE>
12
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999
on an actual and as adjusted basis. The "As Adjusted" column shows our
capitalization adjusted to reflect:
o the issuance of 2,800,000 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.
o the payment of cash bonuses to some of our executive officers that
will be due upon completion of this offering.
Subsequent to December 31, 1999, we have continued to fund our operations
with proceeds from loans from Enviro-Clean. As of January 24, 2000, we had
borrowed an aggregate of approximately $1,000,000 from Enviro-Clean. The
repayment of the principal and related interest under these loans as of the
consummation date of this offering will be made from the net proceeds of the
offering.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------------
ACTUAL AS ADJUSTED
---------- --------------
<S> <C> <C>
Short-term debt................................................................. $ 824,836 $ --
---------- ------------
---------- ------------
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;
3,740,128 issued and outstanding, actual; and 6,540,128 shares issued and
outstanding, as adjusted.................................................. 37,401 65,401
Additional paid-in capital................................................... 2,716,529 27,238,529
Deficit accumulated during development stage................................. (2,930,237) (3,060,237)
---------- ------------
Total stockholders' equity (deficit)...................................... (176,307) 24,243,693
---------- ------------
Total capitalization...................................................... $ (176,307) $ 24,243,693
---------- ------------
---------- ------------
</TABLE>
13
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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. Although basic auction functions are currently
available at our website, we are expanding these functions. We deem our auction
area to be in the development phase. Further, we have not marketed our auctions.
Accordingly, there are only a few products currently up for auction at our web
site. Once commercially launched, 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. Our expanded auction
functions are scheduled for commercial launch during the first quarter of 2000.
The anticipated costs associated with the implementation of our expanded auction
functions is approximately $120,000. We will use a portion of the proceeds of
this offering to fund
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these costs. We will face intense competition from established web sites that
provide auction access to users.
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 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. It is our current intention to not engage in any business referals
that would require us to become licensed or regulated by any agency.
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. The anticipated costs for implementing our business service
referral functions include one-time expenses of approximately $60,000 during the
first quarter of 2000. These costs will relate to the development and
integration of approximately ten complex service-provider projects and 20 simple
links to service providers. These costs will be funded by a portion of the
proceeds of this offering.
PROVISION OF BUSINESS INFORMATION AND CONTENT
We have already begun to provide business information and other content to
our customers, including:
o computer product reviews,
o news,
o stock market information, and
o downloadable driving directions.
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.
The anticipated cost for our business content and information functions
will be approximately $12,000 per month on an ongoing basis for licensing of
content and a one-time cost of $15,000 for the development and integration of
our functions. We anticipate that these costs will be partially covered by
corporate sponsorships at our web site. The remaining costs will be funded by a
portion of the proceeds of this offering.
SOURCES OF REVENUE
We believe that we will derive our revenues from the following sources:
o product sales;
o service referral fees and commissions;
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o advertising;
o "click through" fees; and
o vendor management fees.
We will recognize revenues according to:
o the type of product or service being sold,
o the structure of the contract negotiated with the individual vendor,
and
o the substantive nature of the risks of ownership we incur in
connection with the sale and shipment of the product.
For product sales involving substantive risk of ownership, we will
generally recognize revenue at the gross transaction value. For service and
referral sales where risk of loss is minimal, we will generally recognize
revenue on a net fee or commission basis. For auction sales where we incur risk
of loss in the transactions, we will recognize gross revenues. For auction sales
where we act as auctioneer and have little risk of loss, we will recognize
revenue on a net basis or transaction fee basis.
Currently policy setting groups of the Emerging Issues Task Force and the
Financial Accounting Standards Board are reviewing the guidelines under which
revenue is recognized on a gross basis versus a net basis. As we currently
recognize certain of our revenue on a gross basis, there is a risk that future
guidelines may require us to change, retroactively, our revenue recognition
policy. This could cause us to report markedly lower revenues than currently
anticipated. Although such a change would cause us to report markedly lower
revenues and costs of products, it would not change our reporting with respect
to other expenses, net revenue or earnings before and after tax.
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 flowers, collectibles, vacation packages
and other ancillary products. We expect a substantial majority of our revenue to
come from the online sale of products.
Enviro-Clean is our fulfillment agent 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 2% to 5% percentage of all
revenues generated by us through the sale of products supplied by Enviro-Clean.
In connection with our auctions, we list products for sale by vendors. In
these auctions, we will either take physical possession of the product or the
vendor will retain possession of the product. We also will act as an auctioneer,
conducting auctions on behalf of web site users who place items up for auction.
When acting as an auctioneer, we will receive a commission on the sale of the
product at the conclusion of the auction. When acting as an auctioneer, we will
not take title to or possession of the product and the person or entity placing
the product up for auction will bear the risk of credit card charge backs and
fraud.
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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.
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
December 31, 1999, our monthly run rate for hits is approximately 40,000.
The rates that we intend to 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
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. Our agreement with
Netgateway is through February 2001.
VENDOR MANAGEMENT FEES
Enviro-Clean operates its own product web site at www.b2bgoods.com. This
web site offers janitorial and sanitary maintenance products, along with
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
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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 access to 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.
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.
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,
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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.
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.
Our agreement with Netgateway is through February 2001.
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
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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
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 generated nominal revenue to date. Since our inception on June 28,
1999 through December 31, 1999 we have incurred operating expenses of $2,905,836
which were comprised of the following:
o $709,810 of general and administrative expenses, primarily comprised of
payroll and related expenses.
o $23,060 for sales and marketing, virtually all of which was installation
costs associated with of our phone system to support customer service.
o Start up costs of $55,036, which includes development costs associated
with the Netgateway agreement, legal fees, and identity design expenses.
o $216,430 of non-cash stock based compensation charges relating to general
and administrative activities.
o $1,901,500 of non-cash stock based compensation charges relating to
start-up activities.
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Since our inception through December 31, 1999, we have incurred an
aggregate net loss of $2,930,237.
We have cash commitments of approximately $932,000 during 2000 and $973,000
during 2001. These commitments arise under:
o our agreements with our key employees; and
o operating leases.
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 $1,150,000 in 2000;
o $425,000 in 2001; and
o $425,000 in 2002.
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 3,410,000 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 the web address, www.b2bstores.com.
In June, July, November and December 1999 and January 2000, Enviro-Clean
made loans to us in the aggregate principal amount of approximately 1,000,000.
These loans bear interest at the rate of 8% per annum and are repayable on the
earlier of (a) March 1, 2000 and (b) the date this offering is consummated. All
of the proceeds of these loans have been, or will be, used to fund operating
losses and development and operating costs.
In August 1999, we raised proceeds of $625,000 through the sale of 310,000
shares of our common stock to Mr. Kandel, and other persons, some of whom are
affiliated with Enviro-Clean. The purchase price was $2.02 per share.
In September 1999, we issued:
o an aggregate of 15,478 shares of our common stock to various persons
in consideration of accounting services rendered by them to us during
our start-up phase.
o 2,325 shares of our common stock to each of John
Higgins and Philip Ellett in consideration of their
becoming directors of b2bstores.com.
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Our working capital deficit at December 31, 1999 was $880,344. Our
independent certified public accountants' report for the period from our
inception on June 28, 1999 through December 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.
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.
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.
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.
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PROPRIETARY AND INTERNAL SYSTEMS
Our program involves the following phases:
Systems Review. We have completed a comprehensive review of all internal
financial, informational and operational systems. To date, we have not found or
experienced any year 2000 problems.
Testing. We created a test environment and performed testing. These tests
indicate that our internal systems will continue to function properly during
2000 and beyond.
Contingency Planning. We believe that we would be able to produce a
minimum acceptable level of service in the event of internal or external
critical systems failure.
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
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 any of these entities to be year 2000
compliant could result in 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.
After the formation of b2bstores.com, 1,860,000 shares of common stock were
issued to Enviro-Clean in consideration of:
o a nominal contribution to the capital of b2bstores.com;
o the transfer of the web address, www.b2bstores.com, which had
previously been applied for by Mr. Kandel in the name of
Enviro-Clean; and
o the waiver of any other rights Enviro-Clean might have in the
"b2bstores.com" concept.
Concurrently, an aggregate of 1,550,000 additional shares of common stock
were issued to Mr. Kandel and other persons for nominal capital contributions to
b2bstores.com. Some of these persons are affiliated with Enviro-Clean.
At the time of the issuance of the shares to Enviro-Clean and the other
persons described above, b2bstores.com had only nominal assets and needed to
assemble a management team and hire an employee staff. The number of shares
issued to Enviro-Clean and these other persons were determined through
arm's-length negotiations. These transactions between b2bstores.com and
Enviro-Clean were unanimously approved by their respective board of directors.
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.
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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.
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.
o Service referral sites. These web sites focus primarily on the
referral of business customers to services provided by other
companies.
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. 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
b2bstores.com 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 trade
journals and other print publications, 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 cost effectively. We intend to use a
significant portion of the proceeds of this offering for extensive marketing
activities 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 also
will be commercially introducing auction capabilities in the first quarter of
2000. Auctions will allow us to increase the types of products available at
b2bstores.com and provide our business customers with the
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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; 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.
CREATING AND EXPLOITING ADVERTISING REVENUE OPPORTUNITIES. 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 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
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<PAGE>
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, including
o notebook computer systems monitors and disk drives
o software o office furniture
</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 our fulfillment agent 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.
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 executive recruiters
o commercial real estate brokerages o telecommunications services
</TABLE>
27
<PAGE>
<TABLE>
<S> <C>
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
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 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;
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;
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
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<PAGE>
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.
Users of our web site are referred to as "members." Our members are able to
purchase products through our web site at "member prices." Member prices are
simply our every day lowest price on the products we sell. These prices are
available to any user of our web site. The use of the terms "members" and
"member prices" are therefore strictly marketing tools which are designed to
promote a sense of community at our web site.
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.
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.
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<PAGE>
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.
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. Our
agreements with Netgateway are through February 2001.
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.
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<PAGE>
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.
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.
If we are unable to protect our "b2bstores.com" domain name our business
could be harmed. 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."
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.
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<PAGE>
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
that include:
o user privacy;
o pricing;
o tax;
o content;
o copyrights;
o distribution; and
o characteristics and quality of products and services.
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, including similar buying habits and 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 the 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 relating to Internet
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<PAGE>
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 these 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 legislation or regulation of this type could materially adversely
affect our business, financial condition and operating results.
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:
o business related e-commerce web sites, including PurchasePro.com,
VerticalNet and OnVia.com,
o enterprise software purchasing systems providers, including Ariba,
Commerce One and TRADE'ex,
o large Internet companies, including Yahoo.com, E-Bay and AOL, and
o traditional business product vendors, including Office Depot and
Staples, who are establishing their own Internet presence.
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.
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
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<PAGE>
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 b2bstores.com.
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 business
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, including 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, including television, radio and print, for a
share of advertisers' total advertising budgets. We believe the number of
companies selling web-based advertising 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.
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<PAGE>
EMPLOYEES
As of December 31, 1999, we had 22 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............................... 33 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
Philip Ellett.................................. 45 Director
</TABLE>
Richard Kandel founded b2bstores.com 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 b2bstores.com 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 b2bstores.com 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 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.
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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 b2bstores.com 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 b2bstores.com in
August 1999, Ms. Jessup was the vice president of channel marketing for
Netgateway. From August 1994 to January 1999, Ms. Jessup 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,
Ms. Jessup 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 b2bstores.com
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 b2bstores.com 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.
Philip Ellett has served as a director of b2bstores.com 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.
Because we are a small company, we are currently dependent on the efforts
of a limited number of management personnel. We believe that, given the
development stage of our business and the large amount of responsibility being
placed on each member of our
37
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management team, the loss of the services of any member of this team at the
present time would harm our business. Each member of our management team
supervises the operation and growth of one or more integral parts of our
business.
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.
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 2,325 shares of our common stock to each
of Messrs. Higgins and Ellett in consideration of their becoming directors of
b2bstores.com.
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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 key management
positions. This has been accomplished.
o $25,000 upon the introduction of 25 or more product categories at our
web site.
o $25,000 upon consummation of this offering.
39
<PAGE>
The bonuses payable to the other officers set forth above include a payment
of $20,000 to each officer upon consummation of this offering. For each officer,
the remaining bonus amounts represent up to $12,500 payable after each quarter
in 2000 that performance objectives are achieved by b2bstores.com. The
objectives are as follows:
GOALS FOR CASH BONUSES
<TABLE>
<CAPTION>
Q1-2000 Q2-2000 Q3-2000 Q4-2000
-------- ---------- ---------- ----------
<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 Ms. 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 12,500 additional
shares at fair market value on the date the option is granted after each quarter
in 2000 upon the attainment by b2bstores.com of performance objectives. These
objectives are as follows:
GOALS FOR STOCK BONUSES
<TABLE>
<CAPTION>
Q1-2000 Q2-2000 Q3-2000 Q4-2000
-------- ---------- ---------- ----------
<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 able to prevent an officer from
competing with us, which could have an adverse impact on our business.
40
<PAGE>
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.
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
41
<PAGE>
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, including
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.
42
<PAGE>
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.......................................... 3,007,000 80.4% 46.0%
Woo Jin Kim............................................. 150,000 4.0% 2.3%
Enviro-Clean of America, Inc.
211 Park Avenue
Hicksville, New York 11802........................... 1,860,000 49.7% 28.4%
Randall Davis
c/o Enviro-Clean of America, Inc.
211 Park Avenue
Hicksville, New York 11802........................... 2,170,000 58.0% 33.2%
Steven Etra
c/o Enviro-Clean of America, Inc.
211 Park Avenue
Hicksville, New York 11802........................... 2,017,481 53.9% 30.8%
John Higgins............................................ 2,325 -- --
Philip Ellett........................................... 2,325 -- --
All executive officers and directors as a group......... 3,629,131 97.00% 55.5%
</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.
Richard Kandel, Randall Davis and Steven Etra are principals of
Enviro-Clean.
43
<PAGE>
The information for Mr. Kandel represents:
o 992,000 shares owned directly by Mr. Kandel,
o 93,000 shares owned by a profit sharing plan controlled by
Mr. Kandel on behalf of Kandel & Sons, another company owned by him,
o 62,000 shares owned by Mint Corp. of N.Y., an entity controlled by
Mr. Kandel, and
o 1,860,000 shares owned by Enviro-Clean.
Because our chairman of the board, Richard Kandel, will continue to
control b2bstores.com after the offering, your ability as a stockholder to
influence the management of b2bstores.com will be extremely limited. Mr. Kandel
beneficially owns approximately 80.4% of our outstanding common stock prior to
this offering, and will own approximately 46.0% 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.
Given his positions 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.
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) 310,000 shares owned directly
by Mr. Davis and (b) 1,860,000 shares owned by Enviro-Clean, a company of which
Mr. Davis is president and a principal stockholder.
The information for Mr. Etra represents:
o 147,560 shares owned directly by Mr. Etra;
o 9,920 shares owned by SRK Associates, a company of which Mr. Etra is
an owner; and
o 1,860,000 shares owned by Enviro-Clean, of which Mr. Etra is a
stockholder and director.
Our executive officer and director group is comprised of the following
eight persons:
o Richard Kandel
o Woo Jin Kim
o Mark Voorhis
o Jeffrey Crandell
o Shannon Jessup
o Brian Wharton
o John Higgins
o Philip Ellett
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<PAGE>
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 Ms. Jessup 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;
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 Mr. Wharton upon exercise of options that
will vest in annual installments commencing in August 2000;
o 175,000 shares issuable to Mr. Crandell upon exercise of options that
will vest in annual installments commencing in August 2000; and
o 175,000 shares issuable to Mr. Voorhis upon exercise of options that
will vest in annual installments commencing in September 2000.
45
<PAGE>
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 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 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 and promoter of b2bstores.com.
The relationship between Enviro-Clean and b2bstores.com and their
affiliates is more fully described below. All transactions between b2bstores.com
and Enviro-Clean have been on terms no less favorable to b2bstores.com than
could have been obtained from third parties. Each transaction has been
unanimously approved by the respective board of directors of b2bstores.com and
Enviro-Clean.
EARLY FINANCING OF B2BSTORES.COM.
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, we issued an aggregate of 3,410,000 shares of our common
stock for $27,500 in the form of $11,000 in cash and the transfer to us of the
web address, www.b2bstores.com. These shares were issued as follows:
o 930,000 shares to Mr. Kandel;
o 1,860,000 shares to Enviro-Clean;
o 62,000 shares to Mint Corp. of NY, a company owned by Mr. Kandel;
46
<PAGE>
o 62,000 shares to Steven Etra, a director and stockholder of
Enviro-Clean;
o 310,000 to Randall Davis, a director and officer of Enviro-Clean; and
o an aggregate of 186,000 shares to other persons not affiliated with
Enviro-Clean of b2bstores.com.
In June, July, November and December 1999 and January 2000, Enviro-Clean
made loans to us in the aggregate principal amount of approximately $1,000,000.
These loans bear interest at the rate of 8% per annum and are repayable on the
earlier of (a) March 1, 2000 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.
At the time of the issuance of the shares to Enviro-Clean and the other
persons described above, b2bstores.com had only nominal assets and needed to
assemble a management team and hire an employee staff. The number of shares
issued to Enviro-Clean and these other persons were determined through
arm's-length negotiations. These transactions between b2bstores.com and
Enviro-Clean were unanimously approved by their respective board of directors.
In August 1999, we consummated a financing in which we raised proceeds of
$625,000 through the sale of 310,000 shares of our common stock as follows:
o 62,000 shares to Mr. Kandel;
o 93,000 shares to K&S PSP, a profit sharing plan of which Mr. Kandel
is a trustee;
o 85,560 shares to Steven Etra;
o 24,800 shares to Richard Etra, Steven Etra's cousin;
o 34,720 shares to Kenneth Etra, Steven Etra's cousin and brother of
Richard Etra;
o 9,920 shares to SRK Associates, a company owned by Steven, Richard
and Kenneth Etra.
In September 1999, we issued an aggregate of 15,478 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 2,325 shares of our common stock to each of John
Higgins and Philip Ellett in consideration of their becoming directors of
b2bstores.com.
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 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.
47
<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
6,540,128 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
SmallCap Market, there can be no assurance that this application will be
approved. It is anticipated that this offering will not be completed until and
unless our common stock is approved for quotation on the Nasdaq SmallCap Market.
Even if our application to the Nasdaq SmallCap Market 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 b2bstores.com, discourage bids for our common stock at a premium or
otherwise adversely affect the market price of the common stock.
48
<PAGE>
SHARES AVAILABLE FOR FUTURE SALE
Substantially all of the 3,740,128 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.
The exercise of options and other securities to purchase our common stock
may also 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 280,000 shares of
our common stock in connection with this offering.
TRANSFER AGENT
American Stock Transfer & Trust Company, 40 Wall Street, New York, New York
10005, 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 those dividends, if any, will be
determined by our board of directors in light of our earnings, financial
condition, capital requirements and other factors.
49
<PAGE>
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;
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, including 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.
50
<PAGE>
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 Corp. 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 Corp..................................................................
---------
Total 2,800,000
---------
---------
</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 3.0% 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.
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 420,000 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.
51
<PAGE>
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 280,000 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 $ .
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.
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.
52
<PAGE>
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 SmallCap 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.
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.
53
<PAGE>
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 appearing elsewhere herein and in the registration statement, and
are included in reliance upon this report, given upon the authority of BDO
Seidman, LLP, as experts in auditing and accounting. This report contains an
explanatory paragraph indicating substantial doubt about our ability to continue
as a going concern.
54
<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' Deficit..................................................................... F-5
Statement of Cash Flows................................................................................ F-6
Summary of Business and Significant Accounting Policies................................................ F-7
Notes to Financial Statements.......................................................................... F-11
</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 December 31, 1999, and the related statements of
loss, stockholders' deficit and cash flows for the period from June 28, 1999
(inception) to December 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 December
31, 1999, and the results of its operations and its cash flows for the period
from June 28, 1999 (inception) to December 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 7) 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
January 7, 2000, except for
Notes 3 and 5 which are as of January 20, 2000
F-2
<PAGE>
B2BSTORES.COM INC.
BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<S> <C>
ASSETS
Current:
Cash......................................................................................... $ 72,629
Prepaid expenses and other current assets.................................................... 38,915
-----------
Total current assets............................................................................ 111,544
Security deposit................................................................................ 20,796
Deferred offering costs (Note 6)................................................................ 320,367
Property and equipment, net (Note 2)............................................................ 362,874
-----------
$ 815,581
-----------
-----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable............................................................................. $ 72,129
Accrued expenses............................................................................. 93,936
Deferred revenue............................................................................. 987
Due to principal stockholder (Note 3)........................................................ 824,836
-----------
Total current liabilities....................................................................... 991,888
-----------
Commitments (Note 4)
Stockholders' deficit (Notes 5 and 7):
Preferred stock, $.01 par value--shares authorized 5,000,000; none issued.................... --
Common stock, $.01 par value--shares authorized 25,000,000; issued 3,740,128................. 37,401
Additional paid-in capital................................................................... 2,716,529
Deficit accumulated during the development stage............................................. (2,930,237)
-----------
Total stockholders' deficit..................................................................... (176,307)
-----------
$ 815,581
-----------
-----------
</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 DECEMBER 31, 1999
<TABLE>
<S> <C>
Sales............................................................................................ $ 2,191
Cost of sales.................................................................................... 3,495
-----------
Gross loss................................................................................. (1,304)
-----------
Operating expenses:
General and administrative.................................................................... 709,810
Sales and marketing........................................................................... 23,060
Start-up costs................................................................................ 55,036
Stock-based compensation relating to general and administrative activities (Note 5)........... 216,430
Stock-based compensation relating to start-up activities (Note 5)............................. 1,901,500
-----------
Total operating expenses................................................................... 2,905,836
-----------
Loss from operations....................................................................... (2,907,140)
Interest expense................................................................................. 23,097
-----------
Net loss......................................................................................... $(2,930,237)
-----------
-----------
Loss per share (basic and diluted)............................................................... $ (.81)
-----------
-----------
Weighted average common shares outstanding....................................................... 3,637,025
-----------
-----------
</TABLE>
See accompanying summary of business and significant accounting policies and
notes to financial statements.
F-4
<PAGE>
B2BSTORES.COM INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
PERIOD FROM JUNE 28, 1999 (INCEPTION) TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING THE TOTAL
------------------- PAID-IN DEVELOPMENT STOCKHOLDERS'
SHARES AMOUNT CAPITAL STAGE DEFICIT
--------- ------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock to
founding and other stockholders:
June 29, 1999................... 3,410,000 $34,100 $ 2,567 $ -- $ 36,667
Issuance of common stock to
investors:
August 23, 1999................. 310,000 3,100 2,497,733 -- 2,500,833
Issuance of common stock to
directors and consultants:
September 15, 1999.............. 20,128 201 216,229 -- 216,430
Net loss........................... -- -- -- (2,930,237) (2,930,237)
--------- ------- ---------- ----------- -----------
Balance, December 31, 1999......... 3,740,128 $37,401 $2,716,529 $(2,930,237) $ (176,307)
--------- ------- ---------- ----------- -----------
--------- ------- ---------- ----------- -----------
</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 DECEMBER 31, 1999
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss...................................................................................... $(2,930,237)
-----------
Adjustments to reconcile net loss to net cash used in operating activities: Expense recognized
in connection with issuance of common stock relating to start-up and general and
administrative activities................................................................... 2,117,930
Depreciation and amortization................................................................. 28,533
Changes in assets and liabilities:
Increase in prepaid expenses and other current assets...................................... (38,915)
Increase in security deposit............................................................... (20,796)
Increase in accrued expenses............................................................... 93,936
Increase in accounts payable............................................................... 72,129
Increase in deferred revenue............................................................... 987
-----------
Total adjustments....................................................................... 2,253,804
-----------
Net cash used in operating activities................................................... (676,433)
-----------
Cash flows from investing activities:
Capital expenditures.......................................................................... (391,407)
-----------
Cash flows from financing activities:
Deferred offering costs....................................................................... (320,367)
Loans from principal stockholder.............................................................. 824,836
Proceeds from issuance of common stock........................................................ 636,000
-----------
Net cash provided by financing activities............................................... 1,140,469
-----------
Net increase in cash............................................................................. 72,629
Cash, beginning of period........................................................................ --
-----------
Cash, end of period.............................................................................. $ 72,629
-----------
-----------
</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. Amortization of leasehold improvements is
provided for over the lesser of the term of the related lease or the estimated
useful life of the improvement. The cost of additions and betterments is
capitalized, and repairs and maintenance are charged to operations in the period
incurred. Depreciation and amortization expense has been included in general and
administrative expenses.
Fair Value of Financial Instruments
The carrying amounts of financial instruments, including cash, other
receivables, accounts payable, accrued expenses and due to principal
stockholder, approximated fair value as of December 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.
Revenue Recognition
To date, the Company has generated nominal revenues. b2bstores anticipates
that its revenue will primarily be comprised of sales of merchandise either
purchased by b2bstores or placed on consignment with b2bstores, commissions,
advertising and other revenue.
F-7
<PAGE>
B2BSTORES.COM INC.
SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
The Company will recognize revenues according to:
o the type of product or service being sold,
o the structure of the contract negotiated with the individual vendor, and
o the substantive nature of the risks of ownership we incur in connection
with the sale and shipment of the product.
For product sales involving substantive risk of ownership, the Company will
generally recognize revenue at the gross transaction value. For service and
referral sales where risk of loss is minimal, the Company will generally
recognize revenue on a net fee or commission basis. For auction sales where the
Company incurs risk of loss in the transactions, it will recognize gross
revenues. For auction sales where the Company acts as auctioneer and has little
risk of loss, it will recognize revenue on a net basis or transaction fee basis.
Currently, policy setting groups of the Emerging Issues Task Force and the
Financial Accounting Standards Board are reviewing the guidelines under which
revenue is recognized on a gross basis versus a net basis. As the Company
currently recognizes certain of its revenue on a gross basis, there is a risk
that future guidelines may require the Company to change, retroactively, its
revenue recognition policy. This could cause the Company to report markedly
lower revenues than currently anticipated. Although such a change would cause
the Company to report markedly lower revenues and costs of products, it would
not change the Company's reporting with respect to other expenses, net revenue
or earnings before and after tax.
The Company will allow customers to return merchandise in certain
circumstances; accordingly, the Company will not recognize revenue from the sale
of those products covered by the return policy until the return policy period
has expired or the customer's right of return has expired. The Company will
recognize the sales amount as deferred revenue upon verification of the credit
card transaction authorization and shipment of the merchandise until such time
that the Company is able to estimate returns.
Advertising Revenue
The Company will also earn revenue from the sale of advertising on its web
site. These revenues will be recognized as the advertisement is displayed.
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
F-8
<PAGE>
B2BSTORES.COM INC.
SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
by owners and distributions to owners. There were no items of comprehensive
income during the period presented.
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 $740,000
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 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.
All references in the financial statements with regard to the average
number of shares of common stock and related per share amounts have been
calculated giving retroactive effect to the stock splits.
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-9
<PAGE>
B2BSTORES.COM INC.
SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Capitalized Software Costs
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position No. 98-1, "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
provides guidance over accounting for computer software developed or obtained
for internal use including the requirement to capitalize specified costs and
amortization of such costs.
The Company has capitalized certain incurred software development costs in
connection with its online services. The costs associated with research and
development of such technology were expensed as incurred. Software development
costs incurred subsequent to establishing technological feasibility have been
capitalized. Technological feasibility is established upon the completion of a
detailed program design (in the absence of any high risk issues or
uncertainties). Capitalized software costs are being amortized over a period of
two years. Maintenance costs incurred in connection with the software are being
expensed as incurred.
F-10
<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 7) 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. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
DECEMBER 31, 1999_______________________________________________________________
<TABLE>
<S> <C>
Capitalized software development costs:
Purchased software............................................................................... $120,011
Internally developed software.................................................................... 117,860
Computer equipment.................................................................................. 118,545
Furniture and equipment............................................................................. 32,691
Leasehold improvements.............................................................................. 2,300
--------
391,407
Less: Accumulated depreciation and amortization..................................................... 28,533
--------
Property and equipment, net......................................................................... $362,874
--------
--------
</TABLE>
Depreciation and amortization expense was $28,533 for the period from
June 28, 1999 (inception) to December 31, 1999.
3. DUE TO PRINCIPAL STOCKHOLDER
At December 31, 1999, the Company had a promissory note payable to one
stockholder which provides for borrowings of up to $1,000,000 with interest
payable at 8% per annum on the earlier of (i) February 1, 2000 and (ii) the date
the Company consummates an initial public offering ("IPO") of its equity
securities yielding gross proceeds of at least $2,000,000. On January 20, 2000,
this note was amended to provide for borrowings of up to $1,500,000 with
interest payable at the rate of 8% per annum due upon the earlier of
(i) March 1, 2000 and (ii) the date an initial public offering of the
Corporation is consummated. Subsequent to December 31, 1999, the Company
increased its borrowings to approximately $1,000,000.
F-11
<PAGE>
B2BSTORES.COM INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. 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 DECEMBER 31,
- --------------------------------------------------------------------------------------------------
<S> <C>
2000.............................................................................................. $ 855,000
2001.............................................................................................. 922,000
2002.............................................................................................. 698,000
----------
$2,475,000
----------
----------
</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 the IPO of the
Company's common stock. Of this amount, $25,000 has been earned during the
period from June 28, 1999 (inception) to December 31, 1999 and $105,000 will be
earned upon consummation of the IPO. These amounts will be paid out of the
proceeds of the IPO.
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 7) (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 December 31, 1999 are:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ----------------------------------------------------------------------------------------------------
<S> <C>
2000................................................................................................ $ 77,000
2001................................................................................................ 51,000
--------
$128,000
--------
--------
</TABLE>
F-12
<PAGE>
B2BSTORES.COM INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. COMMITMENTS--(CONTINUED)
Total rent expense for the period from June 28, 1999 (inception) to
December 31, 1999 was approximately $9,600.
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 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.
5. STOCKHOLDERS' DEFICIT
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
3,410,000 shares of common stock with an original par value of $27,500 for
$11,000 in cash. The difference between the cash paid and the par value of the
stock of $16,500, which represented the value of the web address b2bstores.com
contributed by the principal stockholder, was recorded as a non-cash
compensation charge to operations. In connection with the stock split of the
Company's common stock referred to below, the Company recorded an additional
non-cash compensation charge to operations of approximately $9,000.
On August 23, 1999, the Company sold 310,000 shares of its common stock for
$625,000 to certain investors including its Chairman of the Board and certain
affiliates. In connection with the August 23, 1999 issuance, the Company
recorded a non-cash compensation charge to operations of $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 referred to below, the Company recorded an additional non-cash
compensation charge to operations of approximately $1,000.
F-13
<PAGE>
B2BSTORES.COM INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. STOCKHOLDERS' DEFICIT--(CONTINUED)
On September 15, 1999, the Company issued an aggregate of 15,478 shares of
common stock to consultants in connection with services rendered to the Company
and 4,650 shares to directors. In connection with the issuance of such shares,
the Company recorded a non-cash compensation charge to operations of $216,430,
representing the fair value of the common stock issued.
Stock Splits
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. The
Company's Board of Directors also authorized a 0.93 for 1 reverse split of its
common stock, effective January 20, 2000. All shares and per-share amounts in
the accompanying financial statements have been restated to give effect to the
stock splits.
6. DEFERRED OFFERING COSTS
The Company has incurred costs of $320,367, in connection with the IPO (see
Note 7). 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.
7. 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 $28,000,000. There can be no
assurance that the financing will occur. The Company plans to issue 280,000
common stock purchase warrants to representatives of the underwriters in
connection with the IPO.
8. 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-14
<PAGE>
2,800,000 SHARES
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 CORP.
<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
Boston Stock Exchange Fees...................................... 15,000
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................................................... 13,322
--------
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 3,410,000 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
the web address www.b2bstores.com, 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................................ 930,000
Randall Davis................................. 310,000
Steven Etra................................... 62,000
Enviro-Clean.................................. 1,860,000
C. Walter Stursburg........................... 62,000
HOM Advisors.................................. 124,000
Mint Corp. of NY.............................. 62,000
----------
Total................................... 3,410,000
----------
----------
</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 310,000 shares of common stock to sophisticated purchasers for $2.02
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................................ 62,000
K&S PSP....................................... 93,000
SRK Associates................................ 9,920
Steven Etra................................... 85,560
Richard Etra.................................. 24,800
Kenneth Etra.................................. 34,720
----------
310,000
----------
----------
</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 20,128 shares of our common stock to
sophisticated individuals in reliance on the exemption under Section 4(2).
15,478 of these shares were issued in consideration of professional services
rendered to us, including accounting services. The remaining 4,650 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................................ 9,300
Stephen Kirschner............................. 2,790
Irwin Gorelick................................ 1,063
Neil Koenig................................... 2,325
Philip Ellett................................. 2,325
John Higgins.................................. 2,325
----------
20,128
----------
----------
</TABLE>
II-2
<PAGE>
ITEM 27. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- --------------------------------------------------------------------------------------------------------
<S> <C>
.1 1 -- Form of Underwriting Agreement*
1.1(a) -- Amended 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*
4.2(a) -- Amended Form of Representatives' Warrant Agreement+
5.1 -- Opinion of Graubard Mollen & Miller*
10.1 -- Employment Agreement with Woo Jin Kim*
10.2 -- Amended 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*
10.15 -- 1999 Performance Equity Plan*
10.16 -- Promissory Note with Enviro-Clean*
10.16(a) -- Amended and Restated Promissory Note with Enviro-Clean with updated schedule*
10.16(b) -- Amended and Restated Promissory Note with Enviro-Clean with updated Schedule+
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
+ Filed herewith.
(1) We have requested 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
II-4
<PAGE>
Commission such indemnification is against public policy as expressed in
the Act and is, therefore, unenforceable."
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 24TH DAY OF JANUARY 2000.
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 January 24, 2000
Richard Kandel Director
/s/ WOO JIN KIM Chief Executive Officer, January 24, 2000
Woo Jin Kim President and Director
* Chief Financial Officer and January 24, 2000
Mark Voorhis Chief Operating Officer
Director
John Higgins
* Director January 24, 2000
Philip Ellett
</TABLE>
- ------------------
* By power of attorney
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- ---------------------------------------------------------------------------------------------------------
<S> <C>
1.1 -- Form of Underwriting Agreement*
1.1(a) -- Amended 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*
4.2(a) -- Amended Form of Representatives' Warrant Agreement+
5.1 -- Opinion of Graubard Mollen & Miller*
10.1 -- Employment Agreement with Woo Jin Kim*
10.2 -- Amended 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*
10.15 -- 1999 Performance Equity Plan*
10.16 -- Promissory Note with Enviro-Clean*
10.16(a) -- Amended and Restated Promissory Note with Enviro-Clean with updated schedule*
10.16(b) -- Amended and Restated Promissory Note with Enviro-Clean with updated schedule+
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
+ Filed herewith.
(1) We have requested confidential treatment from the SEC for certain
portions of these agreements.
<PAGE>
[FORM OF UNDERWRITING AGREEMENT]
2,800,000 Shares of Common Stock
b2bstores.com Inc.
UNDERWRITING AGREEMENT
New York, New York
____________, 2000
GAINES, BERLAND INC.
NOLAN SECURITIES CORP.
As Representatives of the Several
Underwriters listed on Schedule A hereto
c/o Gaines, Berland Inc.
1055 Stewart Avenue
Bethpage, New York 11714
Ladies and Gentlemen:
b2bstores.com Inc., a Delaware corporation (the "Company"), confirms its
agreement with Gaines, Berland Inc. and Nolan Securities, Corp. and each of the
underwriters named in Schedule A hereto (collectively, the "Underwriters," which
term shall also include any underwriter substituted as hereinafter provided in
Section 11), for whom Gaines, Berland Inc. and Nolan Securities Corp. are acting
as representatives (the "Representatives"), with respect to the sale by the
Company and the purchase by the Underwriters, acting severally and not jointly,
of the respective numbers of shares of the Company's common stock, $.01 par
value per share ("Common Stock"), set forth in Schedule A hereto. Such shares of
Common Stock are hereinafter referred to as the "Firm Shares."
Upon your request, as provided in Section 2(b) of this Agreement, the
Company shall also sell to the Underwriters, acting severally and not jointly,
up to an additional 420,000 shares of Common Stock for the purpose of covering
over-allotments, if any (the "Option Shares"). The Firm Shares and the Option
Shares are sometimes hereinafter referred to as the "Shares." The Company also
proposes to issue and sell to Gaines, Berland Inc. and Nolan Securities Corp.
warrants (the "Representatives' Warrants") pursuant to the Representatives'
Warrant Agreement (the "Representatives' Warrant Agreement") for the purchase of
an additional 280,000 shares of Common Stock. The shares of Common Stock
issuable upon exercise of the Representatives'
<PAGE>
Warrants are hereinafter referred to as the "Representatives' Shares." The Firm
Shares, the Option Shares, the Representatives' Warrants and the
Representatives' Shares (collectively, hereinafter referred to as the
"Securities") are more fully described in the Registration Statement and the
Prospectus referred to below.
1. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, each of the Underwriters as of the date
hereof, and as of the Closing Date (hereinafter defined) and the Option Closing
Date (hereinafter defined), if any, as follows:
(a) The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement, and an amendment or
amendments thereto, on Form SB-2 (No. 33-88511), including any related
preliminary prospectus ("Preliminary Prospectus"), for the registration of the
Firm Shares and the Option Shares under the Securities Act of 1933, as amended
(the "Act"), which registration statement and amendment or amendments have been
prepared by the Company in conformity with the requirements of the Act, and the
rules and regulations (the "Regulations") of the Commission under the Act. The
Company will not file any other amendment to the registration statement to which
the Underwriters shall have objected in writing after having been furnished with
a copy thereof. Except as the context may otherwise require, such registration
statement, as amended, on file with the Commission at the time the registration
statement becomes effective (including the prospectus, financial statements,
schedules, exhibits and all other documents filed as a part thereof or
incorporated therein (including, but not limited to those documents or
information incorporated by reference therein) and all information deemed to be
a part thereof as of such time pursuant to paragraph (b) of Rule 430(A) of the
Regulations)), is hereinafter called the "Registration Statement", and the form
of prospectus in the form first filed with the Commission pursuant to Rule
424(b) of the Regulations, is hereinafter called the "Prospectus." For purposes
hereof, "Rules and Regulations" mean the rules and regulations adopted by the
Commission under either the Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as applicable.
(b) Neither the Commission nor any state regulatory authority has issued
any order preventing or suspending the use of any Preliminary Prospectus, the
Registration Statement or the Prospectus or any part of any thereof and no
proceedings for a stop order suspending the effectiveness of the Registration
Statement or any of the Company's securities have been instituted or are pending
or to the Company's knowledge, threatened. Each of the Preliminary Prospectus,
Registration Statement and Prospectus at the time of filing thereof conformed
with the requirements of the Act and the Rules and Regulations, and none of the
Preliminary Prospectus, Registration Statement or Prospectus at the time of
filing thereof contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein and necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, provided, however, that this representation and warranty does
not apply to statements made or statements omitted in reliance upon and in
conformity with written information furnished to the Company with respect to the
Underwriters by or on behalf of the Underwriters expressly for use in such
Preliminary Prospectus, Registration Statement or Prospectus.
2
<PAGE>
(c) At the time the Registration Statement is declared effective and at
all times subsequent thereto up to the Closing Date and each Option Closing
Date, if any, and during such longer period as the Prospectus may be required to
be delivered in connection with sales by the Underwriters or a dealer, the
Registration Statement and the Prospectus will contain all statements which are
required to be stated therein in accordance with the Act and the Rules and
Regulations, and will conform to the requirements of the Act and the Rules and
Regulations; no amendment or supplement to the Registration Statement or the
Prospectus, will contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, provided, however, that this representation and warranty does
not apply to statements made or statements omitted in reliance upon and in
conformity with information furnished to the Company in writing by or on behalf
of any Underwriter expressly for use in the Preliminary Prospectus, Registration
Statement or Prospectus or any amendment thereof or supplement thereto.
(d) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the state of its incorporation.
The Company does not own an interest in any corporation, partnership, trust,
joint venture or other business entity. The Company is duly qualified and
licensed and in good standing as a foreign corporation in each jurisdiction in
which its ownership or leasing of any properties or the character of its
operations requires such qualification or licensing, except where the failure to
so qualify would not, singularly or in the aggregate, have a material adverse
effect on the Company or its business ("Material Adverse Effect"). The Company
has all requisite corporate power and authority, and the Company has obtained
any and all necessary authorizations, approvals, orders, licenses, certificates,
franchises and permits of and from all governmental or regulatory officials and
bodies (including, without limitation, those having jurisdiction over
environmental or similar matters), to own or lease its properties and conduct
its business as described in the Prospectus, except where the failure to obtain
the same would not have a Material Adverse Effect; the Company is and has been
doing business in compliance with all such authorizations, approvals, orders,
licenses, certificates, franchises and permits and all federal, state and local
laws, rules and regulations, except where the failure to so comply would not
have a Material Adverse Effect; the Company has not received any notice of
proceedings relating to the revocation or modification of any such
authorization, approval, order, license, certificate, franchise, or permit
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially and adversely affect the condition,
financial or otherwise, or the earnings, position, prospects, value, operation,
properties, business or results of operations of the Company. The disclosures in
the Registration Statement concerning the effects of federal, state and local
laws, rules and regulations on the Company's business as currently conducted and
as contemplated are correct in all material respects and do not omit to state a
material fact necessary to make the statements contained therein not misleading
in light of the circumstances in which they were made.
(e) As of December 31, 1999, the Company has a duly authorized, issued
and outstanding capitalization as set forth in the Prospectus, under
"Capitalization" and "Description of Securities" and will have the adjusted
capitalization set forth under "Capitalization" on the Closing Date based upon
the assumptions set forth therein, and the Company is not a party to or bound by
any instrument, agreement or other arrangement providing for it to issue any
capital stock, rights, warrants, options or other securities, except for this
Agreement, the
3
<PAGE>
Representatives' Warrant Agreement and as described in the Prospectus. The
Securities and all other securities issued or issuable by the Company conform
or, when issued and paid for in compliance with their terms, will conform, in
all respects to all statements with respect thereto contained in the
Registration Statement and the Prospectus. All issued and outstanding securities
of the Company have been duly authorized and validly issued and are fully paid
and non-assessable and the holders thereof have no rights of rescission with
respect thereto, and are not subject to personal liability by reason of being
such holders; and none of such securities were issued in violation of the
preemptive rights of any holders of any security of the Company or similar
contractual rights granted by the Company. The Securities are not and will not
be subject to any preemptive or other similar rights of any stockholder, have
been duly authorized and, when issued, paid for and delivered in accordance with
the terms hereof, will be validly issued, fully paid and non-assessable and will
conform to the description thereof contained in the Prospectus; the holders
thereof will not be subject to any liability solely by reason of being such
holders; all corporate action required to be taken for the authorization, issue
and sale of the Securities has been duly and validly taken; and the certificates
representing the Securities will be in due and proper form. Upon the issuance
and delivery pursuant to the terms hereof of the Securities to be sold by the
Company hereunder, the Underwriters or the Representatives, as the case may be,
will acquire good and marketable title to such Securities free and clear of any
lien, charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever other than as created by or arising
from any action of the Underwriters or Representatives.
(f) The financial statements, including the related notes and schedules
thereto, included in the Registration Statement, each Preliminary Prospectus and
the Prospectus fairly present the financial position, income, changes in cash
flow, changes in stockholders' equity, and the results of operations of the
Company at the respective dates and for the respective periods to which they
apply and the pro forma financial information included in the Registration
Statement and Prospectus presents fairly, on a basis consistent with that of the
audited financial statements included therein, what the Company's pro forma
capitalization would have been for the respective periods and as of the
respective dates to which they apply after giving effect to the adjustments
described therein. Such financial statements have been prepared in conformity
with generally accepted accounting principles and the Rules and Regulations,
consistently applied throughout the periods involved. Except as disclosed in the
Registration Statement, there has been no adverse change or development
involving a material prospective change in the condition, financial or
otherwise, or in the earnings, position, prospects, value, operation,
properties, business, or results of operations of the Company whether or not
arising in the ordinary course of business, since the date of the financial
statements included in the Registration Statement and the Prospectus, and the
outstanding debt, the property, both tangible and intangible, and the business
of the Company conform in all material respects to the descriptions thereof
contained in the Registration Statement and the Prospectus. Financial
information set forth in the Prospectus under the headings "Summary Financial
Information," "Capitalization," and "Plan of Operations" fairly present, on the
basis stated in the Prospectus, the information set forth therein, have been
derived from or compiled on a basis consistent with that of the audited
financial statements included in the Prospectus.
(g) The Company (i) has paid all federal, state, local, and foreign
taxes for which it is liable and for which payment is due, including, but not
limited to, withholding taxes
4
<PAGE>
and amounts payable under Chapters 21 through 24 of the Internal Revenue Code of
1986 (the "Code"), and has furnished all information returns it is required to
furnish pursuant to the Code, (ii) has established adequate reserves for such
taxes which are not due and payable, and (iii) does not have any tax deficiency
or claims outstanding, proposed or assessed against it.
(h) No transfer tax, stamp duty or other similar tax is payable by or on
behalf of the Underwriters in connection with (i) the issuance by the Company of
the Securities, (ii) the purchase by the Underwriters of the Securities to be
sold by the Company hereunder and the purchase by the Representatives of the
Representatives' Warrants from the Company, (iii) the consummation by the
Company of any of its obligations under this Agreement or the Representatives'
Warrant Agreement, or (iv) resales of the Shares in connection with the
distribution contemplated hereby.
(i) The Company maintains insurance policies, including, but not limited
to, general liability, product liability and property insurance, which insures
the Company and its employees, against such losses and risks generally insured
against by comparable businesses. The Company (A) has not failed to give notice
or present any insurance claim with respect to any matter, including but not
limited to the Company's business, property or employees, under the insurance
policy or surety bond in a due and timely manner, (B) does not have any disputes
or claims against any underwriter of such insurance policies or surety bonds or
has not failed to pay any premiums due and payable thereunder, or (C) has not
failed to comply with all conditions contained in such insurance policies and
surety bonds. There are no facts or circumstances under any such insurance
policy or surety bond which would relieve any insurer of its obligation to
satisfy in full any valid claim of the Company.
(j) There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding (including, without
limitation, those involving environmental or similar matters), domestic or
foreign, pending or threatened against (or circumstances that may give rise to
the same), or involving the properties or business of, the Company which (i)
questions the validity of the capital stock of the Company, this Agreement or
the Representatives' Warrant Agreement or of any action taken or to be taken by
the Company pursuant to or in connection with this Agreement or the
Representatives' Warrant Agreement, (ii) is required to be disclosed in the
Registration Statement which is not so disclosed (and such proceedings as are
summarized in the Registration Statement are accurately summarized in all
material respects), or (iii) might materially and adversely affect the
condition, financial or otherwise, or the earnings, position, prospects,
stockholders' equity, value, operation, properties, business or results of
operations of the Company.
(k) The Company has full legal right, corporate power and authority to
authorize, issue, deliver and sell the Securities, enter into this Agreement and
the Representatives' Warrant Agreement and to consummate the transactions
provided for in such agreements; and this Agreement and the Representatives'
Warrant Agreement have each been duly and properly authorized, executed and
delivered by the Company. Each of this Agreement and the Representatives'
Warrant Agreement constitutes a legal, valid and binding agreement of the
Company enforceable against the Company in accordance with its terms, except (i)
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or similar laws affecting
creditors' rights generally, (ii) as enforceability
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of any indemnification or contribution provisions may be limited under
applicable laws or the public policies underlying such laws and (iii) that the
remedies of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceedings may be brought. None of the Company's issue and
sale of the Securities, execution or delivery of this Agreement or the
Representatives' Warrant Agreement, its performance hereunder and thereunder,
its consummation of the transactions contemplated herein and therein, or the
conduct of its business as described in the Registration Statement, the
Prospectus, and any amendments or supplements thereto, conflicts with or will
conflict with or results or will result in any breach or violation of any of the
terms or provisions of, or constitutes or will constitute a default under, or
result in the creation or imposition of any lien, charge, claim, encumbrance,
pledge, security interest, defect or other restriction or equity of any kind
whatsoever upon, any property or assets (tangible or intangible) of the Company
pursuant to the terms of, (i) the certificate of incorporation or by-laws of the
Company, (ii) any material license, contract, indenture, mortgage, deed of
trust, voting trust agreement, stockholders agreement, note, loan or credit
agreement or any other agreement or instrument to which the Company is a party
or by which it is or may be bound or to which any of its properties or assets
(tangible or intangible) is or may be subject, or any indebtedness, or (iii) any
statute, judgment, decree, order, rule or regulation applicable to the Company
of any arbitrator, court, regulatory body or administrative agency or other
governmental agency or body (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or foreign, having
jurisdiction over the Company or any of its activities or properties, except
where any such violation would not have a Material Adverse Effect.
(l) Except as described in the Prospectus, no consent, approval,
authorization or order of, and no filing with, any court, regulatory body,
government agency or other body, domestic or foreign, is required for the
issuance of the Shares pursuant to the Prospectus and the Registration
Statement, the issuance of the Representatives' Warrants, the performance of
this Agreement and the Representatives' Warrant Agreement and the transactions
contemplated hereby and thereby, including without limitation, any waiver of any
preemptive, first refusal or other rights that any entity or person may have for
the issue and/or sale of any of the Shares or the Representatives' Warrants,
except such as have been or may be obtained under the Act or may be required
under state securities or Blue Sky laws in connection with the Underwriters'
purchase and distribution of the Shares, and the Representatives' Warrants to be
sold by the Company hereunder and under the Representatives' Warrant Agreement.
(m) All executed agreements, contracts or other documents or copies of
executed agreements, contracts or other documents filed as exhibits to the
Registration Statement to which the Company is a party or by which it may be
bound or to which any of its assets, properties or business may be subject have
been duly and validly authorized, executed and delivered by the Company, and
constitute the legal, valid and binding agreements of the Company, enforceable
against the Company, in accordance with their respective terms. The descriptions
in the Registration Statement of agreements, contracts and other documents are
accurate in all material respects and fairly present the information required to
be shown with respect thereto on Form SB-2, and there are no contracts or other
documents which are required by the Act to be described in the Registration
Statement or filed as exhibits to the Registration Statement which are not
described or filed as required, and the exhibits which have been filed are in
all material respects complete and correct copies of the documents of which they
purport to be copies.
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(n) Subsequent to the respective dates as of which information is set
forth in the Registration Statement and Prospectus, and except as may otherwise
be indicated or contemplated herein or therein, the Company has not (i) issued
any securities or incurred any liability or obligation, direct or contingent,
for borrowed money, (ii) entered into any transaction other than in the ordinary
course of business, or (iii) declared or paid any dividend or made any other
distribution on or in respect of its capital stock of any class, and there has
not been any change in the capital stock, or any material change in the debt
(long or short term) or liabilities or material adverse change in or affecting
the general affairs, management, financial operations, stockholders' equity or
results of operations of the Company.
(o) No default exists in the due performance and observance of any term,
covenant or condition of any license, contract, indenture, mortgage, installment
sale agreement, lease, deed of trust, voting trust agreement, stockholders
agreement, partnership agreement, note, loan or credit agreement, purchase
order, or any other agreement or instrument evidencing an obligation for
borrowed money, or any other material agreement or instrument to which the
Company is a party or by which the Company may be bound or to which the property
or assets (tangible or intangible) of the Company is subject or affected, except
where any such default would not have Material Adverse Effect.
(p) The Company has generally enjoyed a satisfactory employer-employee
relationship with its employees and is in compliance with all federal, state,
local, and foreign laws and regulations respecting employment and employment
practices, terms and conditions of employment and wages and hours, except where
such noncompliance would not have a Material Adverse Effect. There are no
pending investigations involving the Company by the U.S. Department of Labor, or
any other governmental agency responsible for the enforcement of such federal,
state, local, or foreign laws and regulations. There is no unfair labor practice
charge or complaint against the Company pending before the National Labor
Relations Board or any strike, picketing, boycott, dispute, slowdown or stoppage
pending or threatened against or involving the Company or any predecessor
entity, and none has ever occurred. No representation question exists respecting
the employees of the Company, and no collective bargaining agreement or
modification thereof is currently being negotiated by the Company. No grievance
or arbitration proceeding is pending under any expired or existing collective
bargaining agreements of the Company. No labor dispute with the employees of the
Company exists, or, is imminent.
(q) Except as described in the Prospectus, the Company does not
maintain, sponsor or contribute to any program or arrangement that is an
"employee pension benefit plan," an "employee welfare benefit plan," or a
"multiemployer plan" as such terms are defined in Sections 3(2), 3(1) and 3(37),
respectively, of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") ("ERISA Plans"). The Company does not maintain or contribute, now or
at any time previously, to a defined benefit plan, as defined in Section 3(35)
of ERISA. No ERISA Plan (or any trust created thereunder) has engaged in a
"prohibited transaction" within the meaning of Section 406 of ERISA or Section
4975 of the Code, which could subject the Company to any tax penalty on
prohibited transactions and which has not adequately been corrected. Each ERISA
Plan is in compliance with all reporting, disclosure and other requirements of
the Code and ERISA as they relate to any such ERISA Plan. Determination letters
have been received from the Internal Revenue Service with respect to each ERISA
Plan which is intended to comply with Code Section 401(a), stating that such
ERISA Plan and the
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<PAGE>
attendant trust are qualified thereunder. The Company has never completely or
partially withdrawn from a "multiemployer plan."
(r) Excluding the Lock-up Agreements (as defined herein) as to which no
representation pursuant to this paragraph is being made, neither the Company nor
any of its employees, directors, stockholders, partners, or affiliates (within
the meaning of the Rules and Regulations) of any of the foregoing has taken or
will take, directly or indirectly, any action designed to or which has
constituted or which might be expected to cause or result in, under the Exchange
Act, or otherwise, stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the Securities or otherwise.
(s) Except as otherwise disclosed in the Prospectus, none of the
patents, patent applications, trademarks, service marks, service names, trade
names and copyrights, and none of the licenses and rights to the foregoing
presently owned or held by the Company are in dispute or are in any conflict
with the right of any other person or entity. Except as otherwise disclosed in
the Prospectus, the Company (i) owns or has the right to use, free and clear of
all liens, charges, claims, encumbrances, pledges, security interests, defects
or other restrictions or equities of any kind whatsoever, all patents, patent
applications, trademarks, service marks, service names, trade names and
copyrights, technology and licenses and rights with respect to the foregoing,
used in the conduct of its business as now conducted or proposed to be conducted
without infringing upon or otherwise acting adversely to the right or claimed
right of any person, corporation or other entity under or with respect to any of
the foregoing and (ii) is not obligated or under any liability whatsoever to
make any payment by way of royalties, fees or otherwise to any owner or licensee
of, or other claimant to, any patent, patent application, trademark, service
mark, service name, trade name, copyright, know-how, technology or other
intangible asset, with respect to the use thereof or in connection with the
conduct of its business or otherwise.
(t) There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental or other proceeding, domestic or
foreign, pending or threatened (or circumstances that may give rise to the same)
against the Company which challenges the exclusive rights of the Company with
respect to any trademarks, trade names, service marks, service names,
copyrights, patents, patent applications or licenses or rights to the foregoing
used in the conduct of its business, or which challenge the right of the Company
to use any technology presently used or contemplated to be used in the conduct
of its business.
(u) The Company owns or has the right to use all trade secrets, know-how
(including all other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), inventions, technology, designs, processes,
works of authorship, computer programs and technical data and information
(collectively herein "intellectual property") that are material to its
operations free and clear of, and without violating, any right, lien, or claim
of others, including without limitation, former employers of its employees;
provided, however, that the possibility exists that other persons or entities,
completely independently of the Company, or its employees or agents, could have
developed trade secrets or items of technical information similar or identical
to those of the Company. As of the date hereof, the Company is not aware of any
such development of similar or identical trade secrets or technical information
by others.
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<PAGE>
(v) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property stated
in the Prospectus, to be owned or leased by it free and clear of all liens,
charges, claims, encumbrances, pledges, security interests, defects, or other
restrictions or equities of any kind whatsoever, other than those referred to in
the Prospectus, taxes, lessor's interests and liens for taxes not yet due and
payable and except those where the Failure to have such title or other interest
would not have a Material Adverse Effect.
(w) BDO Seidman LLP whose report is filed with the Commission as a part
of the Registration Statement, are independent certified public accountants as
required by the Act and the Rules and Regulations.
(x) The Company has caused to be duly executed legally binding and
enforceable agreements pursuant to which all officers and directors and all
holder of shares of the Common Stock of the Company, or securities exercisable
or exchangeable for or convertible into shares of Common Stock, agreed not to
offer to sell, sell, transfer, hypothecate or otherwise encumber or dispose of
any such securities (either pursuant to Rule 144 of the Rules and Regulations or
otherwise) for a period of twelve (12) months following the effective date of
the Registration Statement without the prior written consent of the
Representatives and the Company; provided, however, that the parties to such
agreements may transfer such securities, or a beneficial interest therein, in a
private transaction pursuant to an exemption (other than Rule 144) provided that
the transferee agrees to be bound by the terms of the agreement. The Company
will cause the Transfer Agent, as defined below, to mark an appropriate legend
on the face of stock certificates representing all of such securities and to
place "stop transfer" orders on the Company's stock ledgers. During the twelve
(12) month period commencing on the effective date of the Registration
Statement, the Company shall not, without the prior written consent of the
Representatives, sell, contract or offer to sell, issue, transfer, assign,
pledge, distribute, or otherwise dispose of, directly or indirectly, any shares
of Common Stock or any options, rights or warrants with respect to any shares of
Common Stock, except up to (i)_________ shares of Common Stock issuable upon
exercise of outstanding stock options and (ii)_________ shares of Common Stock
reserved for future issuance under the Company's 1999 Performance Equity Plan.
(y) Except as described in the Prospectus under "Underwriting," there
are no claims, payments, issuances, arrangements or understandings, whether oral
or written, for services in the nature of a finder's or origination fee with
respect to the sale of the Securities hereunder caused by the Company or as a
result of any action of the Company or any other arrangements, agreements,
understandings, payments or issuance with respect to the Company or any of its
officers, directors, stockholders, partners, employees or affiliates that may
affect the Underwriters' compensation, as determined by the National Association
of Securities Dealers, Inc. ("NASD").
(z) The Common Stock has been approved for quotation on the Nasdaq
SmallCap Market ("Nasdaq").
(aa) Neither the Company nor any of its officers, employees, agents, or
any other person acting on behalf of the Company, has, directly or indirectly,
given or agreed to give any
9
<PAGE>
money, gift or similar benefit (other than legal price concessions to customers
in the ordinary course of business) to any customer, supplier, employee or agent
of a customer or supplier, or official or employee of any governmental agency
(domestic or foreign) or instrumentality of any government (domestic or foreign)
or any political party or candidate for office (domestic or foreign) or other
person who was, is, or may be in a position to help or hinder the business of
the Company (or assist the Company in connection with any actual or proposed
transaction) which (a) might subject the Company, or any other such person to
any damage or penalty in any civil, criminal or governmental litigation or
proceeding (domestic or foreign), (b) if not given in the past, might have had a
materially adverse effect on the assets, business or operations of the Company,
or (c) if not continued in the future, might have a Material Adverse Effect. The
Company's internal accounting controls are sufficient to cause the Company to
comply with the Foreign Corrupt Practices Act of 1977, as amended.
(bb) Except as set forth in the Prospectus, no officer, director or
stockholder of the Company, or any "affiliate" or "associate" (as these terms
are defined in Rule 405 promulgated under the Rules and Regulations) of any of
the foregoing persons or entities has or has had, either directly or indirectly,
(i) an interest in any person or entity which (A) furnishes or sells services or
products which are furnished or sold or are proposed to be furnished or sold by
the Company, or (B) purchases from or sells or furnishes to the Company any
goods or services, or (ii) a beneficial interest in any contract or agreement to
which the Company is a party or by which it may be bound or affected. Except as
set forth in the Prospectus under "Certain Transactions," "Plan of Operations"
and "Business," there are no existing agreements, arrangements, understandings
or transactions, or proposed agreements, arrangements, understandings or
transactions, between or among the Company and any officer, director, or
Principal Stockholder (as such term is defined in the Prospectus) of the Company
or any partner, affiliate or associate of any of the foregoing persons or
entities.
(cc) Any certificate signed by any officer of the Company, and delivered
to the Underwriters or to Underwriters' Counsel (as defined herein) shall be
deemed a representation and warranty by the Company to the Underwriters as to
the matters covered thereby.
(dd) The minute books of the Company have been made available to the
Underwriters and contains a complete summary of all meetings and actions of the
directors, stockholders, audit committee, compensation committee and any other
committee of the Board of Directors of the Company, respectively, since the time
of its incorporation, and reflects all transactions referred to in such minutes
accurately in all material respects.
(ee) Except and to the extent described in the Prospectus, no holders of
any securities of the Company or of any options, warrants or other convertible
or exchangeable securities of the Company have the right to include any
securities issued by the Company in the Registration Statement or any
registration statement to be filed by the Company or to require the Company to
file a registration statement under the Act and no person or entity holds any
anti-dilution rights with respect to any securities of the Company.
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<PAGE>
2. Purchase, Sale and Delivery of the Securities and Representatives'
Warrants.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, and each Underwriter,
severally and not jointly, agrees to purchase from the Company at a price of
$______ [93% of the initial public offering price] per share of Common Stock,
that number of Firm Shares set forth in Schedule A opposite the name of such
Underwriter, plus any additional number of Firm Shares which such Underwriter
may become obligated to purchase pursuant to the provisions of Section 11
hereof.
(b) In addition, on the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
Underwriters to purchase, severally and not jointly, all or any part of the
Option Shares at a price of $______ [93% of the initial public offering price]
per share. The option granted hereby will expire 45 days after (i) the date the
Registration Statement becomes effective, if the Company has elected not to rely
on Rule 430A under the Rules and Regulations, or (ii) the date of this Agreement
if the Company has elected to rely upon Rule 430A under the Rules and
Regulations, and may be exercised in whole or in part from time to time only for
the purpose of covering over-allotments which may be made in connection with the
offering and distribution of the Firm Shares upon notice by the Representatives
to the Company setting forth the number of Option Shares as to which the several
Underwriters are then exercising the option and the time and date of payment and
delivery for any such Option Shares. Any such time and date of delivery (an
"Option Closing Date") shall be determined by the Representatives, but shall not
be later than seven full business days after the exercise of said option, nor in
any event prior to the Closing Date, as hereinafter defined, unless otherwise
agreed upon by the Representatives and the Company. Nothing herein contained
shall obligate the Underwriters to make any over-allotments. No Option Shares
shall be delivered unless the Firm Shares shall be simultaneously delivered or
shall theretofore have been delivered as herein provided.
(c) Payment of the purchase price for, and delivery of certificates for,
the Firm Shares shall be made at the offices of Gaines, Berland Inc. at 1055
Stewart Avenue, Bethpage, New York 11714, or at such other place as shall be
agreed upon by the Representatives and the Company. Such delivery and payment
shall be made at 10:00 a.m. (New York City time) on _______________, 2000 or at
such other time and date as shall be agreed upon by the Representatives and the
Company, but not less than three (3) nor more than seven (7) full business days
after the effective date of the Registration Statement (such time and date of
payment and delivery being herein called "Closing Date"). In addition, in the
event that any or all of the Option Shares are purchased by the Underwriters,
payment of the purchase price for, and delivery of certificates for, such Option
Shares shall be made at the above mentioned office of the Representatives or at
such other place as shall be agreed upon by the Representatives and the Company
on each Option Closing Date as specified in the notice from the Representatives
to the Company. Delivery of the certificates for the Firm Shares and the Option
Shares, if any, shall be made to the Underwriters against payment by the
Underwriters, severally and not jointly, of the purchase price for the Firm
Shares and the Option Shares, if any, to the order of the Company for the Firm
Shares and the Option Shares, if any, by New York Clearing House funds. In the
event such option is exercised, each of the Underwriters, acting severally and
not jointly,
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<PAGE>
shall purchase that proportion of the total number of Option Shares then being
purchased which the number of Firm Shares set forth in Schedule A hereto
opposite the name of such Underwriter bears to the total number of Firm Shares,
subject in each case to such adjustments as the Representatives in its
discretion shall make to eliminate any sales or purchases of fractional shares.
Certificates for the Firm Shares and the Option Shares, if any, shall be in
definitive, fully registered form, shall bear no restrictive legends and shall
be in such denominations and registered in such names as the Underwriters may
request in writing at least two (2) business days prior to the Closing Date or
the relevant Option Closing Date, as the case may be. The certificates for the
Firm Shares and the Option Shares, if any, shall be made available to the
Representatives at such office or such other place as the Representatives may
designate for inspection, checking and packaging no later than 9:30 a.m. on the
last business day prior to Closing Date or the relevant Option Closing Date, as
the case may be.
(d) On the Closing Date, the Company shall issue and sell to the
Representatives, Representatives' Warrants at a purchase price of $.0001 per
warrant, which warrants shall entitle the holders thereof to purchase an
aggregate of 280,000 shares of Common Stock. The Representatives' Warrants shall
be exercisable for a period of four years commencing one year from the effective
date of the Registration Statement at a price equaling [one hundred sixty-five
percent (165%)] of the initial public offering price of the shares of Common
Stock. The Representatives' Warrant Agreement and form of Warrant Certificate
shall be substantially in the form filed as Exhibit 4.2 to the Registration
Statement. Payment for the Representatives' Warrants shall be made on the
Closing Date.
3. Public Offering of the Shares. As soon after the Registration Statement
becomes effective as the Representatives deem advisable, the Underwriters shall
make a public offering of the Shares (other than to residents of or in any
jurisdiction in which qualification of the Shares is required and has not become
effective) at the price and upon the other terms set forth in the Prospectus.
The Representatives may from time to time increase or decrease the public
offering price after distribution of the Shares has been completed to such
extent as the Representatives, in their discretion deem advisable. The
Underwriters may enter into one of more agreements as the Underwriters, in each
of their sole discretion, deem advisable with one or more broker-dealers who
shall act as dealers in connection with such public offering.
4. Covenants and Agreements of the Company.
The Company covenants and agrees with each of the Underwriters as follows:
(a) The Company shall use its best efforts to cause any amendments to
the Registration Statement to become effective as promptly as practicable and
will not at any time, after the effective date of the Registration Statement,
file any amendment to the Registration Statement or supplement to the Prospectus
or file any document under the Act or Exchange Act before termination of the
offering of the Shares by the Underwriters of which the Representatives shall
not previously have been advised and furnished with a copy, or to which the
Representatives shall have objected or which is not in compliance with the Act,
the Exchange Act and the Rules and Regulations.
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<PAGE>
(b) As soon as the Company is advised or obtains knowledge thereof, the
Company will advise the Representatives and confirm the notice in writing, (i)
when the Registration Statement, as amended, becomes effective, if the
provisions of Rule 430A promulgated under the Act will be relied upon, when the
Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective, (ii)
of the issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding, suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of the Preliminary
Prospectus or the Prospectus, or any amendment or supplement thereto, or the
institution of proceedings for that purpose, (iii) of the issuance by the
Commission or by any state securities commission of any proceedings for the
suspension of the qualification of any of the Securities for offering or sale in
any jurisdiction or of the initiation, or the threatening, of any proceeding for
that purpose, (iv) of the receipt of any comments from the Commission; and (v)
of any request by the Commission for any amendment to the Registration Statement
or any amendment or supplement to the Prospectus or for additional information.
If the Commission or any state securities commission authority shall enter a
stop order or suspend such qualification at any time, the Company will make
every effort to obtain promptly the lifting of such order.
(c) The Company shall file the final Prospectus (in form and substance
satisfactory to the Representatives) or transmit the Prospectus by a means
reasonably calculated to result in filing with the Commission pursuant to Rule
424(b)(1) (or, if applicable and if consented to by the Representatives,
pursuant to Rule 424(b)(4)) not later than the Commission's close of business on
the earlier of (i) the second business day following the execution and delivery
of this Agreement and (ii) the fifteenth business day after the effective date
of the Registration Statement.
(d) The Company will give the Representatives notice of its intention to
file or prepare any amendment to the Registration Statement (including any
post-effective amendment) or any amendment or supplement to the Prospectus
(including any revised prospectus which the Company proposes for use by the
Underwriters in connection with the offering of the Securities which differs
from the corresponding prospectus on file at the Commission at the time the
Registration Statement becomes effective, whether or not such revised prospectus
is required to be filed pursuant to Rule 424(b) of the Rules and Regulations),
and will furnish the Representatives with copies of any such amendment or
supplement a reasonable amount of time prior to such proposed filing or use, as
the case may be, and will not file any such prospectus to which the
Representatives or Orrick, Herrington & Sutcliffe LLP ("Underwriters' Counsel"),
shall object.
(e) The Company shall endeavor in good faith, in cooperation with the
Representatives, at or prior to the time the Registration Statement becomes
effective, to qualify the Securities for offering and sale under the securities
laws of such additional jurisdictions as the Representatives may designate to
permit the continuance of sales and dealings therein for as long as may be
necessary to complete the distribution, and shall make such applications, file
such documents and furnish such information as may be required for such purpose;
provided, however, the Company shall not be required to qualify as a foreign
corporation or file a general or limited consent to service of process in any
such jurisdiction. In each jurisdiction where such qualification shall be
effected, the Company will, unless the Representatives agree that such
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<PAGE>
action is not at the time necessary or advisable, use all reasonable efforts to
file and make such statements or reports at such times as are or may reasonably
be required by the laws of such jurisdiction to continue such qualification.
(f) During the time when a prospectus is required to be delivered under
the Act, the Company shall use all reasonable efforts to comply with all
requirements imposed upon it by the Act and the Exchange Act, as now and
hereafter amended and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings in
the Securities in accordance with the provisions hereof and the Prospectus, or
any amendments or supplements thereto. If at any time when a prospectus relating
to the Securities is required to be delivered under the Act, any event shall
have occurred as a result of which, in the opinion of counsel for the Company or
Underwriters' Counsel, the Prospectus, as then amended or supplemented, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading, or if
it is necessary at any time to amend the Prospectus to comply with the Act, the
Company will notify the Representatives promptly and prepare and file with the
Commission an appropriate amendment or supplement in accordance with Section 10
of the Act, each such amendment or supplement to be satisfactory to
Underwriters' Counsel, and the Company will furnish to the Underwriters copies
of such amendment or supplement as soon as available and in such quantities as
the Underwriters may request.
(g) As soon as practicable, but in any event not later than 45 days
after the end of the 12-month period beginning on the day after the end of the
fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (90 days in the event that the end of such fiscal
quarter is the end of the Company's fiscal year), the Company shall make
generally available to its security holders, in the manner specified in Rule
158(b) of the Rules and Regulations, and to the Representatives, an earnings
statement which will be in the detail required by, and will otherwise comply
with, the provisions of Section 11(a) of the Act and Rule 158(a) of the Rules
and Regulations, which statement need not be audited unless required by the Act,
covering a period of at least 12 consecutive months after the effective date of
the Registration Statement.
(h) During a period beginning on the date hereof and ending on the
earlier of (1) the date the capital stock of the Company is no longer publicly
traded and (2) the fifth anniversary hereof, the Company will furnish to its
stockholders annual reports (including financial statements audited by
independent public accountants) and will deliver to the Representatives:
(i) concurrently with furnishing such quarterly reports to its
stockholders, statements of income of the Company for each quarter in the
form furnished to the Company's stockholders;
(ii) concurrently with furnishing such annual reports to its
stockholders, a balance sheet of the Company as at the end of the preceding
fiscal year, together with statements of operations, stockholders' equity,
and cash flows of the Company for
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such fiscal year, accompanied by a copy of the report thereon of
independent certified public accountants;
(iii) as soon as they are available, copies of all reports (financial
or other) mailed to stockholders; and
(iv) every press release and every material news item or article of
interest to the financial community in respect of the Company, or its
affairs which was released or prepared by or on behalf of the Company; and
(v) any additional information of a public nature concerning the
Company (and any future subsidiary) or its businesses which the
Representatives may reasonably request.
During such five (5)-year period, if the Company has an active
subsidiary, the foregoing financial statements will be on a consolidated basis
to the extent that the accounts of the Company and its subsidiary are
consolidated.
(i) So long as the capital stock of the Company is publicly traded, the
Company will maintain a Transfer Agent and, if necessary under the jurisdiction
of incorporation of the Company, a Registrar (which may be the same entity as
the Transfer Agent) for its Common Stock.
(j) The Company will furnish to the Representatives or on the
Representatives' order, without charge, at such place as the Representatives may
designate, copies of each Preliminary Prospectus, the Registration Statement and
any pre-effective or post-effective amendments thereto (two of which copies will
be signed and will include all financial statements and exhibits), the
Prospectus, and all amendments and supplements thereto, including any prospectus
prepared after the effective date of the Registration Statement, in each case as
soon as reasonably available and in such quantities as the Representatives may
reasonably request.
(k) On or before the effective date of the Registration Statement, the
Company shall provide the Representatives with true copies of duly executed,
legally binding and enforceable agreements pursuant to which for a period of
twelve (12) months from the effective date of the Registration Statement all
officers and directors of the Company and all holders of shares of the Common
Stock of the Company or securities exercisable or exchangeable for or
convertible into shares of Common Stock issued and outstanding will not offer to
sell, sell, transfer, hypothecate or otherwise encumber or dispose of any such
securities (either pursuant to Rule 144 of the Rules and Regulations or
otherwise) without the prior written consent of the Representatives
(collectively, the "Lock-up Agreements"). On or before the Closing Date, the
Company shall deliver instructions to the Transfer Agent authorizing it to place
appropriate legends on the certificates representing the securities subject to
the Lock-up Agreements and to place appropriate stop transfer orders on the
Company's ledgers. During the twelve (12) month period commencing with the
effective date of the Registration Statement, the Company shall not, without the
prior written consent of the Representatives, sell, contract or offer to sell,
issue, transfer, assign, pledge, hypothecate, distribute, or otherwise dispose
of,
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directly or indirectly, any shares of Common Stock or any options, rights or
warrants with respect to any shares of Common Stock except up to (i)________
shares of Common Stock issuable upon exercise of outstanding stock options, and
(ii)________ shares of Common Stock reserved for future issuance under the
Company's 1999 Performance Equity Plan. During the twelve (12) month period
commencing with the effective date of the Registration Statement, the Company
shall not file any registration statement with the Securities and Exchange
Commission on Form S-8 without the prior written consent of the Representatives.
(l) Excluding the Lock-up Agreement as to which no representation is
being made pursuant to this paragraph, neither the Company, nor any of its
officers, directors, stockholders, nor any of their respective affiliates
(within the meaning of the Rules and Regulations) will take, directly or
indirectly, any action designed to, or which might in the future reasonably be
expected to cause or result in, stabilization or manipulation of the price of
any securities of the Company.
(m) The Company shall apply the net proceeds from the sale of the
Securities in the manner, and subject to the conditions, set forth under "Use of
Proceeds" in the Prospectus. Except as described in the Prospectus, no portion
of the net proceeds will be used, directly or indirectly, to acquire any
securities issued by the Company or any securities of Enviro-Clean of America,
Inc. The Company agrees that for a period of eighteen (18) months, it will not
permit any subsidiary of the Company to purchase, redeem or otherwise acquire or
retire for value any equity securities of the Company.
(n) The Company shall timely file all such reports, forms or other
documents as may be required from time to time, under the Act, the Exchange Act,
and the Rules and Regulations, and all such reports, forms and documents filed
will comply as to form and substance with the applicable requirements under the
Act, the Exchange Act, and the Rules and Regulations.
(o) The Company shall furnish to the Representatives as early as
practicable prior to each of the date hereof, the Closing Date and each Option
Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited interim financial statements
of the Company (which in no event shall be as of a date more than thirty (30)
days prior to the date of the Registration Statement) which have been read by
the Company's independent public accountants, as stated in their letter to be
furnished pursuant to Section 6(i) hereof.
(p) The Company shall cause the Common Stock to be quoted on Nasdaq or a
National Securities exchange and, so long as the Common Stock is publicly
traded, use its best efforts to maintain the Nasdaq quotation or exchange
listing of the Common Stock to the extent outstanding.
(q) For a period of five (5) years from the Closing Date, the Company
shall furnish to the Representatives at the Representatives' reasonable request
and at the Company's sole expense, (i) daily consolidated transfer sheets
relating to the Common Stock, (ii) the list of holders of all of the Company's
securities and (iii) a Blue Sky "Trading Survey" for secondary sales of the
Company's securities prepared by counsel to the Company.
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(r) As soon as practicable, but in no event more than 30 days from the
effective date of the Registration Statement, take all necessary and appropriate
actions to be included in Standard and Poor's Corporation Descriptions and
Moody's OTC Manual and to continue such inclusion for a period beginning on the
date the Company is first included therein and ending on the earlier of (1) the
date the Company's capital stock is no longer publicly traded and (2) the fifth
anniversary of the date of such inclusion.
(s) The Company hereby agrees that it will not for a period of twelve
(12) months from the effective date of the Registration Statement, adopt,
propose to adopt or otherwise permit to exist any employee, officer, director,
consultant or compensation plan or arrangement permitting the grant, issue or
sale of any shares of Common Stock or other securities of the Company (i) in an
amount greater than an aggregate of 2,000,000 shares of Common Stock, (ii) at an
exercise or sale price per share less than the fair market value of the Common
Stock on the date of grant or sale, (iii) to any direct or indirect beneficial
holder on the date hereof of more than 10% of the issued and outstanding shares
of Common Stock, (iv) with the payment for such securities with any form of
consideration other than cash, (v) upon payment of less than the full purchase
or exercise price for such shares of Common Stock or other securities of the
Company.
(t) Until the completion of the distribution of the Shares, and for 25
days thereafter, the Company shall not without the prior written consent of the
Representatives, which shall not be unreasonably withheld, issue, directly or
indirectly, any press release or other communication or hold any press
conference with respect to the Company or its activities or the offering
contemplated hereby.
(u) For a period beginning on the date hereof and ending on the earlier
of (i) the seventh anniversary of the date hereof, and (ii) the date the
Representatives' Shares are publicly sold, and (iii) the date the Company's
capital stock is no longer publicly traded, the Company will not take any action
or actions which may prevent or disqualify the Company's use of Form S-1 (or
other appropriate form) for the registration under the Act of the
Representatives' Shares.
(v) For a period of three (3) years from the Effective Date the
Representatives shall be permitted to designate one person for election to the
Company's Board of Directors. In the event the Representatives elect not to
exercise this right, then the Representatives may designate one person to attend
the meetings of the Company's Board of Directors. Such designee shall be
entitled to attend all Company Board of Director meetings and to receive all
notices and other communications sent by the Company to members of its Board of
Directors. The Company shall reimburse the designee of the Representatives for
its out-of-pocket expenses incurred in connection with attendance of meetings of
the Company's Board of Directors.
5. Payment of Expenses.
(a) The Company hereby agrees to pay on each of the Closing Date and the
Option Closing Date (to the extent not paid at the Closing Date) all expenses
and fees (other than fees of Underwriters' Counsel, except as provided in (iv)
below) incident to the performance of the obligations of the Company under this
Agreement and the Representatives' Warrant
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Agreement, including, without limitation, (i) the fees and expenses of
accountants and counsel for the Company, (ii) all costs and expenses incurred in
connection with the preparation, duplication, printing, (including mailing and
handling charges) filing, delivery and mailing (including the payment of postage
with respect thereto) of the Registration Statement and the Prospectus and any
amendments and supplements thereto and the printing, mailing (including the
payment of postage with respect thereto) and delivery of this Agreement, the
Agreement Among Underwriters, the Selected Dealer Agreements, and related
documents, including the cost of all copies thereof and of the Preliminary
Prospectuses and of the Prospectus and any amendments thereof or supplements
thereto supplied to the Underwriters and such dealers as the Underwriters may
request, in such quantities as the Representatives may reasonably request, (iii)
the printing, engraving, issuance and delivery of the Securities, (iv) the
qualification of the Securities under state or foreign securities or "Blue Sky"
laws and determination of the status of such securities under legal investment
laws, including the costs of printing and mailing the "Preliminary Blue Sky
Memorandum," the "Supplemental Blue Sky Memorandum" and "Legal Investments
Survey," if any, and disbursements and fees of counsel in connection therewith
(up to an aggregate of $______, $_____ of which has already been paid), (v) fees
and expenses of the transfer agent and registrar, (vi) costs and expenses in
connection with "Road Shows," information meetings and presentations excluding
travel, hotel and out of pocket expenses for Underwriters and their personnel,
(vii) production of bound volumes, (viii) prospectus memorabilia and tombstone
advertisement expenses (not to exceed $______) (ix) applications for assignments
of a rating of the Securities by qualified rating agencies, (x) the fees payable
to the Commission and the NASD, and (xi) the fees and expenses incurred in
connection with the quotation of the Securities on Nasdaq and any other
exchange.
(b) If this Agreement is terminated by the Underwriters in accordance
with the provisions of Sections 6, 10 or 12, the Company shall reimburse and
indemnify the Representatives for all of their reasonable actual out-of-pocket
expenses, including the reasonable fees and disbursements of Underwriters'
Counsel, less any amounts already paid pursuant to Section 5(c) hereof.
(c) The Company further agrees that, in addition to the expenses payable
pursuant to subsection (a) of this Section 5, it will pay to the Representatives
on the Closing Date by deduction from the proceeds of the offering contemplated
herein a non-accountable expense allowance equal to two percent (3%) of the
gross proceeds received by the Company from the sale of the Firm Shares (of
which $50,000 has previously been paid). In the event the Representatives elect
to exercise the over-allotment option described in Section 2(b) hereof, the
Company agrees to pay to the Representatives on the Option Closing Date (by
certified or bank cashier's check, or at the Representatives' election, by
deduction from the proceeds of the Option Shares) a non-accountable expense
allowance equal to two percent (3%) of the gross proceeds received by the
Company from the sale of the Option Shares.
6. Conditions of the Underwriters' Obligations. The obligations of the
Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the Closing Date and each Option Closing Date, if any, with respect to the
Company as if it had been made on and as of the Closing Date or each Option
Closing Date, as the case may be; the accuracy on and as of the Closing Date or
Option Closing Date, if any, of the statements of the officers of the Company
made pursuant to the
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<PAGE>
provisions hereof; and the performance by the Company on and as of the Closing
Date and each Option Closing Date, if any, of their respective covenants and
obligations hereunder and to the following further conditions:
(a) The Registration Statement shall have become effective not later
than 12:00 Noon, New York time, on the date of this Agreement or such later date
and time as shall be consented to in writing by the Representatives, and, at the
Closing Date and each Option Closing Date, if any, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or shall be pending or
contemplated by the Commission and any request on the part of the Commission for
additional information shall have been complied with to the reasonable
satisfaction of Underwriters' Counsel. If the Company has elected to rely upon
Rule 430A of the Rules and Regulations, the price of the Shares and any
price-related information previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) of the Rules and Regulations
within the prescribed time period, and prior to the Closing Date the Company
shall have provided evidence satisfactory to the Representatives of such timely
filing, or a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements of
Rule 430A of the Rules and Regulations.
(b) The Representatives shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Representatives' opinion, is material, or omits to state a
fact which, in the Representatives' opinion, is material and is required to be
stated therein or is necessary to make the statements therein not misleading, or
that the Prospectus, or any supplement thereto, contains an untrue statement of
fact which, in the Representatives' opinion, is material, or omits to state a
fact which, in the Representatives' opinion, is material and is required to be
stated therein or is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(c) On or prior to the Closing Date, the Representatives shall have
received from Underwriters' Counsel, such opinion or opinions with respect to
the organization of the Company, the validity of the Securities, the
Registration Statement, the Prospectus and other related matters as the
Representatives request and Underwriters' Counsel shall have received such
papers and information as they request to enable them to pass upon such matters.
(d) At the Closing Date, the Underwriters shall have received the
favorable opinion of Graubard Mollen & Miller, counsel to the Company, dated the
Closing Date, addressed to the Underwriters and in form and substance reasonably
satisfactory to Underwriters' Counsel, to the effect that:
(i) the Company (A) has been duly organized and is validly existing as
a corporation in good standing under the laws of its jurisdiction of
organization, (B) is duly qualified and licensed and in good standing as a
foreign corporation in each jurisdiction in which its ownership or leasing
of any properties or the character of its operations requires such
qualification or licensing, except where the failure to be so qualified or
licensed would not have a Material Adverse Effect and (C) has all
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<PAGE>
requisite corporate power and authority; and the Company has obtained any
and all necessary authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all governmental or
regulatory officials and bodies (including, without limitation, those
having jurisdiction over environmental or similar matters), to own or lease
its properties and conduct its business as described in the Prospectus,
except where any such failure would not have a Material Adverse Effect; to
the best of such counsel's knowledge the Company has not received any
notice of proceedings relating to the revocation or modification of any
such authorization, approval, order, license, certificate, franchise, or
permit which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would materially adversely affect the
business, operations, condition, financial or otherwise, or the earnings,
business affairs, position, prospects, value, operation, properties,
business or results of operations of the Company.
(ii) to the best of such counsel's knowledge, the Company does not own
an interest in any other corporation, partnership, joint venture, trust or
other business entity;
(iii) based solely upon our review of the Company's minute book and
stock ledger the Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus, and any amendment or
supplement thereto, under "Capitalization" and "Description of Securities."
To the best of our knowledge, the Company is not a party to or bound by any
instrument, agreement or other arrangement providing for it to issue any
capital stock, rights, warrants, options or other securities, except for
this Agreement, the Representatives' Warrant Agreement and as described in
the Prospectus. The Securities, and all other securities issued or issuable
by the Company conform in all material respects to all statements with
respect thereto contained in the Registration Statement and the Prospectus.
All issued and outstanding securities of the Company have been duly
authorized and validly issued and are fully paid and non-assessable to the
best of our knowledge; the holders thereof have no rights of rescission
with respect thereto, and are not subject to personal liability by reason
of being such holders; and none of such securities were issued in violation
of the statutory preemptive rights of any holders of any security of the
Company or to the best of our knowledge any contractual preemptive rights
of any holder of any security of the Company. The Shares, the
Representatives' Warrants and the Representatives' Shares to be sold by the
Company hereunder and under the Representatives' Warrant Agreement are not
and will not be subject to any statutory preemptive or to the best of our
knowledge other similar rights of any securityholder, have been duly
authorized and, when issued, paid for and delivered in accordance with the
terms hereof, will be validly issued, fully paid and non-assessable and
conform to the description thereof contained in the Prospectus; the holders
thereof will not be subject to any liability solely as such holders; all
corporate action required to be taken for the authorization, issue and sale
of the Shares, the Representatives' Warrants and the Representatives'
Shares has been duly and validly taken, and the certificates representing
the Shares and the Representatives' Warrants are in due and proper form.
The Representatives' Warrants constitute valid and binding obligations of
the Company to issue and sell, upon exercise thereof and payment therefor,
the number
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<PAGE>
and type of securities of the Company called for thereby (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to
or affecting enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable). Upon the issuance
and delivery pursuant to this Agreement and the Representatives' Warrant
Agreement of the Shares and the Representatives' Warrants, respectively, to
be sold by the Company, the Underwriters and the Representatives,
respectively, will acquire good and marketable title to the Shares and the
Representatives' Warrants free and clear of any pledge, lien, charge,
claim, encumbrance, pledge, security interest, or other restriction or
equity of any kind whatsoever.
(iv) the Registration Statement is effective under the Act, and, if
applicable, filing of all pricing information has been timely made in the
appropriate form under Rule 430A, and to the best of our knowledge no stop
order suspending the use of the Preliminary Prospectus, the Registration
Statement or Prospectus or any part of any thereof or suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or, to the
best of such counsel's knowledge threatened or contemplated under the Act;
(v) each of the Preliminary Prospectus, the Registration Statement,
and the Prospectus and any amendments or supplements thereto (other than
the financial statements and other financial and statistical data included
therein, as to which no opinion need be rendered) comply as to form in all
material respects with the requirements of the Act and the Rules and
Regulations;
(vi) to the best of such counsel's knowledge, (A) there are no
agreements, contracts or other documents required by the Act to be
described in the Registration Statement and the Prospectus and filed as
exhibits to the Registration Statement other than those described in the
Registration Statement (or required to be filed under the Exchange Act if
upon such filing they would be incorporated, in whole or in part, by
reference therein) and the Prospectus and filed as exhibits thereto, and
the exhibits which have been filed are correct copies of the documents of
which they purport to be copies; (B) the descriptions in the Registration
Statement and the Prospectus and any supplement or amendment thereto of
contracts and other documents to which the Company is a party or by which
it is bound, including any document to which the Company is a party or by
which it is bound, incorporated by reference into the Prospectus and any
supplement or amendment thereto, are accurate in all material respects and
fairly represent the information required to be shown by Form SB-2; (C)
there is not pending or threatened against the Company any action,
arbitration, suit, proceeding, inquiry, investigation, litigation,
governmental or other proceeding (including, without limitation, those
involving environmental or similar matters), domestic or foreign, pending
or threatened against (or circumstances that may give rise to the same), or
involving the properties or business of the Company which (x) is required
to be disclosed in the Registration Statement which is not so disclosed,
(and such proceedings as are summarized in the Registration Statement are
accurately summarized in all material respects), (y) questions the validity
of the capital stock of the Company or this Agreement or the
Representatives' Warrant Agreement, or of any
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action taken or to be taken by the Company pursuant to or in connection
with any of the foregoing; (D) no statute or regulation or legal or
governmental proceeding required to be described in the Prospectus is not
described as required; and (E) there is no action, suit or proceeding
pending, or threatened, against or affecting the Company before any court
or arbitrator or governmental body, agency or official (or any basis
thereof known to such counsel) in which there is a reasonable possibility
of an adverse decision which may result in a material adverse change in the
condition, financial or otherwise, or the earnings, position, prospects,
stockholders' equity, value, operation, properties, business or results of
operations of the Company, which could adversely affect the present or
prospective ability of the Company to perform its obligations under this
Agreement or the Representatives' Warrant Agreement or which in any manner
draws into question the validity or enforceability of this Agreement or the
Representatives' Warrant Agreement;
(vii) the Company has full legal right, power and authority to enter
into each of this Agreement and the Representatives' Warrant Agreement and
to consummate the transactions provided for herein and therein; and each of
this Agreement and the Representatives' Warrant Agreement has been duly
authorized, executed and delivered by the Company. Each of this Agreement
and the Representatives' Warrant Agreement, assuming due authorization,
execution and delivery by each other party thereto (other than the Company)
constitutes a legal, valid and binding agreement of the Company enforceable
against the Company in accordance with its terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to
or affecting enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable, and except as
rights to indemnity or contribution may be limited by applicable law), and
none of the Company's execution or delivery of this Agreement and the
Representatives' Warrant Agreement, its performance hereunder or
thereunder, its consummation of the transactions contemplated herein or
therein, or the conduct of its business as described in the Registration
Statement, the Prospectus and any amendments or supplements thereto,
conflicts with or will conflict with or results or will result in any
breach or violation of any of the terms or provisions of, or constitutes or
will constitute a default under, or result in the creation or imposition of
any lien, charge, claim, encumbrance, pledge, security interest, defect or
other restriction or equity of any kind whatsoever upon, any property or
assets (tangible or intangible) of the Company pursuant to the terms of,
(A) the certificate of incorporation or by-laws of the Company, (B) any
material license, contract, indenture, mortgage, deed of trust, voting
trust agreement, stockholders agreement, note, loan or credit agreement or
any other agreement or instrument known to us and to which the Company is a
party or by which it is or may be bound or to which any of its respective
properties or assets (tangible or intangible) is or may be subject, or any
indebtedness, or (C) (i) any statute, rule or regulation or (ii) any
judgement, decree or order, known to such counsel, applicable to the
Company of any arbitrator, court, regulatory body or administrative agency
or other governmental agency or body (including, without limitation, those
having jurisdiction over environmental or similar matters), domestic or
foreign, having jurisdiction over the Company or any of its activities or
properties;
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(viii) except as described in the Prospectus, no consent, approval,
authorization or order of, and no filing with, any court, regulatory body,
government agency or other body (other than such as may be required under
Blue Sky laws, as to which no opinion need be rendered) is required in
connection with the issuance of the Shares (except for the consents under
the Act and the Exchange Act which have been obtained) pursuant to the
Prospectus, the issuance of the Representatives' Warrants, the performance
of this Agreement and the Representatives' Warrant Agreement (except as may
be required under the Act and the Exchange Act) and the transactions
contemplated hereby and thereby;
(ix) to the best knowledge of such counsel, the Company is not in
breach of, or in default under, any term or provision of any license,
contract, indenture, mortgage, installment sale agreement, deed of trust,
lease, voting trust agreement, stockholders' agreement, partnership
agreement, note, loan or credit agreement or any other agreement or
instrument evidencing an obligation for borrowed money, or any other
agreement or instrument to which the Company is a party or by which the
Company may be bound or to which the property or assets (tangible or
intangible) of the Company is subject or affected except as where such
breach or default would not have a Material Adverse Effect; and the Company
is not in violation of any term or provision of its certificate of
incorporation by-laws, or in violation of any franchise, license, permit,
judgment, decree, order, statute, rule or regulation except where such
violation would not have a Material Adverse Effect;
(x) the statements in the Prospectus under "BUSINESS," "MANAGEMENT,"
"PRINCIPAL STOCKHOLDERS," "CERTAIN TRANSACTIONS," and "DESCRIPTION OF
SECURITIES" have been reviewed by such counsel, and insofar as they refer
to statements of law, descriptions of statutes, licenses, rules or
regulations or legal conclusions, are correct in all material respects;
(xi) the Shares have been accepted for quotation on Nasdaq;
(xii) the persons listed under the caption "PRINCIPAL STOCKHOLDERS" in
the Prospectus are the respective "beneficial owners" (as such phrase is
defined in regulation 13d-3 under the Exchange Act) of the securities set
forth opposite their respective names thereunder as and to the extent set
forth therein;
(xiii) except as described in the Prospectus, to the best of our
knowledge, no person, corporation, trust, partnership, association or other
entity has the right to include and/or register any securities of the
Company in the Registration Statement, require the Company to file any
registration statement or, if filed, to include any security in such
registration statement;
(xiv) assuming due execution by the parties thereto other than the
Company, the Lock-up Agreements are legal, valid and binding obligations of
parties thereto, enforceable against the party and any subsequent holder of
the securities subject thereto in accordance with its terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other
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laws of general application relating to or affecting enforcement of
creditors' rights and the application of equitable principles in any
action, legal or equitable, and except as rights to indemnity or
contribution may be limited by applicable law); and;
Such counsel shall state that such counsel has participated in conferences
with officers and other representatives of the Company and representatives of
the independent public accountants for the Company at which conferences such
counsel made inquiries of such officers, representatives and accountants and
discussed the contents of the Preliminary Prospectus, the Registration
Statement, the Prospectus, and related matters were discussed and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Preliminary Prospectus, the Registration Statement and Prospectus, on the basis
of the foregoing, no facts have come to the attention of such counsel which lead
them to believe that either the Registration Statement or any amendment thereto,
at the time such Registration Statement or amendment became effective or the
Preliminary Prospectus or Prospectus or amendment or supplement thereto as of
the date of the Preliminary Prospectus and the Prospectus, and as of the date of
such opinion contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading (it being understood that such counsel need
express no opinion with respect to the financial statements and schedules and
other financial and statistical data included in the Preliminary Prospectus, the
Registration Statement or Prospectus).
Such opinion shall not state that it is to be governed or qualified by, or
that it is otherwise subject to, any treatise, written policy or other document
relating to legal opinions, including, without limitation, the Legal Opinion
Accord of the ABA Section of Business Law (1991), or any comparable State bar
accord.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and substance satisfactory to Underwriters' Counsel) of
other counsel acceptable to Underwriters' Counsel, familiar with the applicable
laws; (B) as to matters of fact, to the extent they deem proper, on certificates
and written statements of responsible officers of the Company, and certificates
or other written statements of officers of departments of various jurisdictions
having custody of documents respecting the corporate existence or good standing
of the Company, provided that copies of any such statements or certificates
shall be delivered to Underwriters' Counsel if requested. The opinion of such
counsel for the Company shall state that the opinion of any such other counsel
is in form satisfactory to such counsel and that the Representatives and they
are justified in relying thereon. Such opinion shall also state that
Underwriters' Counsel is entitled to rely thereon.
At each Option Closing Date, if any, the Underwriters shall have received
the favorable opinion of Graubard Mollen & Miller, counsel to the Company, dated
the Option Closing Date, addressed to the Underwriters and in form and substance
satisfactory to Underwriters' Counsel confirming as of the Option Closing Date
the statements made by Graubard Mollen & Miller in its opinion delivered on the
Closing Date.
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(e) On or prior to each of the Closing Date and the Option Closing Date,
if any, Underwriters' Counsel shall have been furnished such documents,
certificates and opinions as they may reasonably require for the purpose of
enabling them to review or pass upon the matters referred to in subsection (c)
of this Section 6, or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or conditions of the
Company, or herein contained.
(f) Prior to each of the Closing Date and each Option Closing Date, if
any, (i) there shall have been no material adverse change nor development
involving a prospective adverse change in the condition, financial or otherwise,
prospects, stockholders' equity or the business activities of the Company,
whether or not in the ordinary course of business, from the latest dates as of
which such condition is set forth in the Registration Statement and Prospectus;
(ii) there shall have been no transaction, not in the ordinary course of
business, entered into by the Company, from the latest date as of which the
financial condition of the Company is set forth in the Registration Statement
and Prospectus which is materially adverse to the Company; (iii) the Company
shall not be in default under any provision of any instrument relating to any
outstanding indebtedness; (iv) the Company shall not have issued any securities
(other than the Securities and as contemplated by the Registration Statement);
the Company shall not have declared or paid any dividend or made any
distribution in respect of its capital stock of any class; and there has not
been any change in the capital stock of the Company, or any material change in
the debt (long or short term) or liabilities or obligations of the Company
(contingent or otherwise); (v) no material amount of the assets of the Company
shall have been pledged or mortgaged, except as set forth in the Registration
Statement and Prospectus; (vi) no action, suit or proceeding, at law or in
equity, shall have been pending or threatened (or circumstances giving rise to
same) against the Company, or affecting any of its properties or business before
or by any court or federal, state or foreign commission, board or other
administrative agency wherein an unfavorable decision, ruling or finding may
adversely affect the business, operations, prospects or financial condition or
income of the Company, except as set forth in the Registration Statement and
Prospectus; and (vii) no stop order shall have been issued under the Act and no
proceedings therefor shall have been initiated, threatened or contemplated by
the Commission.
(g) At each of the Closing Date and each Option Closing Date, if any,
the Underwriters shall have received a certificate of the Company signed by the
principal executive officer and by the chief financial or chief accounting
officer of the Company, dated the Closing Date or Option Closing Date, as the
case may be, to the effect that each of such persons has carefully examined the
Registration Statement, the Prospectus and this Agreement, and that:
(i) The representations and warranties of the Company in this
Agreement are true and correct as if made on and as of the Closing Date or
the Option Closing Date, as the case may be, and the Company has complied
with all agreements and covenants and satisfied all conditions contained in
this Agreement on its part to be performed or satisfied at or prior to such
Closing Date or Option Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness of the Registration
Statement or any part thereof has been issued, and no proceedings for that
purpose
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have been instituted or are pending or, to the best of each of such
person's knowledge, after due inquiry are contemplated or threatened under
the Act;
(iii) The Registration Statement and the Prospectus and, if any, each
amendment and each supplement thereto, contain all statements and
information required to be included therein, and none of the Registration
Statement, the Prospectus nor any amendment or supplement thereto includes
any untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading and neither the Preliminary Prospectus nor any supplement
thereto included any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading; and
(iv) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (a) the Company has
not incurred up to and including the Closing Date or the Option Closing
Date, as the case may be, other than in the ordinary course of its
business, any material liabilities or obligations, direct or contingent;
(b) the Company has not paid or declared any dividends or other
distributions on its capital stock; (c) the Company has not entered into
any transactions not in the ordinary course of business; (d) there has not
been any change in the capital stock of the Company or any material change
in the debt (long or short-term) of the Company; (e) the Company has not
sustained any material loss or damage to its property or assets, whether or
not insured; (g) there is no litigation which is pending or threatened (or
circumstances giving rise to same) against the Company, or any affiliated
party of any of the foregoing which is required to be set forth in an
amended or supplemented Prospectus which has not been set forth; and (h)
there has occurred no event required to be set forth in an amended or
supplemented Prospectus which has not been set forth.
References to the Registration Statement and the Prospectus in this subsection
(g) are to such documents as amended and supplemented at the date of such
certificate.
(h) By the Closing Date, the Underwriters will have received clearance
from the NASD as to the amount of compensation allowable or payable to the
Underwriters, as described in the Registration Statement.
(i) At the time this Agreement is executed, the Underwriters shall have
received a letter, dated such date, addressed to the Underwriters in form and
substance reasonably satisfactory in all respects to the Underwriters and
Underwriters' Counsel, from BDO Seidman LLP.
(i) confirming that they are independent public accountants with
respect to the Company within the meaning of the Act and the applicable
Rules and Regulations;
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(ii) stating that it is their opinion that the financial statements
and supporting schedules of the Company included in the Registration
Statement comply as to form in all material respects with the applicable
accounting requirements of the Act and the Rules and Regulations thereunder
and that the Representatives may rely upon the opinion of BDO Seidman LLP
with respect to such financial statements and supporting schedules included
in the Registration Statement;
(iii) stating that, on the basis of a limited review which included a
reading of the latest available unaudited interim financial statements of
the Company, a reading of the latest available minutes of the stockholders
and board of directors and the various committees of the board of directors
of the Company, consultations with officers and other employees of the
Company responsible for financial and accounting matters and other
specified procedures and inquiries, nothing has come to their attention
which would lead them to believe that [(A) the unaudited financial
statements and supporting schedules of the Company included in the
Registration Statement do not comply as to form in all material respects
with the applicable accounting requirements of the Act and the Rules and
Regulations or are not fairly presented in conformity with generally
accepted accounting principles applied on a basis substantially consistent
with that of the audited financial statements of the Company included in
the Registration Statement, or] (B) at a specified date not more than five
(5) days prior to the effective date of the Registration Statement, there
has been any change in the capital stock of the Company, any change in the
long-term debt of the Company, or any decrease in the stockholders' equity
of the Company or any decrease in the net current assets or net assets of
the Company as compared with amounts shown in the August 31, 1999 balance
sheet included in the Registration Statement, other than as set forth in or
contemplated by the Registration Statement, or, if there was any change or
decrease, setting forth the amount of such change or decrease, and (C)
during the period from August 31, 1999 to a specified date not more than
five (5) days prior to the effective date of the Registration Statement,
there was any decrease in net revenues or net earnings of the Company or
increase in net earnings per common share of the Company, other than as set
forth in or contemplated by the Registration Statement, or, if there was
any such decrease, setting forth the amount of such decrease;
(iv) stating that they have compared specific dollar amounts, numbers
of shares, percentages of revenues and earnings, statements and other
financial information pertaining to the Company set forth in the Prospectus
in each case to the extent that such amounts, numbers, percentages,
statements and information may be derived from the general accounting
records, including work sheets, of the Company and excluding any questions
requiring an interpretation by legal counsel, with the results obtained
from the application of specified readings, inquiries and other appropriate
procedures (which procedures do not constitute an examination in accordance
with generally accepted auditing standards) set forth in the letter and
found them to be in agreement; and
(v) statements as to such other matters incident to the transaction
contemplated hereby as the Representatives may request.
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<PAGE>
(j) At the Closing Date and each Option Closing Date, if any, the
Underwriters shall have received from BDO Seidman LLP a letter, dated as of the
Closing Date or the Option Closing Date, as the case may be, to the effect that
they reaffirm the statements made in the letter furnished pursuant to subsection
(i) of this Section 6 except that the specified date referred to shall be a date
not more than five (5) days prior to the Closing Date or the Option Closing
Date, as the case may be, and, if the Company has elected to rely on Rule 430A
of the Rules and Regulations, to the further effect that they have carried out
procedures as specified in clause (v) of subsection (i) of this Section 6 with
respect to certain amounts, percentages and financial information as specified
by the Representatives and deemed to be a part of the Registration Statement
pursuant to Rule 430A(b) and have found such amounts, percentages and financial
information to be in agreement with the records specified in such clause (v).
(k) On each of the Closing Date and Option Closing Date, if any, there
shall have been duly tendered to the Representatives for the several
Underwriters' accounts the appropriate number of Shares.
(l) No order suspending the sale of the Securities in any jurisdiction
designated by the Representatives pursuant to subsection (e) of Section 4 hereof
shall have been issued on either the Closing Date or the Option Closing Date, if
any, and no proceedings for that purpose shall have been instituted or shall be
contemplated.
(m) On or before the Closing Date, the Company shall have executed and
delivered to the Representatives, (i) the Representatives' Warrant Agreement
substantially in the form filed as Exhibit 4.2 to the Registration Statement in
final form and substance satisfactory to the Representatives, and (ii) the
Representatives' Warrants in such denominations and to such designees as shall
have been provided to the Company.
(n) On or before the Closing Date, the Shares shall have been duly
approved for quotation on Nasdaq, subject to official notice of issuance.
(o) On or before the Closing Date, there shall have been delivered to
the Representatives all of the Lock-up Agreements, in form and substance
satisfactory to Underwriters' Counsel.
If any condition to the Underwriters' obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Option Closing Date,
as the case may be, is not so fulfilled, the Representatives may terminate this
Agreement or, if the Representatives so elect, they may waive any such
conditions which have not been fulfilled or extend the time for their
fulfillment.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each of the
Underwriters (for purposes of this Section 7 "Underwriter" shall include the
officers, directors, partners, employees, agents and counsel of the Underwriter,
including specifically each person who may be substituted for an Underwriter as
provided in Section 11 hereof), and each person, if any, who controls the
Underwriter ("controlling person") within the meaning of Section 15 of the Act
or Section 20(a) of the Exchange Act, from and against any and all losses,
claims, damages, expenses or liabilities, joint or several (and actions,
proceedings, investigations, inquiries, and
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suits in respect thereof), whatsoever (including but not limited to any and all
costs and expenses whatsoever reasonably incurred in investigating, preparing or
defending against such action, proceeding, investigation, inquiry or suit,
commenced or threatened, or any claim whatsoever), as such are incurred, to
which the Underwriter or such controlling person may become subject under the
Act, the Exchange Act or any other statute or at common law or otherwise or
under the laws of foreign countries, arising out of or based upon (A) any untrue
statement or alleged untrue statement of a material fact contained (i) in any
Preliminary Prospectus, the Registration Statement or the Prospectus (as from
time to time amended and supplemented); (ii) in any post-effective amendment or
amendments or any new registration statement and prospectus in which is included
securities of the Company issued or issuable upon exercise of the Securities; or
(iii) in any application or other document or written communication (in this
Section 7 collectively called "application") executed by the Company or based
upon written information furnished by the Company filed, delivered or used in
any jurisdiction in order to qualify the Securities under the securities laws
thereof or filed with the Commission, any state securities commission or agency,
Nasdaq or any other securities exchange, (B) the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to make
the statements therein not misleading (in the light of the circumstances under
which they were made), or (C) any breach of any representation, warranty,
covenant or agreement of the Company contained herein or in any certificate by
or on behalf of the Company or any of its officers delivered pursuant hereto
unless, in the case of clause (A) or (B) above, such statement or omission was
made in reliance upon and in conformity with written information furnished to
the Company with respect to any Underwriter by or on behalf of such Underwriter
expressly for use in any Preliminary Prospectus, the Registration Statement or
any Prospectus, or any amendment thereof or supplement thereto, or in any
application, as the case may be.
The indemnity agreement in this subsection (a) shall be in addition
to any liability which the Underwriters may have at common law or otherwise.
(b) Each of the Underwriters agrees severally, but not jointly, to
indemnify and hold harmless the Company, each of its directors, each of its
officers and employees, and each other person, if any, who controls the Company
within the meaning of the Act, to the same extent as the foregoing indemnity
from the Company to the Underwriters but only with respect to statements or
omissions, if any, made in any Preliminary Prospectus, the Registration
Statement or Prospectus or any amendment thereof or supplement thereto or in any
application made in reliance upon, and in strict conformity with, written
information furnished to the Company with respect to any Underwriter by such
Underwriter expressly for use in such Preliminary Prospectus, the Registration
Statement or Prospectus or any amendment thereof or supplement thereto or in any
such application, provided that such written information or omissions only
pertain to disclosures in the Preliminary Prospectus, the Registration Statement
or Prospectus directly relating to the transactions effected by the Underwriters
in connection with this Offering. The Company acknowledges that the statements
with respect to the public offering of the Securities set forth under the
heading "Underwriting" and the stabilization legend in the Prospectus have been
furnished by the Underwriters expressly for use therein and constitute the only
information furnished in writing by or on behalf of the Underwriters for
inclusion in the Prospectus.
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The indemnity agreement in this subsection (b) shall be in addition
to any liability which the Underwriters may have at common law or otherwise.
(c) Promptly after receipt by an indemnified party under this Section 7
of notice of the commencement of any action, suit or proceeding, such
indemnified party shall, if a claim in respect thereof is to be made against one
or more indemnifying parties under this Section 7, notify each party against
whom indemnification is to be sought in writing of the commencement thereof (but
the failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 7 except to the extent that it
has been prejudiced in any material respect by such failure or from any
liability which it may have otherwise). In case any such action, investigation,
inquiry, suit or proceeding is brought against any indemnified party, and it
notifies an indemnifying party or parties of the commencement thereof, the
indemnifying party or parties will be entitled to participate therein, and to
the extent it may elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own counsel in any such case
but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by the indemnifying parties in connection with
the defense of such action at the expense of the indemnifying party, (ii) the
indemnifying parties shall not have employed counsel reasonably satisfactory to
such indemnified party to have charge of the defense of such action within a
reasonable time after notice of commencement of the action, or (iii) such
indemnified party or parties shall have reasonably concluded that there may be
defenses available to it or them which are different from or additional to those
available to one or all of the indemnifying parties (in which case the
indemnifying parties shall not have the right to direct the defense of such
action, investigation, inquiry, suit or proceeding on behalf of the indemnified
party or parties), in any of which events such fees and expenses of one
additional counsel shall be borne by the indemnifying parties. In no event shall
the indemnifying parties be liable for fees and expenses of more than one
counsel (in addition to any local counsel) separate from their own counsel for
all indemnified parties in connection with any one action, investigation,
inquiry, suit or proceeding or separate but similar or related actions,
investigations, inquiries, suits or proceedings in the same jurisdiction arising
out of the same general allegations or circumstances. Anything in this Section 7
to the contrary notwithstanding, an indemnifying party shall not be liable for
any settlement of any claim or action effected without its written consent;
provided, however, that such consent was not unreasonably withheld. An
indemnifying party will not, without the prior written consent of the
indemnified parties, settle compromise or consent to the entry of any judgment
with respect to any pending or threatened claim, action, investigation, inquiry,
suit or proceeding in respect of which indemnification or contribution may be
sought hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action), unless such settlement, compromise or consent
(i) includes an unconditional release of each indemnified party from all
liability arising out of such claim, action, suit or proceeding and (ii) does
not include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party.
(d) In order to provide for just and equitable contribution in any case
in which (i) an indemnified party makes claim for indemnification pursuant to
this Section 7, but it is
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judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of this Section 7 provide
for indemnification in such case, or (ii) contribution under the Act may be
required on the part of any indemnified party, then each indemnifying party
shall contribute to the amount paid as a result of such losses, claims, damages,
expenses or liabilities (or actions, investigations, inquiries, suits or
proceedings in respect thereof) (A) in such proportion as is appropriate to
reflect the relative benefits received by each of the contributing parties, on
the one hand, and the party to be indemnified on the other hand, from the
offering of the Securities or (B) if the allocation provided by clause (A) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also
the relative fault of each of the contributing parties, on the one hand, and the
party to be indemnified on the other hand in connection with the statements or
omissions that resulted in such losses, claims, damages, expenses or
liabilities, as well as any other relevant equitable considerations. In any case
where the Company is the contributing party and the Underwriters are the
indemnified party, the relative benefits received by the Company, on the one
hand, and the Underwriters, on the other, shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Securities (before
deducting expenses) bear to the total underwriting discounts received by the
Underwriters hereunder, as set forth in the table on the Cover Page of the
Prospectus and the underwriting caption of the Prospectus, as the case may be.
Relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company, or by the Underwriters, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, expenses or liabilities (or actions,
investigations, inquiries, suits or proceedings in respect thereof) referred to
above in this subdivision (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action, claim, investigation, inquiry, suit
or proceeding. Notwithstanding the provisions of this subdivision (d) the
Underwriters shall not be required to contribute any amount in excess of the
underwriting discount applicable to the Securities purchased by the Underwriters
hereunder. No person guilty of fraudulent misrepresentation (within the meaning
of Section11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. For purposes of this
Section 7, each person, if any, who controls the Company within the meaning of
the Act, each officer of the Company who has signed the Registration Statement,
and each director of the Company shall have the same rights to contribution as
the Company, subject in each case to this subparagraph (d). Any party entitled
to contribution will, promptly after receipt of notice of commencement of any
action, suit, inquiry, investigation or proceeding against such party in respect
to which a claim for contribution may be made against another party or parties
under this subparagraph (d), notify such party or parties from whom contribution
may be sought, but the omission so to notify such party or parties shall not
relieve the party or parties from whom contribution may be sought from any
obligation it or they may have hereunder or otherwise than under this
subparagraph (d), or to the extent that such party or parties were not adversely
affected by such omission. The contribution agreement set forth above shall be
in addition to any liabilities which any indemnifying party may have at common
law or otherwise.
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8. Representations and Agreements to Survive Delivery. All representations,
warranties and agreements contained in this Agreement or contained in
certificates of officers of the Company submitted pursuant hereto, shall be
deemed to be representations, warranties and agreements at the Closing Date and
the Option Closing Date, as the case may be, and such representations,
warranties and agreements of the Company and the indemnity agreements contained
in Section 7 hereof, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter, the
Company, any controlling person of any Underwriter, the Company, and shall
survive termination of this Agreement or the issuance, sale and delivery of the
Securities to the Underwriters and the Representatives, as the case may be.
9. Effective Date.
This Agreement shall become effective at 10:00 a.m., New York City
time, on the next full business day following the date hereof, or at such
earlier time after the Registration Statement becomes effective as the
Representatives, in their discretion, shall release the Securities for sale to
the public; provided, however, that the provisions of Sections 5, 7 and 10 of
this Agreement shall at all times be effective. For purposes of this Section 9,
the Shares to be purchased hereunder shall be deemed to have been so released
upon the earlier of dispatch by the Representatives of telegrams to securities
dealers releasing such shares for offering or the release by the Representatives
for publication of the first newspaper advertisement which is subsequently
published relating to the Shares.
10. Termination.
(a) Subject to subsection (b) of this Section 10, the Representatives
shall have the right to terminate this Agreement, after the date hereof, (i) if
any domestic or international event or act or occurrence has materially
disrupted, or in the Representatives' opinion will in the immediate future
materially adversely disrupt the financial markets; or (ii) any material adverse
change in the financial markets shall have occurred; or (iii) if trading
generally shall have been suspended or materially limited on or by, as the case
may be, any of the New York Stock Exchange, the American Stock Exchange, the
National Association of Securities Dealers, Inc., the Boston Stock Exchange, the
Commission or any other government authority having jurisdiction; or (iv) if
trading of any of the securities of the Company shall have been suspended, or
any of the securities of the Company shall have been delisted, on any exchange
or in any over-the-counter market; or (v) if the United States shall have become
involved in a war or major hostilities, or if there shall have been an
escalation in an existing war or major hostilities or a national emergency shall
have been declared in the United States; or (vi) if a banking moratorium has
been declared by a state or federal authority; or (vii) if a moratorium in
foreign exchange trading has been declared; or (viii) if the Company shall have
sustained a loss material or substantial to the Company by fire, flood,
accident, hurricane, earthquake, theft, sabotage or other calamity or malicious
act which, whether or not such loss shall have been insured, will, in the
Representatives' opinion, make it inadvisable to proceed with the delivery of
the Securities; or (viii) if there shall have occurred any outbreak or
escalation of hostilities or any calamity or crisis or there shall have been
such a material adverse change in the conditions or prospects of the Company, or
such material adverse change in the general market, political or economic
conditions, in the United States or elsewhere as in the Representatives'
judgment would make it
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inadvisable to proceed with the offering, sale and/or delivery of the Securities
or (ix) if Woo Jin Kim shall no longer serve the Company in his present
capacity.
(b) If this Agreement is terminated by the Representatives in accordance
with the provisions of Section 10(a) the Company shall promptly reimburse and
indemnify the Representatives for all of their reasonable actual out-of-pocket
expenses, including the fees and disbursements of counsel for the Underwriters
(less amounts previously paid pursuant to Section 5(c) above). Notwithstanding
any contrary provision contained in this Agreement, if this Agreement shall not
be carried out within the time specified herein, or any extension thereof
granted to the Representatives, by reason of any failure on the part of the
Company to perform any undertaking or satisfy any condition of this Agreement by
it to be performed or satisfied (including, without limitation, pursuant to
Section 6 or Section 12) then, the Company shall promptly reimburse and
indemnify the Representatives for all of their reasonable actual out-of-pocket
expenses, including the fees and disbursements of counsel for the Underwriters
(less amounts previously paid pursuant to Section 5(c) above). In addition, the
Company shall remain liable for all Blue Sky counsel fees and expenses and
filing fees. Notwithstanding any contrary provision contained in this Agreement,
any election hereunder or any termination of this Agreement (including, without
limitation, pursuant to Sections 6, 10, 11 and 12 hereof), and whether or not
this Agreement is otherwise carried out, the provisions of Section 5 and Section
7 shall not be in any way affected by such election or termination or failure to
carry out the terms of this Agreement or any part hereof.
11. Substitution of the Underwriters. If one or more of the Underwriters
shall fail (otherwise than for a reason sufficient to justify the termination of
this Agreement under the provisions of Section 6, Section 10 or Section 12
hereof) to purchase the Securities which it or they are obligated to purchase on
such date under this Agreement (the "Defaulted Securities"), the Representatives
shall have the right, within 24 hours thereafter, to make arrangement for one or
more of the non-defaulting Underwriters, or any other underwriters, to purchase
all, but not less than all, of the Defaulted Securities in such amounts as may
be agreed upon and upon the terms herein set forth; if, however, the
Representatives shall not have completed such arrangements within such 24-hour
period, then:
(i) if the number of Defaulted Securities does not exceed 10% of the
total number of Firm Shares to be purchased on such date, the
non-defaulting Underwriters shall be obligated to purchase the full amount
thereof in the proportions that their respective underwriting obligations
hereunder bear to the underwriting obligations of all non-defaulting
Underwriters, or
(ii) if the number of Defaulted Securities exceeds 10% of the total
number of Firm Shares, this Agreement shall terminate without liability on
the part of any non-defaulting Underwriters.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of any default by such Underwriter under
this Agreement.
In the event of any such default which does not result in a termination of
this Agreement, the Representatives shall have the right to postpone the Closing
Date for a period not
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exceeding seven days in order to effect any required changes in the Registration
Statement or Prospectus or in any other documents or arrangements.
12. Default by the Company. If the Company shall fail at the Closing Date
or at any Option Closing Date, as applicable, to sell and deliver the number of
Shares which it is obligated to sell hereunder on such date, then this Agreement
shall terminate (or, if such default shall occur with respect to any Option
Shares to be purchased on an Option Closing Date, the Underwriters may at the
Representatives' option, by notice from the Representatives to the Company,
terminate the Underwriters' obligation to purchase Option Shares from the
Company on such date) without any liability on the part of any non-defaulting
party other than pursuant to Section 5, Section 7 and Section 10 hereof. No
action taken pursuant to this Section shall relieve the Company from liability,
if any, in respect of such default.
13. Notices. All notices and communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be deemed to have
been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed to the
Representatives: Gaines, Berland Inc. at 1055 Stewart Avenue, Bethpage, New York
11714, Attention: Joseph Berland, and Nolan Securities Corp., 7 Academy Street,
Salisbury CT 06068, Attention: Bruce Kelly, with a copy to Orrick, Herrington &
Sutcliffe LLP, 666 Fifth Avenue, New York, New York 10103, Attention: Lawrence
B. Fisher, Esq. Notices to the Company shall be directed to the Company: 249
East Ocean Boulevard, Long Beach, California 90802, Attention: Woo Jin Kim,
Chief Executive Officer, with a copy to Graubard Mollen & Miller, 600 Third
Avenue, New York, NY 10016, Attention: David Miller, Esq.
14. Parties. This Agreement shall inure solely to the benefit of and shall
be binding upon, the Underwriters, the Company, and the controlling persons,
directors and officers referred to in Section 7 hereof, and their respective
successors, legal representatives and assigns, and no other person shall have or
be construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provisions herein contained. No
purchaser of Securities from any Underwriter shall be deemed to be a successor
by reason merely of such purchase.
15. Construction. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York without giving
effect to the choice of law or conflict of laws principles.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
17. Entire Agreement; Amendments. This Agreement and the Representatives'
Warrant Agreement constitute the entire agreement of the parties hereto and
supersede all prior written or oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may not be amended
except in a writing, signed by the Representatives and the Company.
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<PAGE>
If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
us.
Very truly yours,
b2bstores.com Inc.
By:
-----------------------------------------
Name:
Title:
Confirmed and accepted as of
the date first above written.
GAINES, BERLAND INC.
For itself and as Representative
of the Several Underwriters Named
in Schedule A hereto
By:
----------------------------------------
Name:
Title:
NOLAN SECURITIES CORP.
For itself and as Representative
of the Several Underwriters Named
in Schedule A hereto
By:
----------------------------------------
Name:
Title:
35
<PAGE>
SCHEDULE A
Number of
Underwriter Shares
- ----------- ------
Gaines, Berland Inc.
Nolan Securities Corp.
TOTAL 2,800,000
<PAGE>
[FORM OF REPRESENTATIVES' WARRANT AGREEMENT]
[SUBJECT TO ADDITIONAL REVIEW]
- --------------------------------------------------------------------------------
b2bstores.com Inc.
AND
GAINES, BERLAND INC.
AND
NOLAN SECURITIES CORP.
REPRESENTATIVES'
WARRANT AGREEMENT
Dated as of January ___, 2000
- --------------------------------------------------------------------------------
<PAGE>
REPRESENTATIVES' WARRANT AGREEMENT dated as of January ___,
2000 by and between b2bstores.com Inc., a Delaware corporation (the "Company"),
and GAINES, BERLAND INC. and NOLAN SECURITIES CORP. (hereinafter referred to as
the "Holders" or the "Representatives").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company proposes to issue to the Representatives
or their designees warrants ("Warrants") to purchase up to an aggregate 280,000
shares of common stock, par value $.01 per share, of the Company ("Common
Stock"); and
WHEREAS, the Representatives have agreed pursuant to the
underwriting agreement (the "Underwriting Agreement") dated as of the date
hereof between Gaines, Berland Inc. and Nolan Securities Corp., as the
Representatives of the several Underwriters named in Schedule A thereto, and the
Company to act as the Representatives in connection with the Company's proposed
public offering of up to 2,800,000 shares of Common Stock at a public offering
price of $10.00 per share of Common Stock (the "Public Offering"); and
WHEREAS, the Warrants to be issued pursuant to this Agreement
will be issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Representatives in consideration for, and as
part of the Representatives' compensation in connection with, the
Representatives acting as the Representatives pursuant to the Underwriting
Agreement;
NOW, THEREFORE, in consideration of the premises, the payment
by the Representatives to the Company of an aggregate of twenty-eight dollars
($28.00) the agreements herein set forth and other good and valuable
consideration, hereby acknowledged, the parties hereto agree as follows:
<PAGE>
SECTION 1. Grant. The Representatives are hereby granted the
right to purchase, at any time from [___________], 2001 [one year from the
effective date of the registration statement], until 5:30 P.M., New York time,
on [______________], 2005 [five years from the effective date of the
registration statement], up to an aggregate of 280,000 shares of Common Stock
(the "Shares") at an initial exercise price (subject to adjustment as provided
in Section 8 hereof) of $[_____] per share [165% of the public offering price
per share] of Common Stock subject to the terms and conditions of this
Agreement. Except as set forth herein, the Shares issuable upon exercise of the
Warrants are in all respects identical to the shares of Common Stock being
purchased by the Underwriters for resale to the public pursuant to the terms and
provisions of the Underwriting Agreement.
SECTION 2. Warrant Certificates. The warrant certificates
(the "Warrant Certificates") delivered and to be delivered pursuant to this
Agreement shall be in the form set forth in Exhibit A, attached hereto and made
a part hereof, with such appropriate insertions, omissions, substitutions, and
other variations as required or permitted by this Agreement.
SECTION 3. Exercise of Warrant.
Section 3.1 Method of Exercise. The Warrants initially
are exercisable at an aggregate initial exercise price (subject to adjustment as
provided in Section 8 hereof) per share of Common Stock set forth in Section 6
hereof payable by certified or official bank check in New York Clearing House
funds. Upon surrender of a Warrant Certificate with the annexed Form of Election
to Purchase duly executed, together with payment of the Exercise Price (as
hereinafter defined) for the shares of Common Stock purchased at the Company's
principal offices in Long Beach, California (presently located at 249 East Ocean
Boulevard, Long Beach, California 90802) the registered holder of a Warrant
Certificate ("Holder" or "Holders") shall be entitled to receive a certificate
or certificates for the shares of Common Stock so purchased. The purchase rights
represented by each Warrant Certificate are exercisable at the option of the
2
<PAGE>
Holder thereof, in whole or in part (but not as to fractional shares of the
Common Stock underlying the Warrants). Warrants may be exercised to purchase all
or part of the shares of Common Stock represented thereby. In the case of the
purchase of less than all the shares of Common Stock purchasable under any
Warrant Certificate, the Company shall cancel said Warrant Certificate upon the
surrender thereof and shall execute and deliver a new Warrant Certificate of
like tenor for the balance of the shares of Common Stock purchasable thereunder.
Section 3.2 Exercise by Surrender of Warrant. In addition
to the method of payment set forth in Section 3.1 and in lieu of any cash
payment required thereunder, the Holders of the Warrants shall have the right at
any time and from time to time during the exercise term of the Warrants to
exercise the Warrants in full or in part by surrendering the Warrant Certificate
in the manner specified in Section 3.1 in exchange for the number of Shares
equal to the product of (x) the number of Shares as to which the Warrants are
being exercised multiplied by (y) a fraction, the numerator of which is the
Market Price (as defined in Section 3.3 below) of the Shares less the Exercise
Price and the denominator of which is such Market Price. Solely for the purposes
of this paragraph, Market Price shall be calculated either (i) on the date which
the form of election attached hereto is deemed to have been sent to the Company
pursuant to Section 13 hereof ("Notice Date") or (ii) as the average of the
Market Prices for each of the five trading days preceding the Notice Date,
whichever of (i) or (ii) is greater.
Section 3.3 Definition of Market Price. As used herein,
the phrase "Market Price" at any date shall be deemed to be the last reported
sale price, or, in case no such reported sale takes place on such day, the
average of the last reported sale prices for the last three (3) trading days, in
either case as officially reported by the principal securities exchange on which
the Common Stock is listed or admitted to trading or by the Nasdaq National
Market or Nasdaq SmallCap Market (as the case may be "Nasdaq"), or, if the
Common Stock is not listed or admitted to trading on any national securities
exchange or quoted by Nasdaq, the average closing bid price as furnished by the
NASD through Nasdaq or similar organization if Nasdaq is
3
<PAGE>
no longer reporting such information, or if the Common Stock is not quoted on
Nasdaq, as determined in good faith by resolution of the Board of Directors of
the Company, based on the best information available to it.
Section 4. Issuance of Certificates. Upon the exercise of the
Warrants, the issuance of certificates for shares of Common Stock and/or other
securities, properties or rights underlying such Warrants, shall be made
forthwith (and in any event within five (5) business days thereafter) without
charge to the Holders thereof including, without limitation, any tax which may
be payable in respect of the issuance thereof, and such certificates shall
(subject to the provisions of Sections 5 and 7 hereof) be issued in the name of,
or in such names as may be directed by, the Holders thereof; provided, however,
that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any such
certificates in a name other than that of the Holders, and the Company shall not
be required to issue or deliver such certificates unless or until the person or
persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
The Warrant Certificates and the certificates representing the
Shares underlying the Warrants (and/or other securities, property or rights
issuable upon the exercise of the Warrants) shall be executed on behalf of the
Company by the manual or facsimile signature of the then Chairman or Vice
Chairman of the Board of Directors, Chief Executive Officer or President or Vice
President of the Company. Warrant Certificates shall be dated the date of
execution by the Company upon initial issuance, division, exchange, substitution
or transfer.
Section 5. Restriction On Transfer of Warrants. The Holders of
a Warrant Certificate, by its acceptance thereof, covenants and agrees that the
Warrants are being acquired as an investment and not with a view to the
distribution thereof; that the Warrants are restricted from sale, assignment or
hypothecation for a period of one (1) year from the effective date
4
<PAGE>
of the offering except to officers or partners (not directors) of the
underwriter and members of the selling group and/or their officers or partners.
Section 6. Exercise Price.
Section 6.1 Initial and Adjusted Exercise Price. Except
as otherwise provided in Section 8 hereof, the initial exercise price of each
Warrant shall be $[____] per share [165% of the public offering price per share]
of Common Stock. The adjusted exercise price shall be the price which shall
result from time to time from any and all adjustments of the initial exercise
price in accordance with the provisions of Section 8 hereof.
Section 6.2 Exercise Price. The term "Exercise Price"
herein shall mean the initial exercise price or the adjusted exercise price,
depending upon the context.
Section 7. Registration Rights.
Section 7.1 Registration Under the Securities Act of
1933. The Warrants, the Shares, and any other securities issuable upon exercise
of the Warrants have been registered under the Securities Act of 1933, as
amended (the "Act"), pursuant to the Company's Registration Statement on Form
SB-2 (Registration No. 333-88511) (the "Registration Statement"). All of the
representations and warranties of the Company contained in the Underwriting
Agreement relating to the Registration Statement, the Preliminary Prospectus and
Prospectus (as such terms are defined in the Underwriting Agreement) and made as
of the dates provided therein, are hereby incorporated by reference. The Company
agrees and covenants to use commercially reasonable efforts to file promptly
post effective amendments to such Registration Statement as may be necessary to
maintain the effectiveness of the Registration Statement as long as any Warrants
are outstanding. In the event that, for any reason, whatsoever, the Company
shall fail to maintain the effectiveness of the Registration Statement, upon
exercise, in part or in whole, of the Warrants, certificates representing the
Shares underlying the
5
<PAGE>
Warrants, and any of the other securities issuable upon exercise of the Warrants
(collectively, the "Warrant Securities") shall bear the following legend:
The securities represented by this certificate have
not been registered under the Securities Act of 1933,
as amended ("Act"), and may not be offered or sold
except pursuant to (i) an effective registration
statement under the Act, (ii) to the extent
applicable, Rule 144 under the Act (or any similar
rule under such Act relating to the disposition of
securities), or (iii) an opinion of counsel, if such
opinion shall be reasonably satisfactory to counsel
to the issuer, that an exemption from registration
under such Act is available.
Section 7.2 Piggyback Registration. If, at any time
commencing after the date hereof and expiring five (5) years from the date
hereof, the Company proposes to register any of its securities under the Act
(other than in connection with a merger or pursuant to Forms S-4 or S-8) and the
Warrant Securities are not registered in a then current and effective
registration statement that would permit resale of such Warrant Securities, it
will give written notice by registered mail, at least thirty (30) days prior to
the filing of each such registration statement, to the Representatives and to
all other Holders of the Warrants and/or the Warrant Securities of its intention
to do so. If the Representatives or other Holders of the Warrants and/or Warrant
Securities notify the Company within twenty (20) days after receipt of any such
notice of its or their desire to include any such securities in such proposed
registration statement, the Company shall afford the Representatives and such
Holders of the Warrants and/or Warrant Securities the opportunity to have any
such Warrant Securities registered under such registration statement (sometimes
referred to herein as the "Piggyback Registration"); provided, however, that if,
in the written opinion of the Company's managing underwriter, if any, for such
offering, the inclusion of all or a portion of the Warrant Securities requested
to be registered, when added to the securities being registered by the Company
or to other selling stockholder(s), will exceed the maximum amount of the
Company's securities which can be marketed (i) at a price reasonably related to
their then current market value, or (ii) without otherwise materially
6
<PAGE>
adversely affecting the entire offering, then the Company may exclude from such
offering all or a portion of the Warrant Securities which it has been requested
to register.
If securities are proposed to be offered for sale pursuant to
such Registration Statement by other security holders of the Company and the
total number of securities to be offered by the Holders requesting registration
under Section 7.2 hereof (the "Requesting Holders") and such other selling
security holders is required to be reduced pursuant to a request from the
managing underwriter (which request shall be made only for the reasons in the
manner set forth above), the aggregate number of Warrant Securities to be
offered by Requesting Holders pursuant to such Registration Statement shall
equal the number which bears the same ratio to the maximum number of securities
that the underwriter believes may be included for all the selling security
holders (including the Requesting Holders) as the original number of securities
proposed to be sold by the Requesting Holders bears to the total original number
of securities proposed to be offered by the Requesting Holders and the other
selling security holders.
Notwithstanding the provisions of this Section 7.2 and Section
7.4 hereof, the Company shall have the right at any time after it shall have
given written notice pursuant to this Section 7.2 (irrespective of whether a
written request for inclusion of any such securities shall have been made) to
elect not to file any such proposed registration statement, or to withdraw the
same after the filing but prior to the effective date thereof.
Section 7.3 Demand Registration.
(a) At any time commencing after the date hereof and
expiring five (5) years from the effective date of the Public Offering, the
Holders of the Warrants and/or Warrant Securities representing a "Majority" (as
hereinafter defined) of such securities (assuming the exercise of all of the
Warrants) shall have the right (which right is in addition to the registration
rights under Section 7.2 hereof), exercisable by written notice to the Company,
to have the
7
<PAGE>
Company prepare and file with the Securities and Exchange Commission (the
"Commission"), on one occasion, a registration statement and such other
documents, including a prospectus, as may be necessary in the opinion of both
counsel for the Company and counsel for the Representatives and Holders, in
order to comply with the provisions of the Act, so as to permit a public
offering and sale of their respective Warrant Securities for nine (9)
consecutive months by such Holders and any other Holders of the Warrants and/or
Warrant Securities who notify the Company within ten (10) days after receiving
notice from the Company of such request; provided, however, upon a request for a
registration pursuant to this Section 7.3, the Company may, one time, in any 12
month period (i) postpone the filing of a registration statement for a period
not to exceed ninety (90) days from the date of receipt of such request, if the
President of the Company furnishes to the Holders requesting registration a
certificate signed by the Company's President stating that in the good faith
judgment of the Board of Directors of the Company it would be seriously
detrimental to the Company for a public offering of the Company's securities to
be commenced in the near future or (ii) postpone the filing of a registration
statement for a period not to exceed ninety (90) days from the effective date of
any registration statement relating to a primary underwritten offering of
securities of the Company which has been declared effective prior to the date of
receipt of a request for registration. If the Company so determines to postpone
a registration requested by the Holders pursuant to this Section 7.3, it shall
promptly notify the requesting Holders of such determination including the
reason therefor, whereupon the requesting Holders shall be entitled to withdraw
such request and such registration shall not count as a registration under this
Section 7.3. In addition, the Company may, one time, in any 12 month period,
suspend the effectiveness of any registration statement filed pursuant to this
Section 7.3 for a period of forty-five (45) days, if the President of the
Company furnishes to the Holders of securities registered pursuant to this
Section 7.3 a certificate signed by the Company's President stating that the
Board of Directors of the Company has determined, upon advice of counsel, that
it would be required to disclose any significant corporate development which
disclosure would have a material effect on the Company;
8
<PAGE>
provided, however, that the period of time which such registration statement is
required to be effective shall be increased by the number of days that the
registration statement was suspended (the "Suspension Period"); and provided,
further, that the Company shall furnish to each Holder of securities registered
pursuant to Section 7.3 a notice stating that the Suspension Period has been
terminated within three (3) business days following the date of termination.
(b) The Company covenants and agrees to give written
notice of any registration request under this Section 7.3 by any Holder or
Holders to all other registered Holders of the Warrants and the Warrant
Securities within ten (10) days from the date of the receipt of any such
registration request.
Section 7.4 Covenants of the Company With Respect to
Registration. In connection with any registration under Section 7.2 or 7.3
hereof, the Company covenants and agrees as follows:
(a) The Company shall use its best efforts to file a
registration statement within forty-five (45) days of receipt of any demand
therefor, shall use its best efforts to have any registration statements
declared effective at the earliest possible time, and shall furnish each Holder
desiring to sell Warrant Securities such number of prospectuses as shall
reasonably be requested.
(b) The Company shall pay all costs (excluding fees and
expenses of Holders' counsel and any underwriting or selling commissions), fees
and expenses in connection with all registration statements filed pursuant to
Sections 7.2 and 7.3 hereof including, without limitation, the Company's legal
and accounting fees, printing expenses and blue sky fees and expenses.
(c) The Company will take all necessary action which may
be required in qualifying or registering the Warrant Securities included in a
registration statement for
9
<PAGE>
offering and sale under the securities or blue sky laws of such states as
reasonably are requested by the Holders, provided that the Company shall not be
obligated to execute or file any general consent to service of process or to
qualify as a foreign corporation to do business under the laws of any such
jurisdiction.
(d) The Company shall indemnify the Holders of the
Warrant Securities to be sold pursuant to any registration statement and each
person, if any, who controls such Holders within the meaning of Section 15 of
the Act or Section 20(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), against all loss, claim, damage, expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which any of them may become subject
under the Act, the Exchange Act or otherwise, arising from such registration
statement but only to the same extent and with the same effect as the provisions
pursuant to which the Company has agreed to indemnify each of the Underwriters
contained in Section 7 of the Underwriting Agreement.
(e) The Holders of the Warrant Securities to be sold
pursuant to a registration statement, and their successors and assigns, shall
severally, and not jointly, indemnify the Company, its officers and directors
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, against all loss, claim,
damage or expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, arising
from information furnished by or on behalf of such Holders, or their successors
or assigns, for specific inclusion in such registration statement to the same
extent and with the same effect as the provisions contained in Section 7 of the
Underwriting Agreement pursuant to which the Underwriters have agreed to
indemnify the Company.
10
<PAGE>
(f) Nothing contained in this Agreement shall be
construed as requiring the Holders to exercise their Warrants prior to the
initial filing of any registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any
securities other than the Warrant Securities to be included in any registration
statement filed pursuant to Section 7.3 hereof, without the prior written
consent of the Holders of the Warrants and Warrant Securities representing a
Majority of such securities.
(h) The Company shall furnish to each Holder
participating in the offering and to each underwriter, if any, a signed
counterpart, addressed to such Holder or underwriter, of (i) an opinion of
counsel to the Company, dated the effective date of such registration statement
(and, if such registration includes an underwritten public offering, an opinion
dated the date of the closing under the underwriting agreement), and (ii) a
"cold comfort" letter dated the effective date of such registration statement
(and, if such registration includes an underwritten public offering, a letter
dated the date of the closing under the underwriting agreement) signed by the
independent public accountants who have issued a report on the Company's
financial statements included in such registration statement, in each case
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings of securities.
(i) The Company shall, as soon as practicable after the
effective date of the registration statement, and in any event within 15 months
thereafter, make "generally available to its security holders" (within the
meaning of Rule 158 under the Act) an earnings statement (which need not be
audited) complying with Section 11(a) of the Act and covering a
11
<PAGE>
period of at least 12 consecutive months beginning after the effective date of
the registration statement. The Company shall deliver promptly to each Holder
participating in the offering and to the managing underwriters, copies of all
correspondence between the Commission and the Company, its counsel or auditors
with respect to the registration statement and permit each Holder and
underwriter to do such investigation, upon reasonable advance notice, with
respect to information contained in or omitted from the registration statement
as it deems reasonably necessary to comply with applicable securities laws or
rules of the National Association of Securities Dealers, Inc. ("NASD"). Such
investigation shall include access to books, records and properties and
opportunities to discuss the business of the Company with its officers and
independent auditors, all to such reasonable extent and at such reasonable times
and as often as any such Holder or underwriter shall reasonably request.
(j) The Company shall enter into an underwriting
agreement with the managing underwriters selected for such underwriting by
Holders holding a Majority of the Warrant Securities requested to be included in
such underwriting, which may be either of the Representatives or both
Representatives. Such agreement shall be satisfactory in form and substance to
the Company, each Holder and such managing underwriter(s), and shall contain
such representations, warranties and covenants by the Company and such other
terms as are customarily contained in agreements of that type used by the
managing underwriter(s). The Holders shall be parties to any underwriting
agreement relating to an underwritten sale of their Warrant Securities and may,
at their option, require that any or all the representations, warranties and
covenants of the Company to or for the benefit of such underwriter(s) shall also
be made to and for the benefit of such Holders. Such Holders shall not be
required to make any representations or warranties to or agreements with the
Company or the underwriter(s) except as are customarily made by selling
securityholders in underwritten offerings.
(k) In addition to the Warrant Securities, upon the
written request therefor by any Holders, the Company shall include in the
registration statement any other
12
<PAGE>
securities of the Company held by such Holders as of the date of filing of such
registration statement, including without limitation restricted shares of Common
Stock, options, warrants or any other securities convertible into shares of
Common Stock.
(l) For purposes of this Agreement, the term "Majority"
in reference to the Holders of Warrants or Warrant Securities, shall mean in
excess of fifty percent (50%) of the then outstanding Warrants or Warrant
Securities that (i) are not held by the Company, an affiliate, officer,
creditor, employee or agent thereof or any of their respective affiliates,
members of their family, persons acting as nominees or in conjunction therewith
and (ii) have not been resold to the public pursuant to a registration statement
filed with the Commission under the Act or pursuant to Rule 144.
Section 8. Adjustments to Exercise Price and Number of
Securities.
Section 8.1 Subdivision and Combination. In case the
Company shall at any time subdivide or combine the outstanding shares of Common
Stock, the Exercise Price shall forthwith be proportionately decreased in the
case of subdivision or increased in the case of combination.
Section 8.2 Stock Dividends and Distributions. In case
the Company shall pay a dividend in, or make a distribution of, shares of Common
Stock or of the Company's capital stock convertible into Common Stock to which
all holders of Common Stock are entitled to participate, the Exercise Price
shall forthwith be proportionately decreased. An adjustment made pursuant to
this Section 8.2 shall be made as of the record date for the subject stock
dividend or distribution.
Section 8.3 Adjustment in Number of Securities. Upon each
adjustment of the Exercise Price pursuant to the provisions of this Section 8,
the number of Warrant Securities issuable upon the exercise at the adjusted
exercise price of each Warrant shall
13
<PAGE>
be adjusted to the nearest whole number by multiplying a number equal to the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Securities issuable upon exercise of the Warrants immediately prior to
such adjustment and dividing the product so obtained by the adjusted Exercise
Price.
Section 8.4 Definition of Common Stock. For the purpose
of this Agreement, the term "Common Stock" shall mean (i) the class of stock
designated as Common Stock in the Certificate of Incorporation of the Company as
may be amended as of the date hereof, or (ii) any other class of stock resulting
from successive changes or reclassifications of such Common Stock consisting
solely of changes in par value, or from par value to no par value, or from no
par value to par value.
Section 8.5 Merger or Consolidation. In case of any
consolidation of the Company with, or merger of the Company with, or merger of
the Company into, another corporation (other than a consolidation or merger
which does not result in any reclassification or change of the outstanding
Common Stock), the corporation formed by such consolidation or merger shall
execute and deliver to the Holders a supplemental warrant agreement providing
that the holder of each Warrant then outstanding or to be outstanding shall have
the right thereafter (until the expiration of such Warrant) to receive, upon
exercise of such Warrant, the kind and amount of shares of stock and other
securities and property receivable upon such consolidation or merger, by a
holder of the number of shares of Common Stock of the Company for which such
Warrant might have been exercised immediately prior to such consolidation,
merger, sale or transfer. Such supplemental warrant agreement shall provide for
adjustments which shall be identical to the adjustments provided in this Section
8. The above provision of this subsection shall similarly apply to successive
consolidations or mergers.
Section 8.6 No Adjustment of Exercise Price in Certain Cases.
No adjustment of the Exercise Price shall be made:
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<PAGE>
If the amount of said adjustment shall be
less than two cents (2(cent)) per Warrant Security, provided,
however, that in such case any adjustment that would otherwise
be required then to be made shall be carried forward and shall
be made at the time of and together with the next subsequent
adjustment which, together with any adjustment so carried
forward, shall amount to at least two cents (2(cent)) per
Warrant Security.
Section 9. Exchange and Replacement of Warrant Certificates.
Each Warrant Certificate is exchangeable without expense, upon the surrender
thereof by the registered Holders at the principal executive office of the
Company, for a new Warrant Certificate of like tenor and date representing in
the aggregate the right to purchase the same number of Warrant Securities in
such denominations as shall be designated by the Holders thereof at the time of
such surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the Warrants, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
Section 10. Elimination of Fractional Interests. The Company
shall not be required to issue certificates representing fractions of shares of
Common Stock upon the exercise of the Warrants, nor shall it be required to
issue scrip or pay cash in lieu of fractional interests, it being the intent of
the parties that all fractional interests shall be eliminated by rounding any
fraction up to the nearest whole number of shares of Common Stock or other
securities, properties or rights.
15
<PAGE>
Section 11. Reservation and Listing of Securities. The Company
shall at all times reserve and keep available out of its authorized shares of
Common Stock, solely for the purpose of issuance upon the exercise of the
Warrants, such number of shares of Common Stock or other securities, properties
or rights as shall be issuable upon the exercise thereof. The Company covenants
and agrees that, upon exercise of the Warrants and payment of the Exercise Price
therefor, all shares of Common Stock and other securities issuable upon such
exercise shall be duly and validly issued, fully paid, non-assessable and not
subject to the preemptive rights of any stockholder. As long as the Warrants
shall be outstanding, the Company shall use its best efforts to cause all shares
of Common Stock issuable upon the exercise of the Warrants to be listed (subject
to official notice of issuance) on all securities exchanges on which the Common
Stock issued to the public in connection herewith may then be listed and/or
quoted.
Section 12. Notices to Warrant Holders. Nothing contained in
this Agreement shall be construed as conferring upon the Holders the right to
vote or to consent or to receive notice as a stockholder in respect of any
meetings of stockholders for the election of directors or any other matter, or
as having any rights whatsoever as a stockholder of the Company. If, however, at
any time prior to the expiration of the Warrants and their exercise, any of the
following events shall occur:
(i) the Company shall take a record of the holders of
its shares of Common Stock for the purpose of entitling them
to receive a dividend or distribution payable otherwise than
in cash, or a cash dividend or distribution payable otherwise
than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the
books of the Company; or
(ii) the Company shall offer to all the holders of its
Common Stock any additional shares of capital stock of the
Company or securities convertible
16
<PAGE>
into or exchangeable for shares of capital stock of the
Company, or any option, right or warrant to subscribe
therefor; or
(iii) a dissolution, liquidation or winding up of the
Company (other than in connection with a consolidation or
merger) or a sale of all or substantially all of its property,
assets and business as an entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend, or the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
SECTION 13. Notices.
All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made and
sent when delivered, or mailed by registered or certified mail, return receipt
requested:
(i) If to the registered Holders of the Warrants, to
the address of such Holders as shown on the books of the
Company; or (ii) If to the Company, to the address set forth
in Section 3 hereof or to such other address as the Company
may designate by notice to the Holders.
SECTION 14. Supplements and Amendments. The Company and the
Representatives may from time to time supplement or amend this Agreement without
the
17
<PAGE>
approval of any Holders of Warrant Certificates (other than the Representatives)
in order to cure any ambiguity, to correct or supplement any provision contained
herein which may be defective or inconsistent with any provisions herein, or to
make any other provisions in regard to matters or questions arising hereunder
which the Company and the Representatives may deem necessary or desirable and
which the Company and the Representatives deem shall not adversely affect the
interests of the Holders of Warrant Certificates.
SECTION 15. Successors. All the covenants and provisions of
this Agreement shall be binding upon and inure to the benefit of the Company,
the Holders and their respective successors and assigns hereunder.
SECTION 16. Termination. This Agreement shall terminate at
the close of business on _____________, 2006. Notwithstanding the foregoing, the
indemnification provisions of Section 7 shall survive such termination until the
close of business on ______________, 2012.
SECTION 17. Governing Law; Submission to Jurisdiction. This
Agreement and each Warrant Certificate issued hereunder shall be deemed to be a
contract made under the laws of the State of New York and for all purposes shall
be construed in accordance with the laws of said State without giving effect to
the rules of said State governing the conflicts of laws.
The Company, the Representatives and the Holders hereby agree
that any action, proceeding or claim against it arising out of, or relating in
any way to, this Agreement shall be brought and enforced in the courts of the
State of New York or of the United States of America for the Southern District
of New York, and irrevocably submits to such jurisdiction, which jurisdiction
shall be exclusive. The Company, the Representatives and the Holders hereby
irrevocably waive any objection to such exclusive jurisdiction or inconvenient
forum. Any such process or summons to be served upon any of the Company, the
Representatives and the Holders (at the option of the party bringing such
action, proceeding or claim) may be served by
18
<PAGE>
transmitting a copy thereof, by registered or certified mail, return receipt
requested, postage prepaid, addressed to it at the address set forth in Section
13 hereof. Such mailing shall be deemed personal service and shall be legal and
binding upon the party so served in any action, proceeding or claim. The
Company, the Representatives and the Holders agree that the prevailing
party(ies) in any such action or proceeding shall be entitled to recover from
the other party(ies) all of its/their reasonable legal costs and expenses
relating to such action or proceeding and/or incurred in connection with the
preparation therefor.
SECTION 18. Entire Agreement; Modification. This Agreement
(including the Underwriting Agreement to the extent portions thereof are
referred to herein) contains the entire understanding between the parties hereto
with respect to the subject matter hereof and may not be modified or amended
except by a writing duly signed by the party against whom enforcement of the
modification or amendment is sought.
SECTION 19. Severability. If any provision of this Agreement
shall be held to be invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provision of this Agreement.
SECTION 20. Captions. The caption headings of the Sections of
this Agreement are for convenience of reference only and are not intended, nor
should they be construed as, a part of this Agreement and shall be given no
substantive effect.
SECTION 21. Benefits of this Agreement. Nothing in this
Agreement shall be construed to give to any person or corporation other than the
Company and the Representatives and any other registered Holders of the Warrant
Certificates or Warrant Securities any legal or equitable right, remedy or claim
under this Agreement; and this Agreement shall be for the sole benefit of the
Company and the Representatives and any other registered Holders of Warrant
Certificates or Warrant Securities.
19
<PAGE>
SECTION 22. Counterparts. This Agreement may be executed in
any number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and such counterparts shall together constitute but
one and the same instrument.
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
b2bstores.com Inc.
By:
--------------------------------
Name:
Title:
GAINES, BERLAND INC.
By:
---------------------------------
Name:
Title:
NOLAN SECURITIES CORP.
By:
---------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY
SIMILAR RULE UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii)
AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO
COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS
AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, ______________, 2005
No. W-___ Warrants to Purchase ____ Shares of Common Stock
WARRANT CERTIFICATE
This Warrant Certificate certifies that , or registered
assigns, is the registered holder of ________Warrants to purchase initially, at
any time from ___________, 2001 [one year from the effective date of the
Registration Statement] until 5:30 p.m. New York time on ____________, 2005
[five years from the effective date of the Registration Statement] ("Expiration
Date"), up to __________ fully-paid and non-assessable shares of common stock,
("Common Stock") of b2bstores.com Inc., a Delaware corporation (the "Company"),
(one share of Common Stock referred to individually as a "Security" and
collectively as the "Securities") at the initial exercise price, subject to
adjustment in certain events (the "Exercise Price"), of $____ per share [165% of
the initial public offering price per share] of Common Stock upon surrender of
this Warrant Certificate and payment of the Exercise Price at an office or
agency of the Company, but subject to the conditions set forth herein and in the
warrant agreement dated as of ______________, 2000 between the Company and
GAINES, BERLAND INC. and NOLAN SECURITIES CORP. (the "Warrant Agreement").
Payment of the Exercise Price shall be made by certified or official bank check
in New York Clearing House funds payable to the order of the Company.
No Warrant may be exercised after 5:30 p.m., New York time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, hereby shall thereafter be void.
<PAGE>
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants issued pursuant to the Warrant Agreement,
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the Holders (the words "holder" or "Holders" meaning the registered
holder or registered Holders) of the Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the rights
of the holder as set forth in the Warrant Agreement.
The Warrants evidenced by this Warrant Certificate are
restricted from sale, assignment or hypothecation for a period of one (1) year
from the effective date of the offering except to officers or partners (not
directors) of the underwriter and members of the selling group and/or their
officers or partners.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax or
other governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced
by this Certificate, the Company shall forthwith issue to the holder hereof a
new Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered Holders hereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and of any distribution to the Holders hereof, and for
all other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined
in the Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated as of ___________, 2000
b2bstores.com Inc.
By:
--------------------------------
Name:
Title:
[SEAL]
Attest:
---------------------
Secretary
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase:
_______ shares of Common Stock;
and herewith tenders in payment for such securities a certified or official bank
check payable in New York Clearing House Funds to the order of b2bstores.com
Inc. in the amount of $____, all in accordance with the terms of Section 3.1 of
the Representatives' Warrant Agreement dated as of ______________, 2000 between
b2bstores.com Inc. and Gaines, Berland Inc. and Nolan Securities Corp. The
undersigned requests that a certificate for such securities be registered in the
name of _________ whose address is ________ and that such Certificate be
delivered to _________ whose address is _________.
Dated:
Signature
-----------------------------------
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
--------------------------------------------
(Insert Social Security or Other Identifying
Number of Holder)
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase:
__________ shares of Common Stock;
and herewith tenders in payment for such securities ________ Warrants all in
accordance with the terms of Section 3.2 of the Representatives' Warrant
Agreement dated as of ___________, 2000 between b2bstores.com Inc. and Gaines,
Berland Inc. and Nolan Securities Corp. The undersigned requests that a
certificate for such securities be registered in the name of __________whose
address is __________ and that such Certificate be delivered to _________ whose
address is ________________.
Dated:
Signature
-----------------------------------
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
--------------------------------------------
(Insert Social Security or Other Identifying
Number of Holder)
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED __________ hereby sells, assigns and transfers unto
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint Attorney, to transfer the
within Warrant Certificate on the books of the within-named Company, with full
power of substitution.
Dated:
Signature
-----------------------------------
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
--------------------------------------------
(Insert Social Security or Other Identifying
Number of Holder)
<PAGE>
AMENDED AND RESTATED
PROMISSORY NOTE
Dated: January 15, 2000
The Promissory Note dated July 1, 1999 is hereby amended and restated to
read as follows:
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) March 1, 2000 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;
<PAGE>
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.
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.
2
<PAGE>
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:___________________________
3
<PAGE>
SCHEDULE TO PROMISSORY NOTE
Maker: b2bstores.com Inc. Date of Amended and Restated Note: November 15, 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
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
November 5, 1999 50,000 Mark Voorhis
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
November 10, 1999 100,000 Mark Voorhis
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
November 24, 1999 200,000 Mark Voorhis
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
December 10, 1999 170,000 Mark Voorhis
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
December 23, 1999 125,000 Mark Voorhis
- --------------------------------------------------------------------------------
4
<PAGE>
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 January 7, 2000 except for notes 3
and 5 which are as of January 20, 2000 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
January 24, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the audited
financial statements of b2bstores.com Inc., as of December 31, 1999 and for the
period from June 28, 1999 (inception) to December 31, 1999, and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 2-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUN-28-1999
<PERIOD-END> DEC-31-1999
<CASH> 72,629
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 111,544
<PP&E> 362,874
<DEPRECIATION> 0
<TOTAL-ASSETS> 815,581
<CURRENT-LIABILITIES> 991,888
<BONDS> 0
0
0
<COMMON> 37,401
<OTHER-SE> (213,708)
<TOTAL-LIABILITY-AND-EQUITY> 815,581
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 2,930,237
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,930,237)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,930,237)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,930,237)
<EPS-BASIC> (0.81)
<EPS-DILUTED> (0.81)
</TABLE>
