<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 6, 1997
REGISTRATION NO. 333-35579
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
DYNAMICWEB ENTERPRISES, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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<S> <C> <C>
NEW JERSEY 7372 22-2267658
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
DYNAMICWEB ENTERPRISES, INC.
271 ROUTE 46 WEST
BUILDING F, SUITE 209
FAIRFIELD, NEW JERSEY 07004
(973) 244-1000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
STEVEN L. VANECHANOS, JR.
CHIEF EXECUTIVE OFFICER
DYNAMICWEB ENTERPRISES, INC.
271 ROUTE 46 WEST
BUILDING F, SUITE 209
FAIRFIELD, NEW JERSEY 07004
(973) 244-1000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
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STEPHEN F. RITNER, ESQUIRE JAMES M. JENKINS, ESQUIRE
SCOTT H. SPENCER, ESQUIRE CRAIG S. WITTLIN, ESQUIRE
STEVENS & LEE HARTER, SECREST & EMERY
ONE GLENHARDIE CORPORATE CENTER 700 MIDTOWN TOWER
1275 DRUMMERS LANE ROCHESTER, NEW YORK 14604-2070
P.O. BOX 236 (716) 232-6500
WAYNE, PENNSYLVANIA 19087
(610) 964-1480
</TABLE>
------------------------
Approximate date of commencement of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
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 registration statement filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434
please check the following box. [X]
CALCULATION OF REGISTRATION FEE
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==================================================================================================================
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(2) PER UNIT(2) PRICE(2) FEE
- ------------------------------------------------------------------------------------------------------------------
Common Stock, $.0001 par value........ 2,012,500 shares(1) $4.00 per share(2) $8,050,000(2) $2,439.40
- ------------------------------------------------------------------------------------------------------------------
Common Stock, $.0001 par value........ 175,000 shares(3) $4.80 per share(2) $840,000(2) $254.55
- ------------------------------------------------------------------------------------------------------------------
Warrant to Purchase Common Stock,
$.0001
par value per share................. One Warrant(4) $10 per warrant $10 --
==================================================================================================================
</TABLE>
(1) Based upon the maximum number of shares of the Registrant's Common Stock
that may be issued under this Registration Statement, including 262,500
shares of Common Stock that may be issued to cover over-allotments, if any.
(2) Estimated pursuant to Rule 457(a) solely for purposes of calculating the
Registration Fee.
(3) Reflects the shares issuable to H.J. Meyers & Co. Inc., the Representative
of the Underwriters, pursuant to the Representative's Warrant. See
"UNDERWRITING."
(4) To be issued to H.J. Meyers & Co., Inc., the Representative of the
Underwriters.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
================================================================================
<PAGE> 2
CROSS REFERENCE TABLE
LOCATION IN PROSPECTUS OF
INFORMATION REQUIRED BY PART I OF FORM SB-2
<TABLE>
<CAPTION>
ITEM NO. CAPTION LOCATION IN PROSPECTUS
- -------- -------------------------------------------- -----------------------------------------
<C> <S> <C>
1 Front of the Registration Statement and Outside Front Cover Page
Outside Front Cover Page of Prospectus
2 Inside Front and Outside Back Cover Pages of Inside Front Cover Page and Outside Back
Prospectus Cover Pages, Additional Information
3 Summary Information and Risk Factors Prospectus Summary, The Company, Risk
Factors
4 Use of Proceeds Use of Proceeds
5 Determination of Offering Price Underwriting
6 Dilution Dilution
7 Selling Security Holders Not Applicable
8 Plan of Distribution Underwriting
9 Legal Proceedings Business
10 Directors, Executive Officers, Promoters and Management
Control Persons
11 Security Ownership of Certain Beneficial Principal Stockholders
Owners and Management
12 Description of Securities Description of Securities
13 Interests of Named Experts and Counsel Not Applicable
14 Disclosure of Commission Position on Management
Indemnification for Securities Act
Liabilities
15 Organization Within Last Five Years Not Applicable
16 Description of Business Business
17 Management's Discussion and Analysis or Plan Management's Discussion and Analysis of
of Operation Financial Condition and Results of
Operations
18 Description of Property Business
19 Certain Relationships and Related Certain Transactions
Transactions
20 Market for Common Equity and Related Market for Common Stock and Related
Transactions Stockholder Matters, Dividend Policy,
Description of Capital Stock
21 Executive Compensation Management
22 Financial Statements Index to Consolidated Financial
Statements
23 Changes in and Disagreements with Not Applicable
Accountants on Accounting and Financial
Disclosure
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED NOVEMBER , 1997
PRELIMINARY PROSPECTUS
[LOGO GOES HERE]
DYNAMICWEB ENTERPRISES, INC.
1,750,000 SHARES OF COMMON STOCK
$ PER SHARE
DynamicWeb Enterprises, Inc., a New Jersey corporation (the "Company" or
"DynamicWeb"), hereby offers 1,750,000 shares (the "Shares") of its common
stock, $.0001 par value per share (the "Common Stock"). See "DESCRIPTION OF
SECURITIES."
Prior to this Offering, there has been a limited public market for the
Common Stock, and no assurance can be given that a public market will develop
or, if developed, that it will be sustained. The Company intends to apply for
listing of the shares of Common Stock offered hereby on the National Association
of Securities Dealers, Inc.'s Automated Quotation System ("NASDAQ") SmallCap
Market System under the symbol "DWEB."
It is currently estimated that the initial public offering price for the
Common Stock will be $4.00 per share. The offering price of the Common Stock
will be determined by negotiation between the Company and H.J. Meyers & Co.,
Inc., the representative (the "Representative") of the several underwriters (the
"Underwriters") and is not related to the Company's asset value or any other
established criterion of value. For the method of determining the public
offering price of the Common Stock, see "RISK FACTORS" and "UNDERWRITING."
------------------------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A SUBSTANTIAL
DEGREE OF RISK. PERSONS WHO PURCHASE THESE SECURITIES WILL INCUR IMMEDIATE AND
SUBSTANTIAL DILUTION. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE
FACTORS SET FORTH UNDER "RISK FACTORS," AT PAGE 6.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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=========================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- ---------------------------------------------------------------------------------------------------------
Per Share..................... $ $ $
- ---------------------------------------------------------------------------------------------------------
Total Share(3)................ $ $ $
=========================================================================================================
</TABLE>
(1) Does not reflect additional compensation to be received by the
Representative in the form of (a) a non-accountable expense allowance of
$ (or $ if the Underwriters' over-allotment option described in
Footnote (3) is exercised in full) and other compensation payable to the
Representative, and (b) warrants to purchase up to 175,000 shares of Common
Stock at a purchase price of $ per share (that being 120% of the initial
public offering price, exercisable over a period of four years, commencing
one year from the date of this Prospectus (the "Representative's Warrant").
In addition, the Company has agreed to indemnify the Underwriters against
certain civil liabilities under the Securities Act of 1933, as amended (the
"Securities Act"). See "UNDERWRITING."
(2) Before deducting additional expenses of the Offering payable by the Company,
estimated at $718,000, excluding the Representative's non-accountable
expense allowance.
(3) The Company has granted the Underwriters an option, exercisable within 45
days, to purchase up to an additional 262,500 shares of Common Stock on the
same terms and conditions as set forth above, solely to cover
overallotments, if any. If the overallotment option is exercised in full,
the total "Price to Public," "Underwriting Discount," and "Proceeds to
Company" will be $ , $ , and $ , respectively. See
"UNDERWRITING."
The shares are being offered on a "firm commitment basis" by the
Underwriters, when, as, and if delivered to and accepted by the Underwriters and
subject to prior sale, withdrawal or cancellation of the offer without notice.
It is expected that delivery of certificates representing the shares of Common
Stock will be made at the offices of H. J. Meyers & Co., Inc., 1895 Mount Hope
Avenue, Rochester, New York 19620, on or about , 1997.
H. J. MEYERS & CO., INC.
The date of this Prospectus is , 1997.
<PAGE> 4
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SHARES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED THROUGH THE NATIONAL ASSOCIATION OF SECURITIES
DEALERS AUTOMATED QUOTATION SYSTEM SMALL CAP MARKET, OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. (FOR A DESCRIPTION,
SEE "UNDERWRITING.")
<PAGE> 5
PROSPECTUS SUMMARY
The following information does not purport to be complete and is qualified
in its entirety by and should be read in conjunction with the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Prospective investors should consider carefully
the factors discussed below under "Risk Factors." Unless otherwise indicated,
the information in this Prospectus does not give effect to the issuance of (i)
up to 297,367 shares of Common Stock which may be issuable to a certain
shareholder as a result of the acquisition by the Company of all of the stock of
Software Associates, Inc. in the event certain conditions are met (See "CERTAIN
TRANSACTIONS"); (ii) up to 175,000 shares of Common Stock which are issuable
upon the exercise of the Representative's Warrant in connection with this
Offering (See "UNDERWRITING"); (iii) up to 262,500 shares of Common Stock
issuable in this Offering to cover over-allotments, if any (See "UNDERWRITING");
(iv) up to 234,764 shares issuable to employees under the Company's 1997
Employee Stock Option Plan (See "MANAGEMENT -- Stock Option Plans"); or (v) up
to 78,254 shares issuable to non-employee directors under the Company's 1997
Stock Option Plan for Outside Directors (See "MANAGEMENT -- Stock Option
Plans").
Except for the description of historical facts contained herein, this
Prospectus and the Exhibits attached hereto contain certain forward-looking
statements within the meaning of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. Reference is made in particular to the
descriptions of the Company's plans and objectives for future operations,
assumptions underlying such plans and objectives and other forward-looking
statements included in this Prospectus under "Use of Proceeds," "Business" and
"Risk Factors." Such statements are based on management's current expectations
and are subject to a number of factors and uncertainties which could cause
actual results to differ materially from those described in such forward-looking
statements. Factors which could cause such results to differ materially from
those described in the forward-looking statements include those set forth under
"RISK FACTORS" below.
THE COMPANY
The Company is engaged in the business of developing, marketing and
supporting Year 2000-compliant software products and services that enable
businesses to engage in electronic commerce utilizing the Internet and
traditional Electronic Data Interchange ("EDI") technologies.
Electronic commerce ("EC") involves the automation of business transactions
using telecommunications and computers to exchange and process commercial
information and transactional documents. As broadly defined, electronic commerce
is generally considered by information technology industry analysts to represent
a growing, potentially multi-billion dollar market. EDI, a form of EC, is the
application-to-application transmission of business documents such as purchase
orders and invoices using industry-standard formats. Businesses utilizing
electronic commerce have found EDI to be a vital component of their enterprises.
EDI differs from more elementary forms of communication because it provides for
truly integrated information flow. For example, manufacturers of goods can
create electronic catalogues of their products and prices such that their
customers will have the ability to electronically enter purchase orders and
complete the purchase, payment and other documentation of a purchase
transaction. The Internet is a worldwide communications system that allows users
to transmit and receive messages and information over telephone and other
communications lines using terminals and computers.
Electronic commerce has traditionally involved the use of a third-party or
private value-added computer network ("VAN") to perform EDI, e-mail, and
electronic funds transfers and to provide services related to electronic forms,
bulletin board and electronic catalogues. Users of private or third-party VANs
may also have access through the VAN to directories or on-line information
services. A VAN is, in effect, an electronic post office which electronically
receives and delivers mail, in this case commercial documents, to the intended
recipient. The major operators of VANs include Harbinger Corporation, GEIS,
Sterling Commerce, IBM/Advantis, MCI, AT&T and Kleinschmidt. The Company's
products and services work with all major VAN providers.
1
<PAGE> 6
EDI can create commercial advantages for its users, including one-time data
entry, reduced clerical workload and the elimination of paper records. EDI also
allows for the rapid, accurate and secure exchange of business data, and reduced
operating and inventory carrying costs. EDI facilitates uniform communications
with different trading partners, including customers, suppliers, common
carriers, and banks or other financial institutions.
The Company's present business strategy is to focus upon the following
types of markets and customers:
- EDI-enabled suppliers of goods, such as manufacturers, that want to
engage in electronic commerce with customers which are not EDI-enabled.
- EDI-enabled purchasers, such as retailers or distributors of goods, that
want to engage in electronic commerce with suppliers which are not
EDI-enabled.
- Any businesses that want to engage outside service providers to manage or
to assist in the management of their EDI function ("EDI outsourcing").
- Businesses or groups of businesses that want to create "electronic
storefronts" for goods and services on the "World Wide Web." The World
Wide Web or "Web" is a series of computers called servers, which allow
individuals, groups and businesses to publish and exchange information
over the Internet to the general public.
The Company has four principal software and service packages for the
markets and customers described above:
ECBRIDGENET SERVICE(SM) -- ECbridgeNET is the Company's electronic commerce
service bureau. ECbridgeNET is a service provided by the Company that
allows for the transfer of information between trading partners. The
service includes EDI mapping and the translation and routing of business
documents between third party EDI (VAN) networks, the Internet and the
private computer networks maintained by the parties to the business
transaction. Generally referred to as "EDI outsourcing," this service
offers businesses cost-effective alternatives to investing in an in-house
EDI System.
EDIXCHANGE PROGRAM(SM) -- The Company's EDIxchange Program is a combination
of ECbridgeNET service and NetCat(TM) software. NetCat is the Company's
software program which allows a seller of goods to create an electronic
catalogue on the World Wide Web to offer and sell products electronically.
NetCat allows a customer to browse through the catalogue, to place an
order, and to be billed for, or to pay for, the order. The EDIxchange
Program provides a seamless and cost effective way for EDI-enabled
suppliers or retailers to conduct electronic commerce with their non-EDI
trading partners. EDIxchange bridges the Internet with traditional EDI
networks such as VANs by using the Company's service bureau, ECbridgeNET.
This product allows businesses which do not have in-house EDI capability to
communicate electronically with EDI-enabled business partners, using only
Internet access and a standard Web browser. A Web browser, such as Netscape
or Internet Explorer, allows Internet users to access various Web Sites on
the Internet.
SHIPTRAC(TM) -- ShipTrac is the Company's Windows-based software
application designed for manufacturers and suppliers of goods. It
electronically creates a shipping manifest or list of products that are
being shipped to a particular customer or distribution center. The ShipTrac
software receives an electronic purchase order into a database, and the
shipper then can print bar-coded shipping compliance labels. ShipTrac
generates EDI-standard advanced shipping notice documents (the "manifest")
which are sent electronically to a supplier's customers. When the goods are
received, the bar codes on the products can be verified against the
advanced shipping notice which has been electronically forwarded by
ShipTrac.
2
<PAGE> 7
ECINTEGRATOR(TM) -- The Company has developed application interface modules
for two third party mid-range accounting software systems, RealWorld and
Synchronics. Designed for businesses using those systems, EC Integrator
allows a business to import and export business documents electronically
from those software applications. Generally, the Company sells this product
through distributors of Real World and Synchronics software.
As of November 1, 1997, the Company's EDIxchange customers include Linens
N' Things (an EDI-enabled purchaser), and Great American Knitting Mills, makers
of Goldtoe socks, and ICXpress (both EDI-enabled sellers). Customers using the
Company's ECbridgeNET Service include Church & Dwight, manufacturers of Arm &
Hammer baking soda, Royal Dalton, makers of fine china, and Kings Supermarket, a
supermarket chain located in the Northeast United States.
The Company was initially incorporated in the State of New Jersey on July
26, 1979 under the name Seahawk Oil International, Inc. The Company's executive
offices are located at 271 Route 46 West, Building F, Suite 209, Fairfield, New
Jersey 07004 and its telephone number is (973) 244-1000.
The discussion of the Company in this Prospectus relates to the combined
operations of the Company's present subsidiaries: DynamicWeb Transaction
Systems, Inc. ("DWTS") and Megascore, Inc. ("Megascore"), for all periods
presented, and Software Associates, Inc. ("Software Associates") (which was
acquired by the Company on November 30, 1996) from December 1, 1996. For a
description of the prior history of the Company, including discontinued
operations, see "BUSINESS -- Background of the Company."
THE OFFERING
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<S> <C>
Securities Offered by the Company......... 1,750,000 shares of Common Stock.
Shares of Common Stock Presently
Outstanding, Net of Treasury Stock...... 2,074,710 shares (1)
Shares of Common Stock to be Outstanding
After Offering, Net of Treasury Stock... 3,824,710 shares (1)
Use of Proceeds........................... The net proceeds of the Offering will be used for
selling and marketing expenses; the support of
its technical operations; purchase or lease of
capital equipment; repayment of indebtedness; and
working capital and general corporate purposes.
See "USE OF PROCEEDS."
Proposed NASDAQ Small Cap Market Symbol... DWEB
</TABLE>
- ---------------
(1) Excludes (a) up to 297,367 shares of Common Stock which may be issuable to a
certain shareholder as a result of the acquisition by the Company of
Software Associates, Inc. (See "CERTAIN TRANSACTIONS"); (b) up to 175,000
shares of Common Stock which are issuable upon the exercise of warrants
granted to the Representatives in connection with this Offering (See
"UNDERWRITING"); (c) up to 262,500 shares of Common Stock issuable in this
Offering to cover over-allotments, if any (See "UNDERWRITING"); (d) up to
234,764 shares issuable to employees under the Company's 1997 Employee Stock
Option Plan (See "MANAGEMENT -- Stock Option Plans"); or (e) up to 78,254
shares issuable to non-employee directors under the Company's 1997 Stock
Option Plan for Outside Directors (See "MANAGEMENT -- Stock Option Plans").
Includes an additional 74,760 shares of Common Stock issued on October 31,
1997 in respect of the April 1997 Financing and 66,660 shares of Common
Stock issued on October 31, 1997 in respect of the August 1997 Financing,
and also reflects 66,660 shares contributed to the Company and held as
Treasury Stock. See "INTERIM FINANCINGS."
3
<PAGE> 8
RECENT DEVELOPMENTS
INTERIM FINANCINGS
On April 30, 1997, the Company completed a $600,000 private placement in
which H.J. Meyers & Co., Inc., the Representative, acted as the Company's
placement agent on a "best efforts" basis (the "April 1997 Financing"). That
private placement involved the sale of 24 units, each consisting of a
subordinated unsecured 8% promissory note of the Company having a principal
amount of $25,000 and 3,115 shares of Common Stock. Also, on August 27, 1997,
the Company completed a $500,000 private placement in which H.J. Meyers & Co.,
Inc. acted as placement agent on a "best efforts" basis (the "August 1997
Financing"). The August 1997 Financing involved the sale of 20 units, each
consisting of a subordinated unsecured 8% promissory note of the Company with a
principal amount of $25,000 and 3,333 shares of Common Stock. See "INTERIM
FINANCINGS."
REVERSE STOCK SPLIT
At the Company's Annual Meeting held on June 12, 1997, the Company's
shareholders approved an Amendment and Restatement of the Company's Certificate
of Incorporation (the "Amendment and Restatement") which, among other things,
effected a 0.2608491-for-one reverse stock split of the Company's Common Stock
(the "Reverse Stock Split"). The Amendment and Restatement was filed with the
New Jersey Secretary of State and became effective on November , 1997.
Pursuant to the Reverse Stock Split, each share of Common Stock outstanding on
the filing date was converted into 0.2608491 of one share, except that no
fractional shares were issued and shareholders who would otherwise have received
a fractional share as a result of the Reverse Stock Split received cash in lieu
thereof. Unless otherwise noted, all references to the Company's Common Stock
contained in this Prospectus give effect to the Reverse Stock Split.
The effect of the Reverse Stock Split on the aggregate number of shares of
the Common Stock as of the effective date of the reverse split is set forth in
the table below.
<TABLE>
<CAPTION>
PRIOR TO AFTER
REVERSE STOCK SPLIT REVERSE STOCK SPLIT
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Number of Shares of Common Stock:
Authorized............................................ 50,000,000 50,000,000
Issued and Outstanding................................ 7,953,917 2,074,710
Available for issuance................................ 42,046,083 47,925,290
Par value per share................................... $0.0001 $0.0001
</TABLE>
Effect on the Market for the Common Stock. At the time of the Reverse Stock
Split, the Common Stock was quoted on the National Association of Securities
Dealers ("NASD") Over-The-Counter ("OTC") Bulletin Board Service. The bid price
of the Common Stock on November , 1997, immediately prior to the Reverse Stock
Split, was $ ; and the bid price of the Common Stock on November ,
1997, the date after the Reverse Stock Split, was $ . See "MARKET FOR
COMMON STOCK AND RELATED STOCKHOLDER MATTERS."
4
<PAGE> 9
SUMMARY FINANCIAL INFORMATION
[The following table sets forth selected consolidated financial data of the
Company. The Statement of Operations Data for the two years ended September 30,
1997, and the Balance Sheet Data as of September 30, 1997 have been derived from
the Company's Financial Statements, which have been audited by Richard A. Eisner
& Company, LLP, independent auditors, whose report thereon is included elsewhere
in this Prospectus.] [To be issued when 1997 audit is completed. All 1997
figures presented are unaudited as of filing of Amendment No. 1.]
[To be removed upon filing of audited statements] [The selected
consolidated financial data as at and for the year ended September 30, 1997, are
derived from the unaudited Consolidated Financial Statements of the Company. In
the opinion of management, the unaudited Consolidated Financial Statements have
been prepared on the same basis as the audited Consolidated Financial Statements
and include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the financial position and results of
operations for such period.]
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-------------------------
1997 1996
---------- ----------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues.......................................................... $ 637,177 $ 460,067
Cost of sales and services........................................ 253,503 152,399
Other expenses.................................................... 2,056,494 748,433
Purchased research and development................................ 713,710 --
Net (loss)........................................................ (3,129,803) (455,230)
Net (loss) per share(1)........................................... (1.58) (.27)
Weighted average number of common shares outstanding(1)........... 1,984,507 1,667,202
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------------------
ACTUAL AS ADJUSTED(2)(3)
----------- -----------------
<S> <C> <C>
BALANCE SHEET DATA
Working capital (deficit).................................... $(1,043,923) 4,407,419
Total assets................................................. 887,716 5,517,431
Short-term debt.............................................. 990,010 7,925
Long-term debt............................................... 185,811 185,811
Total liabilities............................................ 1,539,167 581,131
Accumulated deficit.......................................... (3,544,989) (3,855,489)
Stockholders' equity (capital deficiency).................... (651,451) 4,620,349
</TABLE>
- ---------------
(1) Gives retroactive effect to the .2608491-for-one Reverse Stock Split, which
took effect November , 1997. See Note J[5] to the Company's Financial
Statements and "RECENT DEVELOPMENTS."
(2) Reflects subsequent borrowings of $72,851 from the Company's available
credit lines and expected repayment of $97,000 from this Offering.
(3) Gives effect to the sale of the Common Stock offered hereby, including the
anticipated application of the estimated net proceeds and the repayment of
certain indebtedness. See "USE OF PROCEEDS."
5
<PAGE> 10
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk and should not be made by persons who cannot afford the loss of their
entire investment. Prospective investors, prior to making an investment
decision, should consider carefully, in addition to the other information
contained in this Prospectus (including the financial statements and notes
thereto), the following factors. This Prospectus contains, in addition to
historical information, forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially. Factors
that could cause or contribute to such differences include, but are not limited
to, those discussed below, as well as those discussed elsewhere in this
Prospectus.
Continuous Net Losses; Auditors' Report Going Concern Considerations. The
Company has only a limited operating history upon which an evaluation of the
Company and its prospects can be based. The Company has incurred continuous and
substantial net losses. No assurance can be made that the Company will become
profitable in the near future, if at all. The Company's prospects are subject to
all of the risks encountered by a company in an early stage of development,
particularly in light of the uncertainties relating to the new and evolving
markets in which the Company intends to operate. To address these risks, the
Company must, among other things: further develop or acquire rights to
supporting software from third parties; commercially offer its services;
successfully implement its marketing strategy; respond to competitive
developments; attract, retain and motivate qualified personnel; and develop,
upgrade, and protect its technology. No assurance can be given that the Company
will succeed in addressing any or all of these issues; and the failure to do so
would have a material adverse effect on the Company's business, prospects,
financial condition and operating results. The auditors' opinion on the
Company's financial statements as of September 30, 1996, a copy of which is
attached to this Prospectus, calls attention to substantial doubts as to the
ability of the Company to continue as a going concern as of the date of those
financial statements. As of September 30, 1997, the Company had an accumulated
deficit of $3,544,989.
Anticipated Operating Losses. The Company anticipates realizing only
limited revenue for the foreseeable future. The Company's ability to generate
meaningful revenue thereafter is subject to substantial uncertainty. The Company
anticipates that its operating expenses will increase substantially in the
foreseeable future as it hires a substantial number of additional employees and
makes other significant expenditures to further develop its technology, increase
its marketing activities, create and expand the distribution channels for its
products and services, and broaden its customer support capabilities.
Accordingly, the Company expects to incur losses for the foreseeable future. No
assurance can be given that the Company's products and services will be
developed, marketed, expanded, or rendered successfully or on a timely basis, if
at all, or that the Company will be successful in obtaining market acceptance of
its products and services. No assurance can be given that the Company will ever
be able to achieve or sustain operating profitability.
Early Stage of Market Development; Unproven Acceptance of the Company's
Products and Services. The Company's products and services are designed to
facilitate electronic commerce. A major focus of the Company's products and
services is the Internet, which is a worldwide communications system that allows
computer users to transmit and receive messages and information over telephone
and other communications lines using terminals or computers. See "Dependence on
the Internet and on Internet Infrastructure Development" below. The market for
the Company's products and services is at an early stage of development, is
evolving rapidly, and is characterized by an increasing number of market
entrants who have introduced or are developing competing products and services.
As is typical for a new and rapidly evolving industry, demand and market
acceptance for recently introduced products and services are subject to a high
level of uncertainty. Market acceptance will depend, in large part, upon the
ability of the Company to demonstrate the advantages and cost effectiveness of
its products and services over existing products and services. There can be no
assurance that the Company will be able to market its products and services
successfully or that its current or future products and services will be
accepted in the marketplace. As a result of the Company's recent introduction of
its products and services into the market and their limited use to date, there
can be no assurance that the Company's products and services will achieve market
acceptance or will produce substantial revenues.
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Dependence on the Internet and on Internet Infrastructure Development. The
use of the Company's products and services is dependent upon the continued
development of an industry and infrastructure for providing Internet access and
carrying Internet traffic. The commercial market for products and services for
use with the Internet and the World Wide Web has only recently begun to develop.
The Internet may not prove to be a viable commercial marketplace or
communications network because of many factors, including inadequate development
of the necessary capacity, problems with reliability, lack of acceptable levels
of security, or lack of timely development of complementary products, such as
high speed modems. The Internet suffers from many problems related to
performance, reliability, congestion and delay. Customers may experience
frustration waiting for transactions to be processed. Consequently, they may
forego using the Company's products and services.
Further, there can be no assurance that the Internet will retain its
current pricing structure, which is generally flat-rate, independent of volume,
and independent of the time of day. Federal regulation of access fees to the
Internet may cause an increase in costs to the businesses utilizing the
Company's products and services.
The adoption of the Internet for commerce and as a means of communication,
particularly by those individuals and enterprises that historically have relied
upon traditional means of commerce and communication, will require a broad
acceptance of new methods of conducting business and exchanging information.
Enterprises that already have invested substantial resources in other methods of
conducting business may be reluctant or slow to adopt a new strategy that may
limit or compete with their existing business. Individuals with established
patterns of purchasing goods and services and effecting payments may be
reluctant to alter those patterns.
Thus far, significant commercial use of the Internet has not developed, in
part, because of the lack of security and verification processes. Although the
Company's products and services are compatible with existing and apparently
emerging security and verification products, there can be no assurance that
widespread commercial use of the Internet for electronic commerce will develop,
or that even if such use does develop, that the Company's products and services
will achieve market acceptance. If the Company's market fails to develop or
develops more slowly than expected, or if the infrastructure for the Internet is
not adequately developed, or if the Company's products and services do not
achieve market acceptance by a significant number of individuals and businesses,
the Company's business, financial condition, prospects and operating results
will be materially and adversely affected. See "BUSINESS -- Electronic Commerce
and Electronic Data Interchange" and "Risks Associated with Encryption
Technology."
Ability to Respond to Rapid Change. The Company's future success will
depend significantly on its ability to enhance its current products and services
and develop or acquire and market new products and services which keep pace with
technological developments and evolving industry standards as well as respond to
changes in customer needs. The market for EDI products and Internet software
products is characterized by rapidly changing technology, evolving industry
standards and customer demands, and frequent new product introductions and
enhancements. The Company will be required to manage effectively its strategic
position in a rapidly changing environment. There can be no assurance that the
Company will be successful in developing or acquiring product or service
enhancements or new products or services to address changing technologies and
customer requirements adequately, that it will introduce such products or
services on a timely basis, if at all, or that any such product or service
enhancements will be successful in the marketplace. The Company's delay or
failure to develop or acquire technological improvements or to adapt its
products or services to technological change would have a material adverse
effect on the Company's business, financial condition, prospects, and operating
results. The failure of the Company's management team to respond effectively to
and manage rapidly changing technological and business conditions as well as the
growth of its own business, should it occur, could have material adverse impact
on the Company's business, financial condition, prospects, and operating
results. See "Reliance on Limited Number of Products."
Need for Substantial Additional Capital. The Company presently believes
that the net proceeds of this Offering should be sufficient to permit the
Company to execute its present business plan. Whether the Company will generate
earnings and cash flows from its operations before these proceeds have been used
is
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uncertain. If the Company does not generate sufficient earnings and cash flow
from its operations before such time, the Company may have a need to raise
substantial additional capital. In particular, some of the Company's major
competitors have raised significant amounts of capital, and, even if the Company
achieves profitability, the Company may need, or want, to raise substantial
additional capital in order to be competitive. Without additional capital, the
Company may be forced to cease to operate. If any additional capital is raised
in equity offerings, the interests of investors who purchase the Common Stock in
this Offering may be diluted.
Control by Existing Management. As of November 1, 1997, the existing
management of the Company controls approximately 56% of the shares of Common
Stock eligible to vote and is therefore able to elect all of the members of the
Board of Directors and control the outcome of any issues which may be subject to
a vote of the Company's stockholders. After giving effect to this Offering,
existing management will control approximately 30% of the shares of Common Stock
eligible to vote.
Benefits of the Offering to Management. A portion of the net proceeds of
this Offering will be used to repay approximately $117,000 in short term
officers' loans made to the Company by Steve Vanechanos, Sr. and Steven L.
Vanechanos, Jr. and to repay approximately $97,000 expected to be owing under
the Company's bank lines of credit, which are personally guaranteed by Steve
Vanechanos, Sr., Steven L. Vanechanos, Jr., and Kenneth Konikowski. See "USE OF
PROCEEDS." In addition, portions of the net proceeds of the Offering will be
used to pay operating expenses of the Company, which will include the
compensation of Steve Vanechanos, Sr., Steven L. Vanechanos, Jr., Kenneth
Konikowski, and James Conners, the executive officers of the Company. See "USE
OF PROCEEDS" and "MANAGEMENT." Except for the repayment of the officers' loans
and the relief from the personal guarantees under the lines of credit, none of
the executive officers of the Company and none of the five percent shareholders
of the Company (See "PRINCIPAL STOCKHOLDERS"), will receive any special benefit
from this Offering other than their pro rata benefit as any other shareholder or
employee of the Company.
Uncertain Public Market for the Company's Common Stock. Upon completion of
this Offering, the Company intends to apply to list the Common Stock on the
NASDAQ Small Cap Market System. There can be no assurance that such listing will
be approved, or that a market for the Common Stock will develop or be sustained.
The investment community could show little or no interest in the Company in the
future. As a result, purchasers of the Company's securities may have difficulty
in selling such securities should they desire to do so. The Company's Common
Stock is currently traded on the NASD's OTC Bulletin Board Service. It is
substantially more difficult for investors to dispose of securities or to obtain
accurate quotations as to securities in the OTC Bulletin Board Service. If the
Company's Common Stock is approved for listing on the NASDAQ Small Cap Market
System, the Company will have to meet certain maintenance requirements for
continued listing. Such maintenance requirements include, among other things, a
minimum of $2,000,000 in net tangible assets and a minimum bid price of $1.00 on
the Company's Common Stock. Although the Company forecasts that it will be able
to meet the NASDAQ Small Cap Market System maintenance requirements, the Company
expects to continue to accrue substantial losses before profitability is
achieved, if such profitability is ever achieved. In the event the Company's net
tangible assets falls below $2,000,000, the bid price of the Company's Common
Stock falls below $1.00 per share or the Company is unable to meet NASDAQ's
other maintenance requirements, the Company's Common Stock could be delisted
from the NASDAQ Small Cap Market System. In the event the Company's Common Stock
is not approved for listing on the NASDAQ Small Cap Market System or the
Company's Common Stock is subsequently delisted from the NASDAQ Small Cap Market
System, the Company's Common Stock would continue to trade on the OTC Bulletin
Board Service.
Common Stock Eligible for Resale. Of the 3,824,710 shares of Common Stock
to be outstanding after the consummation of this Offering, over 1,807,000 shares
are "restricted securities" and under certain circumstances may be sold in
compliance with Rule 144 adopted under the Securities Act. Future sales of such
shares are likely to depress the market price of the Company's Common Stock.
Reliance on Limited Number of Products and Services. The Company expects
that substantially all of its revenues will be derived from its EDIxchange
product and service, its ECbridgeNet service, and (to a lesser extent) its
ECIntegrator product. If these products and services are not successful, whether
as a result of
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technological change, competition or any other factors, the Company's business,
financial condition, prospects and operating results will be adversely affected.
Although the Company is continuing to develop its existing products, it
presently has no plans to develop or produce additional products and services
for the foreseeable future. See "BUSINESS -- Introduction."
Technological Change. The market for the Company's proposed services is
characterized by rapidly changing technology and evolving industry standards.
The Company will likely be required to design, develop, test, introduce and
support new services and enhancements on a timely basis that meet changing
customer needs and respond to technological developments and emerging industry
standards. The Company's proposed services are now designed around certain
technical standards. While the Company intends to provide compatibility with the
standards promulgated by leading industry participants and groups, widespread
adoption of a proprietary or closed standard could preclude the Company from
effectively marketing or developing its products or services. No assurance can
be given that the Company will be able to respond to technological changes or
evolving industry standards in a timely manner, if at all; or that the standards
upon which the Company's services are or will be based will be accepted by the
industry. In addition, no assurance can be given that services or technologies
developed by others will not render the Company's services noncompetitive or
obsolete. In the event that services or technologies developed by others render
the services of the Company impracticable, noncompetitive or obsolete, or the
industry in which the Company hopes to compete develops and adopts a proprietary
standard to which the Company does not have access, or the Company is not able
to respond to technological developments or emerging industry standards, there
could be a material adverse effect on the Company's business, financial
condition, prospects and operating results.
Risks of Defects and Development Delays. The Company has not sold a
material amount of its services or products. Products and services based on
sophisticated software and computing systems often encounter development delays
and the underlying software most often contains undetected errors, bugs, or
failures when introduced or when the volume of services provided increases. The
Company may experience delays in the development of the software and computing
systems underlying the Company's proposed products and services. In addition,
there can be no assurance that, despite testing by the Company and potential
customers, errors will not be found in the underlying software, or that the
Company will not experience development delays, which could result in delays in
the market acceptance of its products and services and could have a material
adverse effect on the Company's business, financial condition, prospects and
operating results. See "BUSINESS -- Product Development."
Competition. The EC and EDI markets are intensely competitive and subject
to rapid technological change and evolving industry standards. The Company does
and will compete with many companies that have substantially greater financial,
marketing, technical and human resources than the Company. Among the principal
competitors in EDI and specifically in the delivery of EDI over the Internet
are, at present, Harbinger Corporation, Sterling Commerce, GEIS, Netscape, Actra
(which is a joint venture of GEIS and Netscape), Open Market, Premenos, Icat,
Interworld Technology Ventures, Elcom International, Broadvision, Connect, IBM,
Microsoft, EDS, and MCI, each of which has announced plans to design and develop
software products and to provide services that facilitate electronic commerce
over the Internet. Some of those competitors operate VANs. Several of these
companies utilize the same encryption technology from RSA that the Company
incorporates in its products. Virtually all of the Company's current and
potential competitors have longer operating histories, greater name recognition,
larger installed customer bases and significantly greater financial, technical
and marketing resources than the Company. Such competitors may be able to
undertake more extensive marketing campaigns, adopt more aggressive pricing
policies and make more attractive offers to potential customers. In addition,
many of the Company's current or potential competitors, such as Netscape,
Microsoft and AT&T, have broad distribution channels that may be used to bundle
competing products directly to end-users or purchasers. If such competitors were
to bundle products that compete with the Company for sale to their customers,
any demand the Company is able to create for its products and services may be
substantially reduced, and the ability of the Company to broaden the utilization
of its products and services would be substantially diminished. No assurance can
be given that the Company will be able to compete effectively with current or
future competitors or that such competition will not have a
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material adverse effect on the Company's business, financial condition,
prospects and operating results. See "BUSINESS -- Competition."
New Market Entrants. In addition to existing competitors, there are many
companies that may enter the market in the future with new technologies,
products and services that may be competitive with services offered or to be
offered by the Company. Because there are many potential entrants to the field,
many of which are likely to have substantially greater resources than the
Company, it is extremely difficult to assess which companies are likely to offer
competitive products and services in the future, and in some cases it is
difficult to discern whether an existing product or service is competitive with
the Company's services. The Company expects competition to persist and intensify
in the future. It should be noted that companies that historically have produced
text, audio, video, graphics, art and animation ("multimedia" companies), and
companies that historically have owned various forms of communication media such
as cable, broadcasting, and telecommunications ("cross-media" companies) are
encroaching upon and entering into each other's historic businesses. This may
signal a further expansion by those integrated companies into the EDI and
related fields. If the market becomes congested with competition, the Company
may not be able to compete effectively in its intended marketplace.
Dependence on Third-Party Intellectual Property Rights. The Company
currently licenses certain proprietary and patented technology from third
parties. Most of the Company's planned services incorporating data encryption
and authentication is based on proprietary software of RSA Data Security
("RSA"). The RSA software is incorporated in certain other software licensed to
the Company from Community Connexion related to the Web server utilized by the
Company. The RSA software is available on a non-exclusive basis. No assurance
can be given that the encryption software presently available to the Company
will continue to be available to the Company on commercially reasonable terms,
or at all. Additionally, there is no assurance that if a new encryption
technology develops, that it will be available to the Company on commercially
acceptable terms, if at all.
The Company also licenses Cybercash software, which is credit card
verification software, on a non-exclusive basis. No assurance can be given that
Cybercash will continue to be available to the Company on commercially
reasonable terms, if at all. The lack of availability of credit card
verification software could have a material adverse effect on the Company's
business, financial condition, prospects, and operating results.
No assurance can be given that the Company's third party licenses will
continue to be available to the Company on commercially reasonable terms, if at
all. The Company bears the risk that all third party technology supplied to the
Company is actually owned by the party supplying the technology and does not
infringe upon the rights of others. Any threat of infringement or
misappropriation against these third parties may in turn cause substantial
interference with the Company's right to utilize that technology. The loss of or
inability to maintain any of those software licenses could result in delays in
introduction of the Company's products and services until equivalent software,
if available, is identified, licensed and integrated into the Company's planned
services, which could have a material adverse effect on the Company's business,
financial condition, prospects and operating results. See
"BUSINESS -- Intellectual Property Rights."
Because certain of the Company's products incorporate software developed
and maintained by third parties, the Company is dependent upon such third
parties' ability to enhance their current products, to develop new products on a
timely and cost-effective basis and to respond to emerging industry standards
and other technological changes. There can be no assurance that the Company
would be able to replace the functionality provided by the third party software
currently offered in conjunction with the Company's products in the event that
such software becomes obsolete or incompatible with future versions of the
Company's products or is otherwise not adequately maintained or updated. The
absence of or any significant delay in the replacement of that functionality
could have a material adverse effect on the Company's business, financial
condition, prospects and operating results. See "BUSINESS -- Competitive
Strategy."
Reliance on PERL. The Company's proprietary software is written in
Practical Extraction and Reporting Language ("PERL"), which is the computer
programming language utilized for Internet applications. Because the Internet is
not controlled or supervised by any one person or group, the evolution and
continued utilization of PERL cannot be controlled or predicted. Changes in or
the elimination of PERL could cause the
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Company to have to assume responsibility for support and development of PERL,
which could have a material adverse effect on the Company's business, financial
condition, prospects, and operating results.
Dependence on Distribution and Marketing Relationships. The Company has few
sales and marketing employees and does not have established distribution
channels for its services. In order to generate substantial revenue, the Company
must achieve broad distribution of its services to businesses and individuals
and secure general adoption of its services and technology. A key element of the
Company's current business and its future business strategy is to maintain and
develop relationships with leading companies that market software products and
EDI-related services.
The Company has entered into value added-reseller ("VAR"), distribution,
co-marketing and other agreements with a number of companies. See
"BUSINESS -- Sales and Marketing." Many of these agreements are nonexclusive,
and many of the companies with which the Company has agreements also have
similar agreements with the Company's competitors or potential competitors.
Those agreements do not require the distributors to purchase minimum quantities.
The Company believes that its success in penetrating markets for its EDI
products and services depends in large part on its ability to maintain these
relationships, to add the Company's EDIxchange products and services to such
arrangements, to cultivate additional relationships and to cultivate alternative
relationships if distribution channels change. There can be no assurance that
the Company's VAR partners, distributors or co-marketers will not develop and
market products in competition with the Company in the future, discontinue their
relationships with the Company or form additional competing arrangements with
the Company's competitors, all of which could have a material adverse effect on
the Company's ability to successfully compete. See "BUSINESS -- Sales and
Marketing."
Dependence on Intellectual Property Rights; Risk of Infringement. The
Company's success and ability to compete are dependent in part upon its
proprietary technology relating to its NetCat software. The Company has applied
for a patent with the United States Patent and Trademark Office covering that
software, but to date no patent has been granted. There can be no assurance that
the applied-for patent will be granted, or, if granted, will be effective to
protect the Company's rights in its NetCat technology. The Company's patent, if
issued by the United States Patent and Trademark Office, would offer no
protection outside of the United States. The Company's patent, if issued, may be
subsequently challenged. If the patent is challenged the counsel and other fees
in defending the patent, together with loss of management's time, could be
substantial. Those adverse consequences also could occur with respect to the
trademarks, trade secrets, or other intellectual property rights of the Company.
In addition, the software and electronic commerce industries are
characterized by the existence of a large number of patents, and litigation
based on allegations of patent infringement is common. From time to time, third
parties may assert exclusive patent, copyright, trademark and other intellectual
property rights to technologies that are important to the Company. Although the
Company believes that it is not infringing on the rights of any third parties,
there can be no assurance that third parties will not assert infringement claims
against the Company, that any such assertion of infringement will not result in
litigation or that the Company would prevail in such litigation or be able to
license any valid and infringed patents of third parties on commercially
reasonable terms. See "BUSINESS -- Proprietary Information."
Risks Associated with Encryption Technology. A significant barrier to
Internet commerce are the problems and risks associated with exchanging
financial information securely over public networks. The Company relies on
encryption and authentication technology licensed from third parties to provide
the security and authentication necessary to effect the secure exchange of
financial information over the Internet, including public key cryptography
technology licensed from RSA. No assurance can be given that advances in
computer capabilities, new discoveries in the field of cryptography or other
events or developments will not result in a compromise or breach of the RSA
cryptography technology or other algorithms used by the Company to protect
customer transaction data. If any such compromise of the Company's security were
to occur, it could have a material adverse effect on the Company's business,
financial condition, prospects and operating results. In addition, no assurance
can be given that existing security systems of others will not be penetrated or
breached, which could have a material adverse effect on the market acceptance of
Internet security services,
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which in turn could have a material and adverse effect on the Company's
business, financial condition, prospects and operating results.
Liability and Availability of Insurance. The Company is responsible for the
electronic transmission of commercial transaction data for its customers,
including, but not limited to, purchase orders, payments, invoices, and advance
ship notices. If the Company were unable to fulfill its contractual obligations
to its customers, whether due to failure of its software, to failure of the
Internet, EDI or telecommunications services to function properly, to failure of
its employees, contractors, agents or representatives, or for any other reason,
the Company could be subject to claims for the value of the lost business to its
customers. The liability could be substantial. If the Company incurs substantial
liability to its customers due to its breach, it may materially and adversely
affect the Company's ability to complete its plan of operation. The Company's
standard agreements with its customers contain provisions which attempt to limit
the liability of the Company for such matters, including the customer's lost
data, lost profits, or other incidental or consequential damages arising out of,
or in connection with, the customer's use or inability to use the Company's
software or services, or the negligence of the Company. In addition, in May,
1997 the Company purchased general liability and professional liability
insurance policies that are intended to cover the foregoing liabilities. The
general liability policy provides coverage of $1 million per claim and $2
million in the aggregate; and the Company has an additional $1 million umbrella
liability policy. The professional liability policy provides coverage of $1
million per claim and $1 million in the aggregate. The Company intends to
maintain such coverage and to evaluate increasing it from time to time, subject
to availability on commercially reasonable terms.
Fluctuating Results; Cyclical Business. The Company's future revenues and
operating results may fluctuate materially as a result of, among other things,
the timing of the introduction of, or enhancements to, the Company's products
and services, demand for the Company's products and services, the timing of
introduction of products or services by the Company's competitors, market
acceptance of Internet commerce, the timing and rate at which the Company
increases its expenses to support projected growth, the budgeting and purchasing
practices of its customers, the length of the customer product evaluation
process for the Company's products, the size and timing of customer orders,
competitive conditions in the industry, and other factors inherent in a new,
developing business. Fluctuations in revenues and operating results may cause
volatility in the Company's stock price. See "Possible Volatility of Stock
Price."
Dependence Upon Key Personnel. The Company's success will depend in part
upon the retention of
key senior management and technical personnel, particularly Steven L.
Vanechanos, Jr., co-founder of
the Company and Chairman of the Board, James D. Conners, President of the
Company, and Kenneth R. Konikowski, Executive Vice President of the Company. The
loss of the services of any of the Company's key personnel could have a material
adverse effect on the Company's business, prospects, financial condition and
operating results. The Company has a policy that all of the Company's employees
must sign confidentiality agreements, and that certain of its employees also
sign non-competition agreements. The Company presently maintains key man life
insurance on Steven L. Vanechanos, Jr. in the amount of $3,000,000. There can be
no assurance that the Company will be able or willing to continue to maintain
such insurance at present coverage levels.
Ability to Attract Qualified Personnel. The Company believes that its
future success also depends upon its ability to attract and retain additional
highly skilled technical, professional services, management and sales and
marketing personnel. The market for skilled computer programmers and other
technically skilled employees is highly competitive and other companies with
greater resources can provide higher salaries and greater benefits. To attract
quality personnel, the Company may be required to offer Common Stock or stock
options, which will dilute investors' interests. The market for these
individuals has historically been, and the Company expects that it will continue
to be, intensely competitive. The Company's inability to attract and retain
qualified employees could have a material adverse effect on the Company's
business, financial condition, prospects, and operating results.
Management of Growth. If the Company experiences a period of rapid growth,
a significant strain may be placed on the Company's financial, management and
other resources. The Company's future performance will depend in part on its
ability to manage change in its operations and will require the Company to hire
additional management and technical personnel, particularly in areas of
marketing and customer support. In
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addition, the Company's ability to manage its growth effectively will require it
to continue to improve its operational and financial control systems and
infrastructure and management information systems, and to attract, train,
motivate, manage and retain key employees. If the Company's management were
unable to manage growth effectively, there could be a material adverse effect on
the Company's business, financial condition, prospects, and operating results.
Ability to Issue Blank Check Preferred Stock; New Jersey Anti-Takeover
Provisions. Under the Company's Certificate of Incorporation, the Board of
Directors has the authority to issue up to 5,000,000 shares of preferred stock
and to determine the price, rights, preferences and privileges of those shares
without any further vote or action by the stockholders. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any preferred stock that may be issued in the
future. The issuance of shares of preferred stock, while potentially providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of the outstanding voting stock of the
Company. The Company has no present intention to issue shares of preferred
stock. In addition, the Company has, pursuant to the Underwriting Agreement,
agreed with the Representative that the Company will not sell or otherwise issue
any shares of preferred stock for two years following this Offering, without the
Representative's prior written consent.
In addition, the Company is subject to the anti-takeover provisions of the
New Jersey Shareholder Protection Act, which, among other things, prohibits it
from engaging in a "business combination" with an "interested stockholder" for a
period of five years after the date of the transaction in which the person
became an interested stockholder (the "Stock Acquisition Date"), unless the
business combination is approved by the Company's Board of Directors prior to
the Stock Acquisition Date. The application of such Act also could have the
effect of delaying or preventing a change in control of the Company.
Furthermore, certain provisions of the Certificate of Incorporation and the
Company's Bylaws, including provisions that provide for the Board of Directors
to be divided into three classes to serve for staggered three-year terms, as
well as certain contractual provisions, could limit the price that certain
investors might be willing to pay in the future for shares of the Common Stock
and may have the effect of delaying or preventing a change in control of the
Company. These provisions may also reduce the likelihood of an acquisition of
the Company at a premium price by another person or entity.
Government Regulation and Legal Uncertainties. The Company is not currently
subject to direct regulation by any federal or state governmental agency, other
than regulations applicable to businesses generally. The laws generally
applicable to business will also be applicable to doing business over the
Internet. Laws relating to advertising, buying and selling goods and services,
contracts, payments, privacy, obscenity, defamation, taxation, export controls,
unfair competition and deceptive trade practices, among other things, will
likely apply to online activities as well, and numerous criminal statutes may
apply. There are currently few laws or regulations directly applicable to access
to, or commerce on, the Internet. If the Internet becomes more generally
accepted, it is possible that a number of laws and regulations may be adopted
with respect to the Internet. Such laws may address user privacy, pricing and
characteristics and quality of products and services, among other things. The
adoption of any laws or regulations governing commerce on the Internet may
result in decreased growth or use of the Internet, which could have an adverse
effect on the Company's business, financial condition, prospects and operating
results. Moreover, the applicability to the Internet of existing laws governing
issues such as property ownership, libel and personal privacy is uncertain.
Possible Volatility of Stock Price. The market price of the Company's
Common Stock is likely to be highly volatile and could be subject to wide
fluctuations in response to quarterly variations in operating results,
announcements of technological innovations or new software or services by the
Company or its competitors, changes in financial estimates by securities
analysts, or other events or factors, many of which are beyond the Company's
control. In addition, the stock market has experienced significant price and
volume fluctuations that have particularly affected the market prices of equity
securities of many high technology companies and that often have been unrelated
to the operating performance of such companies. These broad market fluctuations
may adversely affect the market price of the Company's Common Stock. In the
past, following periods of volatility in the market price for a company's
securities, securities class action litigation has often been instituted. Such
litigation could result in substantial costs and a diversion of management
attention and
13
<PAGE> 18
resources, which could have a material adverse effect on the Company's business,
financial condition, prospects or operating results.
Substantial Options Reserved. Under the Company's 1997 Employee Stock
Option Plan, the Company may issue options to purchase up to an aggregate of
234,764 shares of Common Stock to employees and officers, and, as of the date of
this Prospectus, options to purchase 203,392 shares have been granted under that
plan. Further, under the Company's Stock Option Plan for Outside Directors, the
Company may issue options to purchase up to an aggregate of 78,254 shares of
Common Stock to its outside directors, including certain mandatory grants, and,
as of the date of this Prospectus, options to purchase 15,648 shares have been
granted under that plan. The exercise of such options may further dilute the net
tangible book value of the Common Stock and an investor's interest in the
Company. Further, the holders of such options may exercise them at a time when
the Company would otherwise be able to obtain additional equity capital on terms
more favorable to the Company.
Difficulty of Trading "Penny Stocks." The Company's Common Stock may be
subject to rules that impose additional sales practice requirements on
broker-dealers who sell lower-priced securities to persons other than
established customers (as defined in such rules) and accredited investors
(generally, institutions and, for individuals, an investor with assets in excess
of $1,000,000 or annual income exceeding $200,000 or $300,000 together with such
investor's spouse). For transactions covered by these rules, the broker-dealer
must make a special suitability determination for the purchaser and must have
received the purchaser's written consent to the transaction prior to the
purchase. Consequently, many brokers may be unwilling to engage in transactions
in the Company's securities because of the added disclosure requirements,
thereby making it more difficult for purchasers in this Offering to resell the
Common Stock in the secondary market.
Dilution. This Offering involves immediate and substantial dilution of
$2.82 per share (or 70.5%) between the net tangible book value per share of
Common Stock after this Offering and the per share public offering price. Based
upon the public offering price, new investors in this Offering will be paying $7
million, or $4.00 per share, for approximately 46% of the shares of the Common
Stock to be outstanding after completion of this Offering, for a corporation
with a net tangible book value of approximately $4,515,208, or $1.18 per share,
after giving effect to this Offering. See "DILUTION." Also, the Company has a
contingent obligation to issue up to 297,367 additional shares to one of its
shareholders in connection with the Company's previous acquisition of Software
Associates. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -- Acquisition
of Software Associates and Megascore."
Non-Cash Charges to Earnings. The Company intends to use a portion of the
net proceeds of this Offering to repay its outstanding indebtedness from its
April 1997 Financing and its August 1997 Financing. Because those financings
involve a material amount of debt discount and deferred financing fees, the
Company has amortized and charged to operations $720,000 through September 30,
1997, and will incur approximately $310,500 of additional non-cash expense
through the date of, and upon the repayment of, those financings. See "INTERIM
FINANCINGS."
Broad Discretion in Use of Proceeds. Management of the Company has broad
discretion to utilize the proceeds of this Offering, and the
presently-anticipated uses may be materially changed, in management's
discretion. For example, management could elect to utilize proceeds to pursue a
significant acquisition opportunity, should one arise, or could shift
expenditures among the marketing, technical operations, and purchase or lease of
capital equipment or software categories to respond to market needs and
opportunities or other needs of the Company which arise in the future. See "USE
OF PROCEEDS."
Arbitrary Determination of Offering Price; Possible Volatility of Stock
Price. The initial public offering price and terms of the Common Stock have been
determined by negotiation between the Company and the Underwriter and are not
necessarily related to the Company's asset value, net worth or results of
operation. One consideration in determining the initial public offering price
was the recent public trading price of the Common Stock, reflecting the effect
of the Reverse Stock Split. The market prices for securities of development
stage companies have historically been highly volatile. Future announcements
concerning the Company or its competitors, including the results of testing,
technological innovations, new commercial products, developments concerning
proprietary rights or litigation may have a significant impact on the market
price of the Company's securities. See "UNDERWRITING."
14
<PAGE> 19
USE OF PROCEEDS
Based upon an assumed initial public offering price of $4.00 per share, the
net proceeds to be received by the Company from the sale of the Common Stock
offered hereby, after deducting underwriting commissions and other estimated
expenses of the Offering are estimated to be approximately $5,582,000
($6,495,500 if the Underwriters' overallotment option is exercised in full). The
Company intends to use the net proceeds of the Offering approximately as
follows:
<TABLE>
<CAPTION>
AMOUNT PERCENTAGE
---------- ----------
<S> <C> <C>
Selling and Marketing.................................. $1,723,000 31%
Technical Operations................................... 1,343,000 24
Purchase or Lease of Equipment......................... 363,000 7
Repayment of Indebtedness.............................. 1,352,000 24
Working Capital........................................ 801,000 14
---------- ---
Totals....................................... $5,582,000 100%
========== ===
</TABLE>
In general, the Company plans to hire additional personnel in sales and in
technical operations in order to implement the Company's plan of expanding its
core EDI business. The salaries, benefits and other expenses associated with the
Company's present employees and those additional employees are expected to cause
the Company to operate at a deficit on a monthly basis for approximately 24
months, at which time the Company's management believes that the Company's sales
should increase sufficiently to cover those expenses. The Company believes that
its current and anticipated future revenue should be sufficient to pay its
expected general and administrative expenses and a portion of its other
expenses. The Company has attributed its expected operating deficits to its
activities in sales and marketing and in technical operations; and a material
amount of the net proceeds of this Offering will be used to fund such deficits,
as described below.
SELLING AND MARKETING
The Company intends to use approximately $1,723,000 of the net proceeds of
the Offering to fund selling and marketing activities. Approximately $1,050,000
of that total will be used to fund the salaries and benefits of the Company's
marketing personnel including eight additional salespeople intended to be hired;
and the Company also intends to develop and implement an advertising program and
to attend trade shows and conventions. The Company expects to use approximately
$673,000 of the net proceeds for those costs. See "BUSINESS -- Selling and
Marketing."
TECHNICAL OPERATIONS
The Company intends to use approximately $1,343,000 of the net proceeds
from the Offering for the salaries and benefits for personnel involved in
technical operations, customer service, and research and development activities.
The Company intends to hire up to 11 new technical staff to provide ongoing
systems support and four new programmers to develop and enhance the Company's
software. A portion of the net proceeds attributed to technical operations will
also support the cost of the Company's existing technical staff. The Company has
budgeted $475,000 to complete five present product development initiatives. See
"BUSINESS -- Product Development."
PURCHASE OR LEASE OF CAPITAL EQUIPMENT AND SOFTWARE
The Company intends to use approximately $363,000 of the net proceeds of
the Offering to purchase or lease additional equipment and software, including
work stations for new hires ($53,000), computer servers for internal and
external use ($120,000), communications equipment ($72,000), software licenses
($61,000), and facilities management equipment ($57,000).
15
<PAGE> 20
REPAYMENT OF INDEBTEDNESS
The Company intends to use approximately $600,000 plus accrued interest of
approximately $28,000 of the proceeds from the Offering to repay the promissory
notes issued in the April 1997 Financing, and up to $500,000 plus accrued
interest of approximately $10,000 of the proceeds to repay the promissory notes
issued in the August 1997 Financing. See "INTERIM FINANCINGS." Further, the
Company intends to use approximately $117,000 to repay short-term loans made by
the officers of the Company, see "CERTAIN TRANSACTIONS -- Officer Loans," and
approximately $97,000 to repay amounts borrowed under its bank lines of credit.
The April 1997 Financing matures and is required to be repaid upon the
later of the consummation of this Offering or March 31, 1999. The effective
interest rate applicable to the April 1997 Financing is 191 percent. The net
proceeds of the April 1997 Financing were $492,000, and were used in the manner
described below under "INTERIM FINANCINGS." The August 1997 Financing matures
and is required to be repaid upon the later of the consummation of this Offering
or September 30, 1999. The effective interest rate applicable to the August 1997
Financing is 525 percent. The net proceeds of the August 1997 Financing were
$427,500, and were used in the manner described below under "INTERIM
FINANCINGS."
The officers' loans are payable on demand. The interest rate on all the
officers' loans is 8% per annum. The proceeds of the officers' loans were used
as follows: Approximately $105,000 was use to pay accounts payable,
approximately $7,000 was used for trade show expenses, and approximately $5,000
was used to purchase equipment and furniture.
The bank lines of credit are also payable on demand. The interest rates on
the lines of credit are 10.5% per annum and 13.25% per annum. The proceeds of
the advances under the lines of credit were used to pay payroll expenses. See
"INTERIM FINANCINGS."
WORKING CAPITAL
The Company intends to use $801,000 of the net proceeds for working capital
and general corporate purposes.
The allocation of the net proceeds of this Offering set forth above
represents the Company's best estimate based upon its present plans and certain
assumptions regarding general economic and industry conditions and the Company's
future revenues and expenditures. The Company reserves the right to reallocate
the proceeds within the above-described categories or to other purposes in
response to, among other things, changes in its plans, industry conditions, and
the Company's future revenues and expenditures. It is possible that a portion of
the net proceeds may also be used, in part, to fund strategic joint ventures or
acquisitions. The Company presently has no commitments with respect to any joint
venture or acquisition.
Based on the Company's operating plan, management believes that the
proceeds from this Offering and anticipated cash flow from operations will be
sufficient to meet the Company's anticipated cash needs and finance its plans
for expansion for at least 24 months from the date of this Prospectus.
Thereafter, the Company anticipates that it may require additional financing to
meet its current or future plans for expansion. No assurance can be given that
the Company will be successful in obtaining such financing on favorable terms,
or at all. If the Company is unable to obtain additional financing, its ability
to meet its current plans for expansion could be adversely affected. See "RISK
FACTORS -- Future Capital Needs; Uncertainty of Additional Financing."
Proceeds not immediately required for the purposes described above will be
invested principally in U.S. government securities, short-term certificates of
deposit, money market funds, collateralized investment agreements with
commercial banks or investment banks, or other high-grade, short-term,
interest-bearing investments.
16
<PAGE> 21
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
As of the date of this Prospectus, a portion of the Company's Common Stock
which is not restricted is traded on the National Association of Securities
Dealers ("NASD") Over the Counter ("OTC") Bulletin Board Service under the
symbol "DWEB."
The range of high and low bid quotations for the Company's Common Stock for
the two most recently completed fiscal years and the current fiscal year to date
were obtained from the NASD and are provided below. The volume of trading in the
Company's Common Stock has been limited and the bid prices reported may not be
indicative of the value of the Common Stock or the existence of an active
trading market. These over-the-counter market quotations reflect interdealer
prices without retail markup, markdown or commissions and do not necessarily
represent actual transactions. On November , 1997, the Company effectuated a
0.2608491-for-one Reverse Stock Split whereby each share of Common Stock became
0.2608491 of a share. The information in the table below has not been
retroactively adjusted on account of that combination of shares.
<TABLE>
<CAPTION>
BID
-----------------
QUARTER ENDED HIGH LOW
--------------------------------------------------------- ------ ------
<S> <C> <C>
December 31, 1995........................................ 0.01 0.01
March 31, 1996(1)........................................ 5 4 1/2
June 30, 1996............................................ 4 1/2 4 3/8
September 30, 1996....................................... 4 1/8 3 7/8
December 31, 1996........................................ 3 3/4 3
March 31, 1997........................................... 3 3/8 3 1/8
June 30, 1997............................................ 3 1/4 1 1/16
September 30, 1997(2).................................... 1 3/4 1
</TABLE>
- ---------------
(1) On March 5, 1996, the Company effectuated a one-for-100 reverse stock split
whereby each 100 shares of Common Stock were combined into one share of
Common Stock. The information in the above table which relates to the period
prior to March 5, 1996, was not retroactively adjusted to reflect that
combination of shares.
(2) On November , 1997, the Company effectuated the .2608491-for-one Reverse
Stock Split. The information in the above table was not retroactively
adjusted to reflect the Reverse Stock Split. The last bid price on
, 1997, after effectuation of the Reverse Stock Split, was
$ per share. See "RECENT DEVELOPMENTS -- Reverse Stock Split."
At November 1, 1997, there were 2,074,710 shares of the Company's common
stock outstanding, held by approximately 3,255 holders of record.
The Company did not declare or pay cash dividends on the Common Stock
during 1995 or 1996. The Company currently intends to retain any earnings for
use in the business and does not anticipate paying any cash dividends in the
foreseeable future.
17
<PAGE> 22
CAPITALIZATION
The table below sets forth the capitalization of the Company as of
September 30, 1997: (i) on an actual basis, and (ii) as adjusted to reflect the
sale and issuance of the Common Stock offered hereby at an assumed initial
offering price of $4.00 per share and the receipt of the estimated net proceeds
of this Offering as set forth in "USE OF PROCEEDS." The information set forth
below should be read in conjunction with the Company's financial statements and
notes thereto.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------------
ACTUAL AS ADJUSTED
----------- -----------
<S> <C> <C>
Long-term debt.................................................... $ 185,811 $ 185,811
----------- -----------
Stockholders' equity (capital deficiency):
Preferred stock, assignable par value, 5,000,000 shares
authorized; no shares issued and outstanding
Common Stock, $.0001 par value, 50,000,000 shares authorized;
2,141,370 issued and outstanding(1)(2);
as adjusted 3,891,370 issued and outstanding(1)(2)........... 214 389
Additional paid in capital...................................... 3,293,324 8,875,449
Accumulated deficit............................................. (3,508,989) (3,855,489)
----------- -----------
Total........................................................... (251,451) 5,020,349
Treasury stock, at cost -- 66,660 shares........................ (400,000) (400,000)
----------- -----------
Total stockholders' equity (capital deficiency)......... (651,451) 4,620,349
----------- -----------
Total capitalization.............................................. $ (465,640) $ 4,806,160
=========== ===========
</TABLE>
- ---------------
(1) Gives effect to the .2608491-for-one reverse stock split on November ,
1997.
(2) Excludes (a) up to 297,367 shares of Common Stock which may be issuable to a
certain shareholder as a result of the acquisition by the Company of
Software Associates, Inc. (See "CERTAIN TRANSACTIONS"); (b) up to 175,000
shares of Common Stock which are issuable upon the exercise of warrants
granted to the Representatives in connection with this Offering (See
"UNDERWRITING"); (c) up to 262,500 shares of Common Stock issuable in this
Offering to cover over-allotments, if any (See "UNDERWRITING"); (d) up to
234,764 shares issuable to employees under the Company's 1997 Employee Stock
Option Plan (See "MANAGEMENT -- Stock Option Plans"); or (e) up to 78,254
shares issuable to non-employee directors under the Company's 1997 Stock
Option Plan for Outside Directors (See "MANAGEMENT -- Stock Option Plans").
18
<PAGE> 23
DILUTION
At September 30, 1997, the negative net tangible book value of the Company
was approximately $(936,124) or $(.45) per share. Net tangible book value per
share represents the Company's total tangible assets less total liabilities
divided by the total number of shares of Common Stock outstanding. Net tangible
book value dilution per share represents the difference between the amount per
share paid by the purchasers of Common Stock in this Offering and the pro forma
net tangible book value per share of Common Stock immediately after completion
of this Offering. After giving effect to the sale by the Company of the
1,750,000 shares of Common Stock offered hereby, at the assumed initial public
offering price of $4.00 per share, and receipt by the Company of the estimated
net proceeds therefrom, the pro forma net tangible book value of the Company at
September 30, 1997, would have been approximately $4,515,208, or $1.18 per
share. This represents an immediate increase in net tangible book value of $1.63
per share to existing holders of Common Stock and an immediate dilution of $2.82
per share to purchasers of shares of Common Stock in this Offering, as
illustrated by the following:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share(1).................. $4.00
Negative net tangible book value per share at September 30, 1997.... $ (.45)
Increase per share attributable to this Offering.................... $ 1.63
------
Pro forma net tangible book value per share after this Offering..... $1.18
-----
Dilution per share to new investors(2).............................. $2.82
=====
</TABLE>
- ---------------
(1) Before deducting the estimated underwriting discounts, commissions and
expenses of this Offering.
(2) Excludes (a) up to 297,367 shares of Common Stock which may be issuable to a
certain shareholder as a result of the acquisition by the Company of
Software Associates, Inc. (See "CERTAIN TRANSACTIONS"); (b) up to 175,000
shares of Common Stock which are issuable upon the exercise of warrants
granted to the Representatives in connection with this Offering (See
"UNDERWRITING"); (c) up to 262,500 shares of Common Stock issuable in this
Offering to cover over-allotments, if any (See "UNDERWRITING"); (d) up to
234,764 shares issuable to employees under the Company's 1997 Employee Stock
Option Plan (See "MANAGEMENT -- Stock Option Plans"); or (e) up to 78,254
shares issuable to non-employee directors under the Company's 1997 Stock
Option Plan for Outside Directors (See "MANAGEMENT -- Stock Option Plans").
The above discussions and table assume no exercise of the over-allotment
option, the exercise of which in full would reduce the dilution to investors in
this Offering to $2.63 per share as the pro forma net tangible book value per
share after this Offering would increase from $1.18 to $1.37.
19
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with,
and is qualified in its entirety by, the Financial Statements and the Notes
thereto and the Selected Financial Data included in this Prospectus, and the
description of the Company's business located elsewhere in this Prospectus. This
discussion contains, in addition to historical information, forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from the results discussed in the forward-looking
statements. Factors that could cause or contribute to such differences include
those discussed in "RISK FACTORS" as well as those discussed elsewhere in this
Prospectus. Historical operating results and percentage relationships among any
amounts included in the Financial Statements are not necessarily indicative of
trends in operating results.
The following discussion relates to the combined operations of DWTS and
Megascore for all periods presented, plus Software Associates, Inc. which was
acquired by the Company on November 30, 1996 from December 1, 1996. See
"BUSINESS -- Background of the Company."
SUMMARY
The following table summarizes the Results of Operations of the Company
that are discussed below:
RESULT OF OPERATIONS
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 % 1996 %
----------------- ------ ----------------- ------
<S> <C> <C> <C> <C>
Net Sales:
Systems.............................................. 116,106 18.2% $ 147,337 32.0%
Services............................................. 521,071 81.8 312,730 68.0
--------- ------ --------- ------
Total................................................ 637,177 100.0 460,067 100.0
========= ====== ========= ======
Cost of Sales:
Systems.............................................. 40,323 6.3 71,205 15.5
Services............................................. 213,180 33.5 81,194 17.6
--------- ------ --------- ------
Total................................................ 253,503 39.8 152,399 33.1
--------- ------ --------- ------
Expenses:
Selling, general and administrative.................... 1,821,686 285.9 719,443 156.3
Research and development............................... 234,808 36.9 28,990 6.3
--------- ------ --------- ------
Total................................................ 2,056,494 322.8 748,433 162.6
--------- ------ --------- ------
Purchased research and development..................... 713,710 112.0 --
Interest expense....................................... 770,041 120.8 23,271 5.1
Interest income........................................ (5,068) (0.8) (8,806) (1.9)
--------- ------ --------- ------
Total expenses....................................... 3,788,680 594.6 915,237 198.9
====== ======
--------- ---------
Loss before income taxes............................... $(3,151,503) (494.6)% $(455,230) (98.9)%
========= ====== ========= ======
</TABLE>
- ---------------
* Expense percentages are based upon a percentage of Total Net Sales.
20
<PAGE> 25
MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATION
RESULTS OF OPERATION
THE YEAR ENDED SEPTEMBER 30, 1997 COMPARED TO THE YEAR ENDED SEPTEMBER 30, 1996
Net sales increased by $177,110, or 38%, from $460,067 for the fiscal year
ended September 30, 1996 ("fiscal 1996"), to $637,177 for the fiscal year ended
September 30, 1997 ("fiscal 1997"). The increase in net sales was attributable
primarily to sales of EDI outsourcing services offered through Software
Associates, which was acquired by the Company on November 30, 1996, as well as
to increased sales of the Company's EDI/Internet products and royalty payments
the Company received for licensing a propriety list of internet domain names.
Software Associates' EDI outsourcing revenues totaled $179,650. Net sales from
the Company's EDI/Internet products increased by $52,696 or 85% from $61,832 in
fiscal 1996 to $114,528 in fiscal 1997. The Company's royalty revenue was
$33,828 in fiscal 1997 compared to $13,963 in fiscal 1996.
Overall system sales declined $31,231, or 21%, from $147,337 in fiscal 1996
to $116,106 in fiscal year 1997. The decline was attributable to ongoing efforts
to migrate away from some of the Company's historical system integration and
software consulting activities and to focus on the Company's electronic commerce
services. Computer hardware and computer software sales associated with the
Company's system integration business declined by $47,943, or 53%. This decline
was offset by an increase of $21,712 in system sales associated with the
Company's EDI products.
Service sales increased $208,341 or 67%, from $312,730 in fiscal 1996 to
$521,071 in fiscal 1997. The increase was due largely to new revenues of
approximately $115,000 derived from transaction processing through the Company's
new EDI Service Bureau, additional revenues of $71,775 from EDIxchange and
ECbridgeNet, and $19,865 in increased royalty payments for licensing of the
Company's internet domain list.
Cost of system sales was $40,323 for fiscal 1997 for a gross profit
percentage of approximately 65%. This compares to cost of system sales of
$71,205 for a gross profit percentage of 51% for fiscal 1996. The increase in
gross profit percentage on system sales is attributable to sales of higher
margin customized EDI software as part of EDIxchange and ECbridgeNet.
Cost of services was $213,180 for fiscal 1997, for gross profit percentage
of approximately 59%. This compares to cost of services of approximately
$81,194, for a gross profit percentage of approximately 74% fiscal 1996. The
decrease in profit margins on service sales is attributable to increased costs
associated with the hiring of additional employees to increase the Company's
EDI/Internet capabilities, in anticipation of the growth in demand for the
Company's EDI/Internet services. These additional employees are two programmers
acquired through the purchase of Software Associates, and an additional
programmer and an operator for its EDI/Internet services hired in fiscal 1997.
Selling, general, and administrative expenses increased by $1,102,243, from
$719,443 for fiscal 1996 to $1,821,686 for fiscal 1997, an increase of
approximately 153%; $518,604 of the increase, or 47% is attributable to the
higher marketing expenses, salaries and office expenses associated with the
Company's increased effort to market its EDI/Internet services; $257,000, or 23%
of the increase is attributable to a charge for compensation expense in
connection with granting options to employees under the 1997 Employee Plan in
which the fair value of the stock exceeded the exercise price; $155,481, or 14%
of the increase is attributable to the overhead expenses associated with
maintaining eight new employees, $127,206, or 12% of the increase is
attributable to legal, accounting and consulting fees, and $43,952, or 4%, is
attributable to write off of non-performing receivables. The $518,604 increase
in marketing expenses is composed of the expansion of the Company's marketing
and sales staff by three employees, development of a marketing program with
assistance from outside consultants, attendance at nine trade shows, and
implementation of an outreach program consisting of public relations and
services directed at the electronic commerce community. Management expects the
outreach program to provide the Company with access and introductions to talent
and expertise within the electronic commerce community, with a goal of assisting
the Company in its marketing, recruiting, and operations. There is no assurance
that the outreach program will be successful.
21
<PAGE> 26
Research and development expense increased $205,818 or 710% for fiscal
1997, from $28,990 in fiscal 1996 to $234,808 in fiscal 1997. The increase is
attributable to expanded development of existing services and increased expenses
in the ongoing development of the Company's product development initiatives. See
"BUSINESS -- Product Development." The Company restructured its research and
development staff and hired three full time programmers in fiscal 1997 for its
software development program.
Purchased research and development for fiscal 1997 of $713,710 resulted
from the allocation of a portion of the purchase price for Software Associates.
Interest expense increased from $23,271 for fiscal 1996 to $770,041 for
fiscal 1997. The increase is primarily attributable to the amortization of debt
discount and deferred financing fees of $720,000 and interest expense of
$23,726. Both are related to the April and August 1997 financings.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1997, the Company had cash of $188,270, total current
assets of $318,521 and a working capital deficit of $1,043,923.
The Company had a net loss of $3,129,803 for the year ended September 30,
1997, and negative operating cash flow of $1,083,279 for that period. The
Company funded that negative cash flow exclusively through its financing
activities. Those consisted of a $250,000 private placement of common stock that
closed in November, 1996, the April 1997 Financing of $600,000, the August 1997
Financing of $500,000, loans from officers of $117,000, and loans under the
Company's two lines of credit of $14,049. The terms of the April 1997 Financing,
the August 1997 Financing, and the lines of credit are discussed below under
"INTERIM FINANCINGS." The terms of the officers' loans are discussed below under
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
The capital resources presently available to the Company includes
approximately $73,000 available under the Company's lines of credit. Those
resources are not adequate to finance the Company's activities beyond November,
1997. The Company needs capital to fund its operations, as fully set forth under
"USE OF PROCEEDS." As discussed under that caption, the Company believes that
the net proceeds of this Offering should be sufficient to support the
anticipated funding needs of the Company for approximately 24 months.
Accordingly, the Company believes that consummation of this Offering should be
sufficient to eliminate the doubt about the Company's ability to continue as a
going concern as expressed in the Company's financial statements for the year
ended September 30, 1997.
IMPACT OF INFLATION
Although no assurance can be given, increases in the inflation rate are not
expected to materially adversely affect the Company's business.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standings No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
issued by the Financial Accounting Standards Board ("FASB"), is effective for
financial statements for fiscal years beginning after December 15, 1995. The new
standard establishes new guidelines regarding when impairment losses on
long-lived assets, which include plant and equipment and certain identifiable
intangible assets and goodwill, should be recognized and how impairment losses
should be measured. The adoption of this standard did not have a material effect
on the Company's financial position or results of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." The Company has determined that it will continue to account for
stock-based compensation for employees under Accounting Principles Board Opinion
No. 25 and elect the disclosure-only alternative under SFAS No. 123. The Company
will be required to disclose the pro forma net income or loss and per share
amounts in the notes
22
<PAGE> 27
to the financial statements using the fair-value-based method beginning in the
year ending September 30, 1997. The Company has not determined the impact of
these pro forma adjustments.
In March 1997, the FASB issued SFAS No. 128, "Earnings per Share." SFAS No.
128 is effective for financial statements issued for periods ending after
December 15, 1997. It will replace primary earnings per share with "basic"
earnings per share, and contains definitions of "basic" and diluted earnings per
share. SFAS No. 128 will apply to the Company's financial statements beginning
with the first fiscal quarter ending December 31, 1997. The Company does not
expect the adoption of this standard to have a material effect on its
calculation of earnings per share.
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BUSINESS
BACKGROUND OF THE COMPANY
The Company is a New Jersey corporation. It currently operates through
three separate wholly-owned subsidiaries: DynamicWeb Transaction Systems, Inc.,
a Delaware corporation ("DWTS"), Software Associates, Inc., a New Jersey
corporation ("Software Associates"), and Megascore, Inc., a Delaware corporation
("Megascore"). Present management joined the Company on March 26, 1996, when the
Company acquired all of the outstanding stock of DWTS and began, through DWTS,
to engage in the computer and electronic commerce business.
The Company was incorporated in 1979 under the name Seahawk Oil
International, Inc. Based upon Company records available to present management
of the Company, it appears that the Company initially engaged, or attempted to
engage, in the oil exploration business. In November, 1989 the Company changed
its name to Seahawk Capital Corporation. According to the Company's public
filings with the Commission, during the period from approximately 1992 through
1994, the Company engaged in two activities: First, the Company, through a
subsidiary named Eurohawk Corporation, owned an interest in a business that was
primarily engaged in production and marketing of frozen potato products through
a processing facility located in Scotland. Second, the Company owned
approximately 73% of the stock of Seahawk Overseas Exploration Corporation. The
Company disposed of its stock in Seahawk Overseas Exploration Corporation on
December 31, 1994, and disposed of its stock in Eurohawk Corporation in February
of 1996. Upon the disposition of the Eurohawk Corporation stock in February of
1996, the Company had no business operations. Then, on March 26, 1996, the
Company acquired DWTS.
Because in March of 1996 the Company had no operations but was a
publicly-traded reporting company, Messrs. Vanechanos, who then controlled DWTS,
concluded it would be advantageous for DWTS to be acquired by the Company.
Although structured legally as an acquisition of DWTS by the Company, after the
acquisition the former DWTS shareholders owned approximately 80% of the
Company's Common Stock, the management of DWTS assumed exclusive control of the
Company's Board of Directors and executive offices, and the sole business of the
Company became that of DWTS.
Later in 1996, the new management of the Company decided it would be
advantageous to combine with Megascore. Megascore had an established business in
the accounting software field. Megascore, like DWTS, had been founded by Steve
Vanechanos, Sr. and Steven L. Vanechanos, Jr. and was controlled by them. It was
believed that the Megascore business would provide a foundation on which to
attempt to build the EC software business that now is the Company's primary
emphasis. Accordingly, in November 1996 the Company acquired all of the
outstanding stock of Megascore in exchange for the issuance of additional shares
of the Company's Common Stock to Megascore's shareholders.
At that same time, the Company became acquainted with the owner of Software
Associates, Kenneth Konikowski. Software Associates was actively conducting an
electronic commerce service bureau. Management believed that the business of
Software Associates would be a natural complement to the software
product -- NetCat -- that had been developed by DWTS. Accordingly, in November
1996 the Company acquired all of the outstanding stock of Software Associates in
exchange for the issuance of additional shares of the Company's Common Stock to
Kenneth Konikowski. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS -- Acquisition of Software Associates and Megascore" for additional
information regarding the terms of those acquisitions.
The description of the Company's business contained in this Prospectus
relates exclusively to the electronic commerce software and service business
conducted through DWTS, Software Associates, and Megascore. Further, the
financial information contained elsewhere in this Prospectus represents the
combined operations of DWTS and Megascore for all periods presented and those of
Software Associates (which was acquired by the Company on November 30, 1996)
from December 1, 1996. The basis for such presentation is discussed in Note A to
the Company's financial statements.
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INTRODUCTION
The Company is engaged in the business of developing, marketing and
supporting year 2000-compliant software products and services that enable
businesses to engage in electronic commerce utilizing the Internet and
traditional Electronic Data Interchange ("EDI") technologies.
Electronic commerce ("EC") involves the automation of business transactions
using telecommunications and computers to exchange and process commercial
information and transactional documents. As broadly defined, electronic commerce
is generally considered by information technology analysts to represent a
growing, potentially multi-billion dollar market. EDI, a form of EC, is the
application-to-application transmission of business documents such as purchase
orders and invoices using industry-standard formats. Businesses utilizing
electronic commerce have found EDI to be a vital component of their enterprises.
EDI differs from more elementary forms of communication because it provides for
truly integrated information flow. For example, manufacturers of goods can
create electronic catalogues of their products and prices such that their
customers will have the ability to electronically enter purchase orders and
complete the purchase, payment and other documentation of a purchase
transaction. The Internet is a worldwide communications system that allows users
to transmit and receive messages and information over telephone and other
communications lines using terminals and computers.
Electronic commerce has traditionally involved the use of a third-party or
private value-added computer network ("VAN") to perform EDI, e-mail, and
electronic funds transfers and to provide services related to electronic forms,
bulletin board and electronic catalogues. Users of private or third-party VANs
may also have access through the VAN to directories or on-line information
services. A VAN is, in effect, an electronic post office which electronically
receives and delivers mail, in this case commercial documents, to the intended
recipient. The major operators of VANs include Harbinger Corporation, GEIS,
Sterling Commerce, IBM/Advantis, MCI, AT&T and Kleinschmidt. The Company's
products and services work with all major VAN providers.
EDI can create commercial advantages for its users, including one-time data
entry, reduced clerical workload and the elimination of paper records. EDI also
allows for the rapid, accurate and secure exchange of business data, and reduced
operating and inventory carrying costs. EDI facilitates uniform communications
with different trading partners, including customers, suppliers, common
carriers, and banks or other financial institutions.
The Company's present business strategy is to focus upon the following
types of markets and customers:
- EDI-enabled suppliers of goods, such as manufacturers, that want to
engage in electronic commerce with customers which are not EDI-enabled.
- EDI-enabled purchasers, such as retailers or distributors of goods, that
want to engage in electronic commerce with suppliers which are not
EDI-enabled.
- Any businesses that want to engage outside service providers to manage
or to assist in the management of their EDI function ("EDI
outsourcing").
- Businesses or groups of businesses that want to create "electronic
storefronts" for goods and services on the "World Wide Web." The World
Wide Web or "Web" is a series of computers called servers, which allow
individuals, groups and businesses to publish and exchange information
over the Internet to the general public.
The Company has four principal software and service packages for the
markets and customers described above:
ECBRIDGENET SERVICE(SM) -- ECbridgeNET is the Company's electronic commerce
service bureau. ECbridgeNET is a service provided by the Company that
allows for the transfer of information between trading partners. The
service includes EDI mapping and the translation and routing of business
documents between third party EDI (VAN) networks, the Internet and the
private computer networks maintained by the parties to the business
transaction. Generally referred to as "EDI outsourcing," this service
offers businesses cost-effective alternatives to investing in an in-house
EDI System.
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EDIXCHANGE PROGRAM(SM) -- The Company's EDIxchange Program is a combination
of ECbridgeNET service and NetCat(TM) software. NetCat is the Company's
software program which allows a seller of goods to create an electronic
catalogue on the World Wide Web to offer and sell products electronically.
NetCat allows a customer to browse through the catalogue, to place an
order, and to be billed for, or to pay for, the order. The EDIxchange
Program provides a seamless and cost effective way for EDI-enabled
suppliers or retailers to conduct electronic commerce with their non-EDI
trading partners. EDIxchange bridges the Internet with traditional EDI
networks such as VANs by using the Company's service bureau, ECbridgeNET.
This product allows businesses which do not have in-house EDI capability to
communicate electronically with EDI-enabled business partners, using only
Internet access and a standard Web browser. A Web browser, such as Netscape
or Internet Explorer, allows Internet users to access various Web Sites on
the Internet.
SHIPTRAC(TM) -- ShipTrac is the Company's Windows-based software
application designed for manufacturers and suppliers of goods. It
electronically creates a shipping manifest or list of products that are
being shipped to a particular customer or distribution center. The ShipTrac
software receives an electronic purchase order into a database, and the
shipper then can print bar-coded shipping compliance labels. ShipTrac
generates EDI standard advanced shipping notice documents (the manifest)
which are sent electronically to a supplier's customers. When the goods are
received, the bar codes on the products can be verified against the
advanced shipping notice which has been electronically forwarded by
ShipTrac.
ECINTEGRATOR(TM) -- The Company has developed application interface modules
for two third party mid-range accounting software systems, RealWorld and
Synchronics. Designed for businesses using those systems, EC Integrator
allows a business to import and export business documents electronically
from those software applications. Generally, the Company sells this product
through distributors of Real World and Synchronics software.
All of the foregoing products and services currently have somewhat limited
applications and are continuing to be developed by the Company, although there
can be no assurance that such development will be successful. See "Product
Development."
OVERVIEW OF ELECTRONIC COMMERCE AND ELECTRONIC DATA INTERCHANGE
Trading Communities. Groups of companies that regularly trade with each
other generate significant repetitive business transactions. These existing
trading communities are natural prospects for implementation of EDI. Certain
trading communities are defined by trading standards, protocols, rules or
procedures adopted through trade organizations. The adoption of EDI as an
accepted means of transmitting business documents and data is occurring, in
part, because many trade organizations or groups and many large companies within
a trading community increasingly recommend or require their member organizations
or trading partners to adopt and use EDI as the primary method of transmitting
business documents. Large companies within a trading community often are
described as "hubs" and their trading partners as "spokes." A hub company and
its trading partners communicate through electronic networks, generally either
third party networks or a private network owned and operated by the hub company.
Hub companies decide to implement EDI generally for one or more of the following
reasons:
- To enable a reduction in inventories by reducing the time required to
notify vendors and replenish stocks.
- To reduce the administrative handling costs of documents that they send
or receive from their suppliers or customers by requiring that
information be manually entered only once.
- To improve customer support and service levels by reducing data entry
errors by requiring that information be manually entered only once.
For the above stated reasons, a hub company often adopts as a stated
business objective that all of its trading partners use EDI as the principal
means of transferring business documents. Spoke companies, in turn, often expand
the electronic commerce community by acting as hub companies with their trading
partners, requesting or requiring that they transmit business documents using
EDI.
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Typical EDI Transactions. In a typical EDI transaction, a trading partner
(the "sending partner") first creates with its computer, either manually or
electronically, the business data used for the completion of a particular set of
documents, described by EDI standards as a "transaction set." Transaction sets
include requests for quotes, quotes, purchase orders, invoices, shipping
notices, and other related documents and messages. Second, a translation
software program on the sending partner's computer converts the document or
transaction set into a standard EDI format. Third, this information is
electronically transmitted through telecommunications links from the sending
partner's computer to either the receiving partner's computer or to a central
computer system (similar to a mailbox at a post office) that serves as a
value-added network shared by many trading partners.
Value Added Networks. VANs receive documents for subsequent delivery to the
intended trading partner (the "receiving partner"), connect many types of
computer hardware and communications devices, convert multiple transaction sets
from one industry standard to another, and maintain security by reducing the
possibility of one trading partner accessing another's computer. EDI partners
use VAN services because it eases the burden of having to install and maintain
communication configurations for each trading partner. The connection to a VAN
is a single connection no matter how many trading partners the recipient has.
The VAN "normalizes" the issues of protocols, time zones, hardware and software
differences in that all participants in the EDI transaction do not need the same
software applications or hardware.
EDI Industry Standards. EDI has been further promoted through the adoption
of EDI standards within various industries and trading communities. These
standards define the content and format of business documents, such as the data
required to be included in purchase orders, invoices, shipping notices, and
other business documents. Before these standards were adopted, electronic
document transmission was based on various proprietary formats agreed to by
trading partners. However, incompatible computer systems and differing
proprietary formats limited widespread adoption of EDI.
Existing VAN Services. The Company does not operate a VAN and does not
intend to operate a VAN. The Company's products and services are designed both
to interface with existing VAN's and also to operate without a VAN (point to
point EDI over the Internet without the need for a VAN as a midpoint), thereby
permitting EDI-enabled trading partners to conduct electronic commerce with
their non-EDI-enabled trading partners.
INTERNET STRATEGY
The Company's Internet strategy focuses on using the Internet to complement
existing VANs and proprietary EDI networks, or possibly to replace the use of
VANs and proprietary EDI networks with point to point EDI over the Internet. The
Company believes that EDI-enabled companies can reach a much wider range of
their trading partners by using an Internet-based approach, as a result of the
increasing availability and general use of the Internet and the cost advantages
of an Internet-based approach over VANs and proprietary EDI networks. The
success of that strategy will depend, among other things, upon continued and
expanded acceptance of the Internet as an accepted vehicle for electronic
commerce and communication among businesses.
The Internet is an interconnected global network of computer networks
linked together through a common protocol. Unlike other public
telecommunications networks, the Internet is not managed by a single
corporation, government agency or other entity. The market for software to
access the Internet and related services is rapidly emerging and standards and
technologies for communicating information over the Internet are constantly
evolving. Businesses can exchange documents and electronic mail, access a wide
range of commercial information, and establish a presence on the World Wide Web.
The Web is the part of the Internet where information and documents reside in a
standard format thereby enabling them to be easily displayed and linked for
access by other Internet users on the Web. By using a special programming
language called hypertext markup language (HTML), a user can establish a
presence on the Web known as a Web Page or Home Page and can link with other
users of the Web. To date, the Internet has not been accepted as a medium for
processing routine business transactions between organizations, in part due to
perceived or actual security and reliability issues. See "RISK FACTORS -- Risks
Associated with Encryption Technology."
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CUSTOMERS AND MARKETS
EDI has been used since the mid-1970's. Nevertheless, the Company believes
that the electronic commerce market is still in its early stages, in that
relatively few companies engage in EC. The Company believes that a significant
barrier for businesses to join the electronic commerce network has been the cost
of maintaining standard translation software, modifications to those businesses'
computer systems, dedicated proprietary VANs, and resources required to maintain
EDI. The industry, and more importantly, EDI-enabled suppliers and retailers,
have continued to look for solutions to lower existing EDI-related costs and at
the same time spawn increased EDI utilization.
To date, the Company has had a limited number of customers using these new
EDI/Internet technologies. The types of customers on which the Company intends
to focus are discussed below.
THE EDI-ENABLED SUPPLIER. The Company believes that a significant number of
suppliers now using EDI would like to increase the utilization of EDI with their
customers. However, a significant investment in hardware and software at each
customer location is required in the proprietary equipment and software
necessary for a customer to link with the supplier either directly or through a
VAN. A smaller customer may not have the resources to make such an investment,
or the investment may not be cost-justified based upon the customer's
transaction volume with the supplier.
The Company's EDIxchange software provides a cost-effective solution for
this situation. The Company can assist the supplier to create a secure
Web-enabled Internet site with an electronic system for customer orders and
development of an electronic catalog by use of NetCat, all using the supplier's
existing EDI system and documents. The system will allow non-EDI customers to
view the supplier's product catalogs, place orders on-line, and send an
EDI-standard purchase order to the supplier. The customer will need only
Internet access and a Web browser to engage in those transactions.
THE HUB MODEL. The Hub Model is similar to the EDI-Enabled Supplier Model,
but is targeted at the purchaser rather than the supplier. The Company believes
that a significant number of wholesalers and retailers which are now using EDI
would like to increase the utilization of EDI with their suppliers, by expanding
the number of "spoke" companies. This can be accomplished primarily by reaching
a Hub company's smaller suppliers with a cost-justified mechanism for electronic
commerce transactions.
In the Hub Model, the Company's EDIxchange Suite can be configured for a
retailer, effectively reversing the functions of the Supplier Model described
above. The Company can assist the retailer or other purchaser to create a secure
Web-enabled Internet site with NetCat, again using the purchaser's existing EDI
system and documents. The system will allow non-EDI-enabled suppliers to receive
purchase orders electronically using only a Web browser and Internet access.
THE ELECTRONIC COMMERCE SERVICE BUREAU. The Company believes that a
significant number of businesses may want to "outsource" all or a part of their
electronic commerce functions. That outsourcing is one of the services
historically provided by Software Associates and which the Company intends to
market. This market includes presently EDI-enabled businesses, as well as
businesses that do not presently conduct electronic commerce. Using Software
Associates' experience in that area, combined with the Company's software
products, the Company offers its services as an EC service bureau through its
EDIbridgeNET Program.
SUPPLIERS REQUIRED TO SEND ADVANCE SHIPPING NOTICES. ShipTrac is marketed
to EDI-capable suppliers, which become mandated by their customers to use
bar-coded shipping labels and to send EDI standard documents such as advance
shipping notices. This process is complex and cumbersome for suppliers to
integrate into their existing systems, and the Company believes ShipTrac will
reduce the complexity for implementing this requirement and complying with the
requests of such trading partners.
BUSINESSES USING REALWORLD OR SYNCHRONICS ACCOUNTING SYSTEMS. A significant
number of businesses use RealWorld or the Synchronics accounting systems
software products, but are not EDI capable. The Company will target those
businesses to use the Company's existing products to begin electronic commerce.
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To date, the above target markets are undeveloped and largely untested. Due
to the limited sales by the Company to date, there can be no assurance as to the
degree, if any, that these markets and target customers will develop generally
or will be receptive to the Company's products and services.
As of November 1, 1997, the Company's EDIxchange customers include Linens
N' Things (an EDI-enabled purchaser), and Great American Knitting Mills, makers
of Goldtoe socks, and ICXpress (both EDI-enabled sellers). Customers using the
Company's ECbridgeNET Service include Church & Dwight, manufacturers of Arm &
Hammer baking soda, Royal Dalton, makers of fine china, and Kings Supermarket, a
supermarket chain in the Northeast United States.
During the fiscal year ended September 30, 1997, one customer accounted for
approximately 13% of the Company's sales. The Company provided systems
integration services to that customer, Unique Music, a retailer of recorded
music. If the Company were to lose that customer, it would not be expected to
have a material adverse effect on the Company, because the Company's business
plan focuses on its EDI business rather than on the general computer consulting
business.
SALES AND MARKETING
The Company's goal is to establish and expand the number of trading
partners using the Company's service bureau and complimentary electronic
commerce software solutions. To reach this goal, the Company plans to market and
sell its electronic commerce business solutions to enterprises which are
EDI-capable, and whose trading partners lack EDI capability. Additionally, the
Company will focus its marketing efforts for EDI outsourcing on EDI-capable
suppliers, which the Company believes often do not have sufficient resources in
their management information system ("MIS")/EDI group to respond to customers'
requests on a sufficiently timely basis.
Certain of the Company's marketing strategies are discussed below.
IDENTIFY KEY BUSINESS PARTNERS -- The Company has introduced its Business
Partners Program to establish alliances between the Company and key business
partners who specialize in business automation and electronic commerce. Those
key business partners are expected to be VANs, EDI software companies, EC
consultant groups, Web content developers, business re-engineering consultants,
and accounting software providers.
The objective of the Business Partners Program is to integrate the
Company's products and services with those of its business partners and to
promote Company services along with products and services sold by its business
partners.
EXPAND MARKETING AND SALES EFFORTS NATIONALLY -- As of November 1, 1997,
the Company employs four people in sales and marketing, two of whom directly
sell the Company's software and services. Compensation of sales personnel is in
the form of a base salary and commissions. To reach a broader market, the
Company plans to expand the number of sales people it employs, by adding up to
six additional sales people through the end of fiscal 1998, and possibly more
thereafter.
Lead generation and advertising will focus on national electronic
commerce/EDI trade shows, journal advertisements in national electronic commerce
publications, and public speaking engagements in EDI/Internet forums. The
Company will also evaluate which industry specific trade shows/journals warrant
participation. The Company has recently joined national electronic commerce/EDI
trade groups such as CommerceNet and DISA, which represent both users and
providers of EDI-related services.
Expansion of sales efforts will be implemented in stages, as market trends
indicate acceptance of the emerging electronic commerce marketplace and as the
Company's capital availability allows.
The Company is a party to several co-marketing and strategic alliances. EMJ
("EMJ"), located in Apex, North Carolina, is an Internet Web content developer
working with many large businesses in the Raleigh/Durham Research Triangle Park
area. The Company was chosen as the exclusive Internet-EDI solution provider for
EMJ Internet, a division of EMJ. Further, the Company has developed a strategic
relationship with ER Enterprises of Columbus, Ohio, an EDI consulting group that
assists retailers in implementing
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electronic commerce strategies; with AFTEC Corporation of Livingston, New
Jersey, a developer of a manufacturing and distribution software package, which
plans to build an electronic commerce interface into their application and offer
the Company's Service Bureau as a turnkey EC solution for their clients; and
with ID2000, of Berlin, New Jersey, which is a management information consulting
firm offering turnkey information systems solutions to its clients.
At present, the Company's alliances have not produced a material amount of
revenue for the Company. Those alliances presently consist of agreements to
cross-market one another's services from time to time when the appropriate
situation presents itself. All agreements presently in effect may be cancelled
upon 30 days' notice by either party.
PRODUCT DEVELOPMENT
The Company presently has several product development initiatives. One
initiative involves "point-to-point EDI." This technology would permit
electronic document interchange directly over the Internet, avoiding the use of
a VAN. The Company is working on modifications to its NetCat software and the
EDIxchange System, which would allow these products to interface with the
Templar product from Premenos Technology Corp. and permit point-to-point EDI.
Another initiative involves an upgrade of NetCat to a "Version 3.0."
Presently, NetCat can use only ASCII files and HTML. The Company is working on
making NetCat compatible with SQL databases (such as Oracle and Sybase), which
would allow NetCat to function with a larger group of customer databases. Also,
the Company is working on making NetCat capable of creating a wider variety of
presentation graphics, and on increasing the efficiency of NetCat's order
processing.
Another initiative involves an upgrade of the Company's EDIxchange Program
suite to permit the creation of an "Integrated UPC Catalogue." Presently, under
the Company's EDIxchange Program suite, as utilized in the Hub Model, the Hub
company/purchaser is required to input manually its suppliers' catalogues on the
Hub company's Web Site. The Company is working on an upgrade to that software
which would allow suppliers to maintain their own catalogue information,
including the UPC (Universal Product Code) information, electronically on the
Hub company's Web Site, thus permitting the Hub company to browse that database
or catalogue for purchasing.
Another initiative involves the upgrade of the Company's ECIntegrator.
Presently, that software allows for the electronic import and export of business
documents from RealWorld and Synchronics accounting systems only. The Company is
working on an upgrade which would permit interface with additional accounting
systems. The new product would be Windows-based and would function with the
Company's EDI service bureau ECbridgeNET.
The Company's final major initiative at present involves an upgrade of the
Company's ECbridgeNET communications network. Presently, the Company administers
its own communications network relating to ECbridgeNET, such as the modems and
other hardware necessary to communicate with its EDI customers. The Company is
evaluating the feasibility of outsourcing that core communication function to a
telecommunications company.
The Company has budgeted $475,000 to complete the above five product
development initiatives, to be funded from the proceeds of this Offering. Each
of the foregoing product development initiatives is subject to risk. The Company
cannot predict when any of them will be completed, if at all. There is no
assurance that the Company will develop successfully or in a cost-effective
manner any of the products, services, or product enhancements discussed, or that
they will find market acceptance if developed. The Company's cost estimates to
complete the above product development initiatives are subject to the risks and
uncertainties of complex technical development projects.
COMPETITION
The electronic commerce and EDI network services and computer software
markets are highly competitive. The principal competitors in EDI and
specifically in the delivery of EDI over the Internet are, at present, Harbinger
Corporation, Sterling Commerce, GEIS, Netscape, Open Market, Premenos, Icat,
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Interworld Technology Ventures, Elcom International, Broadvision, Connect, IBM,
Microsoft, EDS, and MCI, each of which has announced plans to design and develop
software products and to provide services that facilitate electronic commerce
over the Internet.
Aside from the Internet, numerous companies supply electronic commerce
network services, and several competitors target specific vertical markets such
as the pharmaceutical, agribusiness, retail and transportation industries.
Competitors provide software designed to facilitate electronic commerce and EDI
communications. Existing VANs provide network services and related software
products and services. Other competitors provide PC-based computer programs and
network services specifically targeted to facilitate electronic banking
transactions. These competitors include banks and financial institutions that
operate privately-owned computer networks that link directly to their commercial
customers. The Company believes that many of its competitors have significantly
greater financial and personnel resources than the Company.
Competition from Internet-based competitors is also significant. The market
for Internet software and services is emerging and highly competitive, ranging
from small companies with limited resources to large companies with
substantially greater financial, technical and marketing resources than the
Company. The Company believes that existing competitors are likely to expand the
range of their electronic commerce services to include Internet access, and that
new competitors, which may include telephone companies and media companies, are
likely to increasingly offer services which utilize the Internet to provide
business-to-business data transmission services. A group of computer companies
including some competitors of the Company, and the Company itself, have formed
CommerceNet, a consortium which has announced an intention to explore the use of
the Internet for commercial applications. Additionally, several competitive
network service providers allow their subscribers access to the Internet, and
several major software and telecommunications companies, including Sprint, MCI,
AT&T and Microsoft, either have or are expected to have Internet access
services. Similarly, the major on-line service companies, such as America
On-Line, Compuserve and Prodigy, also offer Internet services, and the Company
expects them to enhance their services in the future to include certain aspects
of electronic commerce.
COMPETITIVE STRATEGY
The Company's competitive strategy is to offer electronic commerce
solutions using Internet and EDI technology through designs that can be
customized to fit a customer's specific needs.
The Company intends to apply its Internet and EDI technology products, its
development efforts, and its marketing efforts, at the "application layer" of
electronic commerce. The application layer addresses the customers' immediate
need to work with product catalogues and to exchange useful business documents.
The application layer is distinguished from the "core" or "infrastructure"
layer, which addresses the basic elements of transmitting an EDI document over
the Internet. At the application layer, one assumes that a properly-formatted
EDI document can be securely transmitted over the Internet.
The Company intends to avoid competing at the EC core or basic
infrastructure technology layer. In that regard, it does not intend to compete
in technical and product categories such as encryption and authentication
schemes, secure transport methods, EDI mailboxing services, secure browsers and
servers, or low-level communication protocols.
Further, the Company intends to market products that require the EDI
trading partners to have only a standard Web browser with standard enhancements
or "plug-ins" (like Adobe Acrobat and Sun's Java). The Company will centralize
EDI translation and mapping from its application interface to the EDIbridgeNet
outsource service bureau.
The Company hopes to differentiate itself in the marketplace for
Internet/EDI solutions with NetCat. The Company believes that its existing
competition currently offers generic, form-based software solutions with limited
functionality. In contrast, EDIxchange provides both product catalog and order
facilitation. When combined with the Company's service bureau, the Company can
offer customers a complete, turnkey electronic commerce solution that is
compatible with their existing EDI system.
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The Company may, in order to acquire new technology, additional products,
market share or other business opportunity, enter into strategic joint ventures
or mergers or make strategic acquisitions. Such transactions may be funded by
using the proceeds of this Offering, issuing stock of the Company, incurring
debt, or any combination of the foregoing. The Company is not presently
negotiating any such transactions, nor does it have any commitments to do so.
There can be no assurance that the Company will be successful in its effort
or that it will not be materially adversely affected by competitive factors.
INTELLECTUAL PROPERTY RIGHTS
The Company relies primarily on a combination of copyright, patent and
trademark laws, trade secrets, confidentiality procedures and contractual
provisions to protect its proprietary rights. The Company has filed an
application for a patent covering its NetCat software, which is presently
pending before the United States Patent and Trademark Office ("PTO"). The
Company also has filed federal trademark registration applications for its
DynamicWeb, NetCat, and EDIxchange trademarks. Those trademark registration
applications are presently pending before the PTO. The Company is presently
preparing a federal trademark registration application for its ECbridgeNET
product, which it expects to file by November 15, 1997.
Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products or to
obtain and use information that the Company regards as proprietary. There can be
no assurance that the Company's means of protecting its proprietary rights will
be adequate or that competitors will not independently develop similar or
superior technology. The Company believes that, due to the rapid pace of
innovation within the electronic commerce, EDI and related software industries,
factors such as the technological and creative skills of its personnel are more
important in establishing and maintaining a leadership position within the
electronic commerce industry than are the various legal protections of its
technology. The Company does not believe that any of its products infringe the
proprietary rights of third parties. There can be no assurance, however, that
third parties will not claim infringement by the Company with respect to current
or future products. From time to time, the Company has received notices which
allege, directly or indirectly, that the Company's products or services infringe
the rights of others. The Company generally has been able to address these
allegations without material cost to the Company. The Company expects that
software product developers will increasingly be subject to infringement claims
as the number of products and competitors in electronic commerce grows and the
functionality of products in different industry segments overlaps. Any such
claims, irrespective of their merit, could be time-consuming, result in costly
litigation, cause product shipment delays, require the Company to enter into
royalty or licensing agreements, or prevent the Company from using certain
technologies. Such royalty or licensing agreements, if required, may not be
available on terms acceptable to the Company or at all, which could have a
material adverse effect on the Company.
The Company currently has in place confidentiality and non-competition
agreements with certain of its employees. The Company has adopted a policy of
requiring that all future employees sign appropriate confidentiality agreements
and, where appropriate, non-competition agreements.
The Company currently licenses proprietary data encryption and
authentication software of RSA Data Security ("RSA"). The RSA software is
incorporated in certain other software licensed to the Company from Community
Connexion related to the Web server utilized by the Company. The RSA software is
available on a non-exclusive basis. No assurance can be given that the
encryption software presently available to the Company will continue to be
available to the Company on commercially reasonable terms, or at all.
Additionally, there is no assurance that if a new encryption technology
develops, that it will be available to the Company on commercially acceptable
terms, if at all.
The Company also licenses Cybercash software, which is credit card
verification software, on a non-exclusive basis.
The Company's proprietary software is written in Practical Extraction and
Reporting Language ("PERL"), which is the computer program language utilized for
Internet applications. Because the Internet is not controlled or supervised by
any one person or group, the evolution and continued utilization of PERL
32
<PAGE> 37
cannot be controlled or predicted. Changes in or the elimination of PERL could
cause the Company to have to assume responsibility for support and development
of that software.
GOVERNMENTAL REGULATIONS
The Company's network services are transmitted to its customers over
dedicated and public telephone lines. These transmissions are governed by
regulatory policies establishing charges and terms for communications. Changes
in the legislative and regulatory environment relating to on-line services, EDI
or the Internet access industry, including regulatory or legislative changes
which directly or indirectly affect telecommunication costs or increase the
likelihood of competition from regional telephone companies or others, could
have an adverse effect on the Company's business; as could potential
governmental actions outside of the United States. Management believes that the
Company is in material compliance with all applicable regulations.
EMPLOYEES
As of November 1, 1997, the Company had 21 employees, of whom 17 were
full-time employees. Approximately seven are technical personnel engaged in
maintaining or developing the Company's products or performing related services,
approximately four are marketing and sales personnel, approximately five are
engaged in customer support and operations, and approximately five are involved
in administration and finance. None of the Company's employees are represented
by a union.
FACILITIES
The Company's corporate offices are located at 271 Route 46 West, Building
F, Suite 209, Fairfield, New Jersey. The Company has entered into two leases for
approximately 5,400 square feet for its executive and administrative staff at an
aggregate monthly rental of approximately $6,600. The Company believes that such
space will be sufficient for its needs for the foreseeable future and that
alternative space is available at rental rates which would not materially
adversely affect the Company. See "CERTAIN TRANSACTIONS -- Office Lease."
The Company owns its former offices (at 1033 Route 46 East, Clifton, New
Jersey, which it acquired in its acquisition of Software Associates in November
of 1996). It has vacated those premises, which are listed for sale. Those
premises are mortgaged with an approximately $190,000 mortgage.
LEGAL PROCEEDINGS
The Company is not a party to any material pending litigation.
33
<PAGE> 38
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS.
The following table contains certain information with respect to the Board
of Directors and the executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- ----------------------------------------
<S> <C> <C>
Steven L. Vanechanos, Jr.(1) 43 Chairman of the Board and Chief
Executive Officer
James D. Conners 58 President and Chief Operating Officer
Steve Vanechanos, Sr.(1) 67 Director, Vice President, Treasurer and
Secretary
Kenneth R. Konikowski 50 Director and Executive Vice President
F. Patrick Ahearn, Jr.(2) 49 Director
Denis Clark 53 Director
Frank T. DiPalma(3) 51 Director
Robert Droste(2)(3) 43 Director
</TABLE>
- ---------------
(1) Steve Vanechanos, Sr. is the father of Steven L. Vanechanos, Jr. and Michael
Vanechanos. As of September 1, 1997, Michael Vanechanos beneficially owns
approximately 8% of the Company's outstanding Common Stock. See "PRINCIPAL
STOCKHOLDERS" and "CERTAIN TRANSACTIONS -- Significant Shareholder."
(2) Member of the Audit Committee of the Board of Directors. The Audit Committee
recommends an outside auditor for the year and reviews the financial
statements and progress of the Company. This Committee was formed in 1997.
(3) Member of the Compensation Committee. The Compensation Committee meets on an
as-needed basis between meetings of the Board of Directors to discuss
compensation related matters. This Committee was formed in 1997.
STEVEN L. VANECHANOS, JR. became President and Chairman of the Board of
Directors of the Company on March 26, 1996. On August 26, 1997, he assumed the
office of Chief Executive Officer and Mr. Conners became the President. Mr.
Vanechanos has been President of DynamicWeb Transaction Systems, Inc. ("DWTS"),
a wholly-owned subsidiary of the Company, since its incorporation in October
1995. He also was a co-founder of Megascore, Inc. ("Megascore"), a wholly-owned
subsidiary of the Company, in 1981 and has served as its President since April
1985. He has a Bachelor of Science Degree in Finance and Economics from
Fairleigh Dickinson University, Rutherford, New Jersey Campus. In 1981, he
received a Certificate in Computer Programming and in 1982, he received a
Certificate in Data Processing from The Institute for the Certification of
Computer Professionals.
JAMES D. CONNERS became President and Chief Operating Officer of the
Company on August 26, 1997. Prior to joining the Company, Mr. Conners served as
the Vice President of Strategic Planning of Sterling Commerce in 1996 and the
Vice President of its Internet Business Unit in 1997. Prior to joining Sterling
Commerce, Mr. Conners spent 15 years at General Electric Information Services
(GEIS) in various sales and marketing positions, most recently as the General
Manager in charge of the Ameritech Alliance. Mr. Conners graduated from the
University of Detroit with a BS degree in Mathematics with a minor in Physics.
STEVE VANECHANOS, SR. became Vice President, Secretary, Treasurer and a
Director of the Company on March 26, 1996. He was a co-founder of Megascore in
1981 and of DWTS in 1995. He has served as a Vice President of Megascore since
April 1985 and of DWTS since October 1995. He attended Newark College of
Engineering in Newark for two years. He continued his education with
certifications from PSI Programming Institute in New York City and with courses
in principles of accounting at ABA Institute, Hudson County Chapter.
34
<PAGE> 39
KENNETH R. KONIKOWSKI became the Executive Vice President and a Director of
the Company on December 1, 1996. Prior to that date, Mr. Konikowski was
President of Software Associates, which he founded in 1985. Software Associates
is currently a wholly-owned subsidiary of the Company. See "CERTAIN
TRANSACTIONS."
F. PATRICK AHEARN, JR. became a Director of the Company on March 26, 1996.
Mr. Ahearn has served as a director of Megascore since 1985 and of DWTS since
February 1996. Since 1993, Mr. Ahearn has served as the Chairman of the Board of
E.C.M. Group, Inc., White Plains, New York. From 1992 to 1995, Mr. Ahearn served
as Managing Director for Continental Bank and the President of 22 of its
subsidiaries. He is also a Colonel in the United States Marine Corps. Mr. Ahearn
has a Bachelor of Arts Degree from the College of Holy Cross.
DENIS CLARK became a Director of the Company on June 12, 1997. Mr. Clark
has served as Vice President of Sterling Commerce, Inc. from 1993 to 1996 and
was employed by IBM Corporation as a Director of Consulting from 1991 to 1992
and as a Director of Software Marketing from 1989 to 1991.
FRANK T. DIPALMA became a Director of the Company on March 26, 1996. Since
January 1997, Mr. DiPalma has been employed as Vice President of Operations and
Engineering for Energy Corporation of America, Mountaineer Gas Division. Prior
to that time, and during the past five years, he held various management
positions for Public Service Electric and Gas, a public utility located in
Newark, New Jersey. In 1995 and 1996, he was the owner of Palmer Associates, a
management consulting company. Mr. DiPalma graduated from New Jersey Institute
of Technology with a Bachelor of Science in Mechanical Engineering, Fairleigh
Dickinson University with a Masters in Business Administration, and the
University of Michigan's Executive Development Program.
ROBERT DROSTE became a Director of the Company on March 26, 1996. Mr.
Droste has served as a director of Megascore since 1985 and of DWTS since
February 1996. During the past five years, Mr. Droste has been the Director of
Administration and Manager of Internal Audit for Russ Berrie & Co., Inc.,
Oakland, New Jersey. He has a Bachelor of Science Degree in Accounting from
Fairleigh Dickinson University, Rutherford, New Jersey.
Pursuant to the Company's Amended and Restated Certificate of
Incorporation, the Board of Directors is divided into three classes which shall
be as nearly equal in number as possible. The Directors in each class will hold
office following their initial appointment to office for terms of one year, two
years and three years, respectively and, upon reelection, will serve for terms
of three years thereafter. Each Director will serve until his or her successor
is elected and qualified. Presently, Directors Ahearn, DiPalma and Clark are
Class I Directors to hold office until the annual shareholder election of
Directors in 1998; Directors Konikowski and Vanechanos, Sr. are Class II
Directors to hold office until the annual shareholder election of Directors in
1999; and Directors Droste and Vanechanos, Jr., are Class III Directors to hold
office until the annual shareholder election of Directors in 2000.
Pursuant to the Company's Amended and Restated Certificate of
Incorporation, a Director may be removed by shareholders only upon the
affirmative vote of at least a majority of the votes which all shareholders
would be entitled to cast. The Board of Directors shall have the exclusive power
to fill any vacancy occurring in the Board of Directors, including a vacancy
created by an increase in the number of Directors, by a majority vote of the
Directors then in office. Any Director so elected shall serve until the next
annual meeting of shareholders.
Although Michael Vanechanos is the owner of approximately eight percent of
the presently-outstanding Common Stock and is related to Steven L. Vanechanos
Jr. and Steve Vanechanos, Sr., Michael Vanechanos does not participate in the
business affairs of the Company, including its operations, financing and
strategy.
35
<PAGE> 40
EXECUTIVE COMPENSATION
General
There were no executive officers of the Company or any of its subsidiaries
whose salary and bonus exceeded $100,000 for the fiscal year ended September 30,
1996. The following table sets forth the compensation paid to Steven L.
Vanechanos, Jr., the Company's President from March 26, 1996 to August 26, 1997
(when he continued in the role of Chief Executive Officer, and James Conners
became President). Jonathan B. Lassers served as the Company's President and
Chief Executive Officer from May 1995 until March 26, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION
------------------------------------------ ---- ------- ------------
<S> <C> <C> <C>
Steven L. Vanechanos, Jr. 1997 $61,000 $ 4,750(1)
Chief Executive Officer 1996(2) $58,762(3) $ 10,300(4)
Jonathan B. Lassers 1996(5) $ 0(6) $ 0(6)
Former President and Chief Executive 1995 $ 0(6) $ 0(6)
Officer
</TABLE>
- ---------------
(1) Consists of lease payments totalling $4,750 made by the Company for an
automobile used by Mr. Vanechanos, Jr.
(2) Mr. Vanechanos, Jr. commenced his employment with the Company on March 26,
1996, the date upon which Seahawk Oil International, Inc. acquired
DynamicWeb Transaction Systems, Inc. and changed its name to DynamicWeb
Enterprises, Inc. Prior to such time, he had been President of DWTS.
(3) This amount includes salary paid by Megascore during the year ended
September 30, 1996. Megascore was acquired by the Company on September 30,
1996.
(4) Consists of (a) lease payments totaling $4,300 made by the Company for an
automobile used by Mr. Vanechanos, Jr., and (b) travel and entertainment
expenses of approximately $6,000 paid by the Company. Mr. Vanechanos, Jr.
did not receive any long-term compensation.
(5) Mr. Lassers terminated his employment with the Company on March 26, 1996,
the date upon which Seahawk Oil International, Inc. acquired DynamicWeb
Transaction Systems, Inc. and changed its name to DynamicWeb Enterprises,
Inc.
(6) Mr. Lassers commenced his employment with the Company in May 1995. Mr.
Lassers has represented to management that he was paid no salary or other
compensation prior to March 26, 1996. The Company did not pay any amounts to
Mr. Lassers after that date.
Stock Options
There were no executive officers of the Company or any of its subsidiaries
who received or exercised stock options, stock appreciation rights or other
stock awards from the Company during the fiscal year ended September 30, 1996.
As of September 30, 1996, except for the Company's 1992 Stock Option Plan, the
Company did not have in place any stock option, stock appreciation right, or
similar compensation plan, nor were any options or stock appreciation rights
outstanding and exercisable as of such date under the 1992 Stock Option Plan or
otherwise. On March 7, 1997, the Company terminated the 1992 Stock Option Plan.
On June 12, 1997, the shareholders of the Company approved the 1997 Employee
Stock Option Plan and the 1997 Stock Option Plan for Outside Directors
(collectively, the "1997 Plans").
EMPLOYMENT AGREEMENTS
On December 1, 1996, Kenneth R. Konikowski, Executive Vice President of the
Company, entered into an Employment Agreement with the Company (the "Konikowski
Agreement"). Under the terms of the Konikowski Agreement, Mr. Konikowski serves
as Executive Vice President and a member of the Company's Board of Directors and
is entitled to an annual salary of $135,600. The Konikowski Agreement provides
that
36
<PAGE> 41
this amount may be increased based on annual performance reviews pursuant to the
Company's policies and practices. Mr. Konikowski is also eligible to be paid an
annual bonus based on the Company's to-be-established incentive bonus plan. Mr.
Konikowski also receives certain employee benefits, including $500,000 of life
insurance, disability and health insurance, vacation days, and use of an
automobile. He is also eligible to participate in the Company's 1997 Employee
Stock Option Plan.
The Konikowski Agreement provides that if Mr. Konikowski's employment is
terminated by the Company other than for "Cause," "Disability" or "Material
Breach," each as defined therein, or if he terminates his employment for "Good
Reason," as defined therein, Mr. Konikowski is entitled to a lump sum amount
equal to the commuted value of his base salary in effect or authorized at the
time of termination for the period remaining until November 30, 2001 (determined
by discounting all payments at a rate equal to the bond equivalent yield of the
latest two-year Treasury Bill auction). The Company is also required to maintain
in full force and effect certain of Mr. Konikowski's employee benefits.
On August 26, 1997, the Company hired James D. Conners as President, and
the Company and Mr. Conners entered into an Employment Agreement (the "Conners
Agreement"). The Conners Agreement provides that he shall serve as President of
the Company for a term of 3 years, with automatic renewal unless either party
gives timely notice of its intent not to renew. The Conners Agreement provides
for a base salary of $160,000, and obligates the Company to grant options to
purchase 104,338 shares of the Company's Common Stock during his employment
period for a price of $3.83 per share, 45,648 of such shares to vest at August
25, 1998, 32,606 to vest at August 25, 1999, and the remaining 26,084 to vest at
August 25, 2000. On September 11, 1997, Mr. Connors was granted 104,338 options
under the 1997 Employee Plan. Further, Mr. Conners is entitled to a $1,000 per
month housing allowance and a $500 per month leased automobile allowance. He is
eligible to participate in the 1997 Employee Plan and the Company's other
employee benefit plans as may be implemented from time to time.
The Conners Agreement provides that if Mr. Conners employment is terminated
other than for "Cause" as defined therein, Mr. Conners is entitled to receive
his base salary, incentive compensation and options for the balance of his
employment period.
STOCK OPTION PLANS
1997 Employee Stock Option Plan
On June 12, 1997, the shareholders of the Company approved the Company's
1997 Employee Stock Option Plan (the "1997 Employee Plan"). The 1997 Employee
Plan authorizes the Compensation Committee (the "Committee") of the Board of
Directors to grant options for the purchase of up to 234,764 shares of Common
Stock. Any shares as to which an option expires, lapses unexercised, or is
terminated or canceled may be subject to a new option.
Under the 1997 Employee Plan, both "Incentive Stock Options" (as defined in
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code")),
which qualify for certain tax benefits, and options which do not qualify for
such tax benefits ("Nonqualified Stock Options") may be granted to eligible
employees of the Corporation and its subsidiaries. All current employees of the
Company are eligible to participate in the 1997 Employee Plan.
The Committee has the authority to grant options to employees under the
1997 Employee Plan, based upon the recommendation of the Corporation's Chief
Executive Officer and subject to the approval of a majority of the disinterested
members of the Board. Option grants to employees are anticipated to be made
annually. Eligible employees generally include all key employees of the
Corporation and its subsidiaries. This would include the executive officers.
Recent Grants. On August 8, 1997, the Committee made an initial grant of
options to purchase a total of approximately 99,054 shares to employees under
the 1997 Employee Plan, and on September 11, 1997, the Committee granted options
to purchase 104,338 shares to James Conners in connection with his commencing
employment with the Company.
37
<PAGE> 42
1997 Stock Option Plan for Outside Directors
Also on June 12, 1997, the shareholders of the Company approved the 1997
Stock Option Plan for Outside Directors (the "1997 Director Plan"). Each person
(i) who is a director of the Company and (ii) who is not, as of the grant date,
an employee of the Company shall, on the earlier of (a) the date on which this
Offering is completed, or (b) September 30, 1997, and thereafter on the date of
each succeeding annual meeting of shareholders at which directors are elected,
automatically be granted an option to purchase 3,912 shares of the Common Stock.
Future directors elected by the Board to fill a vacancy will also receive such a
grant on the date of such initial election as a director. Accordingly, Messrs.
Ahearn, Clark, DiPalma and Droste will each receive, on the earlier of (a) the
date on which this Offering is completed, or (b) September 30, 1997, options
under the 1997 Director Plan to purchase an aggregate of 3,912 shares of the
Common Stock.
In addition to the automatic grants described above, the 1997 Director Plan
further authorizes the Committee to grant options for the purchase of an
aggregate amount up to 78,254 shares of the Common Stock. Any shares as to which
an option expires, lapses unexercised, or is terminated or canceled may be
subject to a new option. Only Nonqualified Stock Options may be granted under
the 1997 Director Plan. The exercise price for options granted under the 1997
Director Plan will be equal to the fair market value of the stock underlying the
option on the date the option is granted.
LIMITATION OF OFFICERS' AND DIRECTORS' LIABILITIES AND INDEMNIFICATION;
DISCLOSURE OF COMMISSION POSITION OR INDEMNIFICATION OF SECURITIES ACT
LIABILITIES
In accordance with New Jersey law, the Company's Amended and Restated
Certificate of Incorporation eliminates in certain circumstances the liability
of directors of the Company for monetary damages for breach of their fiduciary
duty as directors. This provision does not eliminate the liability of a director
(i) for a breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions by the director not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for a
willful or negligent declaration of an unlawful dividend, stock purchase or
redemption or (iv) for transactions from which the director derived an improper
personal benefit.
In addition, the Company's Bylaws include provisions to indemnify its
officers and directors and other persons against expenses, judgments, fines and
amounts incurred or paid in settlement in connection with civil or criminal
claims, actions, suits or proceedings against such persons by reason of serving
or having served as officers, directors, or in other capacities, if such person
acted in good faith, and in a manner such person reasonably believed to be in or
not opposed to the best interests of the Company and, in a criminal action or
proceeding, if he had no reasonable cause to believe that his/her conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent shall
not, of itself, create a presumption that the person did not act in good faith
and in a manner which he or she reasonably believed to be in or not opposed to
the best interests of the corporation or that he or she had reasonable cause to
believe his or her conduct was unlawful. Indemnification as provided in the
Bylaws shall be made only as authorized in a specific case and upon a
determination that the person met the applicable standards of conduct.
Insofar as limitation of, or indemnification for, liabilities arising,
under the Securities Act may be permitted to directors, officers, or persons
controlling the Company pursuant to the foregoing, or otherwise, the Company has
been advised that, in the opinion of the Commission, such limitation or
indemnification is against public policy as expressed in the Securities Act, and
is therefore unenforceable.
DIRECTORS' COMPENSATION
The non-employee directors and the employee directors do not receive a fee
for attending meetings or other fees or retainers for serving on the board.
38
<PAGE> 43
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of November 1, 1997, for (i) each person
who owns of record or is known by the Company to be the beneficial owner of more
than five percent (5%) of the Common Stock, (ii) each of the Company's current
Directors, (iii) each person named in the Summary Compensation Table set forth
above under "MANAGEMENT," and (iv) all current directors and executive officers
of the Company as a group, such person's name and address, the number of shares
of Common Stock beneficially owned by such person, and the percentage of the
outstanding Common Stock so owned. Unless otherwise indicated in a footnote,
each of the following persons holds sole voting and investment power over the
shares listed as beneficially owned.
<TABLE>
<CAPTION>
PRO FORMA
AMOUNT AND NATURE PERCENT
OF BENEFICIAL PERCENT OF OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1)(2) CLASS(3) CLASS(4)
----------------------------------------------- ----------------- ---------- ---------
<S> <C> <C> <C>
Steven L. Vanechanos, Jr....................... 443,670 21.38% 11.55%
92 Clarken Drive
West Orange, New Jersey 07052
Steven Vanechanos, Sr.......................... 442,289 21.32% 11.52%
96 Union Avenue
Rutherford, New Jersey 07082
Kenneth R. Konikowski(5)....................... 224,330 11.78% 6.36%
36 Pinebrook Road
Towco, New Jersey 07082
Michael Vanechanos............................. 170,224 8.20% 4.43%
129 S. Telegraph Hill Road
Holmdel, New Jersey 07703
Sierra Growth & Opportunity.................... 119,990(6) 5.78% 3.12%
551 Fifth Avenue, Suite 605
New York, New York 10017
James D. Conners............................... 0(7) 0% 0%
5506 Carnoustie Court
Dublin, Ohio 43017
F. Patrick Ahearn, Jr.......................... 7,504(8) 0.36% 0.20%
107 Maple Street
Rutherford, New Jersey 07070
Frank T. DiPalma............................... 15,221(8)(9) 0.73% 0.40%
179 Claremont Road
Ridgewood, New Jersey 07450
Robert Droste.................................. 7,505(8) 0.36% 0.20%
24 Summit Road
Clifton, New Jersey 07012
Denis Clark.................................... 3,912(8) 0.19% 0.10%
8417 Greenside Drive
Dublin, Ohio 43017
All directors and executive officers as a group
(8 in number).................................. 1,164,431 56.13% 30.32%
</TABLE>
- ---------------
(1) The securities "beneficially owned" by an individual are determined in
accordance with the definitions of "beneficial ownership" set forth in the
General Rules and Regulations of the Securities and Exchange Commission
("SEC") and may include securities owned by or for the individual's spouse
and minor children and any other relative who has the same home, as well as
securities to which the individual has or shares voting or investment power
or has the right to acquire beneficial ownership within sixty (60) days of
the date of this Prospectus. Beneficial ownership may be disclaimed as to
certain of the securities. Steven L. Vanechanos, Jr. and Michael Vanechanos
are brothers, and are the sons of Steve Vanechanos, Sr. See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS -- Significant Shareholder." Each of
the foregoing disclaims beneficial ownership of the shares of Common Stock
owned by the others.
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<PAGE> 44
(2) Information furnished by the directors and executive officers of the
Company. All numbers of shares reflect the 0.2608491-for-one Reverse Stock
Split. See "RECENT DEVELOPMENTS."
(3) Percentages based upon (a) 2,074,710 shares outstanding on November 1,
1997, plus (b) an additional 15,648 shares issuable within 60 days of the
date of this Prospectus to the named outside directors under the 1997
Director Plan. See Footnote (8) below.
(4) Percentages based upon 3,824,710 shares to be outstanding at the completion
of this Offering, plus the additional 15,648 shares currently issuable
under the 1997 Director Plan.
(5) Does not include additional shares of Common Stock that may be issuable in
connection with the prior acquisition of Software Associates. See "CERTAIN
TRANSACTIONS -- Acquisition of Software Associates and Megascore."
(6) Based upon information available to the Company, it is believed that a Mr.
John Figliolini exercises sole voting and investment powers over the
Company's Common Stock on behalf of Sierra Growth & Opportunity.
(7) Mr. Conners has been granted options to purchase 104,338 shares on
September 11, 1997 under the 1997 Employee Plan, none of which can be
acquired within 60 days of this Prospectus. See "MANAGEMENT -- Employment
Agreements."
(8) Includes options to purchase 3,912 shares granted in 1997 under the 1997
Director Plan.
(9) All of such shares are held jointly by Mr. DiPalma and his spouse.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ACQUISITION OF SOFTWARE ASSOCIATES AND MEGASCORE
On November 30, 1996, pursuant to a Stock Purchase Agreement dated such
date among the Company, Software Associates and Kenneth R. Konikowski, the sole
shareholder of Software Associates (the "SA Agreement"), the Company exchanged
860,000 shares with Mr. Konikowski (adjusted to 224,330 shares as a result of
the 0.2608491-for-one Reverse Stock Split) of the Company's Common Stock for all
of the issued and outstanding capital stock of Software Associates. Accordingly,
Software Associates is presently a wholly owned subsidiary of the Company.
Pursuant to the SA Agreement, Kenneth R. Konikowski was named Executive
Vice President and a director of the Company and his Employment Agreement was
executed. Pursuant to the SA Agreement, as amended by a letter agreement dated
April 17, 1997, between the Company and Mr. Konikowski, the Company is obligated
to issue to Mr. Konikowski up to 297,367 additional shares of its Common Stock
in the event the average closing bid price of the Common Stock does not equal
$12.939 per share for the five trading days immediately prior to January 30,
1999. If any such additional shares are issued, the ownership interest of all
other holders of Common Stock will be diluted in favor of Mr. Konikowski. On a
pro forma basis assuming all of such shares were issued to Mr. Konikowski as of
the date of the Closing of this Offering, Mr. Konikowski would own approximately
13.0% of the outstanding Common Stock, and each of Steven L. Vanechanos, Jr. and
Steve Vanechanos, Sr. would own approximately 11.5% of the outstanding Common
Stock, respectively.
On September 30, 1996, pursuant to a Stock Purchase Agreement dated such
date among the Company, Megascore and Megascore's shareholders, the Company
acquired all of the issued and outstanding capital stock of Megascore in
exchange for 50,000 shares of Common Stock (adjusted to 13,042 shares as a
result of the 0.2608491-for-one Reverse Stock Split). Prior to such acquisition,
Steven L. Vanechanos, Jr. and Steve Vanechanos, Sr. were the President and Vice
President, Treasurer and Secretary, respectively, and collectively owned of
record approximately 86% of the outstanding capital stock of Megascore.
Megascore is presently a wholly-owned subsidiary of the Company. Megascore is a
full-service systems integrator specializing in distribution, accounting and
point-of-sale computer software consulting services for suppliers and retailers.
The consideration paid to the Megascore shareholders was determined by the
Company's Board of Directors, which was at that time composed of Mr. Vanechanos
Sr., Mr. Vanechanos, Jr., Robert Droste, and Patrick Ahearn. The Board of
Directors ascribed a value of $100,000 to Megascore, based upon the Board's
evaluation
40
<PAGE> 45
of the fair value of Megascore's assets. Also, the Board of Directors ascribed a
value of $2 per share to the shares of Common Stock of the Company to be issued
to the shareholders of Megascore in that transaction, meaning that the 50,000
shares issued in the transaction had a total value of $100,000. The Board of
Directors made its determination that the shares of the Company's Common Stock
had a value of $2 per share by considering the following principal factors: (a)
those shares were not registered under the Securities Act, and therefore would
not be freely tradable, (b) the quoted bid price for the Company's publicly
traded Common Stock during the quarter ended September 30, 1996 was in the range
of $3 7/8 to $4 1/8 per share, and (c) in April of 1996 the Company sold 343,511
shares of Common Stock (such number being prior to the Reverse Stock Split) in a
private placement transaction at the price of $1.45 per share. Each of Mr.
Vanechanos Sr. and Mr. Vanechanos, Jr. received 15,000 shares (such number being
prior to the Reverse Stock Split) of Common Stock in the Megascore transaction.
SIGNIFICANT SHAREHOLDER
As of September 1, 1997, Michael Vanechanos is the beneficial owner of
170,224 shares of Common Stock representing 8% of the issued and outstanding
Common Stock of the Company as of such date. He received 85,448 of those shares
from the Company in March, 1996 in exchange for shares he owned in DWTS, as part
of the Company's acquisition of DWTS, and received 71,734 of those shares as a
finder's fee from Berkshire Financial Corp. in connection with the Company's
acquisition of DWTS. He purchased 13,042 of those shares in an open market
transaction on April 30, 1997. Mr. Vanechanos is presently employed as a
securities trader at H.J. Meyers & Co., Inc., the Representative in this
Offering and the placement agent in the Interim Financings. Michael Vanechanos
is the brother of Steven L. Vanechanos, Jr., the Company's Chairman of the Board
and Chief Executive Officer, and is the son of Steve Vanechanos, Sr., the
Company's Vice President, Treasurer, Secretary and a director. See "PRINCIPAL
STOCKHOLDERS." Each of the foregoing individuals disclaims beneficial ownership
of the shares of Common Stock owned by the others.
OFFICE LEASE
The Company leases a portion of its office facility from the Mask Group, a
partnership in which Kenneth R. Konikowski, the Executive Vice President of the
Company and a director, and his wife are partners. The annual rent under such
lease is $37,500, subject to fixed annual increases of 3%, plus the payment of
condominium maintenance fees. The lease expires on December 31, 2002. The
Company believes that the rent charged by the Mask Group approximates fair
market rents in the area. The Company is jointly obligated with the Mask Group
on approximately $246,000 of indebtedness (as of September 1, 1997) to a third
party lender to the Mask Group relating to a mortgage loan on those premises.
The Mask Group is making the payments on that loan, and has informed the Company
that the loan is current.
OFFICER LOANS
Steven L. Vanechanos, Jr. has loaned $77,000 to the Company, $23,000 of
which was advanced on July 11, 1997, $35,000 of which was advanced on July 28,
1997, $500 of which was advanced on August 1, 1997, $17,000 of which was
advanced on August 11, 1997 and $2,000 of which was advanced on September 26,
1997. Steve Vanechanos, Sr. has loaned $40,000 to the Company, $7,000 of which
was advanced on July 23, 1997, $30,000 of which was advanced on July 28, 1997,
and $3,000 of which was advanced on August 20, 1997. These loans bear interest
at 8% per annum, and will be repaid from the proceeds of this Offering. See "USE
OF PROCEEDS."
FUTURE TRANSACTIONS
All future transactions between the Company and its officers, directors,
principal shareholders and affiliates will be approved by a majority of the
Board of Directors, including a majority of the independent and disinterested
outside directors on the Board of Directors, and will have terms no less
favorable to the Company than could be obtained from unrelated third parties.
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<PAGE> 46
SHAREHOLDINGS OF CERTAIN PRINCIPALS
In connection with August 1997 Financing, the placement agent, H.J. Meyers
& Co., Inc., required that Steven L. Vanechanos, Jr. and Steve Vanechanos, Sr.
make a contribution to the capitalization of the Company. That contribution was
in the form of a relinquishment of a portion of their previously outstanding
Common Stock. In particular, on October 31, 1997, Steven L. Vanechanos, Jr. and
Steve Vanechanos, Sr. each contributed to the Company, for a total of $1.00 paid
to each, 33,330 shares of Common Stock of the Company owned by them.
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DESCRIPTION OF SECURITIES
GENERAL
The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock, $.0001 par value per share, and 5,000,000 shares of undesignated
Preferred Stock. As of the date of this Prospectus (and giving effect to the
Reserve Stock Split described in this Prospectus), there were issued and
outstanding 2,074,710 shares of Common Stock and no shares of Preferred Stock.
As of November 1, 1997, the Common Stock is held of record by approximately
3,255 stockholders.
COMMON STOCK
Holders of Common Stock have the right to cast one vote, in person or by
proxy, for each share owned of record on the record date (as defined in the
Company's by-laws) on all matters submitted to a vote of the holders of Common
Stock, including the election of directors. Holders of Common Stock do not have
cumulative voting rights, which means that holders of more than 50% of the
outstanding shares voting for the election of the class of directors to be
elected by the Common Stock can elect all of such directors, and, in such event,
the holders of the remaining shares of Common Stock will be unable to elect any
of the Company's directors.
Holders of the Common Stock are entitled to share ratably in such dividends
as may be declared by the Board of Directors out of funds legally available
therefor, when, as and if declared by the Board of Directors and are also
entitled to share ratably in all of the assets of the Company available for
distribution to holders of shares of Common Stock upon the liquidation,
dissolution or winding up of the affairs of the Company. Holders of Common Stock
do not have preemptive, subscription or conversion rights. All outstanding
shares of Common Stock are, and those shares of Common Stock offered hereby will
be, validly issued, fully paid and non-assessable.
REPRESENTATIVE'S WARRANTS
In connection with this Offering, the Company issued to the Representative
warrants to purchase an aggregate of 175,000 shares of Common Stock. See
"UNDERWRITING" for a description of the material terms of the Representative's
Warrant.
STOCK OPTION PLANS
The Company has adopted a 1997 Employee Stock Option Plan pursuant to which
it may issue options to purchase up to 234,764 shares of Common Stock. The
Company has granted 203,392 options under the 1997 Employee Plan. The Company
also has adopted the 1997 Stock Option Plan for Outside Directors, pursuant to
which it may issue options to purchase up to 78,254 shares of Common Stock. The
Company has granted 15,648 options under the 1997 Director Plan. See
"MANAGEMENT -- Stock Option Plans."
PREFERRED STOCK
The Company is authorized to issue up to 5,000,000 shares of undesignated
Preferred Stock ("Undesignated Preferred Stock"). The Undesignated Preferred
Stock may be issued in series, and shares of each series will have such rights
and preferences as are fixed by the Board of Directors in the resolutions
authorizing the issuance of that particular series. In designating any series of
Undesignated Preferred Stock, the Board of Directors may, without further action
by the holders of Common Stock, fix the number of shares constituting that
series and fix the dividend rights, dividend rate, conversion rights, voting
rights (which may be greater or lesser than the voting rights of the Common
Stock), rights and terms of redemption (including any sinking fund provisions),
and the liquidation preferences of the series of Undesignated Preferred Stock.
The holders of any series of Undesignated Preferred Stock, when and if issued,
are expected to have priority claims to dividends and to any distributions upon
liquidation of the Company, and they may have other preferences over the holders
of the Common Stock.
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<PAGE> 48
The Board of Directors may issue series of Undesignated Preferred Stock
without action by the stockholders of the Company. Accordingly, the issuance of
Undesignated Preferred Stock may adversely affect the rights of the holders of
the Common Stock. In addition, the issuance of Undesignated Preferred Stock may
be used as an "anti-takeover" device without further action on the part of the
stockholders. Issuance of Undesignated Preferred Stock may dilute the voting
power of holders of Common Stock (such as by issuing Undesignated Preferred
Stock with super-voting rights) and may render more difficult the removal of
current management, even if such removal may be in the shareholders' best
interest. The Company has no present intention to issue any shares of
Undesignated Preferred Stock. In addition, the Company has, pursuant to the
Underwriting Agreement, agreed with the Representative that the Company will not
sell or otherwise issue any shares of preferred stock for two years following
this Offering, without the Representative's prior written consent.
CERTAIN ANTI-TAKEOVER PROVISIONS IN THE CERTIFICATE OF INCORPORATION AND BYLAWS
Classified Board of Directors and Related Provisions
The Company's Certificate of Incorporation provides that the Board of
Directors is to be divided into three classes which shall be as nearly equal in
number as possible. The directors in each class will hold office following their
initial appointment to office for terms of one year, two years and three years,
respectively and, upon reelection, will serve for terms of three years
thereafter. Each director will serve until his or her successor is elected and
qualified.
The Company's Certificate of Incorporation provides that a director may be
removed by shareholders only upon the affirmative vote of at least a majority of
the votes which all shareholders would be entitled to cast. The Company's
Certificate of Incorporation further provides that the Board of Directors shall
have the exclusive power to fill any vacancy occurring in the Board of
Directors, including a vacancy created by an increase in the number of
directors, by a majority vote of the directors then in office. Any director so
elected shall serve until the next annual meeting of shareholders.
A classified board of directors makes it more difficult for shareholders,
including those holding a majority of the outstanding shares of Common Stock, to
force an immediate change in the composition of a majority of the Board of
Directors. Because the terms of only one-third of the incumbent directors expire
each year, it requires at least two annual elections for the shareholders to
change a majority, whereas a majority of a non-classified board may be changed
in one year. In the absence of the provisions of the Company's Certificate of
Incorporation classifying the Board, all of the directors would be elected each
year.
Other Antitakeover Provisions
The Company's Certificate of Incorporation contains certain other
provisions that may also have the effect of deterring or discouraging, among
other things, a non-negotiated tender or exchange offer for the Common Stock, a
proxy contest for control of the Company, the assumption of control of the
Company by a holder of a large block of the Common Stock and the removal of the
Company's management. These provisions: (i) empower the Board of Directors,
without shareholder approval, to issue preferred stock, the terms of which,
including voting power, are set by the Board; (ii) restrict the ability of
shareholders to remove directors; (iii) require that shareholders with at least
80% of total voting power approve mergers and other similar transactions if the
transaction is not approved, in advance, by the Board of Directors; (iv)
prohibit shareholders' actions without a meeting; (v) require that shareholders
with at least 80%, or in certain instances a majority, of total voting power
approve the repeal or further amendment of the Certificate of Incorporation;
(vi) limit the right of a person or entity to vote more than 10% of the
Corporation's voting stock; and (vii) require that shares with at least 66 2/3%
of total voting power approve any repeal or amendment of the Bylaws.
TRANSFER AGENT
The Company has appointed American Stock Transfer & Trust Company, 40 Wall
Street, New York, New York, 10005 as Transfer Agent for its Common Stock.
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<PAGE> 49
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 3,824,710 shares of
Common Stock outstanding. Of those shares, a total of 2,055,438 shares,
including the 1,750,000 shares offered hereby will be freely tradeable without
further registration under the Securities Act.
Up to 175,000 additional shares of Common Stock may be purchased by the
Representative after the first anniversary date of this Prospectus through the
exercise of the Representative's Warrant. Any and all shares of Common Stock
purchased upon exercise of the Representative's Warrant will be freely
tradeable, provided that the Company satisfies certain securities registration
and qualification requirements in accordance with the terms of the
Representative's Warrant. See "UNDERWRITING."
Of the expected 3,824,710 shares of Common Stock outstanding upon
completion of this Offering, approximately 1,807,000 shares of Common Stock are
"restricted securities" within the meaning of Rule 144 of the Securities Act. As
of six months after the date of this Prospectus, approximately 1,385,963 shares
will continue to be "restricted securities" under Rule 144. See "UNDERWRITING,"
"RISK FACTORS -- Shares Eligible For Future Sale."
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including a person who may be deemed to be an
"affiliate" of the Company as that term is defined under the Securities Act,
will be entitled to sell within any three-month period a number of shares
beneficially owned for at least one year that does not exceed the greater of (i)
1% of the then outstanding shares of Common Stock, or (ii) the average weekly
trading volume in the Common Stock during the four calendar weeks preceding such
sale. Sales under Rule 144 are also subject to certain requirements as to the
manner of sale, notice, and the availability of current public information about
the Company. However, a person who is not deemed to have been an affiliate of
the Company during the 90 days preceding a sale by such person, and who has
beneficially owned shares of Common Stock for at least two years, may sell such
shares without regard to the volume, manner of sale, or notice requirements of
Rule 144.
Prior to this Offering, there has been a limited public market for the
Company's securities. Following this Offering, the Company cannot predict the
effect, if any, that sales of Common Stock pursuant to Rule 144 or otherwise, or
the availability of such shares for sale, will have on the market price
prevailing from time to time. Nevertheless, sales by the current stockholders of
substantial amounts of Common Stock in the public market could adversely affect
prevailing market prices for the Common Stock. In addition, the availability for
sale of a substantial amount of Common Stock acquired through the exercise of
the Representative's Warrant could adversely affect prevailing market prices for
the Common Stock. The Company's officers, Directors and holders of 5% of the
outstanding shares of Common Stock have agreed not to sell the shares
beneficially owned by such persons for a period of 24 months from the date of
this Prospectus without the Representative's written consent. In addition, the
Company has agreed that it will not issue any shares of Common Stock for a
period of 12 months following the date of this Prospectus without the
Representative's written consent, except for shares of Common Stock issuable
upon exercise of stock options that have been or may be granted under the
Employee Plans.
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<PAGE> 50
UNDERWRITING
The Underwriters named below have agreed, subject to the terms and
conditions of the Underwriting Agreement between the Company and H.J. Meyers &
Co., Inc., as Representative of the Underwriters, to purchase from the Company
the number of shares of Common Stock set forth opposite their names. The 10%
underwriting discount set forth on the cover page of this Prospectus will be
allowed to the Underwriters at the time of delivery to the Underwriters of the
shares of Common Stock so purchased.
<TABLE>
<CAPTION>
NUMBER
OF SHARES
NAME OF UNDERWRITER PURCHASED
------------------------------------------------------------------ ---------
<S> <C>
H.J. Meyers & Co., Inc............................................
--------
TOTAL...................................................
========
</TABLE>
The Underwriters have advised the Company that they propose to offer the
shares of Common Stock to the public at the initial public offering price set
forth on the front cover page of this Prospectus, and at such price less a
concession not in excess of $ per share of Common Stock to certain
dealers who are members of the National Association of Securities Dealers, Inc.,
of which the Underwriters may allow and such dealers may reallow concessions not
in excess of $ per share of Common Stock to certain other dealers. The
public offering price and concession and discount may be changed by the
Underwriters after the initial public offering.
The Company has granted to the Underwriters an over-allotment option
expiring at the close of business on the 45th day subsequent to the date of this
Prospectus, to purchase up to an additional 262,500 shares of Common Stock at
the public offering price, less the underwriting discount set forth on the cover
page of this Prospectus. The Underwriters may exercise such option only to
satisfy over-allotments in the sale of the shares of Common Stock.
The Company has agreed to pay to the Representative a non-accountable
expense allowance equal to 3% of the total proceeds of this Offering, or
$210,000 (and 3% of the total proceeds from the sale of any shares of Common
Stock pursuant to the exercise of the over-allotment option, or $237,000 if the
Underwriters exercise the over-allotment option in full). In addition to the
Underwriters' commissions and the Representative's expense allowance, the
Company is required to pay the costs of qualifying the shares of Common Stock
under federal and state securities laws, together with legal and accounting
fees, printing and other costs in connection with this Offering.
At the closing of this Offering, the Company will issue to the
Representative, for nominal consideration, the Representative's Warrant to
purchase up to 175,000 shares of Common Stock of the Company. The shares of
Common Stock subject to the Representative's Warrant are identical to the shares
of Common Stock sold to the public, except for the purchase price and certain
registration rights. The Representative's Warrant will be exercisable for a
four-year period commencing one year from the date of this Prospectus, at an
exercise price of $4.80 per share of Common Stock (that being 120% of the
initial public offering price per share of Common Stock). The Representative's
Warrant will not be transferable prior to their initial exercise date except to
successors in interest to the Representative and/or one or more officers of the
Representative.
The Representative's Warrant will contain anti-dilution provisions
providing for appropriate adjustment in the event of any recapitalization,
reclassification, stock dividend, stock split or similar transactions. The
Representative's Warrant does not entitle the Representative to any rights as a
shareholder of the Company until such warrants are exercised and the shares of
Common Stock are purchased thereunder.
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<PAGE> 51
The Representative's Warrant and the shares of Common Stock issuable
thereunder may not be offered for sale to the public except in compliance with
the applicable provisions of the Act. The Company has agreed that if it causes a
post-effective amendment to the Registration Statement of which this Prospectus
is a part, or a new registration statement or offering statement under
Regulation A, to be filed with the Securities and Exchange Commission
("Commission"), the Representative shall have the right during the life of the
Representative's Warrant to include therein for registration the
Representative's Warrant and/or the shares of Common Stock issuable upon their
exercise at no expense to the Representative. Additionally, the Company has
agreed that, upon demand by the holder(s) of at least 50% of the (i) total
unexercised Representative's Warrant and (ii) shares of Common Stock issued upon
the exercise of the Representative's Warrant, made on no more than two separate
occasions during the exercise period of the Representative's Warrant, the
Company shall use its best efforts to register the Representative's Warrant
and/or any of the shares of Common Stock issuable upon the exercise thereof,
provided that the Company has available current financial statements, the
initial such registration to be at the Company's expense and the second at the
expense of the holder(s).
For the period during which the Representative's Warrant are exercisable,
the holder(s) will have the opportunity to profit from a rise in the market
value of the Company's Common Stock, with a resulting dilution in the interests
of the other stockholders of the Company. The holder(s) of the Representative's
Warrant can be expected to exercise the warrants at a time when the Company
would, in all likelihood, be able to obtain any needed capital from an offering
of its unissued Common Stock on terms more favorable to the Company than those
provided for in the Representative's Warrant. Such facts may materially
adversely affect the terms on which the Company can obtain additional financing.
During the three year period from the closing of the Offering, the
Representative has been granted a right of first refusal to act as underwriter
or agent for any public or private offering or sale of securities by the
Company, its officers, directors and 5% shareholders.
The Company has agreed to enter into a one year consulting agreement with
the Representative, pursuant to which the Representative will act as financial
consultant to the Company, commencing upon the closing date of this Offering.
Under the terms of this agreement, the Representative, to the extent reasonably
required in the conduct of the business of the Company and at the prior written
request of the President of the Company, has agreed to evaluate the Company's
managerial and financial requirements, assist in the preparation of budgets and
business plans, advise with regard to sales planning and sales activities, and
assist in financial arrangements. The Representative will make available
qualified personnel for this purpose. The non-refundable consulting fee of
$72,000 will be payable, in full, on the closing date of this Offering.
The Company has agreed that it will engage a public relations firm
acceptable to the Representative and the Company. The Company also has agreed to
maintain a relationship with such public relations firm for minimum period of
two years and on such other terms as are acceptable to the Representative.
The Company has also agreed that, for a period of two years from the
closing of this Offering, if it participates in any merger, consolidation or
other transaction which the Representative has brought to the Company (including
an acquisition of assets or stock for which it pays, in whole or in part, with
shares of the Company's Common Stock or other securities), which transaction is
consummated within three years of the closing of this Offering, then it will pay
for the Representative's services an amount equal to 5% of the first $3.0
million of value paid or value received in the transaction, 3.5% of any
consideration above $3.0 million and less than $5.0 million and 2% of any
consideration in excess of $5.0 million. The Company has also agreed that if,
during this two-year period, someone other than the Representative brings such a
merger, consolidation, or other transaction to the Company, and if the Company
in writing retains the Representative for consultation or other services in
connection therewith, than upon consummation of the transaction the Company will
pay to the Representative as a fee the appropriate amount as set forth above or
as otherwise agreed to between the Company and the Representative.
The Company has agreed that for a period of one year from the date of this
Prospectus the Company will not sell or otherwise dispose of any securities
without the prior written consent of the Representative, which consent shall not
be unreasonably withheld, with the exception of shares of Common Stock issued
pursuant to the exercise of options, warrants or other convertible securities
outstanding prior to the date of this Prospectus.
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<PAGE> 52
The Company will not sell or issue any securities pursuant to Regulation S under
the Securities Act without the Representative's prior written consent.
The Company's officers, directors and 5% shareholders have agreed that for
a period of 24 months from the date of this Prospectus they will not offer,
sell, contract to sell or otherwise dispose of any shares of Common Stock
acquired prior to this Offering, without the prior written consent of the
Representative.
For a period of 36 months from the closing of this Offering, the
Representative is entitled to designate one member as a nominee for election to
the Company's Board of Directors. Steven L. Vanechanos, Jr. and Steve
Vanechanos, Sr. have agreed to vote their shares in favor of such nominee. If
the Representative elects not to nominate a Board Member, then it shall have the
right to select a person to act as an observer to attend all meetings of the
Board of Directors. The Company has agreed to hold at least four meetings and to
indemnify the Representative's observer against any claims arising out of his
participating at meetings.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriters against certain liabilities in connection with
the Registration Statement, including liabilities under the Act.
The Representative has advised the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
The offering price of the securities being offered hereby was determined by
negotiation between the Company and the Representative. Factors considered in
determining such price include the history of and the prospects for the industry
in which the Company competes, the past and present operations of the Company,
the future prospects of the Company, the ability of the Company's management,
the earnings, net worth and financial condition of the Company, the general
condition of the securities markets at the time of this Offering, the recent
trading price of the Common Stock, after giving effect to the Reverse Stock
Split, and the prices of similar securities of comparable companies. On
, 1997, the day after the effectiveness of the Reverse Stock Split,
the bid price of the Common Stock was $ per share. See "RECENT
DEVELOPMENTS -- Reverse Stock Split." That bid price compares to the initial
public offering price in this Offering of $ per share. That comparison was
taken into account by the Company and the Underwriters as one of the factors
involved in determining the public offering price per share.
INTERIM FINANCINGS
In April, 1997, the Company completed a private placement of $600,000 of
unsecured subordinated Promissory Notes and 74,760 shares of Common Stock (the
"April 1997 Financing"). The April 1997 Financing consisted of the sale by the
Company of 24 units, each composed of a $25,000 unsecured, subordinated
Promissory Note and 3,115 shares of Common Stock. Those notes will be repaid
from the proceeds of this Offering.
The net proceeds to the Company from the April 1997 Financing totaled
approximately $492,000. Those net proceeds were used for Company operations from
April 1997 through August 1997. $50,000 was used to repay officer loans, $60,000
was used to pay legal and accounting expenses associated with the Company's
filing of its periodic reports under the Securities and Exchange Act of 1934 and
the holding of its 1997 Annual Meeting of Stockholders, and the balance,
approximately $382,000, was used to fund operating deficits incurred by the
Company during that period. Of those operating deficits, the Company believes
that approximately $150,000 is allocable to the support of the marketing
activities of the Company, approximately $100,000 is allocable to the
compensation of personnel in operations and other costs of services, and the
balance of $132,000 is allocable to the support of the general and
administrative activities of the Company.
H.J. Meyers, Inc., the Representative, acted as placement agent in
connection with the April 1997 Financing and received commissions and a
non-accountable expense allowance in the aggregate amount of $78,000.
In August, 1997, the Company completed a second private placement (the
"August 1997 Financing") of $500,000 of unsecured, subordinated Promissory Notes
and 66,660 shares of Common Stock divided into 20
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<PAGE> 53
units, each composed of a $25,000 unsecured, subordinated Promissory Note and
3,333 shares of Common Stock. Those notes will be repaid from the proceeds of
this Offering.
The net proceeds to the Company from the August Financing were
approximately $427,500, which are being and will be used for Company operations,
including sales and marketing expense, product development, operations, and
working capital.
H.J. Meyers, Inc. acted as placement agent in connection with the August
1997 Financing and received commissions and a non-accountable expense allowance
in the aggregate amount of $65,000.
For financial accounting purposes, the Company has allocated the amounts
raised in each private placement between the Promissory Notes and the shares of
Common Stock included in the units, based upon the "fair value" of the Common
Stock at the time of issuance of the respective units. In the case of the April
1997 Financing, the Company allocated $450,000 to the shares and the remaining
$150,000 to the notes. In the case of the August 1997 Financing, the Company
allocated $400,000 to the shares and the remaining $100,000 to the notes. The
difference between the face amount of the notes and the aforesaid amounts
allocated to them represents debt discount. Thus, the debt discount for the
April notes is $450,000 and the debt discount for the August notes is $400,000.
Further, the Company incurred deferred financing fees of $108,000 in the
April 1997 Financing and $72,500 in the August 1997 Financing.
The debt discount and deferred financing fees are amortized over the life
of the debt and charged to operations. A portion of the debt discount and
deferred financing fees have been charged to operations prior to the date of
this Prospectus, and the unamortized balance will be charged to operations when
the debt is repaid, which is expected to be out of the net proceeds of this
Offering.
The Company presently has two lines of credit from commercial lenders.
Those lines of credit are personally guaranteed by Steve Vanechanos, Sr., Steven
L. Vanechanos, Jr., and Kenneth Konikowski.
One line of credit is in the maximum amount of $50,000 from Fleet Bank. The
interest rate on the Fleet Bank line of credit is 10.5% per annum. The Fleet
Bank line of credit has no stated maturity and is payable on demand. The other
line of credit is in the maximum amount of $47,000 from Wells Fargo Bank. The
interest rate on the Wells Fargo Bank line of credit is 13.25% per annum. The
Wells Fargo Bank line of credit also has no stated maturity and is payable on
demand.
As of the date of this Prospectus, the Company owes $15,000 on the Fleet
Bank line of credit. Such amount was advanced to Software Associates in November
of 1996, prior to the Company's acquisition of Software Associates. Also, as of
the date of this Prospectus, the Company owes $10,000 on the Wells Fargo Bank
line of credit. Such amount was advanced to the Company in March, 1997, and was
used by the Company to meet its payroll expense.
LEGAL MATTERS
Certain legal matters relating to the Common Stock offered hereby have been
passed upon for the Company by the law firm of Stevens & Lee, Wayne,
Pennsylvania and Cherry Hill, New Jersey. Certain legal matters in connection
with the Offering will be passed upon for the Representative by Harter, Secrest
& Emery, Rochester, New York.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
SB-2 under the Securities Act with respect to the securities offered hereby (the
"Registration Statement"). This Prospectus, which is a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement and exhibits thereto. Statements contained in this Prospectus as to
the contents of any contract or other document referred to are not necessarily
complete and in each instance, reference is made to the copy of such contract or
document filed as an exhibit to the Registration Statement, each such statement
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<PAGE> 54
being qualified by such reference. For further information with respect to the
Company and such securities, reference is hereby made to the Registration
Statement and the exhibits filed therewith. The Company hereby undertakes to
provide to each person to whom this Prospectus is delivered, upon written or
oral request, a copy of any and all of the information that has been
incorporated by reference in this Prospectus. Such request should be directed to
DynamicWeb Enterprises, Inc., 271 Route 46 West, Building F, Suite 209,
Fairfield, New Jersey, 07004; telephone (973) 244-1000; Attention: Corporate
Secretary.
In addition, the Company is subject to the informational requirements of
the Securities and Exchange Act of 1934 and, in accordance therewith, files
reports, proxy statements and other information with the Commission. All of
these documents may be inspected at the office of the Commission without charge,
450 Fifth Street, N.W., Washington, D.C. 20549 or certain regional offices of
the Commission, located at Seven World Trade Center, 13th Floor, New York, New
York 10048 or 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The
Commission also maintains a Web Site at "http://www.sec.gov" where such material
filed electronically can be examined. Copies of such material may also be
obtained upon payment to the Commission of prescribed fees and rates from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, DC 20549.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements and with such other periodic reports as
the Company may from time to time deem appropriate or as may be required by law.
EXPERTS
The financial statements of the Company at September 30, 1996 and for each
of the fiscal years in the two year period then ended, and the financial
statements of Software Associates, Inc. at June 30, 1996 and for each of the
fiscal years in the two year period then ended, appearing in this Prospectus and
Registration Statement have been audited by Richard A. Eisner & Company, LLP,
independent auditors, as set forth in their reports thereon (both of which call
attention to substantial doubts as to the ability of the respective companies to
continue as a going concern) appearing elsewhere herein, and are included herein
in reliance upon such reports given upon the authority of said firm as experts
in auditing and accounting.
50
<PAGE> 55
DYNAMICWEB ENTERPRISES, INC.
(FORMERLY SEAHAWK CAPITAL CORPORATION)
I N D E X
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES:
REPORT OF INDEPENDENT AUDITORS.................................................. F-2
CONSOLIDATED BALANCE SHEETS AS AT SEPTEMBER 30, 1996 AND (UNAUDITED) AS AT JUNE
30, 1997........................................................................ F-3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND
SEPTEMBER 30, 1995 AND (UNAUDITED) FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND
JUNE 30, 1996................................................................... F-4
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED
SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995 AND (UNAUDITED) FOR THE NINE MONTHS
ENDED JUNE 30, 1997............................................................. F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND
SEPTEMBER 30, 1995 AND (UNAUDITED) FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND
JUNE 30, 1996................................................................... F-6
NOTES TO FINANCIAL STATEMENTS................................................... F-7
PRO FORMA:
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS AND UNAUDITED PRO FORMA
CONDENSED FINANCIAL STATEMENT ADJUSTMENTS....................................... F-17
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET........................ F-18
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS.............. F-19
SOFTWARE ASSOCIATES, INC.:
REPORT OF INDEPENDENT AUDITORS.................................................. F-20
BALANCE SHEET AS AT JUNE 30, 1996............................................... F-21
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1996 AND JUNE 30, 1995..... F-22
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY FOR THE YEARS ENDED JUNE 30, 1996
AND JUNE 30, 1995............................................................... F-23
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 1996 AND JUNE 30, 1995.... F-24
NOTES TO FINANCIAL STATEMENTS................................................... F-25
UNAUDITED CONDENSED BALANCE SHEET AS AT SEPTEMBER 30, 1996...................... F-28
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS FOR THE THREE
MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995.......................... F-29
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995....................................... F-30
NOTES TO UNAUDITED FINANCIAL STATEMENTS......................................... F-31
</TABLE>
F-1
<PAGE> 56
Board of Directors and Stockholders
DynamicWeb Enterprises, Inc.
Fairfield, New Jersey
Upon the completion of the transactions described in Note J[5], we will be
in the position to issue the following opinion:
Richard A. Eisner & Company, LLP
New York, New York
September 5, 1997
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
DynamicWeb Enterprises, Inc.
Fairfield, New Jersey
"We have audited the accompanying consolidated balance sheet of DynamicWeb
Enterprises, Inc. and subsidiaries (formerly Seahawk Capital Corporation) as at
September 30, 1996 and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for the years ended September 30,
1996 and September 30, 1995. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
"We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 audits provide a reasonable basis for our opinion.
"In our opinion, the consolidated financial statements enumerated above
present fairly, in all material respects, the financial position of DynamicWeb
Enterprises, Inc. and subsidiaries (formerly Seahawk Capital Corporation) as at
September 30, 1996 and the results of their operations and their cash flows for
the years ended September 30, 1996 and September 30, 1995, in conformity with
generally accepted accounting principles.
"The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note B, a substantial
portion of the Company's resources may be depleted before it is able to market
and derive significant revenues from its products and services. These factors
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note B. The consolidated financial statements do not include any adjustments
that might result from the outcome of these uncertainties."
Richard A. Eisner & Company, LLP
New York, New York
April 7, 1997
With respect to Note J[5]
, 1997
F-2
<PAGE> 57
DYNAMICWEB ENTERPRISES, INC.
(FORMERLY SEAHAWK CAPITAL CORPORATION)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1996 1997
------------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 174,403 $ 95,818
Accounts receivable, less allowance for doubtful accounts of
$34,328 and $60,928............................................ 70,518 209,035
Prepaid and other current assets.................................. 32,068 31,213
--------- -----------
Total current assets...................................... 276,989 336,066
Property and equipment (Notes D and E).............................. 239,889 278,763
Patents and trademarks, less accumulated amortization of $2,166 and
$3,402............................................................ 19,299 23,257
Customer list, less accumulated amortization of $11,667 (Note
J[2])............................................................. 88,333
Deferred financing fees, less accumulated amortization of $36,000
(Note J[8])....................................................... 72,000
Deferred registration costs (Note J[4])............................. 75,000
--------- -----------
Total..................................................... $ 536,177 $ 873,419
========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................. $ 34,581 $ 165,415
Accrued expenses and other........................................ 18,487 79,235
Current maturities of long-term debt (Note E)..................... 12,434 8,370
Loans payable -- banks (Note J[9])................................ 24,500
Deferred revenue.................................................. 11,330 18,073
Subordinated notes payable -- interim financing, less unamortized
debt discount of $300,000 (Note J[8][a])....................... 300,000
--------- -----------
Total current liabilities................................. 76,832 595,593
Long-term debt, less current maturities (Note E).................... 197,661 188,084
--------- -----------
Total liabilities......................................... 274,493 783,677
--------- -----------
Commitments (Notes I and J)
Stockholders' equity (Notes A, F and J):
Preferred stock -- par value to be determined with each issue;
5,000,000 shares authorized; none issued
Common stock -- $.0001 par value; 50,000,000 shares authorized;
1,710,408 shares issued and outstanding at September 30, 1996
and 2,112,438 shares issued and to be issued at June 30,
1997........................................................... 171 211
Additional paid-in capital........................................ 676,699 2,236,327
Accumulated deficit............................................... (415,186) (2,146,796)
--------- -----------
Total stockholders' equity................................ 261,684 89,742
--------- -----------
Total..................................................... $ 536,177 $ 873,419
========= ===========
</TABLE>
Attention is directed to the foregoing accountants' report
and to the accompanying notes to financial statements.
F-3
<PAGE> 58
DYNAMICWEB ENTERPRISES, INC.
(FORMERLY SEAHAWK CAPITAL CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 30, JUNE 30,
------------------------ -------------------------
1996 1995 1997 1996
---------- ----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales (Note H[3]):
System sales............................. $ 147,337 $ 296,763 $ 98,254 $ 107,317
Services................................. 312,730 342,980 399,841 241,100
--------- --------- ----------- ---------
Total............................ 460,067 639,743 498,095 348,417
--------- --------- ----------- ---------
Cost of sales:
System sales............................. 71,205 158,820 33,640 55,800
Services................................. 81,194 84,318 126,990 62,434
--------- --------- ----------- ---------
Total............................ 152,399 243,138 160,630 118,234
--------- --------- ----------- ---------
Gross profit............................... 307,668 396,605 337,465 230,183
--------- --------- ----------- ---------
Expenses:
Selling, general and administrative...... 719,443 364,684 1,006,246 460,631
Research and development................. 28,990 12,000 164,024 15,229
--------- --------- ----------- ---------
Total............................ 748,433 376,684 1,170,270 475,860
--------- --------- ----------- ---------
Operating income (loss).................... (440,765) 19,921 (832,805) (245,677)
Purchased research and development......... (713,710)
Interest expense (including amortization of
debt discount and deferred financing fees
of $186,000 for the nine months ended
June 30, 1997)........................... (23,271) (23,350) (210,585) (14,950)
Interest income............................ 8,806 3,140 3,790 5,494
--------- --------- ----------- ---------
(Loss) before income tax benefit........... (455,230) (289) (1,753,310) (255,133)
Income tax benefit -- deferred............. 21,700
--------- --------- ----------- ---------
NET (LOSS)................................. $ (455,230) $ (289) $(1,731,610) $ (255,133)
========= ========= =========== =========
Net (loss) per common share (Note C[7]).... $ (.27) $ (0) $ (.88) $ (.15)
========= ========= =========== =========
Weighted-average number of shares
outstanding.............................. 1,667,202 1,620,804 1,962,778 1,649,687
========= ========= =========== =========
</TABLE>
Attention is directed to the foregoing accountants' report
and to the accompanying notes to financial statements.
F-4
<PAGE> 59
DYNAMICWEB ENTERPRISES, INC.
(FORMERLY SEAHAWK CAPITAL CORPORATION)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(NOTES A, F AND J)
<TABLE>
<CAPTION>
COMMON STOCK -- RETAINED
PAR VALUE $.0001 ADDITIONAL EARNINGS
------------------- PAID-IN (ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT) TOTAL
---------- ------ ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance -- October 1, 1994 (Note
A)............................... 1,620,804 $162 $ 228,958 $ 40,333 $ 269,453
Net (loss)....................... (289) (289)
--------- ---- ---------- ----------- -----------
Balance -- September 30, 1995...... 1,620,804 162 228,958 40,044 269,164
Issuance of common stock, net of
$52,250 of costs (Note F)..... 89,604 9 447,741 447,750
Net (loss)....................... (455,230) (455,230)
--------- ---- ---------- ----------- -----------
Balance -- September 30, 1996...... 1,710,408 171 676,699 (415,186) 261,684
Issuance of common stock (Note
J[1])......................... 65,212 7 249,993 250,000
Issuance of common stock to
acquire subsidiary (Note
J[2])......................... 224,330 22 859,978 860,000
Shares issuable with the interim
financing (Note J[8][a])...... 112,488 11 449,989 450,000
Payable to stockholders for
fractional shares............. (332) (332)
Net (loss) (unaudited)........... (1,731,610) (1,731,610)
--------- ---- ---------- ----------- -----------
Balance -- June 30, 1997
(unaudited)...................... 2,112,438 $211 $2,236,327 $ (2,146,796) $ 89,742
========= ==== ========== =========== ===========
</TABLE>
Attention is directed to the foregoing accountants' report
and to the accompanying notes to financial statements.
F-5
<PAGE> 60
DYNAMICWEB ENTERPRISES, INC.
(FORMERLY SEAHAWK CAPITAL CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 30, JUNE 30,
---------------------- -------------------------
1996 1995 1997 1996
--------- -------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss).................................................... $(455,230) $ (289) $(1,731,610) $(255,133)
Adjustment to reconcile net (loss) to net cash (used in)
operating activities:
Depreciation and amortization............................... 23,644 5,614 34,415 9,919
Stock issued for compensation............................... 10 10
Purchased research and development.......................... 713,710
Deferred income taxes....................................... (21,700)
Amortization of debt discount and deferred financing fees... 186,000
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable................ 3,739 (24,810) (20,371) 4,635
(Increase) decrease in prepaid expenses and other current
assets.................................................. (6,923) 18,023 855 (5,610)
Increase (decrease) in accounts payable................... 7,801 (1,910) 127,530 13,764
Increase (decrease) in accrued expenses................... 15,293 (2,368) 5,395 9,922
Increase (decrease) in deferred revenue................... 122 (1,549) 6,743 520
--------- -------- ----------- ---------
Net cash (used in) operating activities................. (411,544) (7,289) (699,033) (221,973)
--------- -------- ----------- ---------
Cash flows from investing activities:
Acquisition of property and equipment......................... (23,838) (6,900) (66,152) (19,087)
Proceeds from sale of equipment............................... 1,954
Acquisition of patents and trademarkets....................... (21,220) (245) (4,251) (17,992)
Cash acquired upon acquisition of subsidiary.................. 15,235
--------- -------- ----------- ---------
Net cash (used in) investing activities................. (45,058) (7,145) (53,214) (37,079)
--------- -------- ----------- ---------
Cash flows from financing activities:
Payment of long-term debt..................................... (11,909) (13,772) (7,838) (9,892)
Proceeds from issuance of common stock........................ 597,750 250,000 597,750
Proceeds from loans -- banks.................................. 14,500
Loan from officer/stockholder................................. 50,000
Payment of officer/stockholder loan........................... (50,000)
Proceeds from sale of units consisting of notes and common
stock....................................................... 600,000
Payment of deferred registration costs........................ (75,000)
Payment of deferred financing fees............................ (108,000)
--------- -------- ----------- ---------
Net cash provided by (used in) financing activities..... 585,841 (13,772) 673,662 587,858
--------- -------- ----------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 129,239 (28,206) (78,585) 328,806
Cash and cash equivalents, beginning of period.................. 45,164 73,370 174,403 45,164
--------- -------- ----------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD........................ $ 174,403 $ 45,164 $ 95,818 $ 373,970
========= ======== =========== =========
Supplemental schedule of noncash investing and financing
activities:
During the year ended September 30, 1995, the Company financed
$31,316 of property and equipment
On November 30, 1996 the Company acquired Software Associates,
Inc. as described in Note J[2]
Supplemental disclosure of cash flow information:
Cash paid for interest during the period...................... $ 21,271 $ 23,350 $ 18,313 $ 14,950
</TABLE>
Attention is directed to the foregoing accountants' report
and to the accompanying notes to financial statements.
F-6
<PAGE> 61
DYNAMICWEB ENTERPRISES, INC.
(FORMERLY SEAHAWK CAPITAL CORPORATION)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO JUNE 30, 1997 AND PERIODS ENDED JUNE 30, 1997 AND
JUNE 30, 1996)
(NOTE A) -- BASIS OF PRESENTATION:
The accompanying financial statements include the accounts of DynamicWeb
Enterprises, Inc. ("DWE") and its wholly owned subsidiaries, Megascore, Inc.
DynamicWeb Transactions Systems, Inc. ("DWTS") and Software Associates, from the
date of its acquisition (November 30, 1996) (Note J[2]) (collectively the
"Company"). All significant intercompany balances and transactions have been
eliminated.
On March 26, 1996 DWTS was acquired by Seahawk Capital Corporation
("Seahawk"), a publicly held corporation which had 114,759 shares of common
stock outstanding and no assets. Prior to the acquisition, Seahawk distributed
all of its assets to its shareholders. In the acquisition, the shareholders of
DWTS received 1,281,716 shares of Seahawk's common stock. The acquisition is
being accounted for as if DWTS were the acquiring entity. The shares of Seahawk
are accounted for as being outstanding for all periods presented. In connection
with the acquisition, 191,724 shares were issued to a finder and 19,563 shares
were issued for legal fees. At the conclusion of this transaction, there were
1,607,762 shares outstanding.
DWTS, formerly a division of Megascore, Inc. was established as a separate
legal entity on October 31, 1995. On February 7, 1996 DWTS issued all of its
shares of its common stock to Megascore, Inc. On September 30, 1996, DynamicWeb
Enterprises, Inc. acquired all the common stock of Megascore, Inc. for 13,042
shares of its common stock. The transaction was accounted as a combination of
entities under common control. The accompanying financial statements retain the
historical accounting basis for the net assets of Megascore, Inc. and gives
effect to the operations of Megascore, Inc. for all periods presented.
On May 14, 1996, Seahawk changed its name to DynamicWeb Enterprises, Inc.
and concurrently increased the authorized number of shares of its common stock
to 50,000,000 at a $.0001 par value. The accompanying financial statements give
retroactive effect to the above transaction.
(NOTE B) -- THE COMPANY:
DWE is in the business of facilitating electronic commerce transactions
between business entities, developing, marketing and supporting software
products and other services that enable business to engage in electronic
commerce utilizing the Internet and traditional Electronic Data Interchange
("EDI"). DWE offers electronic commerce solutions in EDI and Internet-based
transactions processing.
Megascore, Inc. is a full-service systems integrator specializing in
distribution, accounting and point-of-sale computer software consulting services
for suppliers and retailers.
Software Associates, Inc. is a service bureau engaged in the business of
helping companies realize the benefits of expanding their data processing and
electronic communications infrastructures through the use of EDI.
Although the Company had working capital at September 30, 1996 and has
subsequently raised net proceeds of approximately $742,000 in issuance of stock
and notes (Notes J[1] and J[8][a]), a substantial portion of its resources may
be depleted before the Company markets and derives significant revenues from its
products and services. These factors raise substantial doubt about the Company
ability to continue as a going concern. The Company is planning to raise
additional equity through a proposed public offering of stock (Note J[4]). There
is no assurance that the Company's products and services will be commercially
successful.
F-7
<PAGE> 62
DYNAMICWEB ENTERPRISES, INC.
(FORMERLY SEAHAWK CAPITAL CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(NOTE C) -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
[1] Revenue recognition:
Revenues are recognized when products are shipped, provided that no
significant vendor obligations remain and collection of the resulting receivable
is deemed probable by management. The Company provides customer support to
purchasers of its product and revenues are recognized when services are
provided. The Company enters into contracts with customers whereby revenues are
earned based upon a per transaction fee.
Deferred revenue represent revenues billed in advance for consulting
support services.
[2] Cash equivalents:
The Company considers all highly liquid investment instruments purchased
with a maturity of three months or less to be cash equivalents.
[3] Depreciation:
Property and equipment are recorded at cost. Depreciation is provided on an
accelerated method over the estimated useful lives of the related assets.
Amortization of leasehold improvements is provided over the shorter of the lease
term or the estimated useful life of the asset.
[4] Intangible assets:
a) Patents and trademarks:
Costs to obtain patents and trademarks have been capitalized. The
Company has submitted numerous applications which are currently pending.
These costs are being amortized over five years.
b) Customer list:
Customer list had been valued in connection with the acquisition of
Software Associates, Inc. (Note J[2]) and is being amortized over five
years.
The Company evaluates its long-lived assets for impairment based upon
undiscounted cash flows. When an impairment occurs, the Company would write
down its assets.
[5] Research and development:
Research and development costs are charged to expense as incurred.
[6] Income taxes:
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No.
109"). SFAS No. 109 measures deferred income taxes by applying enacted statutory
rates in effect at the balance sheet date to the differences between the tax
bases of assets and liabilities and their reported amounts in the financial
statements. The resulting asset for the expected future tax benefit to be
derived primarily from net operating loss carryforwards was fully reserved since
the likelihood of realization of the benefit cannot be established.
[7] Loss per share of common stock:
Net loss per share of common stock is based on the weighted average number
of shares outstanding and shares issuable. Contingent shares issuable in
connection with the acquisition of Software Associates, Inc. (Note J[2]) are
excluded from the weighted average shares outstanding.
F-8
<PAGE> 63
DYNAMICWEB ENTERPRISES, INC.
(FORMERLY SEAHAWK CAPITAL CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
[8] 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
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
[9] Recently issued accounting pronouncements:
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the impairment of
Long-Lived Assets and for Long-Lived Assets to be disposed of" ("FASB 121"), and
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FASB 123"). FASB 121 requires, among other things, that entities
identify events or changes in circumstances which indicate that the carrying
amount of a long-lived asset may not be recoverable. FASB 123 encourages
companies, among other things, to establish a fair value based method of
accounting for stock-based compensation plans and requires disclosure thereof on
a fair value basis. The Company believes that adoption of FASB 121 and FASB 123
will not have a material impact on its financial statements. The Company has
elected to continue to account for employee stock-based compensation in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," using intrinsic values with appropriate disclosures
using the fair value based method.
[10] Interim financial information:
The accompanying financial statements as at June 30, 1997 and for the nine
months ended June 30, 1997 and June 30, 1996 are unaudited, but in the opinion
of management of the Company, reflect all adjustments (consisting only of normal
and recurring adjustments) necessary for a fair presentation. The results of
operations for the nine month period are not necessarily indicative of the
results that may be expected for the full year September 30, 1997.
[11] Fair value of financial instruments:
The Company considers its financial instruments and obligations, which are
carried at cost, to approximate fair value due to the near-term due dates.
F-9
<PAGE> 64
DYNAMICWEB ENTERPRISES, INC.
(FORMERLY SEAHAWK CAPITAL CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(NOTE D) -- PROPERTY AND EQUIPMENT:
Property and equipment are as follows:
<TABLE>
<CAPTION>
ESTIMATED
SEPTEMBER 30, JUNE 30, USEFUL
1996 1997 LIFE
------------- -------- ---------
<S> <C> <C> <C>
Office facility condominium.......................... $ 156,600 $156,600 20 years
Office equipment..................................... 17,865 18,247 5 years
Computer equipment (includes a capitalized lease of 80,372 117,167 5 years
$10,000)...........................................
Automobiles.......................................... 33,876 16,221 5 years
Leasehold improvements............................... 38,125
-------- --------
288,713 346,360
Accumulated depreciation and amortization............ 90,224 108,997
-------- --------
198,489 237,363
Land................................................. 41,400 41,400
-------- --------
$ 239,889 $278,763
======== ========
</TABLE>
(NOTE E) -- LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1996 1997
------------- --------
<S> <C> <C>
*Mortgage payable -- due July 2015; payable in varying monthly
installments at an interest rate at the lower of prime plus
2% or 14.25%................................................ $ 190,805 $188,741
Auto loans -- due through June 1999 payable in aggregate
monthly installments of $767 at interest rates of 5.9% and
10.0%....................................................... 19,290 7,508
Other......................................................... 205
-------- --------
Total indebtedness.................................. 210,095 196,454
Less current maturities....................................... 12,434 8,370
-------- --------
Noncurrent portion.................................. $ 197,661 $188,084
======== ========
</TABLE>
- ---------------
* Collateralized by an office facility condominium and land with a net book
value of approximately $188,000 at September 30, 1996 and approximately
$182,000 at June 30, 1997.
F-10
<PAGE> 65
DYNAMICWEB ENTERPRISES, INC.
(FORMERLY SEAHAWK CAPITAL CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Maturities of long-term debt for the next five years as at September 30,
1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30,
----------------------------------------------------------
<S> <C>
1997.................................................... $ 12,434
1998.................................................... 12,945
1999.................................................... 7,411
2000.................................................... 4,500
2001.................................................... 4,500
Thereafter.............................................. 168,305
--------
Total........................................... $210,095
========
</TABLE>
(NOTE F) -- STOCKHOLDERS' EQUITY:
On March 26, 1996, the Company completed a stock offering under Regulation
S, whereby it sold 89,604 shares of its common stock for $500,000 less fees in
connection with such offering of $52,250 for net proceeds of $447,750.
(NOTE G) -- INCOME TAXES:
[1] The Company has a federal and state net operating loss carryforward of
approximately $400,000 at September 30, 1996 and approximately $1,275,000 at
June 30, 1997 which expires through 2012. In addition at June 30, 1997, the
Company has federal and state net operating loss carryovers of $40,000 and
$36,000 attributable to Megascore, Inc. and Software Associates, Inc. which may
be used to offset income earned by those companies. The tax benefits of these
deferred tax assets are fully reserved for since the likelihood of realization
of the benefit cannot be established.
The Tax Reform Act of 1986 contains provisions which limits the net
operating loss carryforwards available for use in any given year should certain
events occur, including significant changes in ownership interests. If the
Company is successful in completing a proposed public offering, the utilization
of its net operating loss carryover may be limited.
[2] The tax effects of principal temporary differences and net operating
loss carryforwards are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1996 1997
------------- ---------
<S> <C> <C>
Asset:
Federal and state operating loss carryforwards............. $ 148,000 $ 540,000
Accounts receivable allowance.............................. 13,000 24,000
Accrued expense............................................ 5,000
-------- --------
Total.............................................. 161,000 569,000
Liability:
Accrual basis to cash basis adjustments.................... (13,000)
-------- --------
Net balance................................................ 161,000 556,000
Valuation allowance........................................ (161,000) (556,000)
-------- --------
Net deferred tax asset..................................... $ 0 $ 0
======== ========
</TABLE>
F-11
<PAGE> 66
DYNAMICWEB ENTERPRISES, INC.
(FORMERLY SEAHAWK CAPITAL CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The differences between the statutory Federal income tax rate of 34% and
the effective (benefit) are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
--------------- ---------------
1996 1995 1997 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Statutory rate (benefit).......................... (34.0)% (34.0)% (34.0)% (34.0)%
Nondeductible items............................... 14.3
Valuation allowance............................... 34.0 34.0 18.5 34.0
------ ------ ------ ------
Effective tax rate (benefit)...................... 0% 0% (1.2)% 0%
====== ====== ====== ======
</TABLE>
(NOTE H) -- CONCENTRATION OF CREDIT RISKS:
[1] Cash and cash equivalents:
The Company places its cash and cash equivalents at various financial
institutions. At times, such amounts might be in excess of the FDIC insurance
limit.
[2] Accounts receivable:
The Company routinely evaluates the credit worthiness of its customers to
limit its concentration of credit risk with respect to its trade receivables.
[3] Significant customers:
The Company had one customer that accounted for 23% of net sales for the
year ended September 30, 1995 and two customers that accounted for 16% and 10%
of net sales for the year end September 30, 1996.
The Company had two customers that accounted for 15% and 11% of net sales
for the nine months ended June 30, 1996 and one customer that accounted for 13%
of net sales for the nine months ended June 30, 1997.
(NOTE I) -- COMMITMENTS:
Leases:
On October 1, 1996, the Company signed an operating lease for office space
which expires in October 2001. In addition, a subsidiary occupies office space
which is described in Note J[2]. The following are minimum annual rental
payments:
<TABLE>
<CAPTION>
PERIOD ENDING JUNE 30,
----------------------------------------------------------
<S> <C>
1998.................................................... $ 80,000
1999.................................................... 82,000
2000.................................................... 83,000
2001.................................................... 86,000
2002.................................................... 61,000
Thereafter.............................................. 24,000
----------
Total........................................... $416,000
==========
</TABLE>
Rent expense for the nine months ended June 30, 1997 was approximately
$48,200.
F-12
<PAGE> 67
DYNAMICWEB ENTERPRISES, INC.
(FORMERLY SEAHAWK CAPITAL CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(NOTE J) -- SUBSEQUENT EVENTS:
[1] Private placement:
On November 21, 1996, pursuant to Regulation D, the Company sold 65,212
shares of its common stock for $250,000.
[2] Acquisition and related party transaction:
On November 30, 1996, the Company entered into a stock purchase agreement
with Software Associates, Inc. and its sole shareholder (the "SA Agreement")
whereby the Company acquired all the issued and outstanding common stock of
Software Associates, Inc. The Company exchanged 224,330 shares of its common
stock for all of the issued and outstanding shares of Software Associates, Inc.
The Company further agreed to issue up to 297,367 additional shares of its
common stock in the event that the average closing bid price of the Company's
common stock does not equal $12.939 per share for the five trading days
immediately prior to January 30, 1999. In connection with this transaction, the
Company incurred approximately $25,000 of professional fees.
The SA Agreement also requires that the Company issue options for the
purchase of 6,521 shares of its common stock to employees of Software
Associates, Inc.
In connection with the acquisition, the Company entered into a five-year
employment contract with the sole shareholder/president of Software Associates,
Inc. The agreement provides for an annual salary of approximately $136,000 and
includes a discretionary bonus as determined by the Company's Board of
Directors.
Software Associates, Inc., occupies its office space through December 31,
2002, pursuant to a lease which was amended on September 5, 1997 from a
partnership whose partners are the Executive Vice President of the Company and
his wife. The lease provides for an annual increase of three percent and
requires the company to pay condominium maintenance fees. The partnership and
Software Associates, Inc. are jointly liable on the mortgage which was
approximately $249,000 as at November 30, 1996; the debt is being paid by the
partnership, and matures in August 2019. The Company is informed that the
partnership's mortgage balance is current.
The purchase price was recorded as follows at November 30, 1996:
<TABLE>
<S> <C>
Current assets.................................................... $133,381
Fixed assets...................................................... 5,167
Purchased research and development................................ 713,710
Customer list..................................................... 100,000
Current liabilities............................................... (67,258)
--------
$885,000
========
</TABLE>
Purchased research and development was charged to operations upon
acquisition. The acquisition was recorded as a purchase.
F-13
<PAGE> 68
DYNAMICWEB ENTERPRISES, INC.
(FORMERLY SEAHAWK CAPITAL CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The condensed unaudited pro forma information of the Company and Software
Associates, Inc. for the year ended September 30, 1996 and for the nine months
ended June 30, 1997 are presented as if the acquisition of Software Associates,
Inc. occurred on October 1, 1995. The pro forma information is not necessarily
indicative of the results that would have been reported had the acquisition
occurred on October 1, 1995, nor is it indicative of the Company's future
results.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, JUNE 30,
1996 1997
------------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net sales................................................. $ 1,158,000 $ 625,000
========== ==========
Net (loss)................................................ $ (570,000) $(1,007,000)*
========== ==========
(Loss) per share.......................................... $ (.30) $ (.50)
========== ==========
Weighted-average shares outstanding....................... 1,891,532 2,013,103
========== ==========
</TABLE>
- ---------------
* Excludes a charge of approximately $714,000 for purchased research and
development appearing in the historical financial statements for the nine
months ended June 30, 1997.
[3] Loans from officers:
In February and March 1997, the Company received a loan from its Chief
Executive Officer ("CEO") of $50,000 which the Company repaid from the net
proceeds of the private placements described in Notes J[1] and J[8][a]. The
Company subsequently received additional loans from the Company's CEO and Vice
President through September 30, 1997 for approximately $117,000 which is
expected to be repaid from the net proceeds of the Company's proposed public
offering described in Note J[4].
[4] Contemplated public offering:
On February 1, 1997, the Company signed a letter of intent with an
underwriter with respect to a contemplated public offering of the Company's
securities. The Company expects to incur significant additional costs in
connection therewith. In the event that the offering is not successfully
completed, such costs will be charged to expense.
[5] Stockholders' equity:
On March 7, 1997 the Board of Directors approved a reverse stock split for
each share of common stock to be converted into .2608491 of one share and
authorized 5,000,000 shares of preferred stock. On June 12, 1997, the
stockholders approved such transaction to be effective prior to the effective
date of the offering referred to in Note J[4]. Cash is to be issued to the
stockholders for any fractional shares. The accompanying financial statements
give retroactive effect to this transaction.
[6] Director stock option plan:
On April 28, 1997, the Board of Directors, adopted a stock option plan for
outside directors (the "Director Plan") under which nonqualified stock options
may be granted to its outside directors to purchase up to 78,254 shares of the
Company's common stock. The Director Plan granting to each Director an option to
purchase 3,912 shares of the Company's common stock at fair market value on
September 30, 1997 and at each subsequent annual meeting of shareholders at
which directors are elected was approved by the stockholders on June 12, 1997.
Options may be exercised for ten years and one month after the date of grant and
may not be exercised during an eleven-month period following the date of grant
unless there is a change in
F-14
<PAGE> 69
DYNAMICWEB ENTERPRISES, INC.
(FORMERLY SEAHAWK CAPITAL CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
control, as defined in the Director Plan or the compensation committee waives
the eleven-month continuous service requirement. As of June 30, 1997, no options
were issued under the Director Plan. On September 30, 1997, pursuant to the
Director Plan, the Company granted an aggregate of 15,648 options to its
Directors to purchase the Company's Common Stock at fair value. The options are
exercisable immediately and expire on October 31, 2007.
[7] Employee stock option plan:
On March 7, 1997, the Board of Directors, adopted the Company's 1997
employee stock option plan (the "Plan"), amended by the Board of Directors on
April 29, 1997, under which incentive stock option and nonqualified stock
options may be granted to purchase up to 234,764 shares of the Company's common
stock. The Plan was approved by the stockholders on June 12, 1997. Incentive
stock options are to be granted at a price not less than the fair market value,
or 110% of fair market value to an individual who owns more than ten percent of
the voting power of the outstanding stock. Nonqualified stock options are to be
granted at a price determined by the Company's compensation committee. As of
June 30, 1997, no options were issued under the Plan. On August 8, 1997, the
Company granted 99,054 options to its employees to purchase the Company's common
stock which had a fair value of $6.23 per share at the date of grant as follows:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE EXPIRATION
OPTIONS PRICE DATE
- --------- -------- --------------
<S> <C> <C>
89,666 $ 1.56 August 7, 2007
9,388 $ 6.23 August 7, 2007
-------
99,054
=======
</TABLE>
Additionally, on September 11, 1997, the Company granted 104,338 options to
purchase the Company's common stock at $3.83 per share to its President. See
Note J[11].
The Company will record compensation expense for options issued to its
employees below fair market value over the vesting period. The estimated
compensation charge is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------------------------------------
<S> <C>
1997...................................................... $257,000
1998...................................................... 148,000
1999...................................................... 70,000
2000...................................................... 19,000
--------
Total..................................................... $494,000
========
</TABLE>
[8] Private placements:
[a] On April 30, 1997, pursuant to Regulation D, the Company completed a
private placement whereby it sold 24 units for an aggregate amount of $600,000.
The placement agent is entitled to a fee and nonaccountable expense allowance
aggregating $78,000 or 13% of the private placement offering. Deferred financing
fees in this transaction were approximately $108,000. Each unit consists of a
$25,000 subordinated promissory note bearing interest at 8% and 4,687 shares of
the Company's common stock. The notes are due at the earlier of the closing of
the proposed public offering referred to in Note J[4]; when the Company obtains
an aggregate financing of $2,000,000 excluding expenses or March 31, 1999. The
4,687 shares of common stock in each unit are to be adjusted pursuant to a
formula defined in the private placement memorandum, based on the price of the
proposed offering. The number of shares issuable pursuant to the formula is
112,488 shares using an assumed public offering price of $4.00 per share.
F-15
<PAGE> 70
DYNAMICWEB ENTERPRISES, INC.
(FORMERLY SEAHAWK CAPITAL CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The common stock was valued at a fair value of $450,000 and $150,000 was
allocated to the notes. Debt discount of $450,000 and deferred financing fees of
$108,000 are amortized over the expected completion of the Company's public
offering of securities (October 31, 1997). At June 30, 1997 $186,000 of
amortization was expensed and the remaining balance of $372,000 will be charged
to operations through October 31, 1997. The effective interest rate is
approximately 191%.
[b] On August 27, 1997, pursuant to Regulation D, the Company completed a
private placement whereby it sold 20 units for an aggregate amount of $500,000.
The placement agent is entitled to a fee and nonaccountable expense allowance
aggregating $65,000 or 13% of the private placement offering. Deferred financing
fees in this transaction were approximately $72,500. Each unit consists of a
$25,000 subordinated promissory note bearing interest at 8% and 5,000 shares of
the Company's common stock. In connection with this transaction, two officers of
the Company agreed to contribute a sufficient number of shares to meet this
obligation. The notes are due at the earlier of the closing of the proposed
public offering referred to in Note J[4]; when the Company obtains an aggregate
financing of $2,000,000 excluding expenses or September 30, 1999. The 5,000
shares of common stock in each unit are to be adjusted pursuant to a formula
defined in the private placement memorandum, based on the price of the proposed
offering. The number of shares issuable pursuant to the formula is 100,000
shares using an assumed public offering price of $4.00 per share.
The common stock was valued at a fair value of $400,000 and $100,000 was
allocated to the notes. Debt discount of $400,000 and deferred financing fees of
$72,500 are amortized over the expected completion of the Company's public
offering of securities (October 31, 1997). The Company will charge $472,500 to
operations from August 27, 1997 through October 31, 1997. The effective interest
rate is approximately 525%.
[9] Lines of credit:
The Company has two lines of credit aggregating $90,000 which are
personally guaranteed by an officer of the Company and have interest rates of 2%
and 6 3/4% above the bank's lending rate. The Company borrowed $24,500 as of
June 30, 1997.
[10] Late filings and annual report:
The Company was required to file with the Securities and Exchange
Commission Form 10-KSB for September 30, 1996, Form 10-QSB for the quarter ended
December 31, 1996 and an amended Form 8-K for the acquisition of Megascore, Inc.
and Software Associates, Inc. (Notes A and J[2]). The Company did not distribute
its annual report to its shareholders within 120 days after year end. As of
August 8, 1997, management believes that it has complied with all of its filing
requirements and has distributed its annual report.
[11] Employment contract:
On August 26, 1997, the Company entered into a three year employment
contract with its President for an annual salary of $160,000. Upon expiration of
the employment contract, the term shall be automatically renewed for a year
unless either party gives written notice prior to ninety days before the
expiration date. In connection with this contract, on September 11, 1997, the
Company granted options to purchase 104,338 shares of common stock at $3.83 per
share which expire in ten years and vest over a three year period. The fair
value of the stock at the date of grant was $4.55 per share. Included in Note
J[7] is the estimated expense for the option grant.
F-16
<PAGE> 71
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following pro forma unaudited financial information gives effect to the
acquisition of Software Associates, Inc. on November 30, 1996. The unaudited pro
forma condensed consolidated balance sheet combines the historical balance sheet
of DynamicWeb Enterprises, Inc. as at September 30, 1996 with the historical
balance sheet of Software Associates, Inc. as at June 30, 1996 as if the
acquisition occurred on September 30, 1996. The unaudited pro forma condensed
consolidated statement of operations for the year ended September 30, 1996
combines the operations of DynamicWeb Enterprises, Inc. for the year ended
September 30, 1996 with the operations of Software Associates, Inc. for the year
ended June 30, 1996 as if the acquisition occurred on October 1, 1995. The
transaction is accounted for as a purchase in accordance with Accounting
Principles Board Opinion No. 16.
The unaudited condensed pro forma consolidated balance sheet and statement
of operations should be read in conjunction with the notes thereto and the
audited financial statements of DynamicWeb Enterprises, Inc. and Software
Associates, Inc. and notes thereto. The pro forma information is not necessarily
indicative of what the financial position and results of operations would have
been had the transaction occurred earlier, nor do they purport to represent the
future financial position or results of operations of DynamicWeb Enterprises,
Inc.
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
1) To record the preliminary allocation of the purchase price of Software
Associates, Inc. at $860,000 and professional fees of $25,000 and to expense
purchased research and development as at October 1, 1995. The pro forma
information does not reflect any contingently issuable shares, up to 297,367,
that may be issued in the event that the average closing bid price of DynamicWeb
Enterprises, Inc. common stock does not equal $12.939 per share for the five
trading days immediately prior to January 30, 1999.
2) To amortize intangible asset over five years.
3) To record the difference in salary based on an employment contract for
the then shareholder of Software Associates, Inc.
4) Pro forma weighted average number of shares outstanding reflects shares
issued for the acquisition as if they were outstanding for the entire period
presented.
F-17
<PAGE> 72
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------------
DYNAMICWEB SOFTWARE
ENTERPRISES, INC. ASSOCIATES, INC.
AS AT AS AT PRO FORMA
SEPTEMBER 30, JUNE 30, PRO FORMA CONSOLIDATED
1996 1996 ADJUSTMENTS RESULTS
----------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents............ $ 174,403 $ 12,455 $ 186,858
Accounts receivable, net of allowance
for doubtful accounts.............. 70,518 61,209 131,727
Prepaid and other current assets..... 32,068 32,068
--------- ------- -----------
Total current assets....... 276,989 73,664 350,653
Property and equipment, net of
depreciation and amortization...... 239,889 6,000 245,889
Patents and trademarks, net of
amortization....................... 19,299 19,299
Intangibles.......................... (1) $ 100,000 100,000
--------- ------- --------- -----------
TOTAL...................... $ 536,177 $ 79,664 $ 100,000 $ 715,841
========= ======= ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable..................... $ 34,581 $ 13,548 $ 48,129
Accrued expenses and other........... 18,487 13,955(1) $ 25,000 57,442
Current maturities of long-term
debt............................... 12,434 3,350 15,784
Deferred revenue..................... 11,330 11,330
Deferred income taxes................ 1,000 1,000
--------- ------- --------- -----------
Total...................... 76,832 31,853 25,000 133,685
Long-term debt, less current
maturities......................... 197,661 279 197,940
--------- ------- --------- -----------
Total liabilities.......... 274,493 32,132 25,000 331,625
--------- ------- --------- -----------
Common stock......................... 171 (1) 22 193
16,000(1) (16,000)
Additional paid-in capital........... 676,669 (1) 859,978
23,641(1) (23,641) 1,536,677
Retained earnings.................... 7,891(1) (7,891)
(Accumulated deficit)................ (415,186) (1) (737,468) (1,152,654)
--------- ------- --------- -----------
Total stockholders'
equity................... 261,684 47,532 75,000 384,216
--------- ------- --------- -----------
TOTAL...................... $ 536,177 $ 79,664 $ 100,000 $ 715,841
========= ======= ========= ===========
</TABLE>
F-18
<PAGE> 73
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------------
DYNAMICWEB SOFTWARE
ENTERPRISES, INC. ASSOCIATES, INC.
YEAR ENDED YEAR ENDED PRO FORMA
SEPTEMBER 30 JUNE 30, PRO FORMA CONSOLIDATED
1996 1996 ADJUSTMENTS RESULTS
----------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales:
System sales...................... $ 147,337 $380,397 $ 527,734
Services.......................... 312,730 286,983 599,713
---------- -------- ---------
Total..................... 460,067 667,380 1,127,447
---------- -------- ---------
Cost of sales:
System sales...................... 71,205 108,361 179,566
Services.......................... 81,194 79,944 161,138
---------- -------- ---------
Total..................... 152,399 188,305 340,704
---------- -------- ---------
Gross profit........................ 307,668 479,075 786,743
---------- -------- ---------
Expenses:
Selling, general and
administrative................. 719,443 555,660(2) $ 20,000 1,323,103
(3) 28,000
Research and development.......... 28,990 28,990
---------- -------- -------- ---------
Total..................... 748,433 555,660 48,000 1,352,093
---------- -------- -------- ---------
Operating (loss).................... (440,765) (76,585) (48,000) (565,350)
Interest expense.................... (23,271) (125) (23,396)
Interest income..................... 8,806 8,806
---------- -------- -------- ---------
(Loss) before benefit for income
taxes............................. (455,230) (76,710) (48,000) (579,940)
Benefit for deferred income taxes... 29,000 29,000
---------- -------- -------- ---------
NET (LOSS).......................... $ (455,230) $(47,710) $ (48,000) $ (550,940)
========== ======== ======== =========
Pro forma net (loss) per share...... $ (.29)
=========
Pro forma weighted average number of
shares outstanding................ 1,667,202 (4) 224,330 1,891,532
========== ======== =========
</TABLE>
F-19
<PAGE> 74
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Software Associates, Inc.
Fairfield, New Jersey
We have audited the accompanying balance sheet of Software Associates, Inc.
as at June 30, 1996 and the related statements of operations, changes in
stockholders' equity and cash flows for the years ended June 30, 1996 and June
30, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly,
in all material respects, the financial position of Software Associates, Inc. as
at June 30, 1996 and the results of its operations and its cash flows for the
years ended June 30, 1996 and June 30, 1995, in conformity with generally
accepted accounting principles.
The Company has sustained a net loss in the year ended June 30, 1996 and
has only minimal capital and working capital. Also, as indicated in Note A, on
November 30, 1996, the Company was acquired by DynamicWeb Enterprises, Inc. a
substantial portion of whose resources may be depleted before it markets and
derives significant revenues from its products and services. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
The acquiror's plan in regards to these matters are also described in Note A.
The financial statements do not include any adjustments that might result from
the outcome of these uncertainties.
Richard A. Eisner & Company, LLP
New York, New York
May 12, 1997
With respect to Note F[1]
September 5, 1997
F-20
<PAGE> 75
SOFTWARE ASSOCIATES, INC.
BALANCE SHEET
AS AT JUNE 30, 1996
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash........................................................................... $12,455
Accounts receivable, less allowance for doubtful accounts of $6,938............ 61,209
-------
Total current assets................................................... 73,664
Equipment, less accumulated depreciation of $4,000............................... 6,000
-------
Total.................................................................. $79,664
=======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable............................................................... $13,548
Accrued expenses and other current liabilities................................. 13,955
Current maturities of long-term debt (Note C).................................. 3,350
Deferred taxes (Note D)........................................................ 1,000
-------
Total current liabilities.............................................. 31,853
Long-term debt, less current maturities (Note C)................................. 279
-------
Total liabilities...................................................... 32,132
-------
Commitments and contingencies (Note F)
Stockholder's equity (Note A):
Common stock -- no par value; 2,500 shares authorized, issued and
outstanding................................................................. 16,000
Additional paid-in capital..................................................... 23,641
Retained earnings.............................................................. 7,891
-------
Total stockholder's equity............................................. 47,532
-------
Total.................................................................. $79,664
=======
</TABLE>
Attention is directed to the foregoing accountants' report and
to the accompanying notes to financial statements.
F-21
<PAGE> 76
SOFTWARE ASSOCIATES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Revenues (Note E[2]):
System sales, net.................................................... $380,397 $259,459
Services, net........................................................ 286,983 529,975
-------- --------
Total........................................................ 667,380 789,434
-------- --------
Cost of sales:
System sales......................................................... 108,361 78,680
Services............................................................. 79,944 84,016
-------- --------
Total........................................................ 188,305 162,696
-------- --------
Gross profit........................................................... 479,075 626,738
Selling, general and administrative.................................... 555,660 610,407
-------- --------
Operating (loss) income before interest and taxes...................... (76,585) 16,331
Interest expense....................................................... 125 130
-------- --------
(Loss) income before income taxes...................................... (76,710) 16,201
Income tax benefit (provision) -- deferred............................. 29,000 (11,000)
-------- --------
NET (LOSS) INCOME...................................................... $(47,710) $ 5,201
======== ========
</TABLE>
Attention is directed to the foregoing accountants' report and
to the accompanying notes to financial statements.
F-22
<PAGE> 77
SOFTWARE ASSOCIATES, INC.
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
(NOTE A)
<TABLE>
<CAPTION>
COMMON STOCK --
NO PAR VALUE ADDITIONAL
------------------ PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance -- July 1, 1994................. 2,500 $16,000 $ 23,641 $ 50,400 $ 90,041
Net income............................ 5,201 5,201
----- ------- ------- -------- --------
Balance -- June 30, 1995................ 2,500 16,000 23,641 55,601 95,242
Net (loss)............................ (47,710) (47,710)
----- ------- ------- -------- --------
Balance -- June 30, 1996................ 2,500 $16,000 $ 23,641 $ 7,891 $ 47,532
===== ======= ======= ======== ========
</TABLE>
Attention is directed to the foregoing accountants' report and
to the accompanying notes to financial statements.
F-23
<PAGE> 78
SOFTWARE ASSOCIATES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income.................................................... $(47,710) $ 5,201
Adjustment to reconcile net (loss) income to net cash provided by
(used in) operating activities:
Depreciation...................................................... 2,000 2,000
Deferred income taxes............................................. (29,000) 11,000
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable...................... 83,065 (76,753)
Increase (decrease) in accounts payable......................... (13,305) 11,003
Increase in accrued expenses and other liabilities.............. 5,342 7,024
-------- --------
Net cash provided by (used in) operating activities.......... 392 (40,525)
Cash flows from financing activities:
Payments of long-term debt........................................... (3,350) (3,021)
-------- --------
NET (DECREASE) IN CASH................................................. (2,958) (43,546)
Cash -- beginning of year.............................................. 15,413 58,959
-------- --------
CASH -- END OF YEAR.................................................... $ 12,455 $ 15,413
======== ========
Supplemental schedule of noncash investing and financing activities:
During the year ended June 30, 1995, the Company financed $10,000
of equipment.
Supplemental disclosures of cash flow information:
Cash paid for during the year:
Interest.......................................................... $ 125 $ 130
Taxes............................................................. 125
</TABLE>
Attention is directed to the foregoing accountants' report and
to the accompanying notes to financial statements.
F-24
<PAGE> 79
SOFTWARE ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE A) -- THE COMPANY:
Software Associates, Inc. (the "Company") is a New Jersey corporation
incorporated in March 1985. The Company is an Electronic Data Interchange
("EDI") service bureau engaged in the business of helping companies realize the
benefits of expanding their data processing and electronic communications
infrastructures through the use of EDI. The Company also resells hardware and
licensed software which is generally customized for its customers.
On November 30, 1996, the Company was acquired by DynamicWeb Enterprises,
Inc. ("DynamicWeb"). DynamicWeb expects to utilize the Company's expertise in
EDI to expand their business and product lines over the interest. A substantial
portion of DynamicWeb's resources may be depleted before it markets and derives
significant revenues from its products and services. DynamicWeb is planning to
raise additional equity through a proposed public offering of stock, the net
proceeds of which it intends to use, in part, to support future operations.
(NOTE B) -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
[1] Revenue recognition:
Revenues are recognized when products are shipped provided that no
significant obligations remain, and collection of the resulting receivable is
deemed probable by management. The Company provides customer support and
revenues are recognized when services are provided. The Company also enters into
contracts with customers whereby revenues are earned based on a transaction fee.
[2] Depreciation:
Equipment is recorded at cost. Depreciation is provided using the
straight-line method over five years.
[3] Income taxes:
The Company files its corporate income tax returns on a cash basis and
accounts for income taxes on an accrual basis in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No.
109"). SFAS No. 109 measures deferred income taxes by applying enacted statutory
rates in effect at the balance sheet date to the differences between the tax
bases of assets and liabilities and their reported amounts in the financial
statements.
[4] 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
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
[5] Fair value of financial instruments:
The Company considers its financial instruments and obligations, which are
carried at cost, to approximate fair value due to the near term due dates.
F-25
<PAGE> 80
SOFTWARE ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(NOTE C) -- LONG-TERM DEBT:
Long-term debt consists of a capitalized lease obligation as at June 30,
1996:
<TABLE>
<S> <C>
Equipment lease payable, due in July 1997; payable in monthly
installments of $291 including 4% interest........................ $3,629*
Less current maturities............................................. 3,350
------
Noncurrent portion........................................ $ 279
======
</TABLE>
- ---------------
* Collateralized by computer equipment with a net book value of approximately
$6,000.
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
JUNE 30,
--------------------------------------------------------------------
<S> <C>
1997................................................................ $3,350
1998................................................................ 279
------
Total..................................................... $3,629
======
</TABLE>
(NOTE D) -- INCOME TAXES:
[1] The Company has federal and state net operating loss carryforwards of
approximately $30,000 that expires from 2009 to 2010.
The Tax Reform Act of 1986 contains provisions which limits the net
operating loss carryforwards available for use in any given year should certain
events occur, including significant change in ownership interests. The
utilization of the net operating loss may be limited due to the acquisition of
the Company as described in Note A.
[2] The tax effects of principal temporary differences and net operating
loss carryforwards are as follows as at June 30, 1996:
<TABLE>
<S> <C>
Asset:
Federal and state operating loss carryforwards.................. $ 12,000
Liability:
Accrual basis to cash basis adjustment.......................... (13,000)
--------
Net deferred tax liability...................................... $ (1,000)
========
</TABLE>
[3] The difference between the statutory federal income tax at the rate of
34% and the actual tax are as follows:
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1996 1995
-------- -------
<S> <C> <C>
Statutory rate (benefit)................................ $(26,018) $ 5,508
State taxes (benefit) net of federal income tax
effect................................................ (4,603) 972
Nondeductible items..................................... 3,305 3,305
Other................................................... (1,684) 1,215
-------- -------
Total......................................... $(29,000) $11,000
======== =======
</TABLE>
F-26
<PAGE> 81
SOFTWARE ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(NOTE E) -- CONCENTRATION OF CREDIT RISK:
[1] Accounts receivable:
The Company routinely evaluates the credit worthiness of its customers to
limit its concentration of credit risk regarding its trade receivables.
[2] Significant customers:
The Company had one customer that accounted for 15% of revenue for the year
ended June 30, 1996 and two customers that accounted for 19% and 22% of revenue
for the year ended June 30, 1995.
(NOTE F) -- COMMITMENTS AND CONTINGENCIES:
[1] Lease and related party transaction:
The Company occupies its office space, through December 31, 2002, pursuant
to a lease which was amended on September 5, 1997, from a partnership whose
partners are the sole stockholder of the Company and his wife. The lease
provides for an annual increase of three percent and condominium maintenance
fees. The partnership and the Company are jointly liable on the mortgage which
was approximately $250,000 as at June 30, 1996; the debt is being paid by the
partnership, and matures in August 2019. The Company is informed that the
partnership's mortgage balance is current.
The following are the future annual rental payments:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
----------------------------------------------------------
<S> <C>
1997...................................................... $ 42,000
1998...................................................... 42,800
1999...................................................... 44,000
2000...................................................... 45,400
2001...................................................... 46,700
Thereafter................................................ 72,500
----------
Total........................................... $293,400
==========
</TABLE>
Rent expense and related operating expense for the years ended June 30,
1996 and June 30, 1995 was approximately $46,400 and $44,400, respectively.
[2] Line of credit:
The Company has a line of credit of $50,000. No balances are outstanding as
at June 30, 1996. The stockholder of the Company has personally guaranteed the
debt under the line of credit. In May 1997, the Company borrowed $14,750 under
the line of credit at an interest rate of 2% above the bank's lending rate.
[3] Employment contract:
In connection with the acquisition of the Company as described in Note A,
the Company entered into a five-year employment contract with its then sole
stockholder. The agreement provides for an annual salary of approximately
$136,000 and includes a discretionary bonus as determined by DynamicWeb's Board
of Directors.
F-27
<PAGE> 82
SOFTWARE ASSOCIATES, INC.
UNAUDITED CONDENSED BALANCE SHEET
AS AT SEPTEMBER 30, 1996
ASSETS
<TABLE>
<S> <C>
Cash............................................................................... $11,376
Accounts receivable, net of allowance for doubtful accounts........................ 67,769
-------
Total current assets..................................................... 79,145
Property and equipment, net of depreciation and amortization....................... 5,500
-------
TOTAL.................................................................... $84,645
=======
LIABILITIES
Accounts payable and accrued expenses.............................................. $20,628
Lease obligation................................................................... 2,797
Deferred income taxes.............................................................. 7,000
-------
Total current liabilities................................................ 30,425
-------
STOCKHOLDER'S EQUITY
Common stock -- no par value; 2,500 shares authorized, issued and outstanding...... 16,000
Additional paid-in capital......................................................... 23,641
Retained earnings.................................................................. 14,579
-------
Total stockholder's equity............................................... 54,220
-------
TOTAL.................................................................... $84,645
=======
</TABLE>
The accompanying notes are an integral part of
these condensed statements.
F-28
<PAGE> 83
SOFTWARE ASSOCIATES, INC.
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Net sales:
System sales......................................................... $ 55,517 $ 44,766
Services............................................................. 78,174 91,681
-------- --------
Total........................................................ 133,691 136,447
-------- --------
Cost of sales:
System sales......................................................... 16,645 39,475
Services............................................................. 23,845 29,889
-------- --------
Total........................................................ 40,490 69,364
-------- --------
Gross profit........................................................... 93,201 67,083
Selling, general and administrative expenses........................... 80,513 145,995
-------- --------
Operating income (loss)................................................ 12,688 (78,912)
Income tax benefit (provision) -- deferred............................. (6,000) 29,000
-------- --------
NET INCOME (LOSS)...................................................... 6,688 (49,912)
Retained earnings, beginning of period................................. 7,891 55,601
-------- --------
RETAINED EARNINGS, END OF PERIOD....................................... $ 14,579 $ 5,689
======== ========
</TABLE>
The accompanying notes are an integral part of
these condensed statements.
F-29
<PAGE> 84
SOFTWARE ASSOCIATES, INC.
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
------------------
1996 1995
------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................................... $ 6,688 $(49,912)
Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities:
Depreciation......................................................... 500
Deferred income taxes................................................ 6,000 (29,000)
Changes in operating assets and liabilities:
Accounts receivable................................................ (6,560) 101,688
Accounts payable and accrued expenses.............................. (6,875) (20,224)
------- --------
Net cash provided by (used in) operating activities............. (247) 2,552
Cash flows (used in) financing activities:
Payment of capital lease obligation..................................... (832)
------- --------
NET (DECREASE) INCREASE IN CASH........................................... (1,079) 2,552
Cash -- beginning of period............................................... 12,455 15,413
------- --------
CASH -- END OF PERIOD..................................................... $11,376 $ 17,965
======= ========
</TABLE>
The accompanying notes are an integral part of these condensed statements.
F-30
<PAGE> 85
SOFTWARE ASSOCIATES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(NOTE A) -- THE COMPANY:
Software Associates, Inc. (the "Company") is a New Jersey corporation
incorporated in March 1985. The Company is an Electronic Data Interchange
("EDI") service bureau engaged in the business of helping companies realize the
benefits of expanding their data processing and electronic communications
infrastructures through the use of EDI. The Company also resells hardware and
licensed software which is generally customized for its customers.
(NOTE B) -- BASIS OF PRESENTATION:
The unaudited condensed consolidated balance sheet and statement of
operations should be read in conjunction with the audited financial statements
of Software Associates, Inc. and notes thereto contained elsewhere herein. The
information does not purport to represent the future financial position or
results of operations of Software Associates, Inc. The interim financial
statements include all necessary adjustments, consisting of normal recurring
items, which in the opinion of management are necessary for a fair presentation
of such financial information.
F-31
<PAGE> 86
======================================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BY, ANY OF THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATES AS OF WHICH SUCH INFORMATION IS FURNISHED.
------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary.................... 1
Recent Developments................... 4
Summary Financial Information......... 5
Risk Factors.......................... 6
Use of Proceeds....................... 15
Market for Common Stock and Related
Stockholder Matters................. 17
Capitalization........................ 18
Dilution.............................. 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 20
Business.............................. 24
Management............................ 34
Principal Stockholders................ 39
Certain Relationships and Related
Transactions........................ 40
Description of Securities............. 42
Shares Eligible for Future Sale....... 44
Underwriting.......................... 45
Interim Financings.................... 47
Legal Matters......................... 48
Additional Information................ 48
Experts............................... 49
Index to Financial Statements......... F-1
Signatures............................ II-7
Exhibit Index.........................
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE LATER OF THE EFFECTIVE DATE OF
THE REGISTRATION STATEMENT OR THE FIRST DATE ON WHICH THE COMMON STOCK WAS
OFFERED TO THE PUBLIC) ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, 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.
======================================================
======================================================
[LOGO]
DYNAMICWEB
ENTERPRISES, INC.
1,750,000 SHARES OF COMMON STOCK
------------------------
PROSPECTUS
------------------------
H. J. MEYERS & CO, INC.
, 1997
======================================================
<PAGE> 87
PART II
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Certificate of Incorporation provides that the Registrant
shall indemnify any person who is or was a director, officer, employee or agent
of the Registrant to the fullest extent permitted by the New Jersey Business
Corporation Act (the "NJBCA"), and to the fullest extent otherwise permitted by
law. The NJBCA permits a New Jersey corporation to indemnify its directors,
officers, employees and agents against liabilities and expenses they may incur
in such capacities in connection with any proceeding in which they may be
involved, unless a judgment or other final adjudication adverse to the director,
officer, employee or agent in question establishes that his or her acts or
omissions (a) were in breach of his or her duty of loyalty (as defined in the
NJBCA) to the Registrant or its shareholders, (b) were not in good faith or
involved a knowing violation of law or (c) resulted in the receipt by the
director, officer, employee or agent of an improper personal benefit.
Pursuant to the Registrant's Certificate of Incorporation and the NJBCA, no
director or officer of the Registrant shall be personally liable to the
Registrant or to any of its shareholders for damages for breach of any duty owed
to the Registrant or its shareholders, except for liabilities arising from any
breach of duty based upon an act or omission (i) in breach of such director's or
officer's duty of loyalty (as defined in the NJBCA) to the Registrant or its
shareholders, (ii) not in good faith or involving a knowing violation of law or
(iii) resulting in receipt by such director or officer of an improper personal
benefit.
In addition, the Registrant's Bylaws include provisions to indemnify its
officers and directors and other persons against expenses, judgments, fines and
amounts incurred or paid in settlement in connection with civil or criminal
claims, actions, suits or proceedings against such persons by reason of serving
or having served as officers, directors, or in other capacities, if such person
acted in good faith, and in a manner such person reasonably believed to be in or
not opposed to the best interests of the Registrant and, in a criminal action or
proceeding, if he had no reasonable cause to believe that his/her conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent shall
not, of itself, create a presumption that the person did not act in good faith
and in a manner which he or she reasonably believed to be in or not opposed to
the best interests of the corporation or that he or she had reasonable cause to
believe his or her conduct was unlawful. Indemnification as provided in the
Bylaws shall be made only as authorized in a specific case and upon a
determination that the person met the applicable standards of conduct.
The Underwriting Agreement, included as Exhibit 1.1 hereto, provides that,
in certain circumstances, each of the Underwriters will indemnify the directors
and officers of the Registrant against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Securities Act").
II-1
<PAGE> 88
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses in connection with
filing this Registration Statement:
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee..................... $ 2,500
National Association of Securities Dealers, Inc. filing fee....... 1,200
Nasdaq listing fee................................................ 7,000
Pacific Stock Exchange Listing Fee................................ 25,000
Printing and Engraving Expenses................................... 85,000
Accounting Fee and Expenses....................................... 75,000
Legal Fees and Expenses........................................... 105,000
Blue Sky Qualification Fees and Expenses.......................... 75,000
Underwriters Expense Allowance.................................... 210,000
Transfer Agent Fees and Expenses.................................. 10,000
Expenses of Selling............................................... 50,000
Miscellaneous..................................................... 72,000
--------
Total................................................... $717,700
========
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Since September 1, 1994, the Company has sold the following securities
without registration under the Securities Act:
1. On May 8, 1995, the Company sold 15,000,000 previously unissued
shares of its Common Stock to Jonathan B. Lassers, Cherry Hill, New Jersey,
for $150,000 in cash. As part of the transaction, Mr. Lassers also acquired
a transferable warrant to purchase up to an additional 70,000,000 shares of
the Company's Common Stock, exercisable until December 31, 1997 at $0.01 a
share. Such warrant was terminated in exchange for the issuance to Mr.
Lassers on February 29, 1996 of 11,000,000 shares of the Company's Common
Stock.
2. On or about March 26, 1996, the Company issued 735,000 shares of
Common Stock to Berkshire International Finance, Inc., New York, New York
as a finder's fee and 75,000 shares of Common Stock to William N. Levy,
Esquire, Voorhees, New Jersey, as payment for legal services, each in
connection with the Company's acquisition of DynamicWeb Transaction
Systems, Inc., and issued 4,913,631 shares of its Common Stock to the
shareholders of DynamicWeb Transaction Systems, Inc., as a consideration
for that acquisition.
3. On April 3, 1996, the Company sold 343,511 shares of Common Stock
to Arista High Technology Growth Fund, Cayman Islands, British West Indies,
for an aggregate purchase price of $500,000.
4. On November 21, 1996, the Company sold 250,000 shares of Common
Stock to Michael Associates, Jersey City, New Jersey, for an aggregate
purchase price of $250,000.
5. On November 30, 1996, the Company issued 860,000 shares of Common
Stock to Kenneth R. Konikowski, Towaco, New Jersey, in exchange for all of
the outstanding capital stock of Software Associates, Inc., a New Jersey
corporation.
6. On November 30, 1996, the Company issued 50,000 shares of Common
Stock to the 27 shareholders of Megascore, Inc., a New Jersey corporation,
in exchange for all of the outstanding capital stock of Megascore, Inc.
7. In April of 1997, the Company sold 24 Units (each Unit consisting
of 3,115 shares of common stock and a $25,000 principal amount of
Subordinated, Unsecured 8% Promissory Note) to select accredited investors
for an aggregate purchase price of $600,000. H.J. Meyers & Co, Inc., a
registered
II-2
<PAGE> 89
broker-dealer and representative of the several underwriters in this
Offering, acted as placement agent for this offering and received a
placement agent fee of $60,000 and a non-accountable expense allowance of
$18,000. The sale of 8 of those Units closed on April 9, 1997; another 8 of
those Units closed on April 11, 1997; and the final 8 of those Units closed
on April 30, 1997.
8. In August of 1997, the Company sold 20 Units (each Unit consisting
of 3,333 shares of common stock and a $25,000 principal amount of
Subordinated, Unsecured 8% Promissory Note) to select accredited investors
for an aggregate purchase price of $500,000. H.J. Meyers & Co, Inc., a
registered broker-dealer and representative of the several underwriters in
this Offering, acted as placement agent for this offering and received a
placement agent fee of $50,000 and a non-accountable expense allowance of
$15,000. The sale of all 20 of those Units closed on August 27, 1997.
9. On February 7, 1996, DynamicWeb Transaction Systems, Inc.
(predecessor to the Company) issued 23,878 shares of its common stock to
each of Frank T. DiPalma, Ridgewood, New Jersey (a director of the Company)
and Steve Sheiner, Studio City, California, in exchange for services
rendered.
10. On January 12, 1996, DynamicWeb Transaction Systems, Inc.
(predecessor to the Company) issued 327,577 shares of its common stock to
Michael Vanechanos, Holmdel, New Jersey, in exchange for an aggregate
purchase price of $100,000.
11. On January 24, 1996, DynamicWeb Transaction Systems, Inc.
(predecessor to the Company) issued 163,786 shares of its common stock to
John Helbock, Holmdel, New Jersey, in exchange for an aggregate purchase
price of $50,000.
Except for Number 3 above, all sales and issuances of securities in the
transactions described above were deemed to be exempt from registration under
the Securities Act of 1933, as amended, by virtue of Section 4(2) or Regulation
D promulgated thereunder. The purchasers in each case represented their
intention to acquire the securities for investment only and not with a view to
the distribution thereof. Required disclosure was provided, or access to
information in lieu of disclosure was present. Required legends are affixed to
the stock certificates and other securities issued in such transactions. In the
case of Number 3 above, the sale and issuance of the securities were deemed to
be exempt from registration by virtue of Regulation S. The securities were sold
outside of the United States and required resale restrictions were imposed.
All numbers of shares indicated in this Item 26 are the actual original
numbers of shares issued in the respective transactions. Those numbers have not
been adjusted on account of any subsequent stock splits or combinations
(including the Reverse Stock Split discussed in the Prospectus which is a part
of this Registration Statement), nor have the shares issued by the predecessors
to the Company been adjusted to reflect their conversion into Common Stock of
the Company.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibits:
<TABLE>
<CAPTION>
NUMBER TITLE
----- -------------------------------------------------------------------------------
<S> <C>
1.1 Underwriting Agreement*
3.1.1 Certificate of Incorporation of the Registrant as filed with the Secretary of
State of New Jersey on August 7, 1979 (incorporated by reference to Exhibit
3.1.1 filed with Registrant's Annual Report on Form 10-K for the Year ended
December 31, 1991).
3.1.2 Certificate of Amendment to Registrant's Certificate of Incorporation, as filed
with the Secretary of State of New Jersey on May 19, 1980 (incorporated by
reference to Exhibit 3.1.2 filed with Registrant's Annual Report on Form 10-K
for the Year ended December 31, 1991).
3.1.3 Certificate of Amendment to Registrant's Certificate of Incorporation, as filed
with the Secretary of State of New Jersey on April 1981 (incorporated by
reference to Exhibit 3.1.3 filed with Registrant's Annual Report on Form 10-K
for the Year ended December 31, 1991).
</TABLE>
II-3
<PAGE> 90
<TABLE>
<CAPTION>
NUMBER TITLE
----- -------------------------------------------------------------------------------
<S> <C>
3.1.4 Certificate of Amendment of Registrant's Certificate of Incorporation, as filed
with the Secretary of State of New Jersey on April 24, 1986 (incorporated by
reference to Exhibit 3.1.4 filed with Registrant's Annual Report on Form 10-K
for the Year ended December 31, 1991).
3.1.5 Certificate of Amendment to Registrant's Certificate of Incorporation, as filed
with the Secretary of State of New Jersey on July 15, 1988 (incorporated by
reference to Exhibit 3.1.5 filed with Registrant's Annual Report on Form 10-K
for the Year ended December 31, 1991). \
3.1.6 Certificate of Amendment to Registrant's Certificate of Incorporation, as filed
with the Secretary of State of New Jersey on November 28, 1989 (incorporated by
reference to Exhibit 3.1.6 filed with Registrant's Annual Report on Form 10-K
for the Year ended December 31, 1991).
3.1.7 Certificate of Amendment to the Registrant's Certificate of Incorporation, as
filed with the Secretary of State of New Jersey on August 15, 1994
(incorporated by reference to Exhibit 3.1.7 filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994).
3.1.8 Certificate of Amendment to Registrant's Certificate of Incorporation, as filed
with the Secretary of State of New Jersey on May 14, 1996, changing the name of
the Company to DynamicWeb Enterprises, Inc. (incorporated by reference to
Exhibit 3.2.3 filed with Registrant's Annual Report on Form 10-KSB for December
31, 1995).
3.1.9 Certificate of Amendment to Registrant's Certificate of Incorporation, as filed
with the Secretary of State of New Jersey on , 1997.***
3.2.1 Bylaws of the Registrant adopted August 7, 1979 (incorporated by reference to
Exhibit 3.2.1 filed with Registrant's Report on Form 10-K for the Year ended
December 31, 1991).
3.2.2 Amendments adopted March 8, 1982 to Bylaws of the Registrant (incorporated by
reference to Exhibit 3.2.2 filed with Registrant's Report on Form 10-K for the
Year ended December 31, 1991).
3.2.3 Amended and Restated Bylaws of the Registrant adopted March 7, 1997
(incorporated by reference to Exhibit 3.2.3 filed with Registrant's Annual
Report on Form 10-KSB for the year ended September 30, 1996).
4.1 Specimen Stock Certificate.***
4.2 Form of Representative's Warrant.*
5.1 Form of Opinion of Stevens & Lee re: legality.*
10.1 Release and Severance Agreement dated February 12, 1993 between Seahawk Capital
Corporation and Robert S. Friedenberg (incorporated by reference to Exhibit
10.2 to Registrant's Annual Report on Form 10-K for the year ended December 31,
1992).
10.2 Agreement dated February 24, 1995 between the Registrant and Jonathan B.
Lassers as to the purchase of common stock (incorporated by reference to
Exhibit 10.1 to Registrant's Current Report on Form 8-K dated as of May 8,
1995).
10.3 Amendment Agreement dated May 1, 1995 between the Registrant and Jonathan B.
Lassers as to the purchase of common stock and common stock purchase warrants
(incorporated by reference to Exhibit 10.2 to Registrant's Current Report on
Form 8-K dated as of May 8, 1995).
10.4 Agreement dated February 29, 1996 between the Registrant and Jonathan B.
Lassers as to the exchange of common stock for his common stock purchase
warrants (incorporated by reference to Exhibit 10.4 filed with Registrant's
Report on Form 10-KSB for the year ended September 30, 1996).
10.5 Stock Exchange Agreement dated as of December 31, 1994 among the Registrant,
John C. Fitton and Seahawk Overseas Exploration Corporation (incorporated by
reference to Exhibit 10.4 to Registrant's Current Report on Form 8-K dated as
of May 8, 1995).
</TABLE>
II-4
<PAGE> 91
<TABLE>
<CAPTION>
NUMBER TITLE
----- -------------------------------------------------------------------------------
<S> <C>
10.6 Stock Purchase Agreement dated March 5, 1996 among the Registrant, DynamicWeb
Transaction Systems, Inc. ("DWTS") and the shareholders of DWTS (incorporated
by reference to Exhibit 10.14 to Registrant's Annual Report on Form 10-KSB for
the year ended December 31, 1995).
10.7 Amendment to Stock Purchase Agreement dated May 14, 1996 between the Registrant
and DWTS (incorporated by reference to Exhibit 10.14(A) to Registrant's Annual
Report on Form 10-KSB for the year ended December 31, 1995).
10.8 Amendment to Stock Purchase Agreement dated June 13, 1996 between the
Registrant and DWTS (incorporated by reference to Exhibit 10.14(B) to
Registrant's Form 10-QSB for the period ended March 31, 1996).
10.9 Stock Purchase Agreement dated September 30, 1996 among the Registrant,
Megascore, Inc. and the shareholders of Megascore, Inc. (incorporated by
reference to Exhibit 1 to the Registrant's Current Report on Form 8-K dated
November 30, 1996).
10.10 Stock Purchase Agreement dated November 30, 1996 among the Registrant, Software
Associates, Inc. and Kenneth R. Konikowski (incorporated by reference to
Exhibit 2 to the Registrant's Current Report on Form 8-K dated November 30,
1996).
10.11 Amendment to Stock Purchase Agreement dated April 7, 1997 between the
Registrant and Kenneth R. Konikowski (incorporated by reference to Exhibit
10.11 filed with Registrant's Report on Form 10-KSB for the year ended
September 30, 1996).
10.12 Lock-Up Agreement dated November 30, 1996 among the Registrant, Steve L.
Vanechanos, Jr. and Kenneth R. Konikowski (incorporated by reference to Exhibit
10.12 filed with Registrant's Report on Form 10-KSB for the year ended
September 30, 1996).
10.13 Employment Agreement dated December 1, 1996 between the Registrant and Kenneth
R. Konikowski (incorporated by reference to Exhibit 10.13 filed with
Registrant's Report on Form 10-KSB for the year ended September 30, 1996).
10.14 DynamicWeb Enterprises, Inc. 1997 Employee Stock Option Plan (incorporated by
reference to Annex B to the Registrant's Information Statement filed May 15,
1997, pursuant to Section 14(c) of the Securities Exchange Act of 1934).
10.15 DynamicWeb Enterprises, Inc. 1997 Stock Option Plan for Outside Directors
(incorporated by reference to Annex C to the Registrant's Information Statement
filed May 15, 1997, pursuant to Section 14(c) of the Securities Exchange Act of
1934).
10.16 Lease Agreement dated November 1, 1996 between Beauty and Barber Institute,
Inc. and DynamicWeb Transaction Systems, Inc. (incorporated by reference to
Exhibit 10.16 filed with Registrant's Report on Form 10-KSB for the year ended
September 30, 1996).
10.17 Lease Agreement dated July 1, 1994 between Software Associates, Inc. and The
Mask Group (incorporated by reference to Exhibit 10.17 filed with Registrant's
Report on Form 10-KSB for the year ended September 30, 1996).
10.18 Amendment No. 1 to Lease Agreement between Software Associates, Inc. and The
Mask Group (incorporated by reference to Exhibit 3 to the Registrant's Form 8-K
dated September 9, 1997).
10.19 Employment Agreement dated August 26, 1997, between the Registrant and James D.
Conners (incorporated by reference to Exhibit 1 to Registrant's Form 8-K dated
September 9, 1997).
10.20 Form of Financial Consulting Agreement between the Registrant and H.J. Meyers &
Co., Inc.*
10.21 Form of Mergers and Acquisition Agreement between the Registrant and H.J.
Meyers & Co., Inc.*
</TABLE>
II-5
<PAGE> 92
<TABLE>
<CAPTION>
NUMBER TITLE
----- -------------------------------------------------------------------------------
<S> <C>
16.1 Letter on change in certifying accountant (R. Andrew Gately & Co.)
(incorporated by reference to Exhibit 16.1 to Registrant's Current Report on
Form 8-K dated February 19, 1997 (to be filed by amendment)).
16.2 Letter on change in certifying accountant (Allen G. Roth, P.A.) (incorporated
by reference to Exhibit 16.2 to the Registrant's Current Report on Form 8-K
dated February 19, 1997, as amended by Amendment dated March 12, 1997).
21.1 Subsidiaries of the Registrant.
23.1 Consent of Stevens & Lee (included in Exhibit 5.1)
23.2 Consent of Richard A. Eisner & Company, LLP*
27.1 Financial Data Schedule.**
</TABLE>
- ---------------
* Filed herewith
** Previously filed
*** To be filed by amendment
ITEM 28. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement.
(iii) To 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.
(2) That the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
Offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 ("Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer of controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by its is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-6
<PAGE> 93
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 1 to this registration statement
to be signed on its behalf by the undersigned in the City of Fairfield, State of
New Jersey on November 6, 1997.
DYNAMICWEB ENTERPRISES, INC.
By: /s/ STEVEN L. VANECHANOS, JR.
------------------------------------
Steven L. Vanechanos, Jr.
Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, as
amended, this Amendment No. 1 to the Registration Statement was signed below by
the following persons and in the capacities and on the dates stated.
<TABLE>
<C> <S> <C>
/s/ STEVEN L. VANECHANOS, JR. Chief Executive Officer November 6, 1997
- --------------------------------------------- and Director
Steven L. Vanechanos, Jr.
/s/ STEVE VANECHANOS, SR. Treasurer, Chief Financial November 6, 1997
- --------------------------------------------- Officer, and Chief
Steve Vanechanos, Sr. Accounting Officer,
Director
/s/ F. PATRICK AHEARN* Director November 6, 1997
- ---------------------------------------------
F. Patrick Ahearn
/s/ DENIS CLARK* Director November 6, 1997
- ---------------------------------------------
Denis Clark
/s/ FRANK T. DIPALMA* Director November 6, 1997
- ---------------------------------------------
Frank T. DiPalma
/s/ ROBERT DROSTE* Director November 6, 1997
- ---------------------------------------------
Robert Droste
/s/ KENNETH R. KONIKOWSKI Director November 6, 1997
- ---------------------------------------------
Kenneth R. Konikowski
* By: /s/ STEVEN L. VANECHANOS, JR.
- ---------------------------------------------
Steven L. Vanechanos, Jr.
Attorney-in-Fact
</TABLE>
II-7
<PAGE> 94
<TABLE>
<CAPTION>
EXHIBIT INDEX
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER TITLE PAGE
- --------------------------------------------- -------------------------- -------------------
<C> <S> <C>
1.1 Underwriting Agreement*..............................................
3.1.1 Certificate of Incorporation of the Registrant as filed with the
Secretary of State of New Jersey on August 7, 1979 (incorporated by
reference to Exhibit 3.1.1 filed with Registrant's Annual Report on
Form 10-K for the Year ended December 31, 1991)......................
3.1.2 Certificate of Amendment to Registrant's Certificate of
Incorporation, as filed with the Secretary of State of New Jersey on
May 19, 1980 (incorporated by reference to Exhibit 3.1.2 filed with
Registrant's Annual Report on Form 10-K for the Year ended December
31, 1991)............................................................
3.1.3 Certificate of Amendment to Registrant's Certificate of
Incorporation, as filed with the Secretary of State of New Jersey on
April 1981 (incorporated by reference to Exhibit 3.1.3 filed with
Registrant's Annual Report on Form 10-K for the Year ended December
31, 1991)............................................................
3.1.4 Certificate of Amendment of Registrant's Certificate of
Incorporation, as filed with the Secretary of State of New Jersey on
April 24, 1986 (incorporated by reference to Exhibit 3.1.4 filed with
Registrant's Annual Report on Form 10-K for the Year ended December
31, 1991)............................................................
3.1.5 Certificate of Amendment to Registrant's Certificate of
Incorporation, as filed with the Secretary of State of New Jersey on
July 15, 1988 (incorporated by reference to Exhibit 3.1.5 filed with
Registrant's Annual Report on Form 10-K for the Year ended December
31, 1991)............................................................
3.1.6 Certificate of Amendment to Registrant's Certificate of
Incorporation, as filed with the Secretary of State of New Jersey on
November 28, 1989 (incorporated by reference to Exhibit 3.1.6 filed
with Registrant's Annual Report on Form 10-K for the Year ended
December 31, 1991)...................................................
3.1.7 Certificate of Amendment to the Registrant's Certificate of
Incorporation, as filed with the Secretary of State of New Jersey on
August 15, 1994 (incorporated by reference to Exhibit 3.1.7 filed
with the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994)...................................................
3.1.8 Certificate of Amendment to Registrant's Certificate of
Incorporation, as filed with the Secretary of State of New Jersey on
May 14, 1996, changing the name of the Company to DynamicWeb
Enterprises, Inc. (incorporated by reference to Exhibit 3.2.3 filed
with Registrant's Annual Report on Form 10-KSB for December 31,
1995)................................................................
3.1.9 Certificate of Amendment to Registrant's Certificate of
Incorporation, as filed with the Secretary of State of New Jersey on
, 1997.***.................................................
3.2.1 Bylaws of the Registrant adopted August 7, 1979 (incorporated by
reference to Exhibit 3.2.1 filed with Registrant's Report on Form
10-K for the Year ended December 31, 1991)...........................
3.2.2 Amendments adopted March 8, 1982 to Bylaws of the Registrant
(incorporated by reference to Exhibit 3.2.2 filed with Registrant's
Report on Form 10-K for the Year ended December 31, 1991)............
3.2.3 Amended and Restated Bylaws of the Registrant adopted March 7, 1997
(incorporated by reference to Exhibit 3.2.3 filed with Registrant's
Annual Report on Form 10-KSB for the year ended September 30,
1996)................................................................
4.1 Specimen Stock Certificate.***.......................................
</TABLE>
<PAGE> 95
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER TITLE PAGE
----- --------------------------------------------------------------------- ------------
<S> <C> <C>
4.2 Form of Representative's Warrant.*...................................
5.1 Opinion of Stevens & Lee re: legality.*..............................
10.1 Release and Severance Agreement dated February 12, 1993 between
Seahawk Capital Corporation and Robert S. Friedenberg (incorporated
by reference to Exhibit 10.2 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1992)...........................
10.2 Agreement dated February 24, 1995 between the Registrant and Jonathan
B. Lassers as to the purchase of common stock (incorporated by
reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K
dated as of May 8, 1995).............................................
10.3 Amendment Agreement dated May 1, 1995 between the Registrant and
Jonathan B. Lassers as to the purchase of common stock and common
stock purchase warrants (incorporated by reference to Exhibit 10.2 to
Registrant's Current Report on Form 8-K dated as of May 8, 1995).....
10.4 Agreement dated February 29, 1996 between the Registrant and Jonathan
B. Lassers as to the exchange of common stock for his common stock
purchase warrants (incorporated by reference to Exhibit 10.4 filed
with Registrant's Report on Form 10-KSB for the year ended September
30, 1996)............................................................
10.5 Stock Exchange Agreement dated as of December 31, 1994 among the
Registrant, John C. Fitton and Seahawk Overseas Exploration
Corporation (incorporated by reference to Exhibit 10.4 to
Registrant's Current Report on Form 8-K dated as of May 8, 1995).....
10.6 Stock Purchase Agreement dated March 5, 1996 among the Registrant,
DynamicWeb Transaction Systems, Inc. ("DWTS") and the shareholders of
DWTS (incorporated by reference to Exhibit 10.14 to Registrant's
Annual Report on Form 10-KSB for the year ended December 31, 1995)...
10.7 Amendment to Stock Purchase Agreement dated May 14, 1996 between the
Registrant and DWTS (incorporated by reference to Exhibit 10.14(A) to
Registrant's Annual Report on Form 10-KSB for the year ended December
31, 1995)............................................................
10.8 Amendment to Stock Purchase Agreement dated June 13, 1996 between the
Registrant and DWTS (incorporated by reference to Exhibit 10.14(B) to
Registrant's Form 10-QSB for the period ended March 31, 1996)........
10.9 Stock Purchase Agreement dated September 30, 1996 among the
Registrant, Megascore, Inc. and the shareholders of Megascore, Inc.
(incorporated by reference to Exhibit 1 to the Registrant's Current
Report on Form 8-K dated November 30, 1996)..........................
10.10 Stock Purchase Agreement dated November 30, 1996 among the
Registrant, Software Associates, Inc. and Kenneth R. Konikowski
(incorporated by reference to Exhibit 2 to the Registrant's Current
Report on Form 8-K dated November 30, 1996)..........................
10.11 Amendment to Stock Purchase Agreement dated April 7, 1997 between the
Registrant and Kenneth R. Konikowski (incorporated by reference to
Exhibit 10.11 filed with Registrant's Report on Form 10-KSB for the
year ended September 30, 1996).......................................
10.12 Lock-Up Agreement dated November 30, 1996 among the Registrant, Steve
L. Vanechanos, Jr. and Kenneth R. Konikowski (incorporated by
reference to Exhibit 10.12 filed with Registrant's Report on Form
10-KSB for the year ended September 30, 1996)........................
</TABLE>
<PAGE> 96
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER TITLE PAGE
----- --------------------------------------------------------------------- ------------
<S> <C> <C>
10.13 Employment Agreement dated December 1, 1996 between the Registrant
and Kenneth R. Konikowski (incorporated by reference to Exhibit 10.13
filed with Registrant's Report on Form 10-KSB for the year ended
September 30, 1996)..................................................
10.14 DynamicWeb Enterprises, Inc. 1997 Employee Stock Option Plan
(incorporated by reference to Annex B to the Registrant's Information
Statement filed May 15, 1997, pursuant to Section 14(c) of the
Securities Exchange Act of 1934).....................................
10.15 DynamicWeb Enterprises, Inc. 1997 Stock Option Plan for Outside
Directors (incorporated by reference to Annex C to the Registrant's
Information Statement filed May 15, 1997, pursuant to Section 14(c)
of the Securities Exchange Act of 1934)..............................
10.16 Lease Agreement dated November 1, 1996 between Beauty and Barber
Institute, Inc. and DynamicWeb Transaction Systems, Inc.
(incorporated by reference to Exhibit 10.16 filed with Registrant's
Report on Form 10-KSB for the year ended September 30, 1996).........
10.17 Lease Agreement dated July 1, 1994 between Software Associates, Inc.
and The Mask Group (incorporated by reference to Exhibit 10.17 filed
with Registrant's Report on Form 10-KSB for the year ended September
30, 1996)............................................................
10.18 Amendment No. 1 to Lease Agreement between Software Associates, Inc.
and The Mask Group (incorporated by reference to Exhibit 3 to the
Registrant's Form 8-K dated September 9, 1997).......................
10.19 Employment Agreement dated August 26, 1997, between the Registrant
and James D. Conners (incorporated by reference to Exhibit 1 to
Registrant's Form 8-K dated September 9, 1997).......................
10.20 Form of Financial Consulting Agreement between the Registrant and
H.J. Meyers & Co., Inc.*.............................................
10.21 Form of Mergers and Acquisition Agreement between the Registrant and
H.J. Meyers & Co., Inc.*.............................................
16.1 Letter on change in certifying accountant (R. Andrew Gately & Co.)
(incorporated by reference to Exhibit 16.1 to Registrant's Current
Report on Form 8-K dated February 19, 1997 (to be filed by
amendment))..........................................................
16.2 Letter on change in certifying accountant (Allen G. Roth, P.A.)
(incorporated by reference to Exhibit 16.2 to the Registrant's
Current Report on Form 8-K dated February 19, 1997, as amended by
Amendment dated March 12, 1997)......................................
21.1 Subsidiaries of the Registrant.......................................
23.1 Consent of Stevens & Lee (included in Exhibit 5.1)...................
23.2 Consent of Richard A. Eisner & Company, LLP*.........................
27.1 Financial Data Schedule..............................................
</TABLE>
- ---------------
* Filed herewith
** Previously filed
*** To be filed by amendment
<PAGE> 1
EXHIBIT 1.1
UNDERWRITING AGREEMENT
Dated: [EFFECTIVE DATE]
H.J. MEYERS & CO., INC.
AS REPRESENTATIVE OF THE
UNDERWRITERS NAMED IN
SCHEDULE I HERETO
1895 Mt. Hope Avenue
Rochester, New York 14620
Ladies and Gentlemen:
DynamicWeb Enterprises, a New Jersey corporation (the "Company"), proposes
to issue and sell to the one or more Underwriters named in Schedule I hereto
(the "Underwriters"), including H.J. Meyers & Co., Inc. (the "Representative" or
"you"), the Representative of the several Underwriters, pursuant to this
Underwriting Agreement (this "Agreement"), an aggregate of 1,750,000 of the
Common Stock, par value $.0001 per share, ("Common Stock") of the Company. In
addition, the Company proposes to grant to the Underwriters the Over-Allotment
Option, referred to and defined in Section 2(c), to purchase all or any part of
an aggregate of 15% of number of Shares of Common Stock, and to issue to you the
Representative's Warrant, referred to and defined in Section 12, to purchase
certain further additional shares of Common Stock.
The 1,750,000 shares of Common Stock to be sold by the Company, together
with the 262,500 additional shares of Common Stock that are the subject of the
Over-Allotment Option, are herein collectively called the "Shares." The Shares
and the shares of Common Stock issuable upon exercise of the Representative's
Warrant, are herein collectively called the "Securities." The term
"Representative's Counsel" shall mean the firm of Harter, Secrest & Emery,
counsel to the Representative, and the term "Company Counsel" shall mean the
firm of Stevens & Lee, P.C., counsel to the Company. Unless the context
otherwise requires, all references herein to a "Section" shall mean the
appropriate Section of this Agreement.
You have advised the Company that the Underwriters desire to purchase the
Shares as herein provided, and that you have been authorized to execute this
Agreement as representative of the Underwriters. The Company confirms the
agreements made by it with respect to the purchase of the Shares by the
Underwriters, as follows:
1. REPRESENTATIONS AND WARRANTIES.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to, and agrees with, each Underwriter that:
<PAGE> 2
(a) REGISTRATION STATEMENT; PROSPECTUS. A registration statement (SEC
File No. 33-______) on Form SB-2 relating to the public offering of the
Securities (the "Offering"), including a preliminary form of prospectus, copies
of which have heretofore been delivered to you, has been prepared by the Company
in conformity with the requirements of the Securities Act of 1933, as amended
(the "Act"), and the rules and regulations of the Securities and Exchange
Commission (the "Commission") promulgated thereunder (the "Rules and
Regulations"), and has been filed with the Commission under the Act. As used
herein, the term "Preliminary Prospectus" shall mean each prospectus filed
pursuant to Rule 430 or Rule 424(a) of the Rules and Regulations. The
Preliminary Prospectus bore the legends required by Items 501 and 502 of
Regulation S-B under the Act and the Rules and Regulations. Such registration
statement (including all financial statements, schedules and exhibits) as
amended at the time it becomes effective and the final prospectus included
therein are herein respectively called the "Registration Statement" and the
"Prospectus," except that (i) if the prospectus first filed by the Company
pursuant to Rule 424(b) or Rule 430A of the Rules and Regulations shall differ
from such final prospectus as then amended, then the term "Prospectus" shall
instead mean the prospectus first filed pursuant to said Rule 424(b) or Rule
430A, and (ii) if such registration statement is amended or such prospectus is
amended or supplemented after the effective date of such registration statement
and prior to the Option Closing Date (as defined in Section 2(c)), then (unless
the context necessarily requires otherwise) the term "Registration Statement"
shall include such registration statement as so amended, and the term
"Prospectus" shall include such prospectus as so amended or supplemented, as the
case may be.
(b) CONTENTS OF REGISTRATION STATEMENT. On the Effective Date, and at
all times subsequent thereto for so long as the delivery of a prospectus is
required in connection with the offering or sale of any of the Securities, (i)
the Registration Statement and the Prospectus shall in all respects conform to
the requirements of the Act and the Rules and Regulations, and (ii) neither the
Registration Statement nor the Prospectus shall include any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make statements therein not misleading; provided, however, that
the Company makes no representations, warranties or agreements as to information
contained in or omitted from the Registration Statement or Prospectus in
reliance upon, and in conformity with, written information furnished to the
Company by or on behalf of the Underwriters specifically for use in the
preparation thereof. It is understood that the statements set forth in the
Prospectus with respect to stabilization, the material set forth under the
caption "UNDERWRITING," and the identity of counsel to the Representative under
the caption "LEGAL MATTERS," constitute the only information furnished in
writing by or on behalf of the Underwriters for inclusion in the Registration
Statement and Prospectus, as the case may be.
(c) ORGANIZATION, STANDING, ETC. The Company has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the State of New Jersey. Each subsidiary of the Company (each a
"Subsidiary") has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware, except for
Software Associates, which has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of New Jersey. The
- 2 -
<PAGE> 3
Company and each of its Subsidiaries have full power and corporate authority to
own their respective properties and conduct their respective businesses as
described in the Prospectus, and are duly qualified or licensed to do business
as foreign corporations and are in good standing in each other jurisdiction in
which the nature of their respective businesses or the character or location of
their respective properties requires such qualification, except where failure so
to qualify will not materially affect the business, properties or financial
condition of the Company or such Subsidiary, as the case may be.
(d) CAPITALIZATION. The authorized, issued and outstanding capital
stock of the Company as of the date of the Prospectus is as set forth in the
Prospectus under the caption "CAPITALIZATION." The shares of Common Stock issued
and outstanding on the Effective Date have been duly authorized, validly issued
and are fully paid and non-assessable. No options, warrants or other rights to
purchase, agreements or other obligations to issue, or agreements or other
rights to convert any obligation into, any shares of capital stock of the
Company or any Subsidiary have been granted or entered into by the Company or
such Subsidiary, except as expressly described in the Prospectus. The Securities
conform to all statements relating thereto contained in the Registration
Statement or the Prospectus.
(e) SECURITIES. The Securities and the Representative's Warrant have
been duly authorized and, when issued and delivered against payment therefor
pursuant to this Agreement, will be duly authorized, validly issued, fully paid
and non-assessable and free of preemptive rights of any security holder of the
Company. Neither the filing of the Registration Statement nor the offering or
sale of any of the Securities or the Representative's Warrant as contemplated by
this Agreement gives rise to any rights, other than those which have been waived
or satisfied, for or relating to the registration of any securities of the
Company, except as described in the Registration Statement.
(f) AUTHORITY, ETC. This Agreement, the Representative's Warrant, the
Financial Consulting Agreement and the M/A Agreement (each as hereinafter
defined), have been duly and validly authorized, executed and delivered by the
Company and, assuming due execution of this Agreement and such other agreements
by the other party or parties hereto and thereto, constitute valid and binding
obligations of the Company enforceable against the Company in accordance with
their respective terms. The Company has full right, power and lawful authority
to authorize, issue and sell the Securities and the Representative's Warrant on
the terms and conditions set forth herein. All consents, approvals,
authorizations and orders of any court or governmental authority which are
required in connection with the authorization, execution and delivery of such
agreements, the authorization, issue and sale of the Securities and the
Representative's Warrant, and the consummation of the transactions contemplated
hereby have been obtained.
(g) NO CONFLICT. Except as described in the Prospectus, neither the
Company nor any Subsidiary is in violation, breach or default of or under, and
consummation of the transactions hereby contemplated and fulfillment of the
terms of this Agreement will not conflict with or result in a breach of, any of
the terms or provisions of, or constitute a default under, or result in the
creation or imposition of any lien, charge or encumbrance pursuant to the terms
of, any contract, indenture, mortgage, deed of trust, loan agreement or
- 3 -
<PAGE> 4
other material agreement or instrument to which the Company or such Subsidiary
is a party or by which the Company or such Subsidiary may be bound or to which
any of the property or assets of the Company or such Subsidiary are subject, nor
will such action result in any violation of the provisions of the Certificate of
Incorporation or the By-laws of the Company or any Subsidiary, or any statute,
order, rule or regulation applicable to the Company or any Subsidiary of any
court or governmental authority.
(h) ASSETS. Subject to the qualifications stated in the Prospectus:
(i) the Company and each Subsidiary, as the case may be, has title in fee simple
to all real property and good and marketable title to all personal property and
assets owned by it described in the Prospectus as owned by it, including without
limitation intellectual property, free and clear of all liens, charges,
encumbrances or restrictions, except such as are not materially significant or
important in relation to its business; (ii) all of the material leases and
subleases under which the Company or any Subsidiary is the lessor or sublessor
of properties or assets or under which the Company or any Subsidiary holds
properties or assets as lessee or sublessee, as described in the Prospectus, are
in full force and effect and, except as described in the Prospectus, neither the
Company nor any Subsidiary is in default in any material respect with respect to
any of the terms or provisions of any of such leases or subleases, and no claim
has been asserted by any party adverse to the rights of the Company or such
Subsidiary as lessor, sublessor, lessee or sublessee under any such lease or
sublease, or affecting or questioning the right of the Company or such
Subsidiary to continued possession of the leased or subleased premises or assets
under any such lease or sublease, except as described or referred to in the
Prospectus; and (iii) the Company and each Subsidiary, as the case may be, owns
or leases all such properties, described in the Prospectus, as are necessary to
its operations as now conducted and, except as otherwise stated in the
Prospectus, as proposed to be conducted as set forth in the Prospectus.
(i) INDEPENDENT ACCOUNTANTS. Richard A. Eisner & Co., LLP who have
given their report on certain financial statements filed or to be filed with the
Commission as a part of the Registration Statement, and which are included in
the Prospectus, are with respect to the Company, independent public accountants
as required by the Act and the Rules and Regulations.
(j) FINANCIAL STATEMENTS. The financial statements and schedules,
together with related notes, set forth in the Registration Statement and the
Prospectus present fairly and accurately the financial position, results of
operations and cash flows of the Company and its Subsidiaries on the basis
stated in the Registration Statement, at the respective dates and for the
respective periods to which they apply, in accordance with Generally Accepted
Accounting Principles ("GAAP"). Such financial statements, schedules and related
notes have been prepared in accordance with GAAP applied on a consistent basis
throughout the entire period involved, except to the extent disclosed therein.
The financial information for each of the periods presented in the Registration
Statement and the Prospectus present a true and complete statement of the
financial position of the Company and its Subsidiaries at the dates indicated
and the results of its operations for the periods then ended, in accordance with
GAAP. The Summary Financial Information and Selected Financial Data included in
the Registration Statement and the Prospectus present fairly and accurately the
information
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<PAGE> 5
shown therein and have been prepared on a basis consistent with that of the
audited financial statements included in the Registration Statement and the
Prospectus.
(k) NO MATERIAL CHANGE. Except as otherwise set forth in the
Prospectus, subsequent to the respective dates as of which information is given
in the Registration Statement and the Prospectus, neither the Company nor any
Subsidiary has: (i) incurred any liability or obligation, direct or contingent,
or entered into any transaction not in the ordinary course of its business,
which is material to its business; (ii) effected or experienced any change in
its capital stock; (iii) issued any options, warrants or other rights to acquire
its capital stock; (iv) declared, paid or made any dividend or distribution of
any kind on its capital stock; or (v) effected or experienced any material
adverse change, or development involving a prospective material adverse change,
in its general affairs, management, business, property, operations, condition
(financial or otherwise) or earnings, whether or not such material adverse
change is or may be converted by insurance.
(l) LITIGATION. Except as set forth in the Prospectus, there is not
now pending nor, to the best knowledge of the Company, threatened, any action,
suit or proceeding (including any related to environmental matters or
discrimination on the basis of age, sex, religion or race), whether or not in
the ordinary course of business, to which the Company or any Subsidiary is a
party or its business or property is subject, before or by any court or
governmental authority, which might result in any material adverse change in the
business, property, operations, condition (financial or otherwise) or earnings
of the Company or such Subsidiary; and no labor disputes involving the employees
of the Company or any Subsidiary exist which might be expected to affect
materially adversely the business, property, operations, condition (financial or
otherwise) or earnings of the Company or such Subsidiary.
(m) NO UNLAWFUL PROSPECTUSES. The Company has not distributed any
prospectus or other offering material in connection with the Offering
contemplated herein, other than any Preliminary Prospectus, the Prospectus or
other material permitted by the Act and the Rules and Regulations. Additionally,
no order preventing or suspending the use of any Preliminary Prospectus has been
issued by the Commission, and each Preliminary Prospectus, at the time of filing
thereof, conformed in all material respects to the requirements of the Act and
the Rules and Regulations.
(n) TAXES. Except as disclosed in the Prospectus, the Company and each
Subsidiary has filed all necessary federal, state, local and foreign income and
franchise tax returns and has paid all taxes shown as due thereon; and there is
no tax deficiency which has been or, to the best knowledge of the Company, might
be asserted against the Company or any Subsidiary.
(o) LICENSES, ETC. The Company and each Subsidiary has in effect all
necessary licenses, permits and other governmental authorizations currently
required for the conduct of its business or the ownership of its property, as
described in the Prospectus, and is in all material respects in compliance
therewith. The Company owns or possesses adequate rights to use all material
patents, patent applications, trademarks, mark registrations, copyrights and
licenses disclosed in the Prospectus and/or which are necessary
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<PAGE> 6
for the conduct of such business, and except as disclosed in the Prospectus has
not received any notice of conflict with the asserted rights of others in
respect thereof. To the best knowledge of the Company, none of the activities or
business of the Company or any Subsidiary is in violation of, or would cause the
Company or such Subsidiary to violate, any law, rule, regulation or order of the
United States, any state, county or locality, the violation of which would have
a material adverse effect upon the business, property, operations, condition
(financial or otherwise) or earnings of the Company or such Subsidiary.
(p) NO PROHIBITED PAYMENTS. Neither the Company nor any Subsidiary
have, directly or indirectly at any time: (i) made any contribution to any
candidate for political office, or failed to disclose fully any such
contribution in violation of law; or (ii) made any payment to any federal,
state, local or foreign governmental officer or official, or other person
charged with similar public or quasi-public duties, other than payments or
contributions required or allowed by applicable law. The Company's internal
accounting controls and procedures are sufficient to cause the Company to comply
in all material respects with the Foreign Corrupt Practices Act of 1977, as
amended.
(q) TRANSFER TAXES. On the Closing Dates (as defined in Section 2(d)),
all transfer and other taxes (including franchise, capital stock and other tax,
other than income taxes, imposed by any jurisdiction), if any, which are
required to be paid in connection with the sale and transfer of the Shares to
the Underwriters hereunder shall have been fully paid or provided for by the
Company, and all laws imposing such taxes shall have been fully complied with.
(r) EXHIBITS. All contracts and other documents of the Company or any
Subsidiary which are, under the Rules and Regulations, required to be filed as
exhibits to the Registration Statement have been so filed.
(s) SUBSIDIARIES. Except as described in the Prospectus, the Company
has no Subsidiaries. All of the issued and outstanding capital stock of each
Subsidiary is owned by the Company.
(t) SHAREHOLDER AGREEMENTS, REGISTRATION RIGHTS. Except as described
in the Prospectus, no security holder of the Company has any rights with respect
to the purchase, sale or registration of any Securities, and any registration
rights held by any security holders with respect to the Offering have been
effectively waived.
(u) LABOR RELATIONS. No labor dispute with the employees of the
Company or any subsidiary exists or, to the best knowledge of the Company, is
imminent; and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its principal suppliers, manufacturers or
contractors which might be expected to result in any material adverse change in
the condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise.
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<PAGE> 7
2. PURCHASE, DELIVERY AND SALE OF SHARES.
(a) PURCHASE PRICE FOR SHARES. The Shares shall be sold to and
purchased by the Underwriters hereunder at the purchase price of $____ per Share
(that being the public offering price of $____ per Share less an underwriting
discount of ten percent) (the "Purchase Price").
(b) FIRM SHARES.
(i) Subject to the terms and conditions of this Agreement, and on
the basis of the representations, warranties and agreements herein contained the
Company agrees to issue and sell, and each of the Underwriters agrees, severally
and not jointly, to buy from the Company at the Purchase Price, the number of
Shares set forth opposite such Underwriter's name in Schedule I hereto (the
"Firm Shares").
(ii) Delivery of the Firm Shares against payment therefor shall
take place at the offices of the Representative, 1895 Mt. Hope Avenue,
Rochester, New York 14620 (the "Representative's Offices") (or at such other
place as may be designated by agreement between you and the Company) at 10:00
a.m., New York time, on [CLOSING DATE], or at such later time and date, not
later than ten banking days after the Effective Date, as you may designate (such
time and date of payment and delivery for the Firm Shares being herein called
the "First Closing Date"). Time shall be of the essence and delivery of the Firm
Shares at the time and place specified in this Section 2(b)(ii) is a further
condition to the obligations of the Underwriters hereunder.
(c) OPTION SHARES.
(i) In addition, subject to the terms and conditions of this
Agreement, and on the basis of the representations, warranties and agreements
herein contained, the Company hereby grants to the Underwriters an option (the
"Over-Allotment Option") to purchase from the Company all or any part of an
aggregate of an additional 262,500 Shares at the Purchase Price (the "Option
Shares"). In the event that the Over-Allotment Option is exercised by the
Underwriters in whole or in part, each Underwriter shall purchase Option Shares
in the same proportion as the number of Firm Shares purchased by it bore to the
total number of Firm Shares, unless you and the other Underwriters shall
otherwise agree.
(ii) The Over-Allotment Option may be exercised by the
Underwriters, in whole or in part, within 45 days after the Effective Date, upon
notice by you to the Company advising it of the number of Option Shares as to
which the Over-Allotment Option is being exercised, the names and denominations
in which the certificates for the Shares comprising such Option Shares are to be
registered, and the time and date when such certificates are to be delivered.
Such time and date shall be determined by you but shall not be less than four
nor more than ten banking days after exercise of the Over-Allotment Option, nor
in any event prior to the First Closing Date (such time and date being herein
called the "Option Closing Date"). Delivery of the Option Shares against payment
therefor shall take place at the Representative's Offices. Time shall be of the
essence and delivery at
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<PAGE> 8
the time and place specified in this Section 2(c)(ii) is a further condition to
the obligations of the Underwriters hereunder.
(iii) The Over-Allotment Option may be exercised only to cover
over-allotments in the sale by the Underwriters of Firm Shares.
(d) DELIVERY OF CERTIFICATES; PAYMENT.
(i) The Company shall make the certificates for the Shares to be
purchased hereunder available to you for checking at least one banking day prior
to the First Closing Date or the Option Closing Date (each, a "Closing Date"),
as the case may be. The certificates shall be in such names and denominations as
you may request at least two banking days prior to the relevant Closing Date.
Time shall be of the essence and the availability of the certificates at the
time and place specified in this Section 2(d)(i) is a further condition to the
obligations of the Underwriters hereunder.
(ii) On the First Closing Date the Company shall deliver to you
for the several accounts of the Underwriters definitive engraved certificates in
negotiable form representing all of the Shares comprising the Firm Shares to be
sold by the Company, against payment of the Purchase Price therefor by you for
the several accounts of the Underwriters, by certified or bank cashier's checks
payable in same day funds, or by wire transfer, to the order of the Company.
(iii) In addition, if and to the extent that the Underwriters
exercise the Over-Allotment Option, then on the Option Closing Date the Company
shall deliver to you for the several accounts of the Underwriters definitive
engraved certificates in negotiable form representing the Shares comprising the
Option Shares to be sold by the Company, against payment of the Purchase Price
therefor by you for the several accounts of the Underwriters, by certified or
bank cashier's checks payable in same day funds to the order of the Company.
(iv) It is understood that the Underwriters propose to offer the
Shares to be purchased hereunder to the public, upon the terms and conditions
set forth in the Registration Statement, after the Registration Statement
becomes effective.
3. COVENANTS.
COVENANTS OF THE COMPANY. The Company covenants and agrees with each
Underwriter that:
(a) REGISTRATION.
(i) The Company shall use its best efforts to cause the
Registration Statement to become effective and, upon notification from the
Commission that the Registration Statement has become effective, shall so advise
you and shall not at any time,
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<PAGE> 9
whether before or after the Effective Date, file any amendment to the
Registration Statement or any amendment or supplement to the Prospectus of which
you shall not previously have been advised and furnished with a copy, or to
which you or Representative's Counsel shall have objected in writing, or which
is not in compliance with the Act and the Rules and Regulations. At any time
prior to the later of (A) the completion by the Underwriters of the distribution
of the Shares contemplated hereby (but in no event more than nine months after
the Effective Date), and (B) 25 days after the Effective Date, the Company shall
prepare and file with the Commission, promptly upon your request, any amendments
to the Registration Statement or any amendments or supplements to the Prospectus
which, in your reasonable opinion, may be necessary or advisable in connection
with the distribution of the Shares.
(ii) Promptly after you or the Company shall have been advised
thereof, you shall advise the Company or the Company shall advise you, as the
case may be, and confirm such advice in writing, of (A) the receipt of any
comments of the Commission, (B) the effectiveness of any post-effective
amendment to the Registration Statement, (C) the filing of any supplement to the
Prospectus or any amended Prospectus, (D) any request made by the Commission for
amendment of the Registration Statement or amendment or supplementing of the
Prospectus, or for additional information with respect thereto, or (E) the
issuance by the Commission or any state or regulatory body of any stop order or
other order denying or suspending the effectiveness of the Registration
Statement, or preventing or suspending the use of any Preliminary Prospectus, or
suspending the qualification of the Securities for offering in any jurisdiction,
or otherwise preventing or impairing the Offering, or the institution or threat
of any proceeding for any of such purposes. The Company and you shall not
acquiesce in such order or proceeding, and shall instead actively defend such
order or proceeding, unless the Company and you agree in writing to such
acquiescence.
(iii) The Company has caused to be delivered to you copies of
each Preliminary Prospectus, and the Company has consented and hereby consents
to the use of such copies for the purposes permitted by the Act. The Company
authorizes the Underwriters and selected dealers to use the Prospectus in
connection with the sale of the Shares for such period as in the opinion of
Representative's Counsel the use thereof is required to comply with the
applicable provisions of the Act and the Rules and Regulations. In case of the
happening, at any time within such period as a prospectus is required under the
Act to be delivered in connection with sales by an underwriter or dealer, of any
event of which the Company has knowledge and which materially affects the
Company or the Securities, or which in the opinion of Company Counsel or of
Representative's Counsel should be set forth in an amendment to the Registration
Statement or an amendment or supplement to the Prospectus in order to make the
statements made therein not then misleading, in light of the circumstances
existing at the time the Prospectus is required to be delivered to a purchaser
of the Shares, or in case it shall be necessary to amend or supplement the
Prospectus to comply with the Act or the Rules and Regulations, the Company
shall notify you promptly and forthwith prepare and furnish to the Underwriters
copies of such amended Prospectus or of such supplement to be attached to the
Prospectus, in such quantities as you may reasonably request, in order that the
Prospectus, as so amended or supplemented, shall not contain any untrue
statement of a material fact or omit
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<PAGE> 10
to state any material fact necessary in order to make the statements in the
Prospectus, in the light of the circumstances under which they are made, not
misleading. The preparation and furnishing of each such amendment to the
Registration Statement, amended Prospectus or supplement to be attached to the
Prospectus shall be without expense to the Underwriters, except that in the case
that the Underwriters are required, in connection with the sale of the Shares,
to deliver a prospectus nine months or more after the Effective Date, the
Company shall upon your request and at the expense of the Underwriters, amend
the Registration Statement and amend or supplement the Prospectus, or file a new
registration statement on Form SB-2 (if applicable) or Form S-1, if necessary,
and furnish the Underwriters with reasonable quantities of prospectuses
complying with section 10(a)(3) of the Act.
(iv) The Company shall comply with the Act, the Rules and
Regulations, and the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations promulgated thereunder in connection with
the offering and issuance of the Securities.
(b) BLUE SKY. The Company shall, at its own expense, use its best
efforts to qualify or register the Securities for sale under the securities or
"blue sky" laws of such jurisdictions as you may designate, and shall make such
applications and furnish such information to Representative's Counsel as may be
required for that purpose, and shall comply with such laws; provided, however,
that the Company shall not be required to qualify as a foreign corporation or a
dealer in securities or to execute a general consent to service of process in
any jurisdiction in any action other than one arising out of the offering or
sale of the Common Stock. The Company shall bear all of the expense of such
qualifications and registrations, including without limitation the legal fees
and disbursements of Representative's Counsel, which fees, exclusive of
disbursements, shall not exceed $35,000 (unless otherwise agreed). After each
Closing Date the Company shall, at its own expense, from time to time take such
actions and prepare and file such statements and reports as may be required to
continue each such qualification in effect for so long a period as you may
reasonably request.
(c) EXCHANGE ACT REGISTRATION. The Company shall, at its own expense,
prepare and file with the Commission a registration statement (on Form 8-A or
Form 10) under section 12(b) or 12(g) of the Exchange Act concurrently with the
completion of the Offering or promptly thereafter, but in no event later than 45
days from the Effective Date, and shall use its best efforts to cause such
registration statement to be declared effective and maintained in effect for at
least five years from the Effective Date.
(d) PROSPECTUS COPIES. The Company shall deliver to you on or before
the First Closing Date two signed copies of the Registration Statement including
all financial statements, schedules and exhibits filed therewith, and of all
amendments thereto. The Company shall deliver to or on the order of the
Underwriters, from time to time until the Effective Date, as many copies of any
Preliminary Prospectus filed with the Commission prior to the Effective Date as
the Underwriters may reasonably request. The Company shall deliver to the
Underwriters on the Effective Date, and thereafter for so long as a prospectus
is required to be delivered under the Act, from time to time, as many copies of
the
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<PAGE> 11
Prospectus, in final form, or as thereafter amended or supplemented, as the
Underwriters may from time to time reasonably request.
(e) AMENDMENTS AND SUPPLEMENTS. The Company shall, promptly upon your
request, prepare and file with the Commission any amendments to the Registration
Statement, and any amendments or supplements to the Preliminary Prospectus or
the Prospectus, and take any other action which in the reasonable opinion of
Representative's Counsel may be reasonably necessary or advisable in connection
with the distribution of the Securities, and shall use its best efforts to cause
the same to become effective as promptly as possible.
(f) CERTAIN MARKET PRACTICES. The Company has not taken, and shall not
take, directly or indirectly, any action designed, or which might reasonably be
expected, to cause or result in, or which has constituted, the stabilization or
manipulation of the price of the Securities to facilitate the sale or resale
thereof.
(g) CERTAIN REPRESENTATIONS. Neither the Company nor any
representative of the Company has made or shall make any written or oral
representation in connection with the Offering and sale of the Securities or the
Representative's Warrant which is not contained in the Prospectus, which is
otherwise inconsistent with or in contravention of anything contained in the
Prospectus, or which shall constitute a violation of the Act, the Rules and
Regulations, the Exchange Act or the rules and regulations promulgated under the
Exchange Act.
(h) CONTINUING REGISTRATION OF WARRANTS AND UNDERLYING COMMON STOCK.
For so long as any portion of the Representative's Warrant is outstanding and
exercisable, the Company shall, at its own expense and within 15 days of receipt
from the Representative of notice of the Representative's intent to exercise all
or any portion of the Representative's Warrant: (i) use its best efforts to
cause post-effective amendments to the Registration Statement, or new
registration statements (which may be on Forms SB-2, S-2 or S-3, or any
successor form, as the case may be) relating to the Representative's Warrant and
the Common Stock underlying the Representative's Warrant to become effective in
compliance with the Act and without any lapse of time between the effectiveness
of the Registration Statement and of any such post-effective amendment or new
registration statement; (ii) cause a copy of each Prospectus, as then amended,
to be delivered to each holder of record of a portion of the Representative's
Warrant; (iii) furnish to the Underwriters and dealers as many copies of each
such Prospectus as the Underwriters or dealers may reasonably request; and (iv)
maintain the "blue sky" qualification or registration of the Representative's
Warrant and the Common Stock underlying the Representative's Warrant, or have a
currently available exemption therefrom, in each jurisdiction in which the
Securities were so qualified or registered for purposes of the Offering. In
addition, for so long as any portion of the Representative's Warrant is
outstanding, the Company shall promptly notify you of any material change in the
business, financial condition or prospects of the Company.
(i) USE OF PROCEEDS. The Company shall apply the net proceeds from the
sale of the Shares for the purposes set forth in the Prospectus under the
caption "USE OF
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<PAGE> 12
PROCEEDS," and shall file such reports with the Commission with respect to the
sale of the Shares and the application of the proceeds therefrom as may be
required pursuant to Rule 463 of the Rules and Regulations.
(j) TWELVE MONTHS' EARNINGS STATEMENT. The Company shall make
generally available to its security holders and deliver to you as soon as it is
practicable so to do, but in no event later than 90 days after the end of twelve
months after the close of its current fiscal quarter, an earnings statement
(which need not be audited) covering a period of at least twelve consecutive
months beginning after the Effective Date, which shall satisfy the requirements
of section 11(a) of the Act.
(k) NASDAQ, EXCHANGE LISTINGS, ETC. The Company shall immediately make
all filings required to seek approval for the quotation of the Securities on The
Nasdaq Small Cap Market ("NASDAQ") and shall use its best efforts to effect and
maintain such approval for at least five years from the Effective Date. The
Company shall also use its best efforts to cause the Securities to be accepted
for listing such other exchange(s) acceptable to you, prior to the Effective
Date or, failing that, as soon as is possible after the First Closing Date, and
to maintain such listings for five years. Within 10 days after the Effective
Date, the Company shall also use its best efforts to list itself in Moody's OTC
Industrial Manual and to cause such listing to be maintained for five years from
the Effective Date.
(l) BOARD OF DIRECTORS. The Company shall maintain a Board of
Directors comprised of a minimum of six and a maximum of eight directors, at
least a majority of whom shall be neither employed by nor otherwise affiliated
with the Company. The Board of Directors shall hold at least four meetings
annually.
(m) PERIODIC REPORTS. For so long as the Company is a reporting
company under section 12(g) or section 15(d) of the Exchange Act, the Company
shall, at its own expense, furnish to its shareholders an annual report
(including financial statements audited by certified public accountants) in
reasonable detail. In addition, during the period ending five years from the
date hereof, the Company shall, at its own expense, furnish to you: (i) within
90 days of the end of each fiscal year, a balance sheet of the Company and its
Subsidiaries as at the end of such fiscal year, together with statements of
income, stockholders' equity and cash flows of the Company and its Subsidiaries
as at the end of such fiscal year, all in reasonable detail and accompanied by a
copy of the certificate or report thereon of certified public accountants; (ii)
as soon as they are available, a copy of all reports (financial or otherwise)
distributed to security holders; (iii) as soon as they are available, a copy of
all non-confidential reports and financial statements furnished to or filed with
the Commission; and (iv) such other information as you may from time to time
reasonably request. The financial statements referred to herein shall be on a
consolidated basis to the extent the accounts of the Company and its
Subsidiaries are consolidated in reports furnished to its shareholders
generally. In addition, during the period ending one year from the date hereof,
the Company shall, at its own expense, furnish you monthly with Depository Trust
Company stock transfer sheets.
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<PAGE> 13
(n) CERTAIN OPTIONS. For a period of 90 days following the First
Closing Date, the Company shall not, without your prior written consent, grant
any options, warrants or other rights to purchase shares of Common Stock at a
price less than the initial public Offering price of the Shares.
(o) FORM S-8 REGISTRATIONS. For a period of one year following the
First Closing Date, the Company shall not register or otherwise facilitate the
registration of any of its securities issuable upon the exercise of options,
warrants (other than the Representative's Warrant) or other rights, whether by
means of a Registration Statement on Form S-8 or otherwise, without your prior
written consent.
(p) FUTURE SALES. For a period of 12 months following the First
Closing Date, the Company shall not sell or otherwise dispose of any securities
of the Company without your prior written consent, which consent shall not be
unreasonably withheld; provided, however, that the Company may at any time issue
shares of Common Stock pursuant to the exercise of the Representative's Warrant,
and options, warrants or conversion rights issued and outstanding on the
Effective Date and described in the Prospectus. In addition, for a period of two
years following the First Closing Date, the Company shall not sell or otherwise
dispose of any shares of Preferred Stock without your prior written consent.
Additionally, for a period of 24 months following the First Closing Date, the
Company shall not issue or sell any securities pursuant to Regulation D or
Regulation S under the Act without your prior written consent, which consent
shall not be unreasonably withheld.
(q) FUTURE OFFERINGS. For a period of three years following the First
Closing Date, you shall have the right of first refusal to act as underwriter or
agent for any public or private offering or sale of the securities of the
Company, or of any successor to the Company, made by the Company, such successor
or any officer or director of the Company or any shareholder owning beneficially
five percent of the Company's Common Stock; so long as you agree to conduct such
offering on market terms and conditions and express this interest within 45 days
of notification. In addition, the Company shall use its best efforts to assure
that for a period of three years following the First Closing Date, you shall
have the right of first refusal to act as underwriter or agent for any public or
private offering or sale of the securities of the Company, or of any successor
to the Company, made by any other shareholder owning beneficially at least 5
percent of such securities.
(r) RULE 144 SALES. The Company shall cause each of its officers and
directors to provide you the right, for a period of three years following the
First Closing Date, to purchase for your own account, or to sell for the account
of such person, all securities of the Company sold by such person pursuant to
Rule 144 of the Rules and Regulations. The Company shall use its best efforts to
cause each of the other beneficial holders of at least 5 percent of the
Company's securities to provide you the right, for a period of three years
following the First Closing Date, to purchase for your own account, or to sell
for the account of such holder, all securities of the Company sold by such
holder pursuant to said Rule 144.
(s) AVAILABLE SHARES. The Company shall reserve and at all times keep
available that maximum number of its authorized but unissued Securities which
are issuable
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<PAGE> 14
upon exercise of the Representative's Warrant, taking into account the
anti-dilution provisions thereof.
(t) AGREEMENT OF MANAGEMENT AND SHAREHOLDERS. On or before the
Effective Date, the Company shall cause the parties named therein to execute and
deliver to you an agreement, in the form previously delivered to the Company by
you, regarding certain undertakings by such parties in connection with the
Offering (the "Agreement of Management and Shareholders").
(u) FINANCIAL CONSULTING AGREEMENT. On the First Closing Date and
simultaneously with the delivery of the Firm Shares, the Company shall execute
and deliver to you an agreement with you, in the form previously delivered to
the Company by you, regarding your services as a financial consultant to the
Company (the "Financial Consulting Agreement").
(v) M/A AGREEMENT. On the First Closing Date and simultaneously with
the delivery of the Firm Shares, the Company shall execute and deliver to you an
agreement with you, in the form previously delivered to the Company by you,
regarding mergers, acquisitions, joint ventures and certain other forms of
transactions (the "M/A Agreement").
(w) MANAGEMENT. On each Closing Date, management of the Company shall
consist of Steven L. Vanechanos, Jr. as Chief Executive Officer and Chairman of
the Board of Directors and James D. Connors as President and Chief Operating
Officer. Prior to the Effective Date the Company shall have obtained "key man"
life insurance coverage on the life of each of such officers, naming the Company
as beneficiary and having a face value of at least one million dollars for
terms, and with an insurance agency, mutually agreed upon by the Company and
you. The Company shall use its best efforts to maintain such insurance during
the three-year period commencing on the First Closing Date.
(x) PUBLIC RELATIONS. Prior to the Effective Date, the Company shall
have retained a public relations firm acceptable to you, and shall continue to
retain such firm, or an alternate firm acceptable to you, for a minimum period
of two years or such terms as are acceptable to you. The public relations firm
shall, at a minimum: (i) have five years experience in the Nasdaq Small Cap
Market; (ii) covenant to the Company that it will make introductions to
potential institutional buyers; (iii) provide the Company with a list of all
current public clients; and (iv) engage in such other actions as you shall
reasonably request.
(y) BOUND VOLUMES. Within 90 days from the First Closing Date, the
Company shall deliver to you, at the Company's expense, three bound volumes in
form and content acceptable to you, containing the Registration Statement and
all exhibits filed therewith and all amendments thereto, and all other
agreements, correspondence, filings, certificates and other documents filed
and/or delivered in connection with the Offering.
(z) BOARD OF DIRECTORS SEAT/OBSERVER. For a period of thirty-six (36)
months from the closing of the Offering, you shall have the option to either:
(i) select an observer designated by you and acceptable to the Company, to
receive notice of and to attend all
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<PAGE> 15
meetings of the Board of Directors of the Company (the "Observer"); or (ii)
appoint a member of the Company's Board of Directors (a "Director"). In the
event you elect to appoint an Observer, such Observer shall have no voting
rights, and shall be reimbursed for all out-of-pocket expenses incurred in
attending meetings of the Board of Directors. In the event you elect to appoint
a Director, such Director shall have full voting rights and such other rights as
the Company's other Directors, without limitation. Such Director shall receive
the same reimbursement and compensation as the Company's other Directors. The
Company shall hold at least four meetings of the Board of Directors per year. If
you elect to appoint an Observer, the Observer will be indemnified by the
Company against any claims arising out of his participation at Board meetings.
If you appoint a Director, such Director shall specifically be covered by the
Company's Officers and Directors insurance policy.
(aa) OFFICERS AND DIRECTORS INSURANCE. Three days prior to the First
Closing Date, the Company shall have obtained Officers and Directors insurance
satisfactory to you with a minimum face value of one million dollars
($1,000,000).
(ab) STOCK TRANSFER SHEETS. The Company shall supply you with OTC
Stock Transfer sheets on a weekly basis for the first six weeks following the
First Closing Date, and for six weeks following the Option Closing Date, and on
a monthly basis thereafter.
4. CONDITIONS TO UNDERWRITERS' OBLIGATIONS. The obligations of the several
Underwriters to purchase and pay for the Shares which they have agreed to
purchase hereunder are subject to the accuracy (as of the date hereof and as of
each Closing Date) of and compliance with the representations and warranties of
the Company contained herein, the performance by the Company of all of its
obligations hereunder and the execution, delivery and performance by each of the
parties thereto of all of their obligations under the Agreement of Management
and Shareholders, and the following further conditions:
(a) EFFECTIVE REGISTRATION STATEMENT; NO STOP ORDER. The Registration
Statement shall have become effective and you shall have received notice thereof
not later than 6:00 p.m., New York time, on the date of this Agreement, or at
such later time or on such later date as to which you may agree in writing. In
addition, on each Closing Date (i) no stop order denying or suspending the
effectiveness of the Registration Statement shall be in effect, and no
proceedings for that or any similar purpose shall have been instituted or shall
be pending or, to your knowledge or to the knowledge of the Company, shall be
contemplated by the Commission, and (ii) all requests on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of Representative's Counsel.
(b) OPINION OF COMPANY COUNSEL. On the First Closing Date, you shall
have received the opinion, dated as of the First Closing Date, of Company
Counsel, in form and substance satisfactory to Representative's Counsel, to the
effect that:
(i) the Company and each Subsidiary has been duly incorporated
and is validly existing as a corporation in good standing under the laws of
the
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<PAGE> 16
THIS IS EX 1.1 -- UNDERWRITING AGREEMENT
State of New Jersey and Delaware, respectively, with full power and
corporate authority to own their properties and conduct their businesses as
described in the Prospectus, and each of the Company and its Subsidiaries
is duly qualified or licensed to do business as a foreign corporation and
is in good standing in each other jurisdiction in which the nature of its
business or the character or location of its properties requires such
qualification, except where failure so to qualify will not materially
affect the business, properties or financial condition of the Company or
such Subsidiary;
(ii) to the best knowledge of such counsel, (A) the Company and
each Subsidiary has obtained all necessary licenses, permits and other
governmental authorizations currently required for the conduct of its
business or the ownership of its property, as described in the Prospectus,
(B) such obtained licenses, permits and other governmental authorizations
are in full force and effect, and (C) the Company and each Subsidiary is,
in all material respects, in compliance therewith;
(iii) (A) the authorized capitalization of the Company as of the
date of the Prospectus was as is set forth in the Prospectus under the
caption "CAPITALIZATION;" (B) all of the shares of Common Stock now
outstanding have been duly authorized and validly issued, are fully paid
and non-assessable, conform to the description thereof contained in the
Prospectus, have not been issued in violation of the preemptive rights of
any shareholder and, except as described in the Prospectus, are not subject
to any restrictions upon the voting or transfer thereof; (C) all of the
Shares have been duly authorized and, when paid for as provided herein,
shall be validly issued, fully paid and non-assessable, shall not have been
issued in violation of the preemptive rights of any shareholder, and no
personal liability shall attach to the ownership thereof; (D) the
shareholders of the Company do not have any preemptive rights or other
rights to subscribe for or purchase, and there are no restrictions upon the
voting or transfer of, any of the Securities except as set forth in the
prospectus or as otherwise required by the Underwriters; (E) the Shares and
the Representative's Warrant conform to the respective descriptions thereof
contained in the Prospectus; (F) all prior sales of the Company's
securities from and after ______________ have been made in compliance with,
or under an exemption from, the Act and applicable state securities laws;
(G) a sufficient number of shares of Common Stock has been reserved for
issuance upon exercise of the Representative's Warrant; and (H) to the best
knowledge of such counsel, neither the filing of the Registration Statement
nor the offering or sale of the Shares as contemplated by this Agreement
gives rise to any registration rights or other rights, other than those
which have been effectively waived or satisfied, for or relating to the
registration of any securities of the Company;
(iv) the certificates evidencing the Shares are each in valid and
proper legal form under the laws of New Jersey; and the Representative's
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<PAGE> 17
Warrant is exercisable for shares of Common Stock in accordance with its
terms and at the prices therein provided for;
(v) this Agreement, the Representative's Warrant, the Financial
Consulting Agreement and the M/A Agreement have been duly and validly
authorized, executed and delivered by the Company and (assuming due
execution and delivery thereof by each party other than the Company) all of
such agreements are, or when duly executed shall be, the valid and legally
binding obligations of the Company, enforceable in accordance with their
respective terms (except as enforceability may be limited by bankruptcy,
insolvency or other laws affecting the rights of creditors generally);
provided, however, that no opinion need be expressed as to the
enforceability of the indemnity provisions contained in Section 6 or the
contribution provisions contained in Section 7;
(vi) to the best knowledge of such counsel, (A) there is no
pending, threatened or contemplated legal or governmental proceeding
affecting the Company or any Subsidiary which could materially and
adversely affect the business, property, operations, condition (financial
or otherwise) or earnings of the Company or such Subsidiary, or which
questions the validity of the Offering, the Securities, this Agreement, the
Representative's Warrant, the Financial Consulting Agreement or the M/A
Agreement, or of any action taken or to be taken by the Company pursuant
thereto; and (B) there is no legal or governmental proceeding or regulation
required to be described or referred to in the Registration Statement which
is not so described or referred to;
(vii) to the best knowledge of such counsel, (A) the Company is
not in violation of or default under this Agreement, the Representative's
Warrant, the Financial Consulting Agreement or the M/A Agreement; and (B)
the execution and delivery hereof and thereof and the incurrence of the
obligations herein and therein set forth and the consummation of the
transactions herein or therein contemplated shall not result in a violation
of, or constitute a default under, the Certificate of Incorporation or
By-laws of the Company, or any material obligation, agreement, covenant or
condition contained in any bond, debenture, note or other evidence of
indebtedness, or in any material contract, indenture, mortgage, loan
agreement, lease, joint venture or other agreement or instrument to which
the Company is a party or by which its assets are bound, or any material
order, rule, regulation, writ, injunction or decree of any government,
governmental instrumentality or court;
(viii) the Registration Statement has become effective under the
Act, and to the best knowledge of such counsel, no stop order denying or
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for that or any similar purpose have been instituted or
are pending before or threatened by the Commission;
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<PAGE> 18
(ix) the Registration Statement and the Prospectus (except for
the financial statements, notes thereto and other financial information and
statistical data contained therein, as to which no opinion need be
rendered), comply as to form in all material respects with the Act and the
Rules and Regulations;
(x) all descriptions contained in the Registration Statement or
the Prospectus of contracts and other documents are accurate and fairly
present the information required to be described, and such counsel is
familiar with all contracts and other documents referred to in the
Registration Statement and the Prospectus or filed as exhibits to the
Registration Statement and, to the best knowledge of such counsel, no
contract or document of a character required to be summarized or described
therein or to be filed as an exhibit thereto is not so summarized,
described or filed;
(xi) the descriptions contained in the Registration Statement and
the Prospectus which purport to summarize the provisions of statutes, rules
and regulations are accurate summaries in all material respects, and such
descriptions fairly present in all material respects the information shown,
and the other descriptions contained in the Registration Statement and the
Prospectus that concern matters of law or legal conclusions have been
reviewed by such counsel and are materially correct;
(xii) the Agreement of Management and Shareholders have been duly
and validly executed and delivered by each party thereto (other than
American Stock Transfer & Trust Company); and
(xiii) except for registration under the Act and registration or
qualification of the Securities under applicable state or foreign
securities or blue sky laws, no authorization, approval, consent or license
of any governmental or regulatory authority or agency is necessary in
connection with: (A) the authorization, issuance, sale, transfer or
delivery of the Securities by the Company; (B) the execution, delivery and
performance of this Agreement by the Company or the taking of any action
contemplated herein; (C) the issuance of the Representative's Warrant or
the Securities issuable upon exercise thereof; or (D) the execution,
delivery and performance of this Agreement by the Company or the taking of
any action contemplated herein.
Such opinion shall also state that such counsel has participated in the
preparation of the Registration Statement and the Prospectus, and nothing has
come to the attention of such counsel to cause such counsel to have reason to
believe that the Registration Statement at the time it became effective
contained 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 not misleading, or that the Prospectus contains any untrue statement of
a material fact or omits to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading (except, in the case of both the Registration Statement and the
Prospectus, for the financial statements, notes thereto and
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<PAGE> 19
other financial information and statistical data contained therein, as to which
no opinion need be expressed. Such opinion shall also cover such matters
incident to the transactions contemplated hereby as you or Representative's
Counsel shall reasonably request. In rendering such opinion, Company Counsel may
rely as to matters of fact upon certificates of officers of the Company, and of
public officials and may rely as to all matters of law other than the law of the
United States or the State of New Jersey upon opinions of counsel satisfactory
to you, in which case the opinion shall state that they have no reason to
believe that you and they are not entitled so to rely.
(c) CORPORATE PROCEEDINGS. All corporate proceedings and other legal
matters relating to this Agreement, the Registration Statement, the Prospectus
and other related matters shall be reasonably satisfactory to or approved by
Representative's Counsel, and you shall have received from such counsel a signed
opinion, dated as of the First Closing Date, with respect to the validity of the
issuance of the Securities, the form of the Registration Statement and
Prospectus (other than the financial statements and other financial or
statistical data contained therein), the execution of this Agreement and other
related matters as you may reasonably require. The Company shall have furnished
to Representative's Counsel such documents as they may reasonably request for
the purpose of enabling them to render such opinion.
(d) COMFORT LETTERS. Prior to the Effective Date, and again on and as
of the First Closing Date, you shall have received a letter from Richard A.
Eisner & Co., LLP, certified public accountants for the Company, substantially
in the form approved by you. Additionally, you shall have received "no-default
letters" from all financial institutions with which the Company and any
subsidiary conducts its business. Such letters shall confirm that: (i) the
Company or any subsidiary is not presently in default on any indenture, credit
agreement, line of credit, promissory note or any other agreement between such
financial institution and the Company ("Bank Agreements"); (ii) that such
financial institution knows of no reason why the Company or any subsidiary,
either presently or with the passage of time, would default upon any Bank
Agreements; and (iii) that the completion of the Offering in accordance with its
terms will not result in a default by the Company or any subsidiaries on any
Bank Agreements. Furthermore, you shall have received litigation "comfort
letters" from the Company's (including any subsidiary) litigation counsel. Such
letters shall describe in detail any litigation to which the Company or any
subsidiary is a party or with respect to which the Company or any subsidiary is
likely to become a party. Additionally, such letters shall discuss the merits of
the Company's or any subsidiary's case as well as the merits of any claims third
parties may have against the Company or any subsidiary and the likelihood that
any such claims will be resolved successfully in favor of the Company or any
subsidiary.
(e) BRING DOWN. At each of the Closing Dates, (i) the representations
and warranties of the Company contained in this Agreement shall be true and
correct with the same effect as if made on and as of such Closing Date, and the
Company shall have performed all of its respective obligations hereunder and
satisfied all the conditions on its part to be satisfied at or prior to such
Closing Date; (ii) the Registration Statement and the Prospectus shall contain
all statements which are required to be stated therein in accordance with the
Act and the Rules and Regulations, and shall in all material respects conform to
the
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<PAGE> 20
requirements of the Act and the Rules and Regulations, and neither the
Registration Statement nor the Prospectus shall contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading; (iii) there
shall have been, since the respective dates as of which information is given, no
material adverse change in the business, property, operations, condition
(financial or otherwise), earnings, capital stock, long-term or short-term debt
or general affairs of the Company from that set forth in the Registration
Statement and the Prospectus, except changes which the Registration Statement
and Prospectus indicate might occur after the Effective Date, and the Company
shall not have incurred any material liabilities nor entered into any material
agreement other than as referred to in the Registration Statement and
Prospectus; and (iv) except as set forth in the Prospectus, no action, suit or
proceeding shall be pending or threatened against the Company which would be
required to be disclosed in the Registration Statement, and no proceedings shall
be pending or threatened against the Company before or by any commission, board
or administrative agency in the United States or elsewhere, wherein an
unfavorable decision, ruling or finding would materially adversely affect the
business, property, operations, condition (financial or otherwise), earnings or
general affairs of the Company. In addition, you shall have received, at the
First Closing Date, a certificate signed by the principal executive officer and
by the principal financial officer of the Company, dated as of the First Closing
Date, evidencing compliance with the provisions of this Section 4(e).
(f) OPINION OF PATENT COUNSEL. On the First Closing Date, you shall
have received the opinion, dated as of the First Closing Date, of
_____________________, patent counsel to the Company, in form and substance
satisfactory to Representative's Counsel, to the effect that the descriptions
contained in the Registration Statement and the Prospectus which purport to
summarize the provisions of statutes, rules and regulations pertaining to
patents and trademarks are accurate summaries in all respects, and such
descriptions fairly present in all respects the information shown, and the
descriptions contained in the Registration Statement and the Prospectus that
concern matters of law or legal conclusions with respect to patents and
trademarks have been reviewed by such counsel and are correct.
(g) TRANSFER AND WARRANT AGENT. On or before the Effective Date, the
Company shall have appointed American Stock Transfer & Trust Company (or other
agent mutually acceptable to the Company and you), as its transfer agent and
warrant agent to transfer all of the Shares issued in the Offering and the
Representative's Warrant, as well as to transfer other shares of the Common
Stock outstanding from time to time.
(h) CERTAIN FURTHER MATTERS. On each Closing Date, Representative's
Counsel shall have been furnished with all such other documents and certificates
as they may reasonably request for the purpose of enabling them to render their
legal opinion to the Underwriter and in order to evidence the accuracy and
completeness of any of the representations, warranties or statements, the
performance of any of the covenants, or the fulfillment of any of the
conditions, herein contained; and all proceedings taken by the Company on or
prior to each of the Closing Dates in connection with the authorization,
issuance and sale of the Securities as herein contemplated shall be reasonably
satisfactory in form and substance to you and to Representative's Counsel.
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<PAGE> 21
(i) ADDITIONAL CONDITIONS. Upon exercise of the Over-Allotment Option,
the Underwriters' obligations to purchase and pay for the Option Shares shall be
subject (as of the date hereof and as of the Option Closing Date) to the
following additional conditions:
(i) The Registration Statement shall remain effective at the
Option Closing Date, no stop order denying or suspending the effectiveness
thereof shall have been issued, and no proceedings for that or any similar
purpose shall have been instituted or shall be pending or, to your knowledge or
the knowledge of the Company, shall be contemplated by the Commission, and all
reasonable requests on the part of the Commission for additional information
shall have been complied with to the satisfaction of Representative's Counsel.
(ii) On the Option Closing Date there shall have been delivered
to you the signed opinion of Company Counsel, dated as of the Option Closing
Date, in form and substance satisfactory to Representative's Counsel, which
opinion shall be substantially the same in scope and substance as the opinion
furnished to you on the First Closing Date pursuant to Section 4(b), except that
such opinion, where appropriate, shall cover the Option Shares rather than the
Firm Shares. If the First Closing Date is the same as the Option Closing Date,
such opinions may be combined.
(iii) All proceedings taken at or prior to the Option Closing
Date in connection with the sale and issuance of the Option Shares shall be
satisfactory in form and substance to you, and you and Representative's Counsel
shall have been furnished with all such documents, certificates and opinions as
you may request in connection with this transaction in order to evidence the
accuracy and completeness of any of the representations, warranties or
statements of the Company or its compliance with any of the covenants or
conditions contained herein.
(iv) On the Option Closing Date there shall have been delivered
to you a letter in form and substance satisfactory to you from Richard A. Eisner
& Co., LLC, dated the Option Closing Date and addressed to you, confirming the
information in their letter referred to in Section 4(d) as of the date thereof
and stating that, without any additional investigation required, nothing has
come to their attention during the period from the ending date of their review
referred to in such letter to a date not more than five banking days prior to
the Option Closing Date which would require any change in such letter if it were
required to be dated the Option Closing Date.
(v) On the Option Closing Date there shall have been delivered to
you a certificate signed by the principal executive officer and by the principal
financial or accounting officer of the Company, dated the Option Closing Date,
in form and substance satisfactory to Representative's Counsel, substantially
the same in scope and substance as the certificate furnished to you on the First
Closing Date pursuant to Section 4(e), dated the Option Closing Date, in form
and substance satisfactory to Representative's Counsel, substantially the same
in scope and substance as the certificate furnished to you by the Company on the
First Closing Date pursuant to Section 4(e).
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<PAGE> 22
(j) CANCELLATION. If any of the conditions provided by this Section 4
shall not have been completely fulfilled as of the date indicated, then this
Agreement and all obligations of the Underwriters hereunder may be cancelled at,
or at any time prior to, either Closing Date by your notifying the Company of
such cancellation in writing or by telegram at or prior to the applicable
Closing Date. Any such cancellation shall be without liability of the
Underwriters to the Company, except as otherwise provided herein.
5. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The obligations of the
Company to sell and deliver the Shares are subject to the following conditions:
(a) EFFECTIVE REGISTRATION STATEMENT. The Registration Statement shall
have become effective not later than 6:00 p.m. New York time, on the date of
this Agreement, or at such later time or on such later date as the Company and
you may agree in writing.
(b) NO STOP ORDER. On the applicable Closing Date, no stop order
denying or suspending the effectiveness of the Registration Statement shall have
been issued under the Act or any proceedings therefor initiated or threatened by
the Commission.
(c) PAYMENT FOR SHARES. On the applicable Closing Date, you shall have
made payment, for the several accounts of the Underwriters, of the aggregate
Purchase Price for the Shares then being purchased, by certified or bank
cashier's checks payable in same day funds or wire transfer to the order of the
Company.
If the conditions to the obligations of the Company provided by this Section 5
have been fulfilled on the First Closing Date but are not fulfilled after the
First Closing Date and prior to the Option Closing Date, then only the
obligation of the Company to sell and deliver the Option Shares upon exercise of
the Over-Allotment Option shall be affected.
6. INDEMNIFICATION.
(a) INDEMNIFICATION BY THE COMPANY. As used in this Agreement, the
term "Liabilities" shall mean any and all losses, claims, damages and
liabilities, and actions and proceedings in respect thereof (including without
limitation all reasonable costs of defense and investigation and all attorneys'
fees) including without limitation those asserted by any party to this Agreement
against any other party to this Agreement. The Company hereby indemnifies and
holds harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of the Act, from and against all Liabilities,
joint or several, to which such Underwriter or such controlling person may
become subject, under the Act or otherwise, insofar as such Liabilities arise
out of or are based upon: (i) any untrue statement or alleged untrue statement
of any material fact contained in (A) the Registration Statement or any
amendment thereto, or the Prospectus or any Preliminary Prospectus, or any
amendment or supplement thereto, or (B) any "blue sky" application or other
document executed by the Company specifically for that purpose, or based upon
written information furnished by the Company, filed in any state or other
jurisdiction in order to qualify any or
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<PAGE> 23
all of the Securities under the securities laws thereof (any such application,
document or information being herein called a "Blue Sky Application"); or (ii)
the omission or alleged omission to state in the Registration Statement or any
amendment thereto, or the Prospectus or any Preliminary Prospectus, or any
amendment or supplement thereto, or in any Blue Sky Application, a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that the Company shall not be liable in any such
case to the extent, but only to the extent, that any such Liabilities arise out
of or are based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in reliance upon and in conformity with written
information furnished to the Company through you by or on behalf of any
Underwriter specifically for use in the preparation of the Registration
Statement or any such amendment thereto, or the Prospectus or any such
Preliminary Prospectus, or any such amendment or supplement thereto, or any such
Blue Sky Application. The foregoing indemnity shall be in addition to any other
liability which the Company may otherwise have.
(b) INDEMNIFICATION BY UNDERWRITERS. Each Underwriter, severally and
not jointly, hereby indemnifies and holds harmless the Company, each of its
directors, each nominee (if any) for director named in the Prospectus, each of
its officers who have signed the Registration Statement, and each person, if
any, who controls the Company within the meaning of the Act, from and against
all Liabilities to which the Company or any such director, nominee, officer or
controlling person may become subject under the Act or otherwise, insofar as
such Liabilities arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement or any amendment thereto, or the Prospectus or any Preliminary
Prospectus, or any amendment or supplement thereto, or (ii) the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that any such Liabilities arise out of or are
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement or any amendment thereto, or
the Prospectus or any Preliminary Prospectus, or any amendment or supplement
thereto, in reliance upon and in conformity with written information furnished
to the Company through you, by or on behalf of such Underwriter, specifically
for use in the preparation thereof. In no event shall any Underwriter be liable
or responsible for any amount in excess of the compensation received by such
Underwriter, in the form of underwriting discounts or otherwise, pursuant to
this Agreement or any other agreement contemplated hereby.
(c) PROCEDURE. Promptly after receipt by an indemnified party under
this Section 6 of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under this Section 6, notify in writing the indemnifying
party of the commencement thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under this Section 6. In case any such
action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate in and, to the extent that it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof,
subject to the provisions hereof, with counsel reasonably satisfactory to such
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<PAGE> 24
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under this
Section 6 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. The indemnified party shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall not be at the expense of the
indemnifying party if the indemnifying party has assumed the defense of the
action with counsel reasonably satisfactory to the indemnified party; provided,
however, that if the indemnified party is any Underwriter or a person who
controls any Underwriter within the meaning of the Act, the fees and expenses of
such counsel shall be at the expense of the indemnifying party if (i) the
employment of such counsel has been specifically authorized in writing by the
indemnifying party, or (ii) the named parties to any such action (including any
impleaded parties) include both such Underwriter or such controlling person and
the indemnifying party and, in your judgment, it is advisable for such
Underwriter or controlling person to be represented by separate counsel (in
which case the indemnifying party shall not have the right to assume the defense
of such action on behalf of such Underwriter or such controlling person, it
being understood, however, that the indemnifying party shall not, in connection
with any one such action or separate but substantially similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys). No settlement of any action against an indemnified
party shall be made without the consent of the indemnified party, which shall
not be unreasonably withheld in light of all factors of importance to such
indemnified party.
7. CONTRIBUTION. In order to provide for just and equitable contribution
under the Act in any case in which (a) any indemnified party makes claims for
indemnification pursuant to Section 6 but it is 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 Section 6 provide for indemnification in such
case, or (b) contribution under the Act may be required on the part of any
indemnified party, then such indemnified party and each indemnifying party (if
more than one) shall contribute to the aggregate Liabilities to which it may be
subject, in either such case (after contribution from others) in such
proportions that the Underwriters are responsible in the aggregate for that
portion of such Liabilities represented by the percentage that the underwriting
discount per Share appearing on the cover page of the Prospectus bears to the
public Offering price per Share appearing thereon, and the Company shall be
responsible for the remaining portion; provided, however, that if such
allocation is not permitted by applicable law, then the relative fault of the
Company, and the Underwriters in connection with the statements or omissions
which resulted in such Liabilities and other relevant equitable considerations
shall also be considered. The relative fault shall be determined by reference
to, among other things, whether in the case of an untrue statement of a material
fact or the omission to state a material fact, such statement or omission
relates to information supplied by the Company, or the Underwriters, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or
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<PAGE> 25
omission. The Company and the Underwriters agree that it would not be just and
equitable if the respective obligations of the Company and the Underwriters to
contribute pursuant to this Section 7 were to be determined by pro rata or per
capita allocation of the aggregate Liabilities (even if the Underwriters were to
be treated as one entity for such purpose) or by any other method of allocation
that does not take account of the equitable considerations referred to in the
first sentence of this Section 7. In addition, the contribution of any
Underwriter shall not be in excess of its proportionate share of the portion of
such Liabilities for which such Underwriter is responsible. No person guilty of
a fraudulent misrepresentation (within the meaning of section 11(f) of the Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. As used in this Section 7, the term "Company"
shall include any officer, director or person who controls the Company within
the meaning of section 15 of the Act. The Underwriters' obligations under this
Section 7 to contribute are several in proportion to their respective
underwriting obligations and not joint. If the full amount of the contribution
specified in this Section 7 is not permitted by law, then each indemnified party
and each person who controls an indemnified party shall be entitled to
contribution from each indemnifying party to the full extent permitted by law.
The foregoing contribution agreement shall in no way affect the contribution
liabilities of any persons having liability under section 11 of the Act other
than the Company and the Underwriters. No contribution shall be requested with
regard to the settlement of any matter from any party who did not consent to the
settlement; provided, however, that such consent shall not be unreasonably
withheld in light of all factors of importance to such party.
8. COSTS AND EXPENSES.
(a) CERTAIN COSTS AND EXPENSES. Whether or not this Agreement becomes
effective or the sale of the Shares to the Underwriters is consummated, the
Company shall pay all costs and expenses incident to the issuance, offering,
sale and delivery of the Shares and the performance of its obligations under
this Agreement, including without limitation: (i) all fees and expenses of the
Company's legal counsel and accountants; (ii) all costs and expenses incident to
the preparation, printing, filing and distribution of the Registration Statement
(including the financial statements contained therein and all exhibits and
amendments thereto), each Preliminary Prospectus and the Prospectus, each as
amended or supplemented, this Agreement and the other agreements and documents
referred to herein, each in such quantities as you shall deem necessary; (iii)
all fees of NASD required in connection with the filing required by NASD to be
made by the Representative with respect to the Offering; (iv) all expenses,
including fees (but not in excess of the amount set forth in Section 3(b)) and
disbursements of Representative's Counsel in connection with the qualification
of the Securities under the "blue sky" laws which you shall designate; (v) all
costs and expenses of printing the respective certificates representing the
Shares; (vi) the expense of placing one or more "tombstone" advertisements or
promotional materials as directed by you (provided, however, that the aggregate
amount thereof shall not exceed $20,000); (vii) all costs and expenses of the
Company and its employees (but not of the Representative or its employees)
associated with due diligence meetings and presentations; (viii) all costs and
expenses associated with the preparation of a seven to ten minute
- 25 -
<PAGE> 26
professional video presentation concerning the Company, its products and its
management for broker due diligence purposes; (ix) any and all taxes (including
without limitation any transfer, franchise, capital stock or other tax imposed
by any jurisdiction) on sales of the Shares to the Underwriters hereunder; and
(x) all costs and expenses incident to the furnishing of any amended Prospectus
or any supplement to be attached to the Prospectus as required by Sections 3(a)
and 3(d), except as otherwise provided by said Sections.
(b) REPRESENTATIVE'S EXPENSE ALLOWANCE. In addition to the expenses
described in Section 8(a), the Company shall on the First Closing Date pay to
you, the balance of a non-accountable expense allowance (which shall include
fees of Representative's Counsel exclusive of the fees referred to in Section
3(b)) of $________ (that being an amount equal to three percent of the gross
proceeds received upon sale of the Firm Shares), of which $________ has been
paid to you prior to the date hereof. In the event that the Over-Allotment
Option is exercised, then the Company shall on the Option Closing Date pay to
you, an additional amount equal to three percent of the gross proceeds received
upon sale of any of the Option Shares. In the event that the transactions
contemplated hereby fail to be consummated for any reason, then you shall return
to the Company that portion of the $________ heretofore paid by the Company to
the extent that it has not been utilized by you in connection with the Offering
for accountable out-of-pocket expenses; provided, however, that if such failure
is due to a breach by the Company of any covenant, representation or warranty
contained herein or because any other condition to the Underwriters' obligations
hereunder required to be fulfilled by the Company is not fulfilled, then the
Company shall be liable for your accountable out-of-pocket expenses to the full
extent thereof (with credit given to the $________ paid).
(c) NO FINDERS. No person is entitled either directly or indirectly to
compensation from the Company, the Underwriters or any other person for services
as a finder in connection with the Offering, and the Company hereby indemnify
and holds harmless the Underwriters, and the Underwriters hereby indemnifies and
hold harmless the Company from and against all Liabilities, joint or several, to
which the indemnified party may become subject insofar as such Liabilities arise
out of or are based upon the claim of any person (other than an employee of the
party claiming indemnity) or entity that he or it is entitled to a finder's fee
in connection with the Offering by reason of such person's or entity's influence
or prior contact with the indemnifying party.
9. SUBSTITUTION OF UNDERWRITERS.
(a) SUBSTITUTION. If any Underwriter defaults in its obligation to
purchase the numbers of Shares which it has agreed to purchase under this
Agreement, you shall be obligated to purchase all of the Shares not purchased by
the defaulting Underwriter unless such purchase shall cause you to be in
violation of the net capital requirements of Rule 15c3-1 of the Exchange Act,
in which case you, and any other Underwriters satisfactory to you who so agree,
shall have the right, but shall not be obligated, to purchase (in such
proportions as may be agreed upon among them) all of the Shares. If you or the
other Underwriters satisfactory to you do not elect to purchase the Shares which
the defaulting
- 26 -
<PAGE> 27
Underwriter or Underwriters agreed but failed to purchase, then this Agreement
shall terminate without liability on the part of any non-defaulting Underwriter
or the Company except for: (i) the payment by the Company of expenses as
provided by Section 8(a); (ii) the payment by the Company of accountable
expenses as provided by Section 8(b); and (iii) the indemnity and contribution
agreements of the Company and the Underwriters provided by Sections 6 and 7.
(b) FURTHER MATTERS. Nothing contained herein shall relieve a
defaulting Underwriter of any liability it may have for damages caused by its
default. If the other Underwriters satisfactory to you are obligated or agree to
purchase the Shares of a defaulting Underwriter, either you or the Company may
postpone the First Closing Date for up to seven banking days in order to effect
any changes that may be necessary in the Registration Statement, any Preliminary
Prospectus or the Prospectus or in any other document or agreement, and to file
promptly any amendments to the Registration Statement, or any amendments or
supplements to any Preliminary Prospectus or the Prospectus, which in your
opinion may thereby be made necessary.
10. EFFECTIVE DATE. The Agreement shall become effective upon its
execution, except that you may, at your option, delay its effectiveness until
10:00 a.m., New York time, on the first full business day following the
Effective Date, or at such earlier time after the Effective Date as you in your
discretion shall first commence the initial public Offering by the Underwriters
of any of the Shares. The time of the initial public Offering shall mean the
time of release by you of the first newspaper advertisement with respect to the
Shares, or the time when the Shares are first generally offered by you to
dealers by letter or telegram, whichever shall first occur. This Agreement may
be terminated by you at any time before it becomes effective as provided above,
except that the provisions of Sections 6, 7, 8, 13, 14, 15 and 16 shall remain
in effect notwithstanding such termination.
11. TERMINATION.
(a) GROUNDS FOR TERMINATION. This Agreement, except for Sections 6, 7,
8, 13, 14, 15 and 16, may be terminated at any time prior to the First Closing
Date, and the Over-Allotment Option, if exercised, may be cancelled at any time
prior to the Option Closing Date, by you if in your sole judgment it is
impracticable to offer for sale or to enforce contracts made by the Underwriters
for the resale of the Shares agreed to be purchased hereunder, by reason of: (i)
the Company having sustained a material loss, whether or not insured, by reason
of fire, earthquake, flood, accident or other calamity, or from any labor
dispute or court or government action, order or decree; (ii) trading in
securities on the New York Stock Exchange, the American Stock Exchange or the
Nasdaq Stock Market having been suspended or limited; (iii) material
governmental restrictions having been imposed on trading in securities generally
which are not in force and effect on the date hereof; (iv) a banking moratorium
having been declared by federal or New York State authorities; (v) an outbreak
or significant escalation of major international hostilities or other national
or international calamity having occurred; (vi) the passage by the Congress of
- 27 -
<PAGE> 28
the United States or by any state legislature, of any act or measure, or the
adoption of any order, rule or regulation by any governmental body or any
authoritative accounting institute or board, or any governmental executive,
which is reasonably believed by you likely to have a material adverse effect on
the business, property, operations, condition (financial or otherwise) or
earnings of the Company; (vii) any material adverse change in the financial or
securities markets beyond normal fluctuations in the United States having
occurred since the date of this Agreement; or (viii) any material adverse change
having occurred since the respective dates for which information is given in the
Registration Statement and Prospectus, in the business, property, operations,
condition (financial or otherwise), earnings or business prospects of the
Company, whether or not arising in the ordinary course of business.
(b) NOTIFICATION. If you elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided by this Section 11 or by
Section 10, the Company shall be promptly notified by you, by telephone or
telegram, confirmed by letter.
12. REPRESENTATIVE'S WARRANT. On the First Closing Date, the Company shall
issue and sell to you, for a total purchase price of $5.00, and upon the terms
and conditions set forth in the form of Representative's Warrant filed as an
exhibit to the Registration Statement, a warrant entitling you to purchase
175,000 Shares (the "Representative's Warrant"). In the event of conflict in the
terms of this Agreement and the Representative's Warrant, the terms and
conditions of the Representative's Warrant shall control.
13. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties, covenants and
other statements of the Company and the Underwriters set forth in or made
pursuant to this Agreement shall remain in full force and effect regardless of
any investigation made by or on behalf of any other party, and shall survive
delivery of and payment for the Securities and the termination of this
Agreement. The Company hereby indemnifies and holds harmless the Underwriters
from and against all Liabilities, joint or several, to which the Underwriters
may become subject insofar as such Liabilities arise out of or are based upon
the breach or failure of any representation, warranty or covenant of the Company
contained in this Agreement.
14. NOTICES. All communications hereunder shall be in writing and, except
as otherwise expressly provided herein, if sent to you, shall be mailed,
delivered or telegraphed and confirmed to you at H.J. Meyers & Co., Inc., Attn:
Managing Director of Corporate Finance, 1895 Mt. Hope Avenue, Rochester, New
York 14620, with a copy sent to James M. Jenkins, Esq., Harter, Secrest & Emery,
700 Midtown Tower, Rochester, New York 14604; or if sent to the Company, shall
be mailed, delivered, or telegraphed and confirmed to it at DynamicWeb
Enterprises, Inc., Attention: President, 271 Route 46 West, Building F, Suite
209, Fairfield, New Jersey 07004, with a copy sent to Stephen F. Ritner, Esq.,
Stevens & Lee, P.C., One Glenhardie Corporate Center, 1275 Drummers Lane, P.O.
Box 236, Wayne, Pennsylvania 19087.
- 28 -
<PAGE> 29
15. PARTIES IN INTEREST. This Agreement is made solely for the benefit of
the Underwriters, the Company and, to the extent expressed, any person
controlling the Company or an Underwriter, as the case may be, and the directors
of the Company, nominees for directors of the Company (if any) named in the
Prospectus, officers of the Company who have signed the Registration Statement,
and their respective executors, administrators, successors and assigns; and no
other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include any purchaser, as
such, from an Underwriter of the Shares.
16. APPLICABLE LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, without reference to such
state's laws respecting the conflict of laws. The Company submits to the
jurisdiction of the federal and state courts located in Monroe County for such
purposes.
17. COUNTERPARTS. This Agreement may be executed in two or more counterpart
copies, each of which shall be deemed an original but all of which together
shall constitute one and the same instrument.
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return this Agreement, whereupon it will become a binding
agreement between the Company and the Underwriters in accordance with its terms.
Yours very truly,
DYNAMICWEB ENTERPRISES, INC.
By:
-----------------------------------
Name: Steven L. Vanechanos, Jr.
Title: Chief Executive Officer
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
H.J. MEYERS & CO., INC.
AS REPRESENTATIVE OF THE
SEVERAL UNDERWRITERS NAMED
IN SCHEDULE I HERETO
By:
-----------------------------------
Name: Michael Bresner
Title: Managing Director
- 29 -
<PAGE> 30
SCHEDULE I
UNDERWRITING AGREEMENT DATED [EFFECTIVE DATE]
<TABLE>
<CAPTION>
NUMBER OF
FIRM SHARES
UNDERWRITER TO BE PURCHASED
<S> <C>
H.J. Meyers & Co., Inc.
TOTAL 1,750,000
</TABLE>
- 30 -
<PAGE> 1
EXHIBIT 4.2
WARRANT TO PURCHASE 175,000
SHARES OF COMMON STOCK
REPRESENTATIVE'S WARRANT
Dated: [Effective Date]
THIS CERTIFIES THAT H.J. MEYERS & CO., INC. (herein sometimes called the
"Holder") is entitled to purchase from DYNAMICWEB ENTERPRISES, INC., a New
Jersey corporation (the "Company"), at the respective prices and during the
period hereinafter specified, up to 175,000 shares of the Common Stock, $.0001
par value, of the Company (the "Common Stock"). This Representative's Warrant
(this "Warrant") is issued pursuant to an Underwriting Agreement dated
[Effective Date] between the Company and H.J. Meyers & Co., Inc. (the
"Representative"), as representative of certain underwriters, including itself
(the "Underwriters"), in connection with a public offering, through the
Underwriters (the "Offering"), of 1,750,000 shares of Common Stock (and up to
262,500 additional shares of Common Stock covered by an over-allotment option
granted to the Underwriters), in consideration of $5.00 received by the Company
for this Warrant. Except as otherwise expressly provided herein, the shares of
Common Stock issued upon exercise of this Warrant shall bear the same terms and
conditions described under the caption "Description Of Securities" in the
registration statement (File No. 33-_____) on Form SB-2 relating to the Offering
(the "Registration Statement"), except that (i) the Holder shall have
registration rights under the Securities Act of 1933, as amended (the "Act"),
for this Warrant and the Common Stock as more fully described in Section 6. Each
certificate evidencing the Registrable Securities (as hereinafter defined) shall
bear the appropriate restrictive legend set forth below, except that any such
certificate shall not bear such restrictive legend if (a) it is transferred
pursuant to an effective registration statement under the Act or in compliance
with Rule 144 or Rule 144A promulgated under the Act, or (b) the Company is
provided with an opinion of counsel to the effect that such legend is not
required in order to establish compliance with the provisions of the Act:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT. COPIES OF
THE REPRESENTATIVE'S WARRANT COVERING REGISTRATION RIGHTS PERTAINING TO
THESE SECURITIES AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO COST
BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF THE COMPANY AT THE OFFICE OF THE COMPANY AT FAIRFIELD, NEW
JERSEY."
<PAGE> 2
Unless the context otherwise requires, all references herein to a "Section"
shall mean the appropriate Section of this Warrant.
1. EXERCISE PRICE AND PERIOD. The rights represented by this Warrant shall
be exercised at the price and during the periods set forth below:
(a) During the period from [EFFECTIVE DATE] to [EFFECTIVE DATE+1
YEAR-1 DAY] (the "First Anniversary Date") inclusive, the Holder shall have no
right to purchase any Securities hereunder, except that in the event of any
merger or consolidation of the Company into another entity, or any sale of
substantially all of the assets of the Company as an entirety, prior to the
First Anniversary Date, the Holder shall have the right to exercise this Warrant
at such time and into such kinds and amounts of shares of stock and other
securities and property (including cash) as would be receivable by a holder of
the number of shares of Common Stock into which this Warrant might have been
exercisable immediately prior thereto.
(b) Between [EFFECTIVE DATE+1 YEAR] and [EFFECTIVE DATE+5 YEARS-1
DAY] (the "Expiration Date") inclusive, the Holder shall have the right to
purchase hereunder: (i) shares of Common Stock at a price of $_______ per share
(that being 120 percent of the public offering price of the shares of Common
Stock) (the "Share Exercise Price").
(c) Notwithstanding the provisions of Section 1(b) with respect to
the Exercise Price to the contrary, the Holder may elect to exercise this
Warrant, in whole or in part, by receiving Common Stock equal to the value (as
herein determined) of the portion of this Warrant then being exercised, in which
event the Company shall issue to the Holder the number of shares of Common Stock
determined by using the following formula:
X = Y(A-B)
______
A
where: X = the number of shares of Common Stock to be issued to the
Holder under the provisions of this Section 1(c)
Y = the number of shares of Common Stock that would
otherwise be issued upon such exercise
A = the Current Fair Market Value (as hereinafter
defined) of one share of Common Stock calculated as of
the last trading day immediately preceding such
exercise
B = the Exercise Price
As used herein, the "Current Fair Market Value" of the Common Stock as of a
specified date shall mean with respect to each share of Common Stock, (i) the
average of the closing prices of the Common Stock sold on all securities
exchanges on which the Common Stock may at
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<PAGE> 3
the time be listed, or (ii) if there have been no sales on any such exchange on
such day, the average of the highest bid and lowest asked prices on all such
exchanges at the end of such day, or (iii) if on such day the Common Stock is
not so listed, the average of the representative bid and asked prices quoted in
the NASDAQ System as of 4:00 p.m., New York time, or (iv) if on such day the
Common Stock is not quoted in the NASDAQ System, the average of the highest bid
and lowest asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated or any similar successor
organization, in each such case either (i) calculated on the date which the form
of election specified in Section 2 herein is deemed to have been sent to the
Company or (ii) averaged over a period of 5 days consisting of the day as of
which the Current Fair Market Value is being determined and the 4 consecutive
business days prior to such day. The Holder hereof shall determine in its sole
discretion which method of calculation to use. If on the date for which Current
Fair Market Value is to be determined the Common Stock is not listed on any
securities exchange or quoted in the NASDAQ System or the over-the-counter
market, then Current Fair Market Value of the Common Stock shall be the highest
price per share which the Company could then obtain from a willing buyer (not a
current employee or director) for Common Stock sold by the Company from
authorized but unissued shares, as determined in good faith by the Board of
Directors of the Company, unless prior to such date the Company has become
subject to a merger, consolidation, reorganization, acquisition or other similar
transaction pursuant to which the Company is not the surviving entity, in which
case the Current Fair Market Value of the Common Stock shall be deemed to be the
per share value received or to be received in such transaction by the holders of
Common Stock.
(d) After the Expiration Date, the Holder shall have no right to
purchase any shares of Common Stock hereunder.
2. EXERCISE. The rights represented by this Warrant may be exercised, in
whole or in part (with respect to shares of Common Stock, by the Holder at any
time within the periods specified in Section 1 by: (a) surrender of this Warrant
for cancellation (with the purchase form at the end hereof properly executed) at
the principal executive office of the Company (or at such other office or agency
of the Company as it may designate by notice in writing to the Holder at the
address of the Holder appearing on the books of the Company); (b) to the extent
that the Holder does not use the election provided by Section 1(c), payment to
the Company of the Exercise Price for the number of shares of Common Stock
specified in the such purchase form, together with the amount of applicable
stock transfer taxes, if any; and (c) delivery to the Company of a duly executed
agreement signed by the person(s) designated in the purchase form to the effect
that such person(s) agree(s) to be bound by all of the terms and conditions of
this Warrant, including without limitation the provisions of Sections 6 and 7.
This Warrant shall be deemed to have been exercised, in whole or in part to the
extent specified, immediately prior to the close of business on the date on
which all of the provisions of this Section 2 are satisfied, and the person(s)
designated in the purchase form shall become the holder(s) of record of the
shares of Common Stock issuable upon such exercise at that time and date. The
certificates representing the shares of Common Stock so purchased shall be
delivered to the Holder within a reasonable time, not exceeding ten business
days, after this Warrant shall have been so exercised.
- 3 -
<PAGE> 4
3. TRANSFER OF WARRANT.
(a) During the period from [EFFECTIVE DATE] to the First Anniversary
Date inclusive, this Warrant shall not be transferred, sold, assigned or
hypothecated, except that during such period this Warrant may be transferred (i)
to successors in interest of the Holder, or (ii) in whole or in part to any one
or more shareholders, directors or officers of the Holder, in each case subject
to compliance with applicable Federal and state securities laws and
Interpretations of the Board of Governors of the National Association of
Securities Dealers, Inc.
(b) Between [EFFECTIVE DATE+1 YEAR] and the Expiration Date
inclusive, this Warrant shall be freely transferable, in whole or in part,
subject to the other terms and conditions hereof and to compliance with
applicable Federal and state securities laws; provided, however, that this
Warrant shall be immediately exercised upon any such transfer to any person or
entity that is not a shareholder, director or officer of the Holder and that if
this Warrant is not so exercised upon a transfer to any person or entity which
is not a shareholder, director or officer of the Holder, that this Warrant shall
immediately lapse.
(c) Any transfer of this Warrant permitted by this Section 3 shall
be effected by: (i) surrender of this Warrant for cancellation (with the
assignment form at the end hereof properly executed) at the office or agency of
the Company referred to in Section 2; (ii) delivery of a certificate (signed, if
the Holder is a corporation or partnership, by an authorized officer or partner
thereof), stating that each transferee designated in the assignment form is a
permitted transferee under this Section 3; and (iii) delivery of an opinion of
counsel stating that the proposed transfer may be made without registration or
qualification under applicable Federal or state securities laws. This Warrant
shall be deemed to have been transferred, in whole or in part to the extent
specified, immediately prior to the close of business on the date the provisions
of this Section 3(c) are satisfied, and the transferee(s) designated in the
assignment form shall become the holder(s) of record at that time and date. The
Company shall issue, in the name(s) of the designated transferee(s) (including
the Holder if this Warrant has been transferred in part) a new Warrant or
Warrants of like tenor and representing, in the aggregate, rights to purchase
the same number of shares of Common Stock as are then purchasable under this
Warrant. Such new Warrant or Warrants shall be delivered to the record holder(s)
thereof within a reasonable time, not exceeding ten business days, after the
rights represented by this Warrant shall have been so transferred. As used
herein (unless the context otherwise requires), the term "Holder" shall include
each such transferee, and the term "Warrant" shall include each such transferred
Warrant.
4. COVENANTS OF THE COMPANY. The Company covenants and agrees that
all shares of Common Stock which may be issued upon exercise of this Warrant
shall, upon issuance in accordance with the terms hereof, be duly and validly
issued, fully paid and non-assessable, with no personal liability attaching to
the Holder thereof. The Company further covenants and agrees that during the
period within which this Warrant may be exercised, the Company shall at all
times have authorized and reserved a sufficient number of shares of Common Stock
for issuance upon exercise of this Warrant.
- 4 -
<PAGE> 5
5. SHAREHOLDERS' RIGHTS. This Warrant shall not entitle the Holder to any
voting rights or other rights as a shareholder of the Company.
6. REGISTRATION RIGHTS.
(a) CERTAIN DEFINITIONS. As used herein, the term:
(i) "Registrable Securities" shall mean this Warrant and/or the
shares of Common Stock issued or issuable upon exercise of this Warrant, as the
same shall be so designated by the Holder.
(ii) "50% Holder" shall mean the Holder(s) of at least 50 percent
of the total number of shares of Common Stock comprising the Registrable
Securities (whether or not this Warrant has been exercised), and shall include
any Holder or combination of Holders.
(b) "PIGGYBACK" REGISTRATION. From the date hereof until the
Expiration Date, the Company shall advise the Holder, whether the Holder holds
this Warrant or has exercised this Warrant and holds any of the Common Stock, by
written notice at least four weeks prior to the filing of any post-effective
amendment to the Registration Statement (unless the Company determines that to
comply with Federal securities law it must file such post-effective amendment in
less than four weeks' time, in which case the Company shall give the Holder the
most notice practicable under the circumstances), or of any new registration
statement or post-effective amendment thereto under the Act (other than a
registration statement on Form S-8 or its counterpart), or any Notification on
Form 1-A under the Act, covering any securities of the Company, whether for its
own account or for the account of others, and shall, upon the request of the
Holder, include in any such post-effective amendment or new registration
statement such information as may be required to permit a public offering of any
or all of the Registrable Securities of the Holder, all at no expense whatsoever
to the Holder (except in the case of any post-effective amendment to the extent
as permitted by the Act or the rules and regulations promulgated thereunder),
except that each Holder whose Registrable Securities are included in such
registration shall bear the fees of its own counsel and any underwriting
discounts or commissions applicable to the Securities sold by it.
(c) DEMAND REGISTRATION.
(i) If any 50% Holder shall give notice to the Company, at any
time after the First Anniversary Date and prior to the Expiration Date, to the
effect that such 50% Holder desires to register under the Act any Registrable
Securities under such circumstances that a public distribution (within the
meaning of the Act) of any such securities shall be involved, then the Company
shall promptly, but no later than 30 days after receipt of such notice, use its
reasonable best efforts to file a post-effective amendment to the Registration
Statement or a new registration statement under the Act, to the end that
Registrable Securities of such 50% Holder may be publicly sold under the Act as
promptly as practicable thereafter, and the Company shall use its best efforts
to cause such registration to become effective as soon as possible; provided,
however, that such 50% Holder shall furnish the Com-
- 5 -
<PAGE> 6
pany with appropriate information in connection therewith as the Company may
reasonably request in writing; and provided further that the Company shall then
have available current financial statements (unless the unavailability of
current financial statements results from the Company's fault or neglect). The
50% Holder may, at its option, cause Registrable Securities to be included in
such registration under this Section 6(c) on a maximum of two occasions during
the four-year period beginning on the First Anniversary Date and ending on the
Expiration Date.
(ii) Within ten days after receiving any such notice pursuant to
this Section 6(c), the Company shall give notice to each other Holder (whether
such Holder holds a Warrant or has exercised the Warrant and holds any of the
Securities), advising that the Company is proceeding with such post-effective
amendment or new registration statement and offering to include therein
Registrable Securities held by such other Holders, provided that they shall
furnish the Company with such appropriate information in connection therewith as
the Company shall reasonably request in writing.
(iii) All costs and expenses (including without limitation,
legal, accounting, printing, mailing and filing fees) of the first such
registration effected under this Section 6(c) shall be borne by the Company,
except that the Holder(s) whose Registrable Securities are included in such
registration shall bear the fees of their own counsel and any underwriting
discounts or commissions applicable to the securities sold by them. All costs
and expenses of the second such registration effected under this Section 6(c)
shall be borne by the Holder(s) whose Registrable Securities are included in
such registration.
(iv) The Company shall cause each registration statement or
post-effective amendment filed pursuant to this Section 6(c) to remain current
under the Act (including the taking of such steps as are necessary to obtain the
removal of any stop order) for a period of at least six months (and for up to an
additional three months if requested by the Holder(s)) from the effective date
thereof, or until all the Registrable Securities included in such registration
have been sold, whichever is earlier.
(d) FURTHER RIGHTS. The registration rights provided by this Section 6
may be exercised by the Holder either prior or subsequent to its exercise of
this Warrant. A 50% Holder may, at its option, request registration pursuant to
Section 6(b) and/or pursuant to Section 6(c), and its request for registration
under one such Section shall not affect its right to request registration under
the other. The registration rights provided by this Section 6 shall supersede
and be prior in right to any registration rights granted by the Company to other
holders of its outstanding securities.
(e) FURTHER OBLIGATIONS OF COMPANY. With respect to all registrations
under this Section 6, the Company shall: (i) supply prospectuses and such other
documents as the Holder may reasonably request in order to facilitate the public
sale or other disposition of the Registrable Securities; (ii) use its best
efforts to register and qualify the Registrable Securities for sale in such
states as the Holder designates (provided, however, that in no event shall the
Company be required to qualify as a foreign corporation or a dealer in
securities or to execute a general consent to service of process); and (iii) do
any and all other acts and things
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<PAGE> 7
which may be necessary or desirable to enable the Holder to consummate the
public sale or other disposition of the Registrable Securities.
7. INDEMNIFICATION.
(a) INDEMNIFICATION BY THE COMPANY. As used in this Section 7, the
term "Liabilities" shall mean any and all losses, claims, damages and
liabilities, and actions and proceedings in respect thereof, including without
limitation all reasonable costs of defense and investigation and all attorneys'
fees. Whenever pursuant to Section 6 a registration statement relating to any
Registrable Securities is filed under the Act, or amended or supplemented, the
Company shall indemnify and hold harmless each Holder of Registrable Securities
included in such registration statement, amendment or supplement (each, a
"Distributing Holder"), and each person (if any) who controls (within the
meaning of the Act) the Distributing Holder, and each underwriter (within the
meaning of the Act) of such Registrable Securities, and each person (if any) who
controls (within the meaning of the Act) any such underwriter, from and against
all Liabilities, joint or several, to which the Distributing Holder or any such
controlling person or underwriter may become subject, under the Act or
otherwise, insofar as such Liabilities arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any such
registration statement, or any preliminary prospectus or final prospectus
constituting a part thereof, or any amendment or supplement thereto, or arise
out of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that the Company shall not be liable
in any such case to the extent that any such Liabilities arise out of or are
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement, preliminary prospectus,
final prospectus, or amendment or supplement thereto, in reliance upon and in
conformity with written information furnished by such Distributing Holder or by
any other Distributing Holder for use in the preparation thereof. The foregoing
indemnity shall be in addition to any other liability which the Company may
otherwise have.
(b) INDEMNIFICATION BY HOLDER. The Distributing Holder(s) shall
indemnify and hold harmless the Company, and each of its directors, each nominee
(if any) named in any preliminary prospectus or final prospectus constituting a
part of such registration statement, each of its officers who have signed such
registration statement and such amendments or supplements thereto, and each
person (if any) who controls the Company (within the meaning of the Act) against
all Liabilities, joint or several, to which the Company or any such director,
nominee, officer or controlling person may become subject, under the Act or
otherwise, insofar as such Liabilities arise out of or are based upon any untrue
or alleged untrue statement of any material fact contained in such registration
statement, preliminary prospectus, final prospectus, or amendment or supplement
thereto, or arise out of or are based upon the omission or the alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, in each case to the extent, but only
to the extent that such Liabilities arise out of or are based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
such registration statement, preliminary prospectus, final prospectus or
amendment or supplement
- 7 -
<PAGE> 8
thereto in reliance upon and in conformity with written information furnished by
such Distributing Holder(s) for use in the preparation thereof. The foregoing
indemnity shall be in addition to any other liability which the Distributing
Holder(s) may otherwise have.
(c) PROCEDURE. Promptly after receipt by an indemnified party under
this Section 7 of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against any
indemnifying party, give the indemnifying party notice of the commencement
thereof; but the omission so to notify the indemnifying party shall not relieve
it from any liability which it may have to any indemnified party otherwise than
under this Section 7. In case any such action is brought against any indemnified
party, and it notifies an indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under this
Section 7 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.
(d) LIMITATION. Notwithstanding the foregoing, if the Registrable
Securities are to be distributed by means of an underwritten public offering, to
the extent that the provisions on indemnification and contribution contained in
the underwriting agreement entered into in connection with such underwriting are
in conflict with the provisions of this Section 7, the provisions of such
underwriting agreement shall be controlling, provided that the Holder is a party
to such underwriting agreement.
8. ANTI-DILUTION. In the event that the outstanding shares of Common Stock
are at any time increased or decreased in number, or changed into or exchanged
for a different number or kind of shares or other security of the Company or of
another corporation through reorganization, merger, consolidation, liquidation,
recapitalization or, in the case of Common Stock, stock split, reverse split,
combination of shares or stock dividends payable with respect to such Common
Stock, sold at below the exercise price of this Warrant, and for other unusual
events (other than employee benefit and stock option plans for employees and
advisors of the Company) appropriate adjustments shall be made in the number and
kind of such securities then subject to this Warrant and in the Exercise Price
of this Warrant effective as of the date of such occurrence, so that the
position of the Holder upon exercise of this Warrant shall be the same as it
would have been had it owned immediately prior to the occurrence of such event
the Common Stock subject to this Warrant; provided, however, that in no event
shall two adjustments be made for the same event. For example, if the Company
declares a 2-for-1 stock dividend or stock split, then the number of shares of
Common Stock then subject to this Warrant shall each be doubled and the Share
Exercise Price shall each be reduced by 50 percent. Such adjustments shall be
made successively whenever any event described by this Section 8 shall occur.
9. GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements made
and to be
- 8 -
<PAGE> 9
performed entirely within such State, without reference to such State's laws
regarding the conflict of laws. The Company submits to the jurisdiction of the
state and federal courts located in Monroe County, New York.
10. AMENDMENT OR WAIVER. Any provision of this Warrant may be amended,
waived or modified upon the written consent of the Company and any 50% Holder;
provided, however, that such amendment, waiver or modification applies by its
terms to each Holder; and provided further, that a Holder may waive any of its
rights or the Company's obligations to such Holder without obtaining the consent
of any other Holder.
IN WITNESS WHEREOF, DYNAMICWEB ENTERPRISES, INC. has caused this Warrant
to be signed by its duly authorized officers under its corporate seal and to be
dated as of the date set forth on the first page hereof.
DYNAMICWEB ENTERPRISES, INC.
By:
--------------------------------------
Name: Steven L. Vanechanos, Jr.
Title: President and Chief Executive Officer
(Corporate Seal)
Attest:
- --------------------------------
Secretary
- 9 -
<PAGE> 10
PURCHASE FORM
(TO BE SIGNED ONLY UPON EXERCISE OF WARRANT)
The undersigned, the Holder of the foregoing Warrant, hereby irrevocably
elects to exercise the purchase rights represented by such Warrant for, and to
purchase thereunder, -------- shares of Common Stock, $.0001 par value, of
DYNAMICWEB ENTERPRISES, INC. (the "Company") and (i) herewith makes payment of
an aggregate of $------------ therefor and/or (ii) pursuant to Section 1(c) of
such Warrant hereby tenders the right to exercise such Warrant to the extent of
- -------- shares of Common Stock of the Company. The undersigned requests that
the certificates for the shares of such Common Stock be issued in the name(s)
of, and delivered to, the person(s) whose name(s) and address(es) are set forth
below:
Dated:
----------------------
--------------------------------
Name:
--------------------------------
Address:
Signatures guaranteed by:
- -----------------------------
Taxpayer Identification Number:
- -----------------------------
- 10 -
<PAGE> 11
TRANSFER FORM
(TO BE SIGNED ONLY UPON TRANSFER OF WARRANT)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
unto ------------------------------------------- the right to purchase shares of
the Common Stock, $.0001 par value per share, of DYNAMICWEB ENTERPRISES, INC.
(the "Company") represented by the foregoing Warrant to the extent of ----
shares of Common Stock and appoints ------------------------ attorney to
transfer such rights on the books of the Company, with full power of
substitution in the premises.
Dated:
------------------------
--------------------------------
Name:
--------------------------------
Address:
Signatures guaranteed by:
- -----------------------------
Taxpayer Identification Number:
- -----------------------------
- 11 -
<PAGE> 1
EXHIBIT 5.1
November __, 1997
Board of Directors
DynamicWeb Enterprises, Inc.
271 Route 46 West
Building F, Suite 209
Fairfield, New Jersey 07004
Re: Registration Statement on Form SB-2 (SEC File No. 333-35579)
Gentlemen:
In connection with the proposed offering by DynamicWeb Enterprises, Inc.
(the "Company") of up to _________ shares of the Company's common stock, par
value $.0001 per share (the "Common Stock"), covered by the Company's
Registration Statement on Form SB-2 (No. 333-35579) (the "Registration
Statement"), we, as counsel to the Company, have reviewed:
1. the Articles of Incorporation of the Company;
2. the Bylaws of the Company;
3. the minute books of the Company;
4. a Corporate Good Standing Certificate, dated
__________, 1997, issued by the Secretary of the State
of New Jersey, with respect to the Company;
5. the Registration Statement; and
6. copies of the certificates representing shares of the
Common Stock.
Based upon our review of such documents, it is our opinion that:
1. The Company has been duly incorporated under the laws of the State
of New Jersey and is validly existing and in good standing under the
laws of such State.
<PAGE> 2
Board of Directors
November __, 1997
Page 2
2. The _________ shares of Common Stock covered by the Registration
Statement have been duly authorized and, when issued and sold for
cash pursuant to the terms described in the Registration Statement,
will be legally issued by the Company and fully paid and
nonassessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement, and to the reference to us under the heading "Legal Matters" in the
related Prospectus. In giving this consent, we do not thereby admit that we come
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the Rules and Regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
STEVENS & LEE
<PAGE> 1
EXHIBIT 10.20
FINANCIAL CONSULTING AGREEMENT
This Agreement is made on [Closing Date], by and between DYNAMICWEB
ENTERPRISES, INC., a New Jersey corporation having its principal office at 271
Route 46 West, Building F, Suite 209, Fairfield, New Jersey 07004 (the
"Company"), and H.J. MEYERS & CO., INC., a New York corporation having an office
at 1895 Mt. Hope Avenue, Rochester, New York 14620 ("the Consultant").
In consideration of the mutual premises contained herein and on the terms
and conditions hereinafter set forth, the Company and Consultant agree as
follows:
1. PROVISION OF SERVICES.
(a) Consultant shall, to the extent reasonably required in the conduct
of the business of the Company, place at the disposal of the Company its
judgment and experience and, to such extent and at the prior written request of
the President of the Company to the Consultant's Managing Director of Corporate
Finance, provide business development and corporate finance services to the
Company, including the following:
(i) evaluation of the Company's managerial and financial
requirements;
(ii) assistance in recruiting, screening, evaluating and
recommending key personnel, directors, accountants, commercial and
investment bankers, underwriters, attorneys and other professional
consultants;
(iii) assistance in the preparation of budgets and business
plans;
(iv) advice with regard to sales planning and sales activities;
(v) advice with regard to stockholder relations and public
relations matters; and
(vi) evaluation of financial requirements and assistance in
financial arrangements.
Notwithstanding the foregoing, Consultant shall not provide services to the
Company hereunder in connection with mergers, acquisitions, consolidations,
joint ventures and similar corporate finance transactions, which transactions
are instead the subject of a certain letter agreement dated this date between
Consultant and the Company.
(b) In addition to the foregoing, for a period of thirty-six (36)
months, the Consultant shall have the option to select an observer designated by
the Consultant and reasonably acceptable to the Company, to receive notice of
and to attend all meetings of the Board of Directors of the Company (the
"Observer"). Such Observer shall have no voting rights, and shall be reimbursed
for all out-of-pocket expenses incurred in attending meetings
<PAGE> 2
of the Board of Directors. The Company shall hold at least four (4) meetings of
the Board of Directors per year. The Observer will be indemnified by the Company
against any claims arising out of his participation at Board meetings.
Additionally, the Company shall provide the Observer with the same expense
reimbursement and cash allowance in connection with meetings of the Board of
Directors as it provides to non-employee Directors of the Company.
(c) Consultant shall use reasonable efforts in the furnishing of
advice and recommendations, and for this purpose Consultant shall at all times
maintain or keep and make available qualified personnel or a network of
qualified outside professionals for the performance of its obligations under
this Agreement. To the extent reasonably practicable, Consultant shall so use
its own personnel rather than outside professionals.
2. COMPENSATION. In consideration of Consultant's services hereunder, the
Company shall pay Consultant a consulting fee of $6,000 per month, payable one
year in advance on the date hereof (that being the closing date of the sale of
the Company's securities pursuant to a Registration Statement on Form SB-2 filed
with the Securities and Exchange Commission). Consultant hereby accepts such
compensation.
3. EXPENSES. The Company shall reimburse Consultant for reasonable expenses
incurred by Consultant in connection with its services rendered hereunder. All
expenses in excess of $500 shall be approved in writing by the Company in
advance. Consultant shall invoice the Company for its expenses incurred. Payment
of invoices shall be due upon receipt.
4. LIABILITY; INDEMNIFICATION.
(a) It is expressly understood and agreed that, in furnishing the
Company with management advice and other services as herein provided, neither
Consultant nor any of its officers, directors, employees or agents (including
without limitation the Observer) shall be liable to the Company, its
stockholders, its creditors or any other person or entity for errors of judgment
or for any act or omission except willful malfeasance, bad faith or gross
negligence in the performance of its duties hereunder. It is further understood
and agreed that Consultant may rely upon information furnished to it and
reasonably believed by it to be accurate and reliable and that, except as herein
provided, Consultant shall not be liable for any loss suffered by the Company,
or by any officer, director, employee, stockholder or creditor of the Company,
by reason of the Company's action or non-action on the basis of any advice,
recommendation or approval of Consultant or any of its officers, directors,
employees or agents.
(b) The Company shall indemnify, save harmless and defend Consultant
and its officers, directors, employees and agents (including without limitation
the Observer) from, against and in respect of any loss, damage, liability,
judgment, cost or expense whatsoever, including counsel fees, suffered or
incurred by it or him by reason of, or on account of, its status or activities
as a consultant to the Company hereunder (and, in the case of the Observer, his
participation in meetings of the Board of Directors of the Company).
- 2 -
<PAGE> 3
(c) Consultant shall indemnify, save harmless and defend the Company
and its officers, directors, employees and agents from, against and in respect
of any loss, damage, liability, judgment, cost or expense whatsoever, including
counsel fees, suffered or incurred by it or him by reason of, or on account of,
willful malfeasance, bad faith or gross negligence in the performance of
Consultant's duties hereunder.
(d) In the event that the Consultant is held liable under this Section
4, the Consultant's liability is limited to the total compensation received by
Consultant pursuant to Section 2 of this Agreement. In no event shall Consultant
be liable for any incidental or consequential damages to the Company, its
stockholders, creditors or any other person or entity even if advised of the
possibility thereof.
5. STATUS OF CONSULTANT. Consultant shall at all times be an independent
contractor of the Company and, except as expressly provided or authorized by
this Agreement, shall have no authority to act for or represent the Company.
6. OTHER ACTIVITIES OF CONSULTANT. The Company recognizes that Consultant
now renders and may continue to render management and other services to other
companies which may or may not have policies and conduct activities similar to
those of the Company. Consultant shall be free to render such advice and other
services and the Company hereby consents thereto. Consultant shall not be
required to devote its full time and attention to the performance of its duties
under this Agreement, but shall devote only so much of its time and attention as
Consultant deems reasonable or necessary for such purposes.
7. CONTROL. Nothing contained herein shall be deemed to require the Company
to take any action contrary to its Certificate of Incorporation or By-laws, or
any applicable statute or regulation, or to deprive its Board of Directors of
its responsibility for and control of the conduct of the affairs of the Company.
8. TERM. Except as provided by Section 1(b) hereof, Consultant's
performance of services hereunder shall be for a term of one year commencing on
the date hereof.
9. IN GENERAL.
(a) This Agreement sets forth the entire agreement and understanding
between the parties with respect to its subject matter and supersedes all prior
discussions, agreements and understandings of every and any nature between them
with respect thereto. This Agreement may not be modified except in a writing
signed by the parties.
(b) This Agreement has been made in the State of New York and shall be
governed by and construed in accordance with the laws thereof without regard to
principles of conflict of laws. Any proceeding commenced by either party to
enforce or interpret any provision of this Agreement shall be brought in Monroe
County, New York. The Company hereby submits to the jurisdiction of the federal
and state courts located in such County for such purposes.
- 3 -
<PAGE> 4
(c) Neither this Agreement nor either party's rights hereunder shall
be assignable by any party hereto without the prior written consent of the other
party hereto.
(d) This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their respective officers or representatives duly authorized on the day and year
first above written.
DYNAMICWEB ENTERPRISES, INC.
By:
-------------------------
Name: Steven L. Vanechanos, Jr.
Title: President and Chief Executive Officer
H.J. MEYERS & CO., INC.
By:
-------------------------
Name: Michael Bresner
Title: Managing Partner
- 4 -
<PAGE> 1
EXHIBIT 10.21
H.J. Meyers & Co., Inc.
1895 Mount Hope Avenue
Rochester, New York 14620
[Effective Date]
DYNAMICWEB ENTERPRISES, INC.
271 Route 46 West
Building F, Suite 209
Fairfield, New Jersey 07004
Ladies and Gentlemen:
You have agreed that H.J. Meyers & Co., Inc. ("H.J. Meyers") may act as a finder
or financial consultant for you in various Transactions (as hereinafter
defined), in which DynamicWeb Enterprises, Inc. or its subsidiaries
(collectively, the "Company") may be involved for a period of 24 months from the
date of this Agreement (the "Period").
1. DEFINITIONS.
For the purposes of this Agreement:
(a) A "Transaction" shall mean any transaction or series or
combination of transactions involving the Company, other than in the ordinary
course of trade or business, whereby, directly or indirectly, control of, or a
material interest in any businesses, assets or properties, is sold, purchased,
leased or otherwise transferred, including, without limitation, a sale, purchase
or exchange of capital stock or assets, a lease of assets with or without a
purchase option, a merger or consolidation, a tender or exchange offer, a
leveraged buy-out, a restructuring, a recapitalization, a repurchase of capital
stock, an extraordinary dividend or distribution (whether cash, property,
securities or a combination thereof), a liquidation, the formation of a joint
venture or partnership, a minority investment or any other similar transaction.
(b) "Consideration" shall mean the total value of all cash,
securities, other property and any other consideration, including, without
limitation, any contingent, earned or other consideration paid or payable,
directly or indirectly, in connection with a Transaction and consideration shall
be determined at the closing. The value of any such securities (whether debt or
equity) or other property shall be determined as follows: (1) the value of
securities that are freely tradeable in an established public market shall be
the last closing market price of such securities prior to the public
announcement of the Transaction; and (2) the value of securities which are not
freely tradeable or which have no established public market, or if the
consideration consists of property other than securities, the value of such
securities or other property shall be the fair market value thereof as mutually
agreed by the Company and H.J. Meyers. Consideration shall also be deemed to
include any indebtedness,
<PAGE> 2
including, without limitation, pension liabilities, guarantees and other
obligations assumed, directly or indirectly, in connection with, or which
survives the closing of, a Transaction. If the consideration to be paid is
computed or payable in any foreign currency, the value of such foreign currency
shall, for the purposes hereof, be converted into U.S. Dollars at the prevailing
exchange rate on the dates on which such consideration is payable.
2. H.J. MEYERS' FEE.
(a) If during the Period H.J. Meyers brings to the Company an
opportunity for a proposed Transaction, then upon the consummation of any such
Transaction (but only if such consummation occurs within 36 months from the date
of this Agreement) the Company will pay to H.J. Meyers as a fee the amount
provided for in Paragraph 2(c) hereof; provided, however, that H.J. Meyers shall
be deemed to have brought an opportunity to the Company for purposes of this
Paragraph 2(a) only if the opportunity is at least briefly specifically
described in a writing (which need not identify the other parties) signed by
H.J. Meyers and received (with receipt acknowledged in writing by the Company)
prior to any negotiations between representatives of the Company and
representatives of the other party or parties to such Transaction, and such
writing signed by H.J. Meyers refers to the Company's obligations under this
Section 2.
(b) If during the Period an opportunity for a proposed Transaction is
brought to the Company by someone other than H.J. Meyers, and if the Company in
writing retains H.J. Meyers for consultation or other services in connection
therewith, then upon the consummation of that transaction, the Company will pay
H.J. Meyers as a fee the amount provided for in Paragraph 2(c) hereof.
(c) The amount to be paid by the Company to H.J. Meyers in any case
described in Paragraphs 2(a) or 2(b) hereof shall be calculated based on the
Consideration paid to or received by the Company (or its stockholders), as
follows: five percent (5%) of the first three million dollars ($3,000,000);
three and one-half percent (3.5%) of any consideration greater than three
million dollars ($3,000,000) and less than or equal to five million dollars
($5,000,000); and two percent (2%) of any consideration in excess of five
million dollars ($5,000,000).
(d) In addition to those fees payable to H.J. Meyers under the
provisions of Paragraph 2 hereof, the Company shall reimburse H.J. Meyers for
its out-of-pocket and incidental expenses incurred in connection with the
performance by H.J. Meyers of its duties under this Agreement. Such
reimbursement shall occur promptly as requested and shall include the fees and
expenses of H.J. Meyers' legal counsel and those of any advisor retained by H.J.
Meyers, subject, in each case, to prior approval by the Company.
3. PAYMENT. The fee due to H.J. Meyers hereunder shall be paid by the
Company in cash at the closing of the Transaction, without regard to whether the
Transaction involves payment in cash, stock or a combination of stock and cash,
or is made on an installment sales basis. By way of example, if the Transaction
involves securities of the acquiring entity (whether securities of the Company,
if the Company is the acquiring party,
- 2 -
<PAGE> 3
or securities of another entity, if the Company is the selling party) having a
value of $6,000,000, the cash consideration to be paid by the Company to H.J.
Meyers at closing shall be $240,000.
4. INDEMNIFICATION. The Company hereby agrees to indemnify and hold
harmless H.J. Meyers, its respective directors, officers, controlling persons
(within the meaning of Section 15 of the Securities Act of 1933 or Section 20(a)
of the Securities Exchange Act of 1934), if any, (collectively, "Indemnified
Persons" and individually, and "Indemnified Person") from and against any and
all claims, liabilities, losses, damages and expenses incurred by any
Indemnified Person (including reasonable fees and disbursements of H.J. Meyers
and an Indemnified Person's counsel) which (A) are related to or arise out of
(i) actions taken or omitted to be taken (including any untrue statements made
or any statements omitted to be made) by the Company or (ii) actions taken or
omitted to be taken by an Indemnified Person with the Company's consent or in
conformity with the Company's instructions or the Company's actions or omissions
or (B) are otherwise related to or arise out of the performance by H.J. Meyers
of duties pursuant to this Agreement, and will reimburse H.J. Meyers and any
other Indemnified Person for all reasonable costs and expenses, including fees
of H.J. Meyers or an Indemnified Person's counsel, as they are incurred, in
connection with investigating, preparing for, or defending any action, formal or
informal claim, investigation, inquiry or other proceeding, whether or not in
connection with pending or threatened litigation, caused by or arising out of or
in connection with H.J. Meyers acting pursuant to this Agreement, whether or not
H.J. Meyers or any Indemnified Person is named as a party thereto and whether or
not any liability results therefrom. The Company will not, however, be
responsible for any claims, liabilities, losses, damages, or expenses pursuant
to clause (B) of the preceding sentence which are finally judicially determined
to have resulted primarily from H.J. Meyers' bad faith or gross negligence. The
Company also agrees that neither H.J. Meyers nor any other Indemnified Person
shall have any liability to the Company for or in connection with this Agreement
except for any such liability for claims, liabilities, losses, damages, or
expenses incurred by the Company which are finally judicially determined to have
resulted primarily from H.J. Meyers' bad faith or gross negligence. The Company
further agrees that the Company will not, without the prior written consent of
H.J. Meyers, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not H.J. Meyers or any
Indemnified Person is an actual or potential party to such claim, action, suit
or proceeding) unless such settlement, compromise or consent includes an
unconditional release of H.J. Meyers and each other Indemnified Person hereunder
from all liability arising out of such claim, action, suit or proceeding.
In order to provide for just and equitable contribution, if a claim for
indemnification is made pursuant to these provisions but it is found in a final
judgment by a court of competent jurisdiction (not subject to further appeal)
that such indemnification is not available for any reason (except, with respect
to indemnification sought solely pursuant to clause (B) of the first paragraph
hereof, for the reasons specified in the second sentence thereof), even though
the express provisions hereof provide for indemnification in such case, then the
Company, on one hand, and H.J. Meyers, on the other hand, shall contribute to
such claim, liability, loss,
- 3 -
<PAGE> 4
damage or expense for which such indemnification or reimbursement is held
unavailable in such proportion as is appropriate to reflect the relative
benefits to the Company, on one hand, and H.J. Meyers, on the other hand, in
connection with the Transactions contemplated by this Agreement, subject to the
limitation that in any event H.J. Meyers' aggregate contribution to all losses,
claims, damages, liabilities and expenses to which contribution is available
hereunder shall not exceed the amount of fees actually received by H.J. Meyers
pursuant to this Agreement.
The foregoing right to indemnity and contribution shall be in addition to
any rights that H.J. Meyers and/or any other Indemnified Person may have at
common law or otherwise and shall remain in full force and effect following the
completion or any termination of this Agreement.
It is understood that, in connection with this Agreement, H.J. Meyers may
also be engaged to act for the Company in one or more additional capacities,
embodied in one or more separate written agreements. This indemnification shall
apply to this Agreement, any such additional engagement(s) (whether written or
oral) and any modification of this Agreement or such additional engagement(s)
and shall remain in full force and effect following the completion or
termination of this Agreement or such additional engagements.
5. CONFIDENTIALITY. Any advice, either oral or written, provided to the
Company by H.J. Meyers hereunder shall not be publicly disclosed or made
available to third parties without the prior written consent of H.J. Meyers. In
addition, H.J. Meyers may not be otherwise publicly referred to without its
prior consent.
6. INFORMATION. In the event H.J. Meyers acts as finder or financial
advisor in a transaction, the Company will furnish H.J. Meyers with all
information concerning the Transaction which H.J. Meyers reasonably deems
appropriate and will provide H.J. Meyers with access to the Company's officers,
directors, accountants, counsel and other advisors. The Company represents and
warrants to H.J. Meyers that all such information concerning the Company and its
affiliates is and will be true and accurate in all material respects and does
not and will not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein not
misleading in light of the circumstance under which such statements are made.
The Company acknowledges and agrees that H.J. Meyers will be using and relying
upon such information supplied by the Company and its officers, agents and
others and any other publicly available information concerning the Company and
its affiliates and any prospective acquiror of the Company, its businesses or
assets without any independent investigation or verification thereof or
independent appraisal by H.J. Meyers of the Company and businesses or assets.
7. FINDERS. The Company represents and warrants to H.J. Meyers that there
are no brokers, representatives or other persons which have an interest in
compensation due to H.J. Meyers from any Transaction in which H.J. Meyers has
acted as finder or financial advisor.
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<PAGE> 5
8. ADVERTISEMENTS. H.J. Meyers shall have the right to place advertisements
in financial and other newspapers and journals at its own expense describing its
services to the Company hereunder in the event a transaction is consummated.
9. BINDING OBLIGATION. The Company represents and warrants to H.J. Meyers
that H.J. Meyers' engagement hereunder has been duly authorized and approved by
the Board of Directors of the Company and that this letter agreement has been
duly executed and delivered by the Company and constitutes a legal, valid and
binding obligation of the Company.
10. IN GENERAL. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements made
and to be performed entirely within such State, without reference to such
State's principles respecting the conflict of laws. The Company submits to the
jurisdiction of state and federal courts located in Monroe County, New York.
This Agreement sets forth the entire agreement and understanding between the
undersigned with respect to its subject matter and supersedes all prior
discussions, agreements and understandings of every kind and nature between them
with respect thereto. This Agreement shall inure to the benefit of, and be
enforceable against, each of the undersigned and their respective successors and
assigns.
Please sign this letter at the place indicated below, whereupon it will
constitute our mutually binding agreement with respect to the matters contained
herein.
Very truly yours,
H.J. Meyers & Co., Inc.
By:
-----------------------------------
Name: Michael Bresner
Title: Managing Director
ACCEPTED AND AGREED TO:
DynamicWeb Enterprises, Inc.
By:
--------------------------------
Name: Steven L. Vanechanos, Jr.
Title: Chief Executive Officer
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<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this registration statement on Form SB-2 of
the form of our report (to be dated April 7, 1997 and dated the date of the
Reverse Stock Split with respect to Note J[5]) relating to the consolidated
financial statements of DynamicWeb Enterprises, Inc. (formerly Seahawk Capital
Corporation) as at September 30, 1996 and each of the fiscal years in the
two-year period then ended and our report dated May 12, 1997 (September 5, 1997
with respect to Note F[1]) relating to the financial statements of Software
Associates, Inc. as at June 30, 1996 and each of the fiscal years in the
two-year period then ended. Each report calls attention to substantial doubt
existing as to the ability of the companies to continue as going concerns. We
also consent to the reference to our firm under the captions "Experts" and
"Summary Financial Information" in the prospectus.
/s/ RICHARD A. EISNER & CO., LLP
New York, New York
November 6, 1997
