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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended September 30, 1996, or
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from ____________ to ____________.
Commission File Number 0-10039.
DYNAMICWEB ENTERPRISES, INC.
(Name of Small Business Issuer in its Charter)
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New Jersey 22-2267658
(State or Other Juris- (I.R.S. Employer
diction of Incorporation) Identification No.)
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Fairfield Commons
271 Route 46 West
Building F
Suite 209
Fairfield, New Jersey 07004
(Address of Principal Executive Offices)
Registrant's Telephone Number: (201) 244-1000
Securities registered under Section 12(b) of the Exchange Act:
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Name of Each Exchange
Title of Each Class on Which Registered
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NONE NONE
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Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value .0001 per share
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes No. X .
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained herein, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
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Issuer's revenues for fiscal year ended September 30, 1996: $460,067.
As of April 30, 1997, the aggregate market value of the Common Stock (based upon
the average sales price on such date) of the Registrant held by nonaffiliates
was $3,877,601.
Number of Shares of Common Stock Outstanding at April 30, 1997: 7,667,270.
Transitional Small Business Disclosure Format:
Yes ___ No X
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS DEVELOPMENT
DynamicWeb Enterprises, Inc. ("DynamicWeb" or the "Company") develops,
markets and supports software products and other services that enable businesses
to engage in electronic commerce utilizing the Internet.
The Company is a New Jersey corporation. It currently operates through
three separate 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"). The acquisition by the Company of DWTS is described in the
Company's Form 10-QSB dated June 30, 1996. The acquisition by the Company of
each of Software Associates and Megascore is described in the Company's Form 8-K
dated November 30, 1996. As a result of those transactions, the Company has
combined the previously-separate operations of DWTS, Software Associates, and
Megascore into a holding company.
Readers of this Report should note that the description of the Company's
business contained in Item 1 of this Report reflects the present and planned
operations of the Company as of the date of this Report, May 15, 1997. The
description of the Company's business therefore reflects the combined operations
of DWTS, Software Associates, and Megascore, even though Software Associates was
not acquired until after the end of the Company's September 30, 1996, fiscal
year. The Company believes that a description of the Company's business taking
into account the combined operations of DWTS, Software Associates, and Megascore
is more meaningful to an understanding of the Company than a discussion of the
business of the Company as conducted prior to those acquisitions. Further, it
should be noted that the financial information contained in Items 6 and 7 of
this Report represent the combined operations of DWTS and Megascore for the two
fiscal years ending September 30, 1996. The basis for such presentation is
discussed in Note A to the financial statements contained in Item 7 of this
Report.
Readers of this Report also should note that the description of the
Company's business contained in this Report relate exclusively to the electronic
commerce software and service business conducted through DWTS, Software
Associates, and Megascore. Prior to March 26, 1996, however, the Company was
named Seahawk Capital Corporation. Seahawk Capital Corporation had, from time to
time, other operations having no relationship to the Company's present business
and management. Those prior operations were disposed of the by the Company.
Immediately prior to March 26, 1996, the Company conducted no operations. March
26, 1996, was the date upon which the Company acquired all or the outstanding
stock of DWTS. The history of Seahawk Capital Corporation and the disposition of
those other operations are more fully described in the Company's Form 10-KSB for
the year ended December 31, 1995, and Form 8-K dated March 26, 1996.
BUSINESS
INTRODUCTION
The Company is engaged in the business of developing, marketing and
supporting software products and other services that enable businesses to engage
in electronic commerce utilizing the Internet and traditional Electronic Data
Interchange ("EDI") technologies. The Company offers electronic commerce
solutions in EDI and Internet-based transaction processing. The Internet is a
worldwide
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communications system that allows users to transmit and receive messages and
information over telephone and other communications lines using terminals and
computers.
Electronic commerce ("EC") involves the automation of business
transactions using telecommunications and computers to exchange and process
commercial information and transactional documents. EDI is the direct,
application-to-application transmission of business documents such as purchase
orders, invoices, and remittance advice. Businesses immersed in electronic
commerce have found EDI to be a vital component of their enterprise. EDI
differs, however, 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.
Electronic commerce has typically involved the use of a third-party or
private value-added computer network ("VAN") to perform EDI, e-mail, electronic
funds transfer, electronic forms, and bulletin board and electronic catalogue
services. Users of private or third-party VANs may also have access through the
VAN to directories or on-line information services. The major operators of VANS
include Harbinger Corporation, General Electric, Sterling Commerce's Ordernet,
IBM/Advantis, AT&T and Kleinschmidt. 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 Company's products and services work
with all major value-added network 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 cost. 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 emphasizes 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 their 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.
- 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
information over the Internet to the general public. There are now
some interactive applications allowing the public to respond or
leave a message for the entity which publishes the information on
the Web (the "Web Page" or "Web Site").)
The Company has five principal software and service packages for those
markets and customers:
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EDIBRIDGENET SERVICE (SM) - This is the name of DynamicWeb's electronic
commerce service bureau. EDIbridgeNET is a service provided by the Company
that allows for the transfer of information between trading partners. The
service includes EDI mapping (substantive translation of data which
preserves the meaning and substance of the data), and the translation and
routing of business documents between third party EDI (VAN) networks, the
Internet and private computer networks of 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. The Company's clients can opt for EDI outsourcing through
EDIbridgeNET Service, allowing DynamicWeb to handle EDI mapping,
translation and EDI standards maintenance.
NETCAT(TM): This 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 (through the use of Cybercash, a third-party credit card
verification software licensed to the Company). This process is sometimes
referred to as "order management." It is expected to be utilized
predominantly in a business-to-business context. NetCat is used as part of
the Company's EDIxchange Program.
EDIXCHANGE PROGRAM(SM) - This is a combination of the Company's
EDIbridgeNET service and NetCat software. 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, EDIbridgeNET. Combined with NetCat,
the Company's order management software described above, this product
allows businesses which do not have in-house EDI capability to communicate
electronically with their larger, 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. ShipTrac
receives an electronic purchase order into a database, and a client then
can print bar-coded shipping compliance labels. The system 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.
ELECTRONIC COMMERCE (EC) INTERFACE SOFTWARE FOR ACCOUNTING SYSTEMS -
DynamicWeb has developed application interface modules for two mid-range
accounting software systems, RealWorld and Synchronics. Designed for
businesses using those systems, the EC Interface allows a business to
import and export business documents electronically from those software
applications. Generally, the Company sells this product through
distributors of the Real World and Synchronics software.
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ELECTRONIC COMMERCE AND ELECTRONIC DATA INTERCHANGE
Some aspects of electronic commerce ("EC") and electronic data interchange
("EDI") are discussed below:
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 has occurred, 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 communicating
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.
- To improve customer support and service levels by eliminating data
entry errors.
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 also requesting or requiring their trading
partners to transmit business documents using EDI. This expanding number of
trading partners adopting EDI results in the establishment of distinct trading
communities comprising potential software customers and network subscribers for
EDI services.
EDI TRANSACTION FLOW. 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
receive documents for subsequent delivery to the intended trading partner (the
"receiving partner"), and 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 have to have
the same software applications or hardware.
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EDI INDUSTRY STANDARDS. EDI has been further promoted through the adoption
of EDI standards within various industries. 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 proprietary formats agreed to by two 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 for the foreseeable future. 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.
The major operators of VANs include Harbinger Corporation, GE, Sterling
Commerce Ordernet, IBM/Advantis, AT&T and Kleinschmidt. The Company's products
and services work with all major VAN providers.
INTERNET STRATEGY
One of the Company's principal strategies is delivering electronic
commerce solutions to business customers, which utilize the Internet. 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 the Internet
becoming 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.
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, host system modifications,
dedicated proprietary VANs, and resources required to maintain EDI. The
industry, and more importantly, EDI-enabled suppliers and
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retailers, have continued to look for solutions to lower existing EDI-related
costs, while 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 the Company intends to focus
on 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 Program Suite 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 NetCatTM, 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, primarily by
reaching its smaller supplier 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 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. This market includes presently EDI-enabled
businesses, as well as businesses that do not presently conduct electronic
commerce. That is one of the services historically provided by Software
Associates, Inc. and which the Company intends to market. 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 will be
marketed to EDI-capable suppliers, which become mandated by their customers to
use UCC128 bar-coded shipping labels and to send EDI standard documents such as
advance ship 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 the Real World or the Synchronics
accounting systems, but are not EDI capable. Those businesses can easily 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.
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 which lack EDI compliance with their trading partners.
Additionally, the Company will focus its marketing efforts for EDI outsourcing
to EDI-capable suppliers, which typically have a backlog in their management
information system ("MIS")/EDI group, and have an immediate need to respond to
customers' requests.
IDENTIFY KEY BUSINESS PARTNERS - DynamicWeb 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. See "Strategic Relationships" below.
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 March 1, 1997, the
Company employs five people in sales and marketing, two of whom directly sell
the Company's software and services. Compensation to 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.
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 to
participate in. The Company will be joining 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.
STRATEGIC RELATIONSHIPS
Since October, 1996, the Company has entered into co-marketing and
strategic alliances with the following companies:
EMJ ("EMJ"), Apex, North Carolina. EMJ is an Internet Web content
developer working with many large businesses in the Raleigh/Durham Research
Triangle Park area. DynamicWeb was chosen as the exclusive Internet-EDI solution
provider for EMJ Internet. EMJ Internet is a division of EMJ America, a $150
million (sales) computer hardware and software distributor.
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ER Enterprises ("ER"), Columbus, Ohio. ER is an EDI consulting group that
assists retailers in implementing electronic commerce strategies. ER Enterprises
is a sales agent for the Company's EDI outsourcing and Internet-EDI solutions.
AFTEC Corporation ("AFTEC"), Livingston, New Jersey. AFTEC, the developer
of a manufacturing and distribution software package, will build an electronic
commerce interface into their application and offer DynamicWeb's Service Bureau
as a turnkey EC solution for their clients.
ID2000 ("ID2000"), Berlin, New Jersey. ID2000 is a management information
consulting firm offering turnkey information systems solutions to its clients.
ID2000 is a sales agent for the Company's electronic commerce solutions.
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 altogether
a VAN. The Company is working on modifications to the NetCat software and the
EDIxchange system to permit the 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 compatible with the Adobe Acrobat
reader, which would allow NetCat to create a wider variety of graphics.
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
under which the suppliers would 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 EC Interface
Software for Accounting Systems. Presently, the Company's version of 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 other accounting systems. The new
product would be Windows-based and would function with the Company's EDI service
bureau EDIbridgeNET.
The Company's final major initiative at present involves an upgrade of the
Company's EDIbridgeNET communications network. Presently, the Company
administers its own communications network relating to EDIbridgeNET, 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.
Each of the foregoing product development initiatives is subject to risk.
The Company cannot predict when any of them would 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 or product enhancements discussed, or
that they will find market acceptance if developed.
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COMPETITION
The electronic commerce and EDI network services and computer software
markets are highly competitive. 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
Commerce Net, a business entity 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 are expected
to enhance the services in the future to include certain aspects of electronic
commerce. If the Internet becomes an accepted method of electronic commerce, the
Company could lose network customers which would reduce recurring revenue from
network services and have a material adverse effect on the Company.
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 receive useful business documents. The
application layer is distinguished from the "core" or "infrastructure" layer,
which addresses formatting of EDI documents, communications, data encryption,
and other 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.
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Further, the Company intends to market products that require the EDI
trading partners to have only a standard Web browser with "standard" 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.
DynamicWeb intends 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
management. When combined with the Company's service bureau, the Company can
offer customers a complete, turnkey electronic commerce solution.
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. 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 or 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.
GOVERNMENTAL REGULATIONS AND INDUSTRY STANDARDS
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. The Telecommunications Act of
1996 amended the federal telecommunications laws to lift restrictions on
regional telephone companies and others competing with the Company and to impose
certain restrictions regarding obscene and indecent content communicated to
minors over the Internet or through interactive computer services.
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The Telecommunications Act of 1996 imposes fines and other criminal liability on
any entity that knowingly uses a telecommunications device or interactive
computer service to send obscene or indecent material to minors or permits any
telecommunications facility under such entity's control to be used for such a
purpose. Litigation has been filed in federal court challenging the
constitutionality of those provisions of the Act. A temporary restraining order
has been issued by a federal court enjoining the US Attorney General from
enforcing the Act's "indecency" prohibition. The Company cannot predict the
impact, if any, that this Act and future court opinions, legislation,
regulations or regulatory changes may have on its business. Management believes
that the Company is in compliance with all material applicable regulations.
The Company has not adopted a specific intention with respect to
compliance with ISO 9000 standards for software development and maintenance
services. The Company does not believe that failure to adopt ISO 9000 compliance
has had, or in the future will have, a material adverse effect on its business.
However, the Company will continue to assess ISO 9000.
EMPLOYEES
As of April 30, 1997, the Company had 17 full-time employees, of whom
approximately 6 are technical personnel engaged in maintaining or developing the
Company's products or performing related services, approximately 5 are marketing
and sales personnel, approximately 3 are customer support and operations
personnel, and approximately 3 are involved in administration and finance.
EXECUTIVE OFFICERS
The executive officers of the Company and their ages as of April 30, 1997,
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Steve L. Vanechanos, Jr.(1) 43 Chairman of the Board,
Chief Executive Officer
Steve Vanechanos, Sr.(1) 67 Director, Treasurer and
Secretary
Kenneth R. Konikowski 50 Director and Executive
Vice President
</TABLE>
(1) Mr. Vanechanos, Sr. is the father of Mr. Vanechanos, Jr.
STEVE L. VANECHANOS, JR. became President and Director of the Company on
March 26, 1996. He has been President of DynamicWeb Transaction Systems, Inc.
since its inception in 1995. He also was a founder of Megascore, Inc. in 1981.
He has a Bachelor of Science in Finance and Economics from Fairleigh Dickinson
University, Rutherford Campus.
STEVE VANECHANOS, SR. became Secretary, Treasurer and Director of the
Company on March 26, 1996. He was a founder of Megascore, Inc. in 1981 and
DynamicWeb Transaction Systems, Inc. in 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.
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KENNETH R. KONIKOWSKI became a Director and the Executive Vice President
of the Company on November 1, 1996. Prior to that date, Mr. Konikowski was
President of Software Associates.
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<PAGE> 15
INVESTMENT CONSIDERATIONS
The following factors are important and relevant considerations in
evaluating the business of the Company and a potential investment in the
Company's securities.
LIMITED OPERATING HISTORY; NO ASSURANCE OF SUCCESSFUL OPERATIONS. 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 net losses and
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 supporting software from third parties or develop
such software; 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.
ANTICIPATED 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 further develops its technology and attempts to market its services,
increases its marketing activities, creates and expands the distribution
channels for its services and broadens its customer support capabilities.
Accordingly, the Company expects to incur losses for the foreseeable future. No
assurance can be given that the Company's 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 services. No
assurance can be given that the Company will ever be able to achieve or sustain
operating profitability.
NEED FOR SUBSTANTIAL ADDITIONAL CAPITAL. During April of 1997, the Company
raised $600,000 in gross proceeds through the private placement of units
composed of promissory notes and Common Stock. The proceeds from that offering
are expected to permit the Company to operate only through June 30, 1997. The
Company anticipates only limited revenues will be available to fund its
operations without substantial additional capital. Further, although the Company
has signed a Letter of Intent with an underwriter for a proposed $6,000,000
public offering of Common Stock, there can be no assurance that the public
offering will be successfully completed, if at all, or that the Company will
receive adequate financing from the proposed public offering. The Company has no
other current options to fund its continued existence in the event the public
offering does not occur or does not occur within a reasonable time. If the
proposed public offering does not occur on a timely basis, the Company may be
unable to fund its business plan and may be forced to cease to operate. The
auditor's opinion to the financial statements of the Company included at Item 7
of this Report have been prepared assuming the Company will continue as a going
concern.
CONTROL BY EXISTING MANAGEMENT. As of April 30, 1997, the existing
management of the Company controls approximately 59% of the shares of Common
Stock eligible to vote and will therefore be 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.
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<PAGE> 16
PUBLIC MARKET FOR COMPANY'S COMMON STOCK. Some portion of the Company's
Common Stock currently trades on the NASD's OTC Bulletin Board. See "Common
Stock Eligible for Resale," below. If the Company proceeds with the planned
public offering, the Company intends to apply to list the Common Stock on the
NASD's Small Cap Market. There can be no assurance 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. Further, if the proposed public offering is not consummated,
the interest of the investment community in the stock is likely to be reduced
and purchasers may be unable to sell their securities.
COMMON STOCK ELIGIBLE FOR RESALE. Of the 7,667,266 shares of Common Stock
presently outstanding, over 7,000,000 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, which would have an adverse effect
on the value of the securities included in the Units.
EARLY STAGE OF MARKET DEVELOPMENT; UNPROVEN ACCEPTANCE OF THE COMPANY'S
PROPOSED PRODUCTS AND SERVICES. Most of the Company's 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
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 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 over existing
products. There can be no assurance that the Company will be able to market its
products successfully or that its current or future products will be accepted in
the marketplace. As a result of the Company's recent introduction of its
products into the market and their limited use to date, there can be no
assurance that those products will achieve market acceptance or will produce
substantial revenues.
DEPENDENCE ON THE INTERNET AND ON INTERNET INFRASTRUCTURE DEVELOPMENT. The
use of the Company's 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, a reliable network, acceptable levels of security or timely
development of complementary products, such as high speed modems. Further, there
can be no assurance that the Internet will retain its current pricing structure,
which is flat-rate, independent of volume, and independent or the time of day.
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.
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<PAGE> 17
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 have been designed to address security and verification
issues, 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 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 the Company's
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."
RELIANCE ON LIMITED NUMBER OF PRODUCTS. The Company expects that
substantially all of the Company's revenues will be derived from its EDIxchange
product and service, its EDIbridgeNet service, and (to a lesser extent) its
NetCat product. If these products are not successful, whether as a result of
technological change, competition or any other factors, the Company's business,
results of operations and financial condition would be adversely affected. The
Company presently has no plans to develop or produce additional products in the
foreseeable future.
DEVELOPMENT OF NEW SERVICES, INDUSTRY ACCEPTANCE AND TECHNOLOGICAL CHANGE.
A substantial portion of the Company's anticipated revenue will be derived from
fees charged to businesses and individuals for transactions effected through the
Company. Accordingly, broad acceptance of the Company's services by these
businesses and individuals is critical to the Company's success. Further, 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 market for the Company's proposed services is characterized by rapidly
changing technology and evolving industry standards. The Company's proposed
services are designed around certain technical standards with respect to data
encryption; and therefore current and future sales of the Company's services
will be dependent on industry acceptance of such 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's services will
achieve market acceptance; that the Company will be successful in developing and
introducing its proposed services or new services that meet changing customer
needs; 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. Those could include the elimination or replacement of EDI. The
inability of the Company to respond to changing market conditions, technological
developments, evolving industry standards or changing customer requirements, or
the development of competing technology or products that renders the Company's
services noncompetitive or obsolete, would have a material adverse effect on the
Company's business, financial condition, prospects and operating results. See
"BUSINESS - Marketing and Sales."
RISKS OF DEFECTS AND DEVELOPMENT DELAYS. The Company has not sold a
material amount of its services or products. Services based on sophisticated
software and computing systems often encounter development delays and the
underlying software may contain undetected errors 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
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<PAGE> 18
development delays, which could result in delays in the market acceptance of its
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 EDI market is intensely competitive and subject to rapid
technological change, evolving industry standards and regulatory developments.
The Company does and will compete with many companies that have substantially
greater financial, marketing, technical and human resources than the Company.
The principal competitors in EDI and in the delivery of EDI over the Internet
are, at present, Harbinger Corporation, Sterling Commerce and GEIS, each of
which has announced plans to design and develop software products and to provide
services that facilitate electronic commerce over the Internet. 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, the demand for the Company's services may be substantially
reduced, and the ability of the Company to broaden the utilization of its
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 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. If the market becomes congested with competition, the Company may
not be able to compete in its intended marketplace, if at all.
DEPENDENCE ON THIRD-PARTY INTELLECTUAL PROPERTY RIGHTS. The Company
currently licenses certain proprietary and patented technology from third
parties. All of the Company's planned services incorporating data encryption and
authentication is based on proprietary software of RSA Data Security ("RSA")
incorporated in certain other software from Community Creations related to the
Web server utilized by the Company, which 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 Gentran software from Sterling Commerce. Gentran
is EDI translator software which translates electronic documents for Standard
EDI format to a more useful form. This is licensed on a non-exclusive basis. No
assurance can be given that Gentran will continue to be available to the Company
on commercially reasonable terms, or at all, although there is other
commercially available EDI transfer software. The lack of availability of EDI
translator software could have a material adverse effect on the Company's
business, financial condition, prospects, and operating results.
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<PAGE> 19
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, or 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, or at
all. The loss of or inability to maintain any of those software licenses could
result in delays in introduction of the Company's 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 to a certain extent 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 sales. 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
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 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, which could have a material adverse
effect on the Company's business, financial condition, prospects, and operating
results.
ABILITY TO RESPOND TO RAPID CHANGE. The Company's future success will
depend significantly on its ability to enhance its current products and develop
or acquire and market new products 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 enhancements or new products to
address changing technologies and customer requirements adequately, that it will
introduce such products on a timely basis, or that any such products or
enhancements will be successful in the marketplace. The Company's delay or
failure to develop or acquire technological improvements or to adapt its
products to technological change would have a material adverse effect on the
Company's business, results of operations and financial condition. 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, results of operations and prospects. See "Reliance on Limited Number
of Products," above.
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
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<PAGE> 20
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. No assurance can be given that the Company will be able
to generate sufficient demand for its services and the inability of the Company
to do so would have a material adverse effect on the Company's business,
financial condition, prospects and operating results. 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 -
Strategic Relationships." 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. 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 and comarketers, most of whom have significantly greater
financial and marketing resources than the Company, 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. See "BUSINESS - Marketing and Distribution."
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 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. 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 not uncommon. 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 is the ability to exchange 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 or other algorithms used by the Company to protect customer
transaction data. In August and September 1995, certain RSA algorithms used by
Netscape were compromised. There can be no assurance that the Company's security
will not likewise be compromised. 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, which in turn could have a material
and adverse effect on the Company's business, financial condition, prospects and
operating results.
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LIABILITY AND AVAILABILITY OF INSURANCE. The Company is responsible for
the electronic transmission of commercial transaction data for its customers,
including, without limitation, 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 has
no insurance to cover those types of liability.
FLUCTUATING QUARTERLY 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 services, demand for the Company's 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.
DEPENDENCE UPON KEY PERSONNEL. The Company's success will depend in part
upon the retention of key senior management and technical personnel,
particularly Steve Vanechanos, Jr., co-founder of the Company and Chairman of
the Board, and Kenneth 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. Several, but not all, of the Company's employees
have signed confidentiality and non-competition agreements. The Company
presently maintains key man life insurance on Steve 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.
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 programmers and other technically
skilled employees is highly competitive and other companies with greater
resources can pay 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,
that 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 the marketing and
customer support arm. In 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 to become unable to manage growth effectively, that would have a
material adverse effect on the Company's financial condition, prospects, and
operating results.
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ABILITY TO ISSUE BLANK CHECK PREFERRED STOCK; NEW JERSEY ANTI-TAKEOVER
PROVISIONS. The Company's Board of Directors has proposed, subject to
shareholder approval, an amendment to its Certificate of Incorporation (the
"Certificate Amendment") to provide that the Board of Directors shall have 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 is subject to the anti-takeover provisions of the
New Jersey Shareholder Protection Act, which, among other things, will prohibit
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 Amendment, if approved by the
Company's shareholders, 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 government
agency, other than regulations applicable to businesses generally, and 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 recently enacted
Telecommunications Reform Act of 1996 imposes criminal penalties on anyone who
distributes obscene, lascivious or indecent communications on the Internet. The
adoption of any laws or regulations governing commerce on the Internet may
result in decreased growth 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
20
<PAGE> 23
result in substantial costs and a diversion of management attention and
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 (which has been approved by the Board of Directors and which will be
presented to the shareholders at the annual meeting for their approval), the
Company may issue options to purchase up to an aggregate of 900,000 shares of
Common Stock to employees and officers. Further, under the Company's 1997 Stock
Option Plan for Outside Directors (which has been approved by the Board of
Directors and which will be presented to the shareholders at the annual meeting
for their approval), the Company may issue options to purchase up to an
aggregate of 300,000 shares of Common Stock to its outside directors. Any 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 securities may be
subject to rules that imposes 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.
ITEM 2. PROPERTIES.
The Company recently moved its corporate offices to 271 Route 46 West,
Building F, Suite 209, Fairfield, New Jersey. It has entered into two leases for
approximately 5,400 square feet for its executive and administrative staff at an
aggregate monthly rental of $6,400. 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.
The Company owns its former offices (at 1033 Route 46 East, Clifton, New
Jersey, which it acquired in its acquisition of Megascore in November of 1996).
It has vacated those premises, which are listed for sale. Those premises are
mortgaged with an approximately $190,000 mortgage.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any material proceedings. From time to time,
the Company is involved in various routine legal proceedings incidental to the
conduct of its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of the Company's fiscal year ended September 30, 1996.
21
<PAGE> 24
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
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 inter-dealer
prices without retail markup, markdown or commissions and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
Bid
-------------------
Quarter Ended High Low
- - ------------- ------ ------
<S> <C> <C>
December 31, 1994 $ 0.01 $ 0.01
March 31, 1995 0.01 0.01
June 30, 1995 0.01 0.01
September 30, 1995 0.01 0.01
December 31, 1995 $ 0.01 $ 0.01
March 31, 1996* 5 4 1/2
June 30, 1996 4 3/8 4 1/2
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
</TABLE>
- - --------------
* On March 5, 1996, the Company effectuated a 100 for one reverse stock
split whereby each 100 shares of Common Stock were combined into one share
of Common Stock. The information in the above table was not retroactively
adjusted on account of that combination of shares.
At April 30, 1997, there were 7,667,270 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.
22
<PAGE> 25
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction with
the financial statements included in this Report and in conjunction with the
description of the Company's Business under Item 1 of this Report. It is
intended to assist the reader in understanding and evaluating the financial
position of the Company.
This discussion contains, in addition to historical information,
forward-looking statements that involve risks and uncertainty. 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 "Investment Considerations" as well as
those discussed elsewhere in this Report.
It should be noted also that the discussion in this Item 6 relates to the
combined operations of DWTS and Megascore for the two fiscal years ending
September 30, 1996. Prior to March 26, 1996, however, the Company was named
Seahawk Capital Corporation. Seahawk Capital Corporation had, from time to time,
other operations having no relationship to the Company's present business and
management. Those prior operations were disposed of by the Company. The history
of Seahawk Capital Corporation and the disposition of those other operations are
more fully described in the Company's Form 10-KSB for the year ended December
31, 1995 (then filed under the name Seahawk Capital Corporation) and Form 8-K
dated March 26, 1996.
FINANCIAL CONDITION
As of September 30, 1996, the Company had cash of $174,403 and total
current assets of $276,989.
The Company had a net loss of $455,230 for the year ended September 30,
1996, and negative cash flow from operations of $411,544. The Company funded its
activities during the fiscal year primarily through the private sale of equity
securities which raised $597,750. The balance of cash remaining from such
activities is the $174,403.
Those capital resources are not believed to be adequate to finance the
Company's activities for the full year ended September 30, 1997. As a result,
the Company engaged in a private placement of $250,000 of Common Stock and
another private placement of $600,000 of units consisting of promissory notes
and Common Stock. Further, the Company expects to engage in one or more other
public or private sales of equity securities in order to provide additional
capital for its operations. Readers of this Report should pay close attention to
the opinion of the Company's auditors as it pertains to the Company's financial
condition, and also to the Investment Considerations discussed in Item 1 of this
Report.
RESULTS OF OPERATIONS
THE YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO THE YEAR ENDED SEPTEMBER 30, 1995
For the fiscal year ended September 30, 1996 ("fiscal 1996"), the Company
recognized net sales of approximately $460,000 compared to fiscal year ended
September 30, 1995 ("fiscal 1996") of approximately $640,000. The decrease of
net sales of approximately $180,000 was attributable the Company's change in
focus of its core business and it needed to market its new products and
services; EDIxhange Suite (a web-based, EDI order facilitation, and catalog
system) and EDIbrideNET Services
23
<PAGE> 26
(a full line of EDI and Internet outsourcing services). The decrease is also due
to a decline in hardware systems due to anticipated future declining profit
margins.
System sales decreased to approximately $147,000 for fiscal 1996 from
approximately $297,000 in fiscal 1995. The decrease is due a change in the
Company's focus of its core business and a need to market its EDI products. The
Company also is anticipating declining profit margins of its hardware sales.
System sales includes sales of hardware and software to customers
Service sales decreased to approximately $313,000 for fiscal 1996 from
approximately $343,000 in fiscal 1995. The decrease is due to the shift in the
Company's marketing of its services in the electronic commerce industry. Service
sales includes customer set-up fees, training cost, EDI charges and consulting,
maintenance and support fees, consulting fees.
Cost of system sales was approximately $71,000 or a gross profit of 52%
for fiscal 1996 as compared to approximately $159,000 or a gross profit of 46%
for fiscal 1995. The increase in gross profit was attributable to selling more
software then hardware products. Cost of systems includes the cost of computer
hardware and sublicensed software.
Cost of services was approximately $81,000 for fiscal 1996 or a gross
profit of 74% for fiscal 1996 as compared to approximately $84,000 or a gross
profit of 75% for fiscal 1995. There was no significant change for the fiscal
year.
Selling, general and administrative increased approximately $354,000 to
approximately $719,000 in fiscal 1996 as compared to approximately $365,000. The
increase is attributable to higher marketing expenses, salaries and office
expenses in the Company's effort to market its new products and services.
Research and development expense was approximately $29,000 for fiscal 1996
as compared to approximately $12,000 for fiscal 1995. The increase is due to the
Company's developing an order processing software for the internet.
Interest expense was approximately $23,000 for the fiscal years 1996 and
1995 which represents the expense of financing the Company's office condominium
and automobiles.
Interest income increase by approximately $6,000 to approximately $9,000
in fiscal 1996 as compared to $3,000 in fiscal 1995 as a result of the Company's
investing its excess cash form private placements.
Net loss for fiscal 1996 was approximately $455,000 or .07 per share as
compared to nil for fiscal 1995 as the Company is marketing and directing its
attention in expanding its internet product and services.
24
<PAGE> 27
ITEM 7. FINANCIAL STATEMENTS.
INDEPENDENT AUDITORS' REPORT
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.
/s/ Richard A. Eisner & Company, LLP
New York, New York
April 7, 1997
With respect to Note J[8]
April 30, 1997
25
<PAGE> 28
DYNAMICWEB ENTERPRISES, INC.
(formerly Seahawk Capital Corporation)
CONSOLIDATED BALANCE SHEET
AS AT SEPTEMBER 30, 1996
A S S E T S
<TABLE>
<S> <C>
Current assets:
Cash and equivalents . . . . . . . . . . . . . . . . . . . $ 174,403
Accounts receivable, less allowance for doubtful accounts
of $34,328 . . . . . . . . . . . . . . . . . . . . . . . 70,518
Prepaid and other current assets . . . . . . . . . . . . . 32,068
---------
Total current assets . . . . . . . . . . . . . . . . 276,989
Property and equipment (Notes D and E) . . . . . . . . . . . . 239,889
Patents and trademarks, less amortization of $2,166 . . . . . 19,299
---------
T O T A L . . . . . . . . . . . . . . . . . . . . . $ 536,177
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . $ 34,581
Accrued expenses and other . . . . . . . . . . . . . . . . 18,487
Current maturities of long-term debt (Note E) . . . . . . . 12,434
Deferred revenue . . . . . . . . . . . . . . . . . . . . . 11,330
---------
Total current liabilities . . . . . . . . . . . . . 76,832
Long-term debt, less current maturities (Note E) . . . . . . . 197,661
---------
Total liabilities . . . . . . . . . . . . . . . . . 274,493
---------
Commitments (Notes I and J)
Stockholders' equity (Notes A, F and J):
Common stock - $.0001 par value; 50,000,000 authorized,
6,548,511 issued and outstanding . . . . . . . . . . . 655
Additional paid-in capital . . . . . . . . . . . . . . . . 676,215
Accumulated deficit . . . . . . . . . . . . . . . . . . . . (415,186)
---------
Total stockholders' equity . . . . . . . . . . . . . 261,684
---------
T O T A L . . . . . . . . . . . . . . . . . . . . . $ 536,177
=========
</TABLE>
Attention is directed to the foregoing accountants' report and
to the accompanying notes to financial statements.
26
<PAGE> 29
DYNAMICWEB ENTERPRISES, INC.
(formerly Seahawk Capital Corporation)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
September 30,
-------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Net sales:
System sales (Note H[3]) ............. $ 147,337 $ 296,763
Services (Note H[3]) ................. 312,730 342,980
----------- -----------
T o t a l ......................... 460,067 639,743
----------- -----------
Cost of sales:
System sales ......................... 71,205 158,820
Services ............................. 81,194 84,318
----------- -----------
T o t a l ......................... 152,399 243,138
----------- -----------
Gross profit ........................... 307,668 396,605
----------- -----------
Expenses:
Selling, general and administra-
tive ............................... 719,443 364,684
Research and development ............. 28,990 12,000
----------- -----------
T o t a l ......................... 748,433 376,684
----------- -----------
Operating income (loss) ................ (440,765) 19,921
Interest expense ....................... (23,271) (23,350)
Interest income ........................ 8,806 3,140
----------- -----------
NET LOSS ............................... $ (455,230) $ (289)
=========== ===========
Net loss per common share
(Note C[7]) .......................... $ (.07) $ (.00)
=========== ===========
Weighted-average number of shares
outstanding .......................... 6,382,873 6,205,000
=========== ===========
</TABLE>
Attention is directed to the foregoing accountants' report and to the
accompanying notes to financial statements.
27
<PAGE> 30
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 ...... 6,205,000 $ 621 $228,499 $ 40,333 $269,453
Net loss ....................... (289) (289)
---------- --------- -------- --------- --------
Balance - September 30, 1995 ... 6,205,000 621 228,499 40,044 269,164
Issuance of common stock, net of
$52,250 of costs ............. 343,511 34 447,716 447,750
Net loss ....................... (455,230) (455,230)
---------- --------- -------- --------- --------
BALANCE - SEPTEMBER 30, 1996 ... 6,548,511 $ 655 $676,215 $(415,186) $261,684
========== ========= ======== ========= ========
</TABLE>
Attention is directed to the foregoing accountants' report and
to the accompanying notes to financial statements.
28
<PAGE> 31
DYNAMICWEB ENTERPRISES, INC.
(formerly Seahawk Capital Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
September 30,
-------------------------
1996 1995
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) ................................................................ $(455,230) $ (289)
Adjustment to reconcile net (loss) to net cash (used in) operating activities:
Depreciation and amortization ............................................ 23,644 5,614
Stock issued for compensation ............................................ 10
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable ............................. 3,739 (24,810)
(Increase) decrease in prepaid expenses
and other current assets ............................................. (6,923) 18,023
Increase (decrease) in accounts payable ................................ 7,801 (1,910)
Increase (decrease) in accrued expenses ................................ 15,293 (2,368)
Increase (decrease) in deferred revenue ................................ 122 (1,549)
--------- --------
Net cash (used in) operating activities .............................. (411,544) (7,289)
--------- --------
Cash flows from investing activities:
Acquisition of property and equipment ...................................... (23,838) (6,900)
Acquisition of patents and trademarks ...................................... (21,220) (245)
--------- --------
Net cash (used in) investing activities .............................. (45,058) (7,145)
--------- --------
Cash flows from financing activities:
Payment of long-term debt .................................................. (11,909) (13,772)
Proceeds from issuance of stock ............................................ 597,750
--------- --------
Net cash provided by (used in)
financing activities ............................................... 585,841 (13,772)
--------- --------
NET INCREASE (DECREASE) IN CASH AND CASH ..................................... 129,239 (28,206)
EQUIVALENTS
Cash and cash equivalents, beginning of year ................................. 45,164 73,370
--------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR ....................................... $ 174,403 $ 45,164
========= ========
Supplemental schedule of noncash investing
and financing activities:
During the year ended September 30, 1995,
the Company financed $31,316 of property
and equipment
Supplemental disclosure of cash flow information:
Cash paid for interest during the year ..................................... $ 21,271 $ 23,350
</TABLE>
Attention is directed to the foregoing accountants' report and
to the accompanying notes to financial statements.
29
<PAGE> 32
DYNAMICWEB ENTERPRISES, INC.
(formerly Seahawk Capital Corporation)
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - Basis of Presentation:
The accompanying financial statements include the accounts of DynamicWeb
Enterprises, Inc. ("DWE") and its wholly owned subsidiaries, Megascore, Inc. and
DynamicWeb Transactions Systems, Inc. ("DWTS") (the "Company"). All significant
intercompany balances and transactions have been eliminated.
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 50,000
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 March 26, 1996 DWTS was acquired by Seahawk Capital Corporation
("Seahawk"), a publicly held corporation which had 431,369 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 4,913,631 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, 735,000 shares were issued to a finder and 75,000 shares
were issued for legal fees. At the conclusion of this transaction, there were
6,155,000 shares outstanding.
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.
On November 30, 1996, the Company acquired Software Associates, Inc. (Note
J[2]).
(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.
Although the Company had working capital at September 30, 1996 and has
subsequently raised net proceeds of approximately $772,000 in issuance of stock
and notes (Notes J[1] and J[8]), a substantial portion of its resources may be
depleted before the Company markets and derives significant revenues from its
products and services. 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.
30
<PAGE> 33
DYNAMICWEB ENTERPRISES, INC.
(formerly Seahawk Capital Corporation)
NOTES TO FINANCIAL STATEMENTS
(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 as an
accommodation to purchasers of its product and revenues are recognized when
services are provided. The Company expects to enter into contracts with
customers whereby revenues will be earned based upon a per transaction fee.
[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] 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.
[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 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.
[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
31
<PAGE> 34
DYNAMICWEB ENTERPRISES, INC.
(formerly Seahawk Capital Corporation)
NOTES TO FINANCIAL STATEMENTS
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 an 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] 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.
(NOTE D) Property and Equipment:
Property and equipment are as follows at September 30, 1996:
<TABLE>
<CAPTION>
Estimated
Cost Useful Life
-------- -----------
<S> <C> <C>
Office facility condominium . $156,600 20 years
Office equipment. . . . . . . 17,865 5 years
Computer equipment. . . . . . 80,372 5 years
Automobiles . . . . . . . . . 33,876 5 years
--------
288,713
Accumulated depreciation
and amortization . . . . . 90,224
--------
198,489
Land. . . . . . . . . . . . . 41,400
--------
$239,889
========
</TABLE>
32
<PAGE> 35
DYNAMICWEB ENTERPRISES, INC.
(formerly Seahawk Capital Corporation)
NOTES TO FINANCIAL STATEMENTS
(NOTE E) - Long-Term Debt:
Long-term debt consists of the following at September 30, 1996:
<TABLE>
<S> <C>
*Mortgage payable - due in July 2015;
payable in varying monthly installments
at an interest rate at the lower of
prime plus 2% or 14.25% . . . . . . . . . . . $190,805
Auto loans - due through June 1999 payable in
monthly installments of $767 at interest
of 5.9% and 10.0% . . . . . . . . . . . . . . 19,290
--------
Total indebtedness . . . . . . . . . . 210,095
Less current maturities. . . . . . . . . . . . . 12,434
--------
Noncurrent portion . . . . . . . . . . $197,661
========
</TABLE>
*Collateralized by an office facility condominium and land with a net book
value of approximately $188,000.
Maturities of long-term debt for the next five years are as follows:
<TABLE>
<CAPTION>
September 30,
-------------
<S> <C>
1997. . . . . . . . . . . . . . . $ 12,434
1998. . . . . . . . . . . . . . . 12,945
1999. . . . . . . . . . . . . . . 7,411
2000. . . . . . . . . . . . . . . 4,500
2001. . . . . . . . . . . . . . . 4,500
Thereafter. . . . . . . . . . . . 168,305
--------
T o t a l . . . . . . $210,095
========
</TABLE>
(NOTE F) - Stockholders' Equity:
On March 26, 1996, the Company completed a stock offering under Regulation
S, whereby it sold 343,511 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 which expires in 2010. The tax benefits of these deferred
tax assets are fully reserved for since the likelihood of realization of the
benefit cannot be established.
33
<PAGE> 36
DYNAMICWEB ENTERPRISES, INC.
(formerly Seahawk Capital Corporation)
NOTES TO FINANCIAL STATEMENTS
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 as described in
Note J[4], 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 as at September 30, 1996:
<TABLE>
<S> <C>
Asset:
Federal and state operating
loss carryforwards .............. $ 148,000
Accounts receivable ............. 13,000
Valuation allowance ............... (161,000)
Net deferred tax asset ............ $ - 0 -
=========
</TABLE>
At September 30, 1995 there was no valuation allowance. The
differences between the statutory Federal income tax rate of 34% are as follows:
<TABLE>
<CAPTION>
September 30,
---------------------
1996 1995
---- ----
<S> <C> <C>
Statutory rate (benefit) ......... (34.0)% (34.0)%
Valuation allowance .............. 34.0 34.0
Effective tax rate ............... 0 % 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 ended September 30, 1996.
34
<PAGE> 37
DYNAMICWEB ENTERPRISES, INC.
(formerly Seahawk Capital Corporation)
NOTES TO FINANCIAL STATEMENTS
(NOTE I) - Commitments:
Leases:
On October 1, 1996, the Company signed an operating lease for office space
providing for the following future annual rental payments:
<TABLE>
<CAPTION>
Year Ending
September 30,
-------------
<S> <C>
1997. . . . . . . . . . . . . $ 21,400
1998. . . . . . . . . . . . . 36,800
1999. . . . . . . . . . . . . 37,900
2000. . . . . . . . . . . . . 38,600
2001. . . . . . . . . . . . . 39,300
Thereafter. . . . . . . . . . 3,300
--------
T o t a l . . . . . $177,300
</TABLE>
(NOTE J) - Subsequent Events:
[1] Private placement:
On November 21, 1996, pursuant to Regulation D, the Company sold
250,000 shares of its common stock for $250,000.
[2] Acquisition:
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. Software Associates, Inc. is an 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 exchanged 860,000 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 1,140,000 additional shares of its common
stock in the event that the average closing bid price of the Company's common
stock does not equal $3.375 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 25,000 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.
35
<PAGE> 38
DYNAMICWEB ENTERPRISES, INC.
(formerly Seahawk Capital Corporation)
NOTES TO FINANCIAL STATEMENTS
Software Associates, Inc., leases its office space from a
Partnership whose partner is the Executive Vice President of the Company. Annual
rental payments are approximately $38,000 and the lease expires on June 30,
2018. Software Associates, Inc. has guaranteed the debt of the condominium
office space which was approximately $249,000 as at November 30, 1996; the debt
matures in August 2019.
The assets acquired and liabilities assumed are as follows:
<TABLE>
<S> <C>
Current assets. . . . . . . . $ 95,000
Fixed assets. . . . . . . . . 6,000
Purchased research and
development . . . . . . . . 714,000
Customer list . . . . . . . . 100,000
Current liabilities . . . . . (26,000)
Other liabilities . . . . . . (4,000)
--------
$885,000
========
</TABLE>
The purchased research and development was charged to operations
upon acquisition. The acquisition was accounted for as a purchase.
The condensed unaudited pro forma information of the Company and
Software Associates, Inc. for the year ended September 30, 1996 and September
30, 1995 are as follows as if the acquisition of Software Associates, Inc.
occurred on October 1, 1994. The pro forma information is not necessarily
indicative of the results that would have been reported had the acquisition
occurred on October 1, 1994, nor is it indicative of the Company's future
results.
<TABLE>
<CAPTION>
September 30,
------------------------------
1996 1995
------------ -----------
(Unaudited)
<S> <C> <C>
Net sales ............ $ 1,158,000 $ 1,432,000
=========== ===========
Net (loss) ........... $ (570,000) $ (10,000)
=========== ===========
(Loss) per share ..... $ (.08) $ (.00)
=========== ===========
</TABLE>
[3] In February and March 1997, the Company received a loan from the
President of $50,000. The Company paid back $40,000 to its President from the
net proceeds of the private placements as described in Notes J[1] and J[8].
[4] On February 1, 1997, the Company signed a letter of intent with an
underwriter with respect to a proposed public offering of the Company's
securities. The Company expects to incur significant additional costs in this
connection therewith. In the event that the offering is not successfully
completed, such costs will be charged to expense.
[5] On March 7, 1997 the Board of Directors, subject to stockholders'
approval, 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
36
<PAGE> 39
of preferred stock. Cash is to be issued to the stockholders for any fractional
shares. The accompanying financial statements do not give retroactive effect
thereto until stockholders' approval is obtained.
[6] On April 28, 1997, the Board of Directors, subject to stockholders'
approval, 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 300,000 shares of the Company's common stock.
Directors will be granted an option to purchase 15,000 of the Company's common
stock at fair market value at the earlier of the public offering or September
30, 1997 and at each subsequent annual meeting of shareholders at which
directors are elected. 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 control, as defined in
the Director Plan or the compensation committee waives the eleven-month
continuous service requirement.
[7] On March 7, 1997, the Board of Directors, subject to stockholders'
approval, 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 900,000
shares of the Company's common stock. Grants to any one employee shall not
exceed 250,000 options during any twelve-month period. 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.
[8] Private placement:
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. Each unit consists
of a $25,000 promissory note bearing interest at 8% and 11,943 shares of the
Company's common stock. The notes are due at the earlier of the closing of the
proposed public offering as described in Note J[4] or when the Company obtains
an aggregate financing of $2,000,000 excluding expenses or March 31, 1999. The
11,943 shares of common stock in each unit will be subject to reduction by a
contemplated reverse stock split (Note J[5]) to not less than 3,115 shares. The
number of shares of common stock will increase or decrease in the event that the
offering price of the proposed public offering is not $6.00 per common share.
[9] Late filings and annual report:
The Company is 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 has not
distributed its annual report to its shareholders. The Company expects to submit
these late filings and distribute its annual report as soon as possible.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On February 24, 1997, the Issuer retained the services of Richard Eisner &
Company, LLP as the Company's principal independent accountant and auditor
("Eisner"). Eisner's responsibilities include the audit of the Issuer's
financial statements for the two fiscal years ending September 30, 1996.
37
<PAGE> 40
The circumstances of the retention of Eisner are discussed in the
Company's Form 8-K as filed with the Commission dated February 19, 1997, as
amended by the Amendment to Form 8-K dated March 12, 1997.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Directors and Executive Officers. The following table contains certain
information with respect to the nominees for the Board of Directors (which
includes all current directors) and the executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Steve L. Vanechanos, Jr.(1) 43 Chairman of the Board and President
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 Nominee
Frank DiPalma(3) 51 Director
Robert Droste(2)(3) 43 Director
</TABLE>
- - ------------------
(1) Steve Vanechanos, Sr. is the father of Steve L. Vanechanos, Jr. and
Michael Vanechanos who, as of March 26, 1997, beneficially owns
7.86% of the Company's outstanding common stock (the "Common
Stock"). See "Item 11. Security Ownership of Certain Beneficial
Owners and Management."
(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.
STEVE L. VANECHANOS, JR. became President and Chairman of the Board of
Directors of the Company on March 26, 1996. He 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 Campus.
38
<PAGE> 41
STEVE L. 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.
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, Inc. ("Software Associates"), which he founded
in 1985. Software Associates is currently a wholly-owned subsidiary of the
Company. See "Item 12. Certain Relationships and Related Transactions --
Acquisition of Software Associates and Megascore."
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 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.
Compliance With Section 16(a) of the Securities Exchange Act. Section
16(a) of the Securities Exchange Act of 1934 requires the Company's officers and
directors and persons who own more than ten percent of a registered class of the
Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Officers, directors and
greater than ten-percent shareholders are required by SEC regulation to furnish
the Company with copies of all Section 16(a) forms they file. The rules of the
SEC regarding the filing of such statements require that "late filings" of such
statement be disclosed in this Information Statement.
Based solely on review of the copies of such forms furnished to the
Company, the Company believes that, during the fiscal year ended September 30,
1996, its officers, directors, and greater than ten-percent beneficial owners
complied with applicable Section 16(a) filing requirements, except that (i)
Steve L. Vanechanos, Jr., Steve Vanechanos, Sr. and Frank DiPalma each
inadvertently failed to file on a timely
39
<PAGE> 42
basis his Form 3; and (ii) F. Patrick Ahearn, Jr. and Robert Droste each
inadvertently failed to file his Form 3 on a timely basis and one Form 4. Each
of Messrs. Ahearn and Droste was required to file a Form 4 to report his
acquisition of 157 shares of Common Stock pursuant to the Company's acquisition
of Megascore, of which Messrs. Ahearn and Droste were shareholders.
ITEM 10. 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
Steve L. Vanechanos, Jr., the Company's President and Chief Executive Officer
from March 26, 1996 to the present. 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>
Name and All Other
Principal Position Year Salary Compensation(1)
- - ------------------ ---- ------ --------------
<S> <C> <C> <C>
Steve L. Vanechanos, Jr. 1996(2) $58,762(3) $10,580
President and Chief
Executive Officer
Jonathan B. Lassers 1996(4) (5) (5)
Former President and 1995 (6) (6)
Chief Executive Officer
</TABLE>
- - -----------------
(1) Consists of (a) lease payments totaling $4,580 made by the Company for
automobiles used by Mr. Vanechanos, and (b) travel and entertainment
expenses of approximately $6,000 paid by the Company.
(2) Mr. Vanechanos commenced his employment with the Company on March 26,
1996.
(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) Mr. Lassers terminated his employment with the Company on March 26, 1996.
(5) Management has been unable to ascertain the amount of compensation paid to
Mr. Lassers during the year ended September 30, 1996.
(6) Mr. Lassers commenced his employment with the Company in May 1995.
Management has been unable to ascertain the amount of compensation paid to
Mr. Lassers during the year ended December 31, 1995. According to the
Company's Annual Report on Form 10-K for the year ended December 31, 1995,
Mr. Lassers' compensation was less than $100,000 for such year.
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
40
<PAGE> 43
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. The Board of
Directors has adopted the 1997 Employee Stock Option Plan and the 1997 Stock
Option Plan for Outside Directors (collectively, the "1997 Plans"), each subject
to shareholder approval.
Employment Agreement. As of September 30, 1996, the Company had no
employment agreements with any of its executive officers. On December 1, 1996,
Kenneth R. Konikowski, Executive Vice President of the Company, entered into an
Employment Agreement with the Company (the "Employment Agreement"). The
Employment Agreement expires on November 30, 2001 and specifies: term; Mr.
Konikowski's position and duties; compensation; benefits; and termination
rights. The Employment Agreement also contains a covenant not to compete, a
proprietary right to inventions provision and confidentiality provisions, which
inure to the benefit of the Company. The Employment Agreement also contains
provisions allowing the Company to terminate Mr. Konikowski's employment for
"Cause," as defined therein.
Under the terms of his Employment 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 Employment Agreement provides that
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 an automobile. He
is also eligible to participate in the Company's 1997 Employee Stock Option
Plan.
The Employment 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, in a lump sum, an
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), to be paid in cash in the
month next following his termination of employment. The Company is also required
to maintain in full force and effect certain of Mr. Konikowski's employee
benefits.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of March 26, 1997, for (i) each person
who owns of record or is known by the Board of Directors to be the beneficial
owner of more than five percent (5%) of the Common Stock, (ii) each of the
nominees for election as a director at the Annual Meeting (which includes all
current directors), (iii) each person named in the Summary Compensation Table
set forth herein under "Item 10. Executive Compensation" 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>
Name and Address Amount and Nature
of of Beneficial Percent of
Beneficial Owner Ownership(1)(2) Class(3)
- - ---------------- ----------------- ----------
<S> <C> <C>
Steve L. Vanechanos, Jr. 1,892,554 24.68%
29 Clarken Drive
</TABLE>
41
<PAGE> 44
<TABLE>
<S> <C> <C>
West Orange, NJ 07052
Steve L. Vanechanos, Sr. 1,872,260 24.42%
96 Union Avenue
Rutherford, NJ 07070
Kenneth R. Konikowski(4) 860,000 11.22%
36 Pinebrook Road
Towaco, NJ 07082
Michael Vanechanos 602,577 7.86%
129 S. Telegraph Hill Road
Holmdel, NJ 07703
Sierra Growth & Opportunity, Inc. 460,000 5.99%
551 Fifth Avenue, Suite 605
New York, New York 10017
F. Patrick Ahearn, Jr. 13,775 0.18%
107 Maple Street
Rutherford, NJ 07070
Frank T. DiPalma 43,356(5) 0.57%
179 Claremont Road
Ridgewood, NJ 07450
Robert Droste 13,775 0.18%
24 Summit Road
Clifton, NJ 07012
Denis Clark (6) 0 0.00%
8417 Greenside Drive
Dublin, Ohio 43017
Jonathan B. Lassers (7) 165,000 2.15%
275 Uxbridge
Cherry Hill, New Jersey 08034
All directors and executive 4,695,720 61.25%
officers as a group (6 in
number)(8)
</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 after March
26, 1997. Beneficial ownership may be disclaimed as to certain of
the securities.
42
<PAGE> 45
(2) Information furnished by the directors and executive officers of the
Company.
(3) Does not reflect 286,632 shares of Common Stock which the Company
sold (but has not yet issued) in April 1997, as part of certain
units (the "Units"), in a private placement pursuant to Section 4(2)
and Regulation D under the Securities Act of 1933, as amended (the
"Private Placement"). The number of such shares to be issued is
subject to adjustment based on (i) a proposed 0.2608491-for-one
reverse stock split and (ii) the provisions of the Units adjusting
the number of shares to equal the quotient of (a) 18,750 divided by
(b) the price at which shares of Common Stock are sold in the
Company's proposed public offering. The Company anticipates that it
will issue such shares on the earlier of (i) concurrently with the
issuance of shares in such proposed public offering, or (ii) October
31, 1997.
(4) Does not include additional shares of Common Stock that may be
issuable in connection with the prior acquisition of Software
Associates. See "Item 12. Certain Relationships and Related
Transactions -- Acquisition of Software Associates and Megascore."
(5) All of such shares are held jointly by Mr. DiPalma and his spouse.
(6) Mr. Clark is not a director of the Company. He has been nominated by
the Board of Directors for election as a director at the Company's
1997 Annual Meeting of Shareholders to fill a current vacancy
thereon.
(7) Mr. Lassers served as President and Chief Executive Officer and a
director of the Company from May 1995 until March 26, 1996. He has
not been affiliated with the Company since such date.
(8) Does not include shares owned by Jonathan B. Lassers. See Footnote
(7) above.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Acquisition of Software Associates and Megascore. On November 30, 1996,
pursuant to the 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 of the
Common Stock for all of the issued and outstanding capital stock of Software
Associates. Software Associates is presently a wholly-owned subsidiary of the
Company. It is engaged in the business of helping companies realize the benefits
of expanding their data processing and electronic communications infrastructures
through the use of Electronic Data Interchange ("EDI").
Pursuant to the SA Agreement, Kenneth R. Konikowski was named Executive
Vice President and a director of the Company, and the Employment Agreement was
executed. The Company further agreed to issue to Mr. Konikowski up to 1,140,000
additional shares of its Common Stock in the event the average closing bid price
of the Common Stock does not equal $3.375 per share for the five trading days
immediately prior to January 30, 1999. If any such additional shares are issued,
the ownership interest of the 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 on April 14, 1997, Mr. Konikowski would own 22.7% of
the outstanding Common Stock, and Steve L. Vanechanos, Jr. and Steve Vanechanos,
Sr. would own 21.5% and 21.3% of the outstanding Common Stock, respectively.
Pursuant to a letter agreement dated April 17, 1997 between the Company
and Mr. Konikowski, the 1,140,000 shares and $3.375 per share price are subject
to adjustment pursuant to any stock split, dividend, reclassification or
combination (such as the Company's proposed 0.2608491-for-one reverse
43
<PAGE> 46
stock split pursuant to which such amount and price will be adjusted to 297,368
shares and $12.939 per share, respectively).
On September 30, 1996, pursuant to the Stock Purchase Agreement dated such
date among the Company, Megascore and its shareholders, the Company acquired all
of the issued and outstanding capital stock of Megascore in exchange for 50,000
shares of Common Stock. Prior to such acquisition, Steve L. Vanechanos, Jr. and
Steve Vanechanos, Sr. were the President and Vice President, Treasurer and
Secretary, respectively, and collectively owned of record 76.4% of the
outstanding capital stock, of Megascore. Megascore is presently a wholly-owned
subsidiary of the Company. It is a full-service systems integrator specializing
in distribution, accounting and point-of-sale computer software consulting
services for suppliers and retailers.
Significant Shareholder. As of March 26, 1997, Michael Vanechanos is the
beneficial owner of 602,577 shares of Common Stock (7.86%). He purchased 327,577
of those shares from the Company for $100,000 in January 1996, and received
275,000 of those shares as a finder's fee from Berkshire Financial Corp. in
connection with the Company's acquisition of DWTS. Mr. Vanechanos is presently
employed as a securities trader at H.J. Meyers & Co., Inc. H.J. Meyers & Co.,
Inc. served as placement agent for the Private Placement and, in consideration
therefor, received a fee of $60,000. Michael Vanechanos is the brother of Steve
L. Vanechanos, Jr., the Company's Chairman of the Board, President and Chief
Executive Officer, and is the son of Steve Vanechanos, Sr., the Company's Vice
President, Treasurer, Secretary and a director. See "Item 11. Security Ownership
of Certain Beneficial Owners and Management."
Office Lease. The Company leases a portion of its office facility from the
Mark Group, a partnership in which Kenneth R. Konikowski, the Executive Vice
President of the Company and a director, is a partner. The annual rent under
such lease is $37,500, subject to annual increases of up to 5%.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K.
(a) Exhibits.
The Exhibits required in response to this item are as follows:
Exhibit No. Description
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 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 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 Report on Form 10-K for the Year ended December 31,
1991).
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<PAGE> 47
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 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 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 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 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 Form 10-KSB for December 31, 1995).
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.
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.
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<PAGE> 48
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.
10.12 Lock-Up Agreement dated November 30, 1996 among the Registrant,
Steve L. Vanechanos, Jr. and Kenneth R. Konikowski.
10.13 Employment Agreement dated December 1, 1996 between the Registrant
and Kenneth R. Konikowski.
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.
10.17 Lease Agreement dated July 1, 1994 between Software Associates, Inc.
and The Mask Group.
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<PAGE> 49
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.
27.0 Financial Data Schedule.
(b) Reports on Form 8-K.
The Registrant did not file any reports on Form 8-K for the quarter ended
September 30, 1996.
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<PAGE> 50
Signatures
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
May 15, 1997 DYNAMICWEB ENTERPRISES, INC.
By /s/ Steve L. Vanechanos, Jr.
-------------------------------
Steve L. Vanechanos, Jr.,
President
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
<TABLE>
<S> <C> <C>
/s/ Steve L. Vanechanos, Jr. President and Chief May 15, 1997
- - ----------------------------
Executive Officer, Director
/s/ Steve L. Vanechanos, Sr. Treasurer, Chief Financial May 15, 1997
- - ----------------------------
Officer, and Chief Accounting
Officer, Director
/s/ Frank T. DiPalma Director May 15, 1997
- - ----------------------------
/s/ F. Patrick Ahearn Director May 15, 1997
- - ----------------------------
/s/ Robert Droste Director May 15, 1997
- - ----------------------------
/s/ Kenneth R. Konikowski Director May 15, 1997
- - -------------------------
</TABLE>
48
<PAGE> 1
EXHIBIT 3.2.3
AMENDED AND RESTATED
BY-LAWS
OF
DYNAMICWEB ENTERPRISES, INC.
ARTICLE I- OFFICES
Section 1. Initial Registered Office/Agent: The registered office of
the corporation shall be 271 Route 46 West, Building F, Suite 209, Fairfield,
New Jersey 07004 and the registered agent at said address shall be Steve
Vanechanos, Jr.
Section 2. Additional Offices: The corporation may have such other
offices either within or without the State of New Jersey as the Board of
Directors may designate or as the business of the corporation may require from
time to time.
ARTICLE II - SEAL
Section 1. Corporate Seal: The corporate seal shall have
inscribed thereon the name of the corporation, the year of its
creation and the words "Incorporated, NEW JERSEY."
ARTICLE III - SHAREHOLDERS' MEETINGS
Section 1. Place of Shareholders' Meetings: All meetings of the
shareholders shall be held at the registered office of the corporation or at
such other place or places, either within or without the State of New Jersey, as
may from time to time be selected by the Board of Directors.
Section 2. Annual Meetings: After the fiscal year ending September 30,
1997, the annual meeting of shareholders shall be held on the first Thursday of
February in each year if not a legal holiday, and if a legal holiday, then on
the next full business day following, at ten o'clock A.M., or on such other day
as may be fixed by the Board. At the annual meeting the shareholders shall
elect, by a plurality vote, a Board of Directors, and transact such other
business as may properly be brought before the meeting. If the annual meeting
for election of directors is not held on the day designated therefor, the
directors shall cause the meeting to be held as soon thereafter as convenient.
Failure to hold the annual meeting at the designated time shall not cause a
forfeiture or dissolution of the corporation.
Section 3. Special Meetings: Special meetings of the shareholders may
be called by the President or the Board of Directors, but not by the
shareholders unless otherwise required by law.
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<PAGE> 2
Section 4. Notice of Shareholders' Meetings: Written notice of the
time, place and purpose or purposes of every meeting of shareholders shall be
given not less than ten nor more than sixty days before the date of the meeting,
either personally or by mail, to each shareholder of record entitled to vote at
the meeting, unless a greater period of notice is required by statute in a
particular case. When a meeting is adjourned to another time or place, it shall
not be necessary to give notice of the adjourned meeting if the time and place
to which the meeting is adjourned are announced at the meeting at which the
adjournment is taken and at the adjourned meeting only such business is
transacted as might have been transacted at the original meeting. However, if
after the adjournment the Board fixes a new record date for the adjourned
meeting, a notice of the adjourned meeting shall be given to each shareholder of
record entitled to notice of the new record date.
Section 5. Waiver of Notice: Notice of a meeting need not be given to
any shareholder who signs a waiver of such notice, in person or by proxy,
whether before or after the meeting. The attendance of any shareholder at a
meeting, in person or by proxy, without protesting prior to the conclusion of
the meeting the lack of notice of such meeting, shall constitute a waiver of
notice by him.
Section 6. Action by Shareholders Without Meeting:
(1) Any action required or permitted to be taken at a meeting
of shareholders by statute, the Certificate of Incorporation or these By-Laws of
the corporation, may be taken without a meeting if all of the shareholders
entitled to vote thereon unanimously consent thereto in writing, except as
otherwise provided in the Business Corporation Act (the "Act"). In case the
corporation is involved in a merger, consolidation or other type of acquisition
or disposition regulated by Chapters 10 and 11 of the Act, the pertinent
provisions of the Act should be referred to and strictly complied with.
(2) Whenever action is taken pursuant to subsection (1) of
this section, the written consents of the shareholders consenting thereto or the
written report of inspectors appointed to tabulate such consents shall be filed
with the minutes or proceedings of shareholders.
(3) Except as set forth above regarding the unanimous consent
of shareholders, no action required to be taken or which may be taken at any
annual or special meeting of shareholders of the corporation may be taken
without a meeting, and the power of the shareholders of the corporation to
consent in writing to an action without a meeting is specifically denied.
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<PAGE> 3
Section 7. Fixing Record Date:
(1) The Board may fix, in advance, a date as the record date
for determining the corporation's shareholders with regard to any corporate
action or event and, in particular, for determining the shareholders who are
entitled to:
(a) notice of or to vote at any meeting of
shareholders or any adjournment thereof;
(b) consent in writing to any action without a
meeting; or,
(c) receive payment of any dividend or allotment of
any right.
The record date may in no case be more than 60 days prior to the
shareholders' meeting or other corporate action or event to which it relates.
The record date for a shareholders' meeting may not be less than 10 days before
the date of the meeting.
(2) If no record date is fixed,
(a) the record date for a shareholders' meeting shall
be the close of business on the day next preceding the day on which notice is
given, or, if no notice is given, the day next preceding the day on which the
meeting is held; and,
(b) the record date for determining shareholders for
any other purpose shall be at the close of business on the day on which the
resolution of the Board relating thereto is adopted.
(3) When a determination of shareholders of record for a
shareholders' meeting has been made as provided in this section, such
determination shall apply to any adjournment thereof, unless the Board fixes a
new record date under this section for the adjourned meeting.
Section 8. Voting Lists: The officer or agent having charge of the
stock transfer books for shares of the corporation shall make and certify a
complete list of shareholders entitled to vote at a shareholders' meeting or any
adjournment thereof. Such list shall be arranged alphabetically within each
class, series or group of shareholders maintained by the corporation for
convenience of reference, with the address of, and the number of shares held by,
each shareholder; be produced at the time and place of the meeting; be subject
to the inspection of any shareholder during the whole time of the meeting; and
be prima facie evidence as to who are the shareholders entitled to examine such
list or vote at any meeting.
Section 9. Quorum: Unless otherwise provided in the Certificate of
Incorporation or by statute, the presence, in
3
<PAGE> 4
person or by proxy, of shareholders entitled to cast at least a majority of the
votes which all shareholders are entitled to cast shall constitute a quorum of
shareholders at any annual or special meeting of shareholders of the
corporation. The shareholders present in person or by proxy at a duly organized
meeting may continue to do business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum. If there is less
than a quorum, the meeting may adjourn. Whenever the holders of any class or
series of shares are entitled to vote separately on a specified item of
business, the provisions of this section shall apply in determining the presence
of a quorum of such class or series for the transaction of such specified item
of business.
Section 10. Voting:
(1) Each outstanding share of common stock shall be
entitled to one vote on each matter submitted to a vote at a meeting of
shareholders, except as otherwise provided by statute or in the Certificate of
Incorporation.
(2) Whenever any action, other than the election of
directors, is to be taken by vote of the shareholders, it shall be authorized by
a majority of the votes cast at a meeting of shareholders at which a quorum is
present by the holders of shares entitled to vote thereon, unless a greater
plurality is required by statute or by the Certificate of Incorporation.
Section 11. Proxy Voting:
(1) Every shareholder entitled to vote at a meeting
of shareholders or to express consents without a meeting may authorize another
person or persons to act for him by proxy. Every proxy shall be executed in
writing by the shareholder or his agent, except that a proxy may be given by a
shareholder or his agent by telegram or cable or by any means of electronic
communication which results in a writing. No proxy shall be valid for more than
eleven months unless a longer time is expressly provided therein, but in no
event shall a proxy be valid after three years from the date of execution.
Unless it is irrevocable as provided in subsection 11(3) below, a proxy shall be
revocable at will. The grant of a later proxy revokes any earlier proxy unless
the earlier proxy is irrevocable. A proxy shall not be revoked by the death or
incapacity of the shareholder but the proxy shall continue in force until
revoked by the personal representative or guardian of the shareholder. The
presence at any meeting of any shareholder who has given a proxy does not revoke
the proxy unless the shareholder files written notice of the revocation with the
Secretary of the meeting prior to the voting of the proxy or votes the share
subject to the proxy by written ballot.
(2) A person named in a proxy as the attorney or
agent of a shareholder may, if the proxy so provides, substitute
4
<PAGE> 5
another person to act in his place, including any other person named as an
attorney or agent in the same proxy. The substitution shall not be effective
until an instrument effecting it is filed with the secretary of the corporation.
(3) A proxy which states that it is irrevocable is
irrevocable if coupled with an interest either in the stock itself or in the
corporation and, in particular and without limitation, if it is held by any of
the following or a nominee of any of the following:
(a) A pledgee;
(b) A person who has purchased or agreed to
purchase the shares;
(c) A creditor of the corporation who has
extended credit or has agreed to continue to extend credit to the corporation if
the proxy is given in consideration of the extension or continuation;
(d) A person who has agreed to perform
services as an employee of the corporation if the proxy is given in
consideration of the agreement; or
(e) A person designated pursuant to the
terms of an agreement as to voting between two or more shareholders.
An irrevocable proxy becomes revocable when the interest which supports
the proxy has terminated.
(4) Unless noted conspicuously on the share
certificate, an otherwise irrevocable proxy may be revoked by a person who
becomes the holder of the shares without actual knowledge of the restriction.
Section 12. Election of Directors: At each election of directors, every
shareholder entitled to vote at such election shall have the right to vote the
number of shares owned by him for as many persons as there are directors to be
elected and for whose election he has a right to vote. Shareholders shall not be
permitted to cumulate their votes in the election of directors. Directors shall
be elected by a plurality of the votes cast at the election, except as otherwise
provided by the Certificate of Incorporation.
Section 13. Inspectors of Election: The Board may, in advance of any
shareholders' meeting, appoint one or more inspectors to act at the meeting or
any adjournment thereof and make a written report thereof. If inspectors to act
at any meeting of shareholders are not so appointed or shall fail to qualify,
the person presiding at a shareholders' meeting may, and on the request of any
shareholder entitled to vote thereat shall,
5
<PAGE> 6
make such appointment. Each inspector, before entering upon the discharge of his
duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his ability. No
person shall be elected a director in an election for which he has served as an
inspector.
ARTICLE IV - DIRECTORS
Section 1. General: The business and affairs of this corporation shall
be managed by its Board of Directors, consisting of not less than five (5) nor
more than twenty-five (25) in number. The directors of the corporation may be
divided into classes if and as so provided in the Certificate of Incorporation.
A director shall be at least eighteen years of age and need not be a United
States citizen or a resident of this State. Unless waived by the Board of
Directors, in order to qualify for election as a director, a person must have
been a shareholder of record of the corporation for a period of time equal to
the lesser of (i) three (3) years or (ii) the time elapsed since March 26, 1996.
Except as set forth in Article VI hereof regarding the filling of vacancies on
the Board of Directors, each director shall be elected by the shareholders at an
annual meeting of shareholders of the corporation, and shall be elected until
his successor shall be elected and shall qualify, subject to earlier termination
by removal or resignation.
Section 2. First Meeting After Election: After the election of the
directors, the newly elected Board may meet at such place and time as shall be
fixed by the vote of the shareholders at the annual meeting, for the purpose of
electing the officers of the corporation and otherwise, and no notice of such
meeting shall be necessary to the newly elected directors in order to legally
constitute the meeting; provided a majority of the whole Board shall be present;
or such place and time may be fixed by the consent in writing of the directors.
Section 3. Regular Meetings: Regular meetings of the Board shall be
held without notice from time to time at the registered office of the
corporation, or at such other time and place as shall be determined by the
Board.
Section 4. Quorum: A majority of the entire Board, or of any committee
thereof, shall constitute a quorum for the transaction of business, unless the
Certificate of Incorporation or these By-Laws provide that a greater or lesser
proportion shall constitute a quorum. Any action of the majority of the votes of
the directors present at a meeting at which a quorum is present shall be the act
of the Board or of the committee, unless by statute, the Certificate of
Incorporation, or these By-Laws require a greater proportion including a
unanimous consent.
6
<PAGE> 7
Section 5. Action of Directors Without a Meeting: Any action required
or permitted to be taken pursuant to authorization voted at a meeting of the
Board or any committee thereof, may be taken without a meeting if, prior or
subsequent to such action, all members of the Board or of such committee, as the
case may be, consent thereto in writing and the written consents are filed with
the minutes of the proceedings of the Board or committee. Such consent shall
have the same effect as a unanimous vote of the Board or Committee for all
purposes, and may be stated as a unanimous vote in any certificate or other
document filed with the Secretary of State of New Jersey.
Section 6. Special Meetings: Special meetings of the Board may be
called by the President upon two days' notice to each director, either
personally or by mail; special meetings may be called in like manner and on like
notice, on the written request of any director.
Section 7. Waiver of Notice: Notice of any meeting need not be given to
any director who signs a waiver of notice, whether before or after the meeting.
The attendance of any director at a meeting without protesting prior to the
conclusion of the meeting the lack of notice of such meeting shall constitute a
waiver of notice by him. Neither the business to be transacted at, nor the
purposes of any meeting of the Board need be specified in the notice or waiver
of notice of such meeting. Notice of an adjourned meeting need not be given if
the time and place are fixed at the meeting adjourning and if the period of
adjournment does not exceed ten days in any one adjournment.
Section 8. Power of Directors:
(1) The Board of Directors shall have the management of the
business of the corporation. In addition to the powers and authorities by these
By-Laws expressly conferred upon them, the Board may exercise all such powers of
the corporation and do all such lawful acts and things as are not by statute or
by these By-Laws directed or required to be exercised or done by the
shareholders.
(2) In discharging his duties to the corporation and in
determining what he reasonably believes to be in the best interest of the
corporation, a director may, in addition to considering the effects of any
action on shareholders, consider any of the following: (a) the effects of the
action on the corporation's employees, suppliers, creditors, and customers; (b)
the effects of the action on the community in which the corporation operates;
and (c) the long term as well as the short-term interests of the corporation and
its shareholders, including the possibility that these interests may best be
served by the continued independence of the corporation.
(3) If on the basis of the factors described in subsection (2)
of this Section 8, the Board of Directors
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<PAGE> 8
determines that any proposal or offer to acquire the corporation is not in the
best interest of the corporation, it may reject such proposal or offer. If the
Board of Directors determines to reject any such proposal or offer, the Board of
Directors shall have no obligation to facilitate, remove any barriers to, or
refrain from impeding the proposal or offer.
Section 9. Compensation of Directors: The Board, by the affirmative
vote of a majority of directors in office and irrespective of any personal
interest of any of them, shall have authority to establish reasonable
compensation of directors for services to the corporation as directors, officers
or otherwise.
Section 10. Committees:
(1) If deemed advisable, the Board of Directors, by resolution
adopted by a majority of the entire Board, may appoint from among its members an
executive committee and one or more other committees, each of which shall have
one or more members. To the extent provided in such resolution, each such
committee shall have and may exercise all the authority of the Board, except
that no such committee shall make, alter or repeal any By-Law of the
corporation; elect or appoint any director, or remove any officer or director;
submit to shareholders any action that requires shareholders' approval; or amend
or repeal any resolution theretofore adopted by the Board which by its terms is
amendable or repealable only by the Board.
(2) There shall be a standing committee of the Board of
Directors to be known as the Audit Committee. The members of the Audit Committee
shall consist exclusively of directors who are not officers or employees of the
corporation or of any entity controlling, controlled by or under common control
with the corporation and who are not beneficial owners of a controlling interest
in the voting stock of the corporation or of any such entity. The Audit
Committee shall: (i) make recommendations to the Board of Directors as to the
independent accountants to be appointed by the Board, (ii) review with the
independent accountants the scope of their examination, (iii) receive the
reports of the independent accountants and meet with the representatives of such
accountants for the purpose of reviewing and considering questions relating to
their examination and such reports, (iv) review the internal accounting and
auditing procedures of the corporation, and (v) perform such other duties as may
be assigned to it from time to time by the Board of Directors.
(3) The Board, by resolution adopted by a majority of the
entire Board, may fill any vacancy in any committee; appoint one or more
directors to serve as alternate members of any committee to act in the absence
or disability of members of any committee with all the powers of such absent or
disabled members; abolish any committee at its pleasure; and remove any director
8
<PAGE> 9
from membership on any committee at any time, with or without cause.
(4) Actions taken at a meeting of any committee shall be
reported to the Board at its next meeting following such committee meeting;
except that, when the meeting of the Board is held within two days after the
committee meeting, such report shall, if not made at the first meeting, be made
to the Board at its second meeting following such committee meeting.
(5) The designation of any committee and the delegation
thereto of authority shall not operate to relieve the Board, or any member
thereof, of any responsibility imposed by law.
Section 11. Director Conflicts of Interest:
(1) No contract or other transaction between a corporation and
one or more of its directors, or between a corporation and any domestic or
foreign corporation, firm or association of any type or kind in which one or
more of its directors are directors or are otherwise interested, shall be void
or voidable solely by reason of such common directorship or interest, or solely
because such director or directors are present at the meeting of the board or a
committee thereof which authorizes or approves the contract or transaction, or
solely because his or their votes are counted for such purpose, if any one of
the following is true:
(a) The contract or other transaction is fair and
reasonable as to the corporation at the time it is authorized, approved or
ratified; or
(b) The fact of the common directorship or interest
is disclosed or known to the board or committee and the board or committee
authorizes, approves or ratified the contract or transaction by unanimous
written consent, provided at least one director or consenting is disinterested,
or by affirmative vote of a majority of the disinterested directors, even though
the disinterested directors be less than a quorum; or
(c) The fact of the common directorship or interest
is disclosed or known to the shareholders, and they authorize, approve or ratify
the contract or transaction.
(2) Common or interested directors may be counted in
determining the presence of a quorum at a Board or committee meeting at which a
contract or transaction described in subsection 11(1) above, is authorized,
approved or ratified.
(3) The Board, by the affirmative vote of a majority of
directors in office and irrespective of any personal interest of any of them,
shall have authority to establish reasonable
9
<PAGE> 10
compensation of directors for services to the corporation as directors,
officers, or otherwise.
Section 12. Liability of Directors; Presumption of Assent to Action
Taken at a Meeting: A director of a corporation who is present at a meeting of
the Board, or any committee thereof of which he is a member, shall be presumed
to have concurred in the action taken unless his dissent shall be entered in the
minutes of the meeting or unless he shall file his written dissent to such
action with the person acting as the secretary of the meeting before or promptly
after the adjournment thereof. Such right to dissent shall not apply to a
director who voted in favor of such action, or a director who is absent from a
meeting of the Board or any committee thereof. A director who is absent from a
meeting of the Board, or any committee thereof of which he is a member, at which
any such action is taken shall be presumed to have concurred in the action
unless he shall file his dissent with the secretary of the corporation within a
reasonable time after learning of such action.
Section 13. Liability of Directors; Reliance on Records and Reports:
(1) Directors and members of any committee designated by the
Board shall discharge their duties in good faith and with that degree of
diligence, care and skill which ordinarily prudent people would exercise under
similar circumstances in like positions.
(2) In discharging their duties, directors and members of any
committee designated by the Board shall not be liable if, acting in good faith,
they rely:
(a) upon the written opinion of counsel for the
corporation;
(b) upon written reports setting forth financial data
concerning the corporation and prepared by an independent public accountant or
certified public accountant or firm of such accountants;
(c) upon financial statements, books of account or
reports of the corporation represented to them to be correct by the president,
the officer of the corporation having charge of its books of account, or the
person presiding at a meeting of the Board; or
(d) upon written reports of committees of the Board.
(3) A director shall not be personally liable to the
corporation or its shareholders for damages for breach of duty as a director if
and to the extent that such liability has been
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eliminated or limited by a provision in the Certificate of Incorporation or
authorized by statute.
(4) In taking action, including without limitation, action
which may involve or relate to a change or potential change in the control of
the corporation, a director shall be entitled to consider, without limitation,
both the long-term and the short-term interests of the corporation and its
shareholders. For the purpose of this subsection, "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of the corporation, whether through the
ownership of voting shares, by contract or otherwise.
ARTICLE V - OFFICERS
Section 1. Officers:
(1) The officers of the corporation shall consist of a
President, one or more Executive Vice Presidents and Vice Presidents, a
Secretary, a Treasurer and, if desired, a Chairman of the Board, and such other
officers as may be required. They shall be elected annually by the Board of
Directors and shall hold office for until their successors are elected and have
qualified, subject to earlier termination by removal or resignation. The Board
may also choose such employees and agents as it shall deem necessary, who shall
hold their offices for such terms shall have such authority and shall perform
such duties as from time to time shall be prescribed by the Board.
(2) Any two or more offices may be held by the same person but
no officer shall execute, acknowledge, or verify any instrument in more than one
capacity if such instrument is required by law or by these By-Laws to be
executed, acknowledged, or verified by two or more officers.
Section 2. Salaries: The salaries of all officers, employees and agents
of the corporation shall be fixed by the Board of Directors.
Section 3. President: The President shall be the Chief Executive
Officer of the corporation; shall preside at all meetings of the shareholders
and directors; shall have general and active management of the business of the
corporation; and shall see that all orders and resolutions of the Board are
carried into effect, subject, however, to the right of the directors to delegate
any specific powers, except such as may by statute exclusively be conferred on
the President, to any other officer or officers of the corporation. He shall
execute bonds, mortgages and other contracts requiring a seal, under the seal of
the corporation. He shall have the general powers and duties of supervision and
management usually vested in the office of President of a corporation.
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<PAGE> 12
Section 4. Executive Vice Presidents and Vice Presidents: Each
Executive Vice President and Vice President, if any have been appointed, shall
be vested with all the powers and be required to perform all of the duties
delegated to him by the Board of Directors or the President. One Executive Vice
President or Vice President shall be designated by the Board of Directors to
perform all the duties of the President in his absence.
Section 5. Chairman of the Board: The Chairman of the Board, if one has
been appointed, shall exercise such powers and perform such duties as shall be
provided in the resolution proposing that a Chairman of the Board be elected.
Section 6. Secretary: The Secretary shall keep full minutes of all
meetings of the shareholders and directors; he shall be Ex-Officio Secretary of
the Board of Directors; he shall attend all sessions of the Board, shall act as
clerk thereof, and record all votes and the minutes of all proceedings in a book
to be kept for that purpose; and shall perform like duties for the standing
committees when required. He shall give or cause to be given notices of all
meetings of the shareholders of the corporation and the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors
or the President, under whose supervision he shall be.
Section 7. Assistant Secretary: The Assistant Secretary, if any, or
Assistant Secretaries if more than one, shall perform the duties of the
Secretary in his or her absence and shall perform other duties as the board of
directors, the President or the Secretary may from time to time designate.
Section 8. Treasurer: The Treasurer shall keep full and accurate
accounts of receipts and disbursements in books belonging to the corporation,
and shall deposit all moneys and other valuable effects in the name and to the
credit of the corporation, in such depositories as may be designated by the
Board of Directors. He shall disburse the funds of the corporation as may be
ordered by the Board or the President, taking proper vouchers for such
disbursements, and shall render to the President and Board of Directors, at the
regular meetings of the Board, or whenever they may require it, an account of
all his transactions as Treasurer and of the financial condition of the
corporation, and shall, if requested by the Board, submit a full financial
report at the annual meeting of the shareholders.
ARTICLE VI - VACANCIES, RESIGNATION & REMOVAL
Section 1. Vacancies in the Board of Directors:
(1) Any directorship not filled at the annual meeting, and any
vacancy, however caused, including vacancies resulting from an increase in the
number of directors, occurring in the Board may be filled by the affirmative
vote of a majority of the
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remaining directors even though less than a quorum of the Board, or by a sole
remaining director. A director so elected by the Board shall hold office until
the next succeeding annual meeting of shareholders and until his successor shall
have been elected and qualified.
(2) Any directorship not filled by the Board may be filled by
the shareholders at a meeting of shareholders called for that purpose.
Section 2. Vacancies in Offices: Any vacancy occurring among the
officers, however caused, shall be filled by the Board of Directors.
Section 3. Resignations: Any director or other officer may resign by
written notice to the corporation. The resignation shall be effective upon
receipt thereof by the corporation or at such subsequent time as shall be
specified in the notice of resignation.
Section 4. Removal of Directors: One or more or all the directors of
the corporation may be removed for cause by the affirmative vote of the majority
of the votes which all shareholders would be entitled to cast at an annual
election of directors. No act of the Board done during the period when a
director has been suspended or removed for cause shall be impugned or
invalidated solely on account of the suspension or removal being thereafter
rescinded by the shareholders or by the Board or by the final judgment of a
court of competent jurisdiction.
Section 5. Removal of Officers: Any officer elected by the Board of
Directors may be removed by the Board with or without cause. The removal of an
officer shall be without prejudice to his contract rights, if any. Election of
an officer shall not of itself create contract rights.
ARTICLE VII - SHARE CERTIFICATES
Section 1. Share Certificates: The shares of the corporation shall be
represented by certificates. Certificates shall be signed by, or in the name of
the corporation by the President and may be counter-signed by the Secretary or
Treasurer or an Assistant Secretary and may be sealed with the seal or the
corporation or a facsimile thereof. Any or all signatures on a certificate may
be a facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon such certificate, shall have
ceased to be such officer, transfer agent, or registrar before such certificate
is issued, it may be issued by the corporation with the same effect as if he
were such officer, transfer agent or registrar at the date of its issue.
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<PAGE> 14
Section 2. Transfers: All transfers of the shares of the corporation
shall be made upon the books of the corporation by the holders of the shares in
person, or by their legal representatives. Share certificates shall be
surrendered and canceled at the time of transfer. The shares of the corporation
shall be personal property and shall be transferable in accordance with the
provisions of Chapter 8 of the New Jersey Uniform Commercial Code, as amended
from time to time, except as provided by statute.
Section 3. Loss of Certificates: In the event that a share certificate
shall be lost, destroyed or mutilated, a new certificate may be issued therefor
upon such terms and indemnity to the corporation as the Board of Directors may
prescribe.
ARTICLE VIII - MISCELLANEOUS PROVISIONS
Section 1. Monetary Disbursements: All checks or demands for money and
notes of the corporation shall be signed by such officer or officers as the
Board of Directors may from time to time designate.
Section 2. Fiscal Year: The fiscal year of the corporation shall end on
the 30th day of September each year.
Section 3. Dividends: Subject to any restrictions contained in the
Certificate of Incorporation and by statute, the corporation may, from time to
time, by resolution of the Board, declare and pay dividends on its shares in
cash, in its own shares, in its bonds or in other property, including the shares
or bonds of other corporations.
Section 4. Giving Notice:
(1) Whenever written notice is required to be given to any
person, it may be given to such person, either personally or by sending a copy
thereof by telefacsimile or through the mail. If notice is given by mail, the
notice shall be deemed to be given when deposited in the mail addressed to the
person to whom it is directed at his last address as it appears on the records
of the corporation, with postage prepaid thereon. Such notice shall specify the
place, day and hour of the meeting and, in the case of shareholders' meeting,
the general nature of the business to be transacted.
(2) In computing, the period of time for the giving of any
notice required or permitted by statute, or by the Certificate of Incorporation
or these By-Laws or any resolution of directors or shareholders, the day on
which the notice is given shall be excluded, and the day on which the matter
noticed is to occur shall be included.
Section 5. Loans to Directors, Officers or Employees: The corporation
may lend money to, or guarantee any obligation of, or
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<PAGE> 15
otherwise assist, any director, officer or employee of the corporation or of any
subsidiary, whenever, in the judgment of the directors, such loan, guarantee or
assistance may reasonably be expected to benefit the corporation. The loan,
guarantee or other assistance may be made with or without interest, and may be
unsecured, or secured in such manner as the Board shall approve, including
without limitation, a pledge of shares of the corporation, and may be made upon
such other terms and conditions as the Board may determine.
Section 6. Disallowed Compensation: Any payments made to an officer or
employee of the corporation such as a salary, commission, bonus, interest, rent,
travel or entertainment expense incurred by him, which shall be disallowed in
whole or in part as a deductible expense by the Internal Revenue Service, shall
be reimbursed by such officer or employee to the corporation to the full extent
of such disallowance. It shall be the duty of the directors, as a Board, to
enforce payment of each amount disallowed. In lieu of payment by the officer or
employee, subject to the determination of the directors, proportionate amounts
may be withheld from his future compensation payments until the amount owed to
the corporation has been recovered.
Section 7. Meetings by Conference Telephone: Where appropriate
communication facilities are reasonably available, any or all directors shall
have the right to participate in all or any part of a meeting of the Board or a
committee of the Board by means of telephone conference or any means of
communication by which all persons participating in the meeting are able to hear
each other.
Section 8. Books and Records of Accounts: The corporation shall keep
books and records of account and minutes of the proceedings of the shareholders,
Board of Directors and executive committee, if any, either within or without
this State. The corporation shall keep at its principal office, registered
office, or at the office of a transfer agent, a record or records containing the
names and addresses of all shareholders, the number, class and series of shares
held by each and the dates when they respectively became the owners of record
thereof. Any of the foregoing books, minutes or records may be in written form
or in any other form capable of being converted into readable form within a
reasonable time. The corporation shall convert into readable form without charge
any such records not in such form, upon the written request of any person
entitled to inspect them.
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ARTICLE IX - AMENDMENTS
Section 1. Except as otherwise provided in the Certificate of
Incorporation or by statute, the authority to make, amend, alter, change or
repeal the By-Laws of the corporation is hereby expressly and solely granted to
and vested in the Board of Directors of the corporation, subject always to the
power of the shareholders to change such action by the affirmative vote of
shareholders of the corporation entitled to cast at least 66-2/3 percent
(66-2/3%) of the votes which all shareholders are entitled to cast.
ARTICLE X - INDEMNIFICATION OF DIRECTORS
OFFICERS AND EMPLOYEES
Section 1. Definitions: As used in this Article:
(1) "corporate agent" means any person who is or was a
director, officer, employee or agent of the indemnifying corporation or of any
constituent corporation absorbed by the indemnifying corporation in a
consolidation or merger and any person who is or was a director, officer,
trustee, employee or agent or any other enterprise, serving as such at the
request of the indemnifying corporation, or of any such constituent corporation,
or the legal representative of any such director, officer, trustee, employee or
agent;
(2) "other enterprise" means any domestic or foreign
corporation, other than the indemnifying corporation, and any partnership, joint
venture, sole proprietorship, trust employee benefit plan or other enterprise,
whether or not for profit, served by a corporate agent;
(3) "expenses" means reasonable costs, disbursements and
counsel fees;
(4) "liabilities" means amounts paid or incurred in
satisfaction of settlements, judgments, fines and penalties; and
(5) "proceedings" means any pending, threatened or completed
civil, criminal, administrative or arbitrative action, suit or proceeding, and
any appeal therein and any inquiry or investigation which could lead to such
action, suit or proceeding.
Section 2. Third Party Actions: Unless otherwise provided in the
Certificate of Incorporation or by statute, the corporation shall have the power
to indemnify a corporate agent against his expenses and liabilities in
connection with any proceeding involving the corporate agent by reason of his
being or having been such a corporate agent, other than a proceeding by or in
the right of the corporation, if
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(1) such corporate agent acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation; and
(2) with respect to any criminal proceeding, such corporate
agent had no reasonable cause to believe his conduct was unlawful. The
termination of any proceeding by judgment, order, settlement, conviction or upon
a pleas of nolo contendere or its equivalent, shall not of itself create a
presumption that such corporate agent did not meet the applicable standards of
conduct set forth in subsections 2(1) and 2(2) hereof.
Section 3. Derivative Actions: Unless otherwise provided in the
Certificate of Incorporation or by statute, the corporation shall have the power
to indemnify a corporate agent against his expenses in connection with any
proceeding by or in the right of the corporation to procure a judgment in its
favor which involves the corporate agent by reason for his being or having been
such corporate agent, if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation.
However, in such proceeding no indemnification shall be provided in respect of
any claim, issue or matter as to which such corporate agent shall have been
adjudged to be liable to the corporation, unless and only to the extent that the
Superior Court or the court in which such proceeding was brought shall determine
upon application that despite the adjudication of liability, but in view of all
circumstances of the case, such corporate agent is fairly and reasonably
entitled to indemnity for such expenses as the Superior Court or such other
court shall deem proper.
Section 4. Mandatory Indemnification: The corporation shall indemnify a
corporate agent against expenses to the extent that such corporate agent has
been successful on the merits or otherwise in any proceeding referred to in
subsections (2) and (3) hereof or in defense of any claim, issue or matter
therein.
Section 5. Procedure for Effecting Indemnification: Any indemnification
under section 2 above and, unless ordered by a court under section 3 above, may
be made by the corporation only as authorized in a specific case upon a
determination that indemnification is proper under the circumstances because the
corporate agent met the applicable standard of conduct set forth in Section 2
above or Section 3 above or otherwise provided by statute. Unless otherwise
provided in the Certificate of Incorporation or these By-Laws, such
determination shall be made:
(1) by the Board of Directors or committee thereof, acting by
a majority vote of a quorum consisting of directors who were not parties to or
otherwise involved in the proceeding; or
(2) if such a quorum is not obtainable, or, even if obtainable
and such quorum of the Board of Directors or committee by a majority vote of the
disinterested directors so directs, by
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independent legal counsel in a written opinion, such counsel to be designated by
the Board of Directors; or
(3) by the shareholders if the Certificate of Incorporation,
these By-Laws or a resolution of the Board of Directors or the shareholders so
directs.
Section 6. Advancing Expenses: Expenses incurred by a corporate agent
in connection with a proceeding may be paid by the corporation in advance of the
final disposition of the proceeding as authorized by the Board of Directors upon
receipt of an undertaking by or on behalf of the corporate agent to repay such
amount unless it shall ultimately be determined that he is entitled to be
indemnified as provided in this Article.
Section 7. Application to a Court for Indemnification:
(1) If the corporation, upon application of a corporate agent,
has failed or refused to provide indemnification as required under Section 4
above or permitted under Sections 2, 3 and 6 above, a corporate agent may apply
to a court for an award of indemnification by the corporation, and such court:
(a) may award indemnification to the extent
authorized under Sections 2 and 3 above and shall award indemnification to the
extent required under Section 4 above, notwithstanding any contrary
determination which may have been made under Section 5 above; and
(b) may allow reasonable expenses to the extent
authorized by, and subject to the provisions of, Section 6 above, if the court
shall find that the corporate agent has by his pleadings or during the course of
the proceeding raised genuine issues of fact or law.
(2) Application for such indemnification may be made:
(a) in the civil action in which the expenses were or
are to be incurred or other amounts were or are to be paid; or
(b) to the Superior Court in a separate proceeding.
If the application is for indemnification arising out of a civil action, it
shall set forth reasonable cause for the failure to make application for such
relief in the action or proceeding in which the expenses were or are to be
incurred or other amounts were or are to be paid.
(3) The application shall set forth the disposition of any
previous application for indemnification and shall be made in such manner and
form as may required by the applicable rules of court or, in the absence
thereof, by direction of the court to which it is made. Such application shall
be upon notice to the corporation. The court may also direct that notice shall
be
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given at the expense of the corporation to the shareholders and such other
persons as it may designate in such manner as it may require.
Section 8. Other Indemnification Rights: The indemnification and
advancement of expenses provided by or granted pursuant to the other subsections
of this Article shall not exclude any other rights to which a corporate agent
may be entitled under the Certificate of Incorporation, any agreement, any vote
of shareholders, or otherwise; provided that, unless otherwise permitted by
statute, no indemnification shall be made to or on behalf of a corporate agent
if a judgment or other final adjudication adverse to the corporate agent
establishes that his acts or omissions (a) were in breach of his duty of loyalty
to the corporation or its shareholders, (b) were not in good faith or involved a
knowing violation of law or (c) resulted in receipt by the corporate agent of an
improper personal benefit.
Section 9. Insurance: The corporation shall have the power to purchase
and maintain insurance on behalf of any corporate agent against any expenses
incurred in any proceeding and any liabilities asserted against him by reason of
his being or having been a corporate agent, whether or not the corporation would
have the power to indemnify him against such expenses and liabilities under the
provisions of this Article. The corporation may purchase such insurance from, or
such insurance may be reinsured in whole or in part by, an insurer owned by or
otherwise affiliated with the corporation, whether or not such insurer does
business with other insureds.
Section 10. Other Agreements: Except as required by Section 4 above, no
indemnification shall be made or expenses advanced by a corporation under this
Article, and none shall be ordered by a court, if such action would be
inconsistent with a provision of the Certificate of Incorporation, these Bylaws,
a resolution of the Board of Directors or the shareholders, an agreement or
other proper corporate action, in effect at the time of the accrual of the
alleged cause of action asserted in the proceeding, which prohibits, limits or
otherwise conditions the indemnification to which the corporate agent may be
entitled.
Section 11. Corporate Agent as Witness: This Article does not limit a
corporation's power to pay or reimburse expenses incurred by a corporate agent
in connection with the corporate agent's appearance as a witness in a proceeding
at a time when the corporate agent has not been made a party to the proceeding.
19
<PAGE> 1
AGREEMENT
1. Date of Agreement. The date of this Agreement is the
29th day of February, 1996.
2. Parties.
2.1 SEAHAWK CAPITAL CORPORATION (the
"Corporation"), 1010 Kings Highway South, Suite 1D, Cherry Hill, New Jersey,
08034; and
2.2 JONATHAN LASSERS ("Lassers"), 1010 Kings
Highway South, Suite 1D, Cherry Hill, New Jersey, 08034.
3. Termination of Warrant. In consideration of the
termination by Lassers of the warrant dated May 2, 1995 held by Jonathan
Lassers to purchase 70,000,000 shares of the Corporation at an exercise price
of $.01 per share, the Corporation hereby agrees to issue, and Jonathan Lassers
hereby agrees to accept, 11,000,000 shares of the fully paid, non-assessable
common stock of the Corporation, such shares to be restricted stock as such
term is defined under the Securities Act of 1933, as amended, such shares to be
issued as of the date of this Agreement.
SEAHAWK CAPITAL CORPORATION
By: /s/ Annemarie L. Arias
--------------------------------
Annemarie L. Arias, Secretary,
Director
/s/ Jonathan B. Lassers
-----------------------------------
Jonathan Lassers
<PAGE> 1
April 7, 1997
Mr. Kenneth R. Konikowski
271 Route 46 West
Suite F-10
Fairfield, NJ 07004
RE:STOCK PURCHASE AGREEMENT DATED NOVEMBER 30, 1996 BETWEEN DYNAMICWEB
ENTERPRISES, INC. (THE "COMPANY"), SOFTWARE ASSOCIATES, INC. AND KENNETH R.
KONIKOWSKI
Dear Ken:
As you are aware, Section 3 of the above-referenced Stock Purchase Agreement
(the "Agreement") provides as follows:
"The entire consideration to be paid to SOFTWARE Shareholders in exchange for
the sale, transfer, assignment and delivery of the SOFTWARE Shares as set forth
in Section 2 above is Eight Hundred Sixty Thousand (860,000) common shares of
the authorized but unissued capital stock of DWEB ("Purchase Price"). In the
event the said stock of DWEB does not have the trading price of an average of
$3.375 (an average of the previous five trading days closing bid prices) per
share, by January 30, 1999, then additional shares of DWEB stock will be issued
by DWEB to equal the difference (with a maximum of 2,000,000 shares)."
As you are further aware, the Company's Board of Directors has approved a
reverse stock split (the "Reverse Split"), subject to shareholder approval,
pursuant to which each outstanding share of the Company's common stock (the
"Common Stock") will be converted into .2608491 of one share. After the
completion of the Reverse Split, approximately 2,000,000 shares of Common Stock
will be outstanding. The Reverse Split is expected to be effected as soon as
practicable after the Company's annual meeting of shareholders scheduled for
May 15, 1997.
The purposes of this letter are to clarify (i) the effect that stock dividends,
divisions, reclassifications and combinations (such as the Reverse Split) will
have on the number of additional shares of the Common Stock which may be issued
pursuant to Section 3 of the Agreement and (ii) the meaning of "with a maximum
of 2,000,000 shares" as set forth in Section 3 of the Agreement. Therefore,
the Company and you hereby agree as follows:
1. This letter shall confirm our agreement that it is and was the intent of
the parties to the Agreement that the trading price average of $3.375 (the
"Trading Price Average") and the 2,000,000 maximum number of shares to be
issued (the "Maximum Number of
<PAGE> 2
Mr. Kenneth R. Konikowski
April 7, 1997
Page 3
Shares to Be Issued"), each as set forth and described in Section 3 of the
Agreement, are subject to adjustment as follows:
If the Company shall, at any time before January 30, 1999, (i) issue a dividend
in shares of Common Stock, (ii) combine the outstanding shares of Common Stock
into a smaller number of shares, including but not limited to the Reverse
Split, (iii) subdivide the outstanding shares of Common Stock, or (iv)
reclassify the shares of Common Stock, then, in such event, (a) the Average
Trading Price shall be adjusted by multiplying the Average Trading Price (as
adjusted from time to time pursuant to this Agreement) by a fraction the
numerator of which shall be equal to one and the denominator of which shall be
equal to the number of shares or fraction of a share of Common Stock into which
each outstanding share of Common Stock was converted upon the happening of such
event; and (b) the Maximum Number of Shares to Be Issued shall be adjusted by
multiplying the Maximum Number of Shares to Be Issued (as adjusted from time to
time pursuant to this Agreement) by a fraction the numerator of which shall be
equal to the number of shares or fraction of a share of Common Stock into which
each outstanding share of Common Stock was converted upon the happening of such
event, and the denominator of which shall be equal to one.
2. This letter will confirm that the phrase "with a maximum of 2,000,000
shares" set forth in Section 3 of the Agreement means that the total number of
shares of Common Stock issued by the Company as consideration to the SOFTWARE
Shareholders (as defined in the Agreement) in exchange for the sale, transfer,
assignment and delivery of the SOFTWARE Shares (as defined in the Agreement) to
the Company, including the 860,000 shares of Common Stock issued at the Closing
(as defined in the Agreement), shall not exceed 2,000,000. Therefore, the
parties agree that the maximum number of additional shares of Common Stock
which can be issued by the Company to the SOFTWARE Shareholders on or after
January 31, 1999 pursuant to the Agreement is 1,140,000 shares, subject to
adjustment pursuant to paragraph 1 above.
3. In the event of an adjustment to the Maximum Number of Shares to Be
Issued in the manner set forth in paragraph 1 above, the parties shall, in
determining the Maximum Number of Shares to Be Issued, adjust the 860,000
shares of Common Stock issued at Closing and included therein by multiplying
860,000 by a fraction, the numerator of which shall be equal to the number of
shares or fraction of a share of Common Stock into which each outstanding share
of Common Stock was converted upon the
<PAGE> 3
Mr. Kenneth R. Konikowski
April 7, 1997
Page 4
happening of such event, and the denominator of which shall be equal to one.
4. The parties agree that upon the effective date of the Reverse Split and
the related adjustments contemplated in Paragraphs 1, 2 and 3 hereof, Section 3
shall read as follows:
"The entire consideration to be paid to SOFTWARE Shareholders in exchange for
the sale, transfer, assignment and delivery of the SOFTWARE Shares as set forth
in Section 2 above is Two Hundred Twenty-Four Thousand Three Hundred Thirty
(224,330) common shares of the authorized but unissued capital stock of DWEB
("Purchase Price"). In the event the said stock of DWEB does not have the
trading price of an average of 12.939 (an average of the previous five trading
days closing bid prices) per share, by January 30, 1999, then additional shares
of DWEB stock will be issued by DWEB to equal the difference (with a maximum of
521,698 shares to be issued, including the 224,330 shares issued at Closing).
5. The parties agree that the 25,000 shares of Common Stock to be made
available by the Company, pursuant to Section 5.10 of the Agreement, for Ken
Konikowski to award to key employees shall be made available pursuant to the
grant by the Company to such employees designated by Mr. Konikowski of options
to acquire up to an aggregate of 25,000 shares of Common Stock under the
Company's 1997 Employee Stock Option Plan.
Please indicate your acceptance and agreement with the terms of this letter
below, and return one copy to me. Thank you for your assistance in this
matter.
Very truly yours,
DYNAMICWEB ENTERPRISES, INC.
By/s/ Steve L. Vanechanos, Jr.
--------------------------------
Steve L. Vanechanos, Jr.
President
AGREED TO AND ACCEPTED,
intending to be legally
bound hereby, as of this
7th day of April, 1997.
/s/ Kenneth R. Konikowski
- - -------------------------
Kenneth R. Konikowski
<PAGE> 1
DYNAMICWEB ENTERPRISES
LOCK-UP AGREEMENT
In Re Ownership of Common Stock by Kenneth Konikowski:
In accordance with the Stock Purchase Agreement between DynamicWeb
Enterprises, Inc. and Software Associates, Inc. dated November 30, 1996,
Kenneth Konikowski will receive 860,000 shares of common stock of DynamicWeb
Enterprises, Inc.
Steven Vanechanos, Jr. and/or DynamicWeb Enterprises seeks to encumber
the further transfer of 750,000 of those shares. Kenneth Konikowski has agreed
to those encumbrances, and hereby confirms that he will not, without DynamicWeb
Enterprises, Inc.'s prior written approval, sell directly or indirectly,
750,000 of this 860,000 share block of common stock of DynamicWeb Enterprises,
Inc., until November 30, 1998. After that time period, he may sell some or all
of that block, free from any requirement imposed hereby, except that he shall
give notice, to Steven Vanechanos, Jr., at least sixty days before December 1,
1998, of his intention to sell, and the amount to be sold. Steven Vanechanos,
Jr. may at any time during that sixty day period indicate his desire to
purchase some or all of the shares contemplated for sale, and shall pay a sum
equivalent to the number of shares purchased, times the per share price listed
on December 1, 1998, at a settlement to be held no more than three days
following that date.
Kenneth Konikowski takes no position on the efficacy of this
agreement, but does concede that his performance is adequately funded by the
overall consideration to him of the transaction of which this agreement is a
part.
/s/ Steven Vanechanos, Jr.
-----------------------------------
STEVEN VANECHANOS, JR.,
Individually and as President of
DynamicWeb Enterprises, Inc.
Accepted by:
/s/ Kenneth R. Konikowski
KEN KONIKOWSKI
Date: November 30, 1996
<PAGE> 1
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into, effective as of the 1st day
of December, 1996, by and among DynamicWeb Enterprises, Inc. a NJ Corporation
with its principal office and place of business in Clifton, NJ ("Employer") and
Ken Konikowski, currently a resident of Towaca, NJ ("Executive").
W I T N E S S E T H :
WHEREAS, Employer desires to retain the services of Executive on the
terms hereinafter set forth;
WHEREAS, Executive desires to accept employment by Employer on such
terms; and
WHEREAS, Employer and Executive are willing to enter into this
Employment Agreement ("Agreement") reflecting such terms;
NOW THEREFORE, in consideration of the promises and the mutual
covenants herein contained, the parties hereto, intending to be legally bound,
do hereby mutually covenant and agree as follows:
1. DEFINITIONS. For purposes of this Agreement, the following
terms shall have the following meanings:
(a) "Term" shall mean the period commencing on the date
hereof and ending on Nov. 30, 2001, subject to any extension of such period as
may hereafter be mutually agreed to by Employer and Executive, and subject
further to termination of the Term as provided in Paragraph 7 of this
Agreement.
(b) "Cause" shall mean:
(i) Executive's conviction of, or plea of nolo
contendere to, a felony or crime involving moral turpitude;
(ii) Executive's commission of an act of personal
dishonesty or breach of fiduciary duty involving personal profit in connection
with Executive's employment by Employer.
(iii) Executive's commission of an act which the
Board of Directors by a vote of at least three-fourths (3/4) of all the
Directors shall have found to have involved willful misconduct on the part of
Executive, in the conduct of his duties hereunder; or
(iv) habitual absenteeism, chronic alcoholism or any
other form of addiction, as determined by three-fourths (3/4) of all the
Directors, on the part of Executive which prevents him from performing the
essential functions of his position with or without reasonable accommodation.
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(c) "Good Reason" shall mean the occurrence of any action
by Employer which (i) significantly reduces Executive's job responsibilities;
(ii) results in a significant worsening of Executive's work conditions; (iii)
moves Executive's place of employment more than fifty (50) miles from
Executive's place of employment; (iv) involves non-payment of salary, bonus or
any other material benefit hereunder; or (v) otherwise constitutes a material
breach of Employer's obligations under this Agreement.
(d) "Disability" shall mean the incapacity of Executive
by illness or any other cause which prevents Executive from performing the
essential functions of his position with or without reasonable accommodation
for a period in excess of two hundred forty (240) days (whether or not
consecutive), or one hundred eighty (180) days consecutively, as the case may
be, during any twelve (12) month period.
(e) "Material Breach" by Executive shall mean a
determination by vote of at least three-fourths (3/4) of all the Directors that
Executive shall have failed to comply in any material respect with his
obligations under Paragraph 3 of this Agreement following written notice to
Executive of the alleged deficiencies thereunder and a fair opportunity to cure
such deficiencies (the existence of which shall be confirmed by the foregoing
required vote). Any determination in accordance with the preceding sentence
shall be conclusive and binding for all purposes of this Agreement.
2. EMPLOYMENT. Employer hereby agrees to employ Executive as
Executive Vice President and Director, and Executive accepts such employment
and agrees to serve in such capacities, for the Term upon the terms and
conditions hereinafter set forth. Should Executive remain in the employ of
Employer after the Term, Executive's status shall thereupon be that of an
employee at will.
3. DUTIES OF EMPLOYMENT.
(a) Throughout the Term, Executive will serve as
Executive Vice President and Director, subject to the direction of the Chief
Operating Officer. Executive shall perform all duties assigned or delegated to
him consistent with his position as Executive Vice President of Employer, and
shall perform all acts and services customarily associated with such position,
devoting his full time, best efforts and attention to the advancement of the
interests and business of Employer. During the Term, Executive will serve
Employer faithfully, diligently and competently and to the best of his ability
and will devote full-time to his employment.
(b) Throughout the Term, Executive shall not engage in or
be concerned with any other duties or pursuits which are competitive or
inconsistent with the interests and business of Employer. Nothing in this
Agreement shall preclude Executive, however, with the prior approval of
Employer, which approval
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shall not be unreasonably withheld, from devoting reasonable periods of time
required for (i) serving as a director or member of a committee of any
organization involving no conflict of interest with Employer, and (ii) engaging
in charitable, religious and community activities, provided, that such
directorships, memberships or activities do not materially interfere with the
performance of his duties hereunder.
4. COMPENSATION. During the Term, Employer shall pay to
Executive as compensation for the services to be rendered by him to Employer
hereunder the following:
(a) A base salary at the rate of $135,600 per year, or
such larger sum as the Employer may from time to time determine in connection
with annual performance reviews pursuant to Employer's policies and practices.
Such compensation shall be payable in accordance with normal payroll practices
of Employer.
(b) In addition, Executive shall be eligible to earn
annual bonus payments during the Term. Employer shall develop, in consultation
with Executive, and establish an incentive bonus plan for key management
employees of Employer. Such plan may describe one or more individual or
corporate goals for a year or other bonus period, the achievement of which may
be made a condition to the payment of bonuses thereunder. Such goals for
Executive shall be communicated to Executive and shall be stated to be a
condition to payment of said bonus
5. BENEFITS. During the Term, Executive shall be entitled to the
following benefits:
(a) Executive will be provided with use of an automobile
with a purchase price not to exceed $600/month, or an equivalent leased
automobile, replaceable every three (3) years.
(b) Comprehensive health insurance and major medical
coverage comparable to such coverage provided for executive employees of
Employer generally.
(c) Participation in Employer's pension plan, in
accordance with the terms thereof, as may be in effect from time to time.
(d) Life Insurance on the life of Executive in an amount
$500,000 payable to a beneficiary selected by Executive.
(e) Executive shall be entitled each year to a vacation
of 4 weeks during which time his compensation shall be paid in full, but the
period selected each year shall be with the approval of Employer.
(f) Reimbursement of all reasonable travel and other
business expenses incident to the rendering of services by Executive hereunder
and receipts in accordance with Employer's
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policy from time to time in effect and subject to the submission of appropriate
vouchers in accordance therewith.
(g) Long-term disability insurance covering 50% of
salary.
6. STOCK OPTIONS. Executive shall be entitled to participate in
Employer's Restricted Stock Program and any other Employee participation equity
programs offered by Employer.
7. TERMINATION. Employer shall have the right during the Term to
terminate the employment of Executive for Cause, Disability, or Material
Breach. Executive shall have the right to terminate his employment hereunder
for Good Reason. In the event of the death of Executive during the Term, or in
the event Employer or Executive shall terminate Executive's employment as
specified in the preceding sentence, the Term shall automatically end upon such
death or upon the effective date of such termination.
8. PAYMENT UPON TERMINATION.
(a) If Executive's employment is terminated by Employer
for Cause, Disability, or Material Breach, or by Executive other than for Good
Reason, or by the death of Executive, Employer's obligations under this
Agreement shall cease and Executive shall forfeit all right to receive
prospective compensation or other benefits under this Agreement. Salary and
reimbursable expenses accrued through the date of such termination; vested
pension contributions; qualified bonus; accrued vacation and any other "earned"
compensation shall be payable. No bonus shall be payable to Executive under
such circumstances unless Executive's entitlement thereto and the amount
thereof under the plan in effect at the time of his termination shall have been
determined and communicated to Executive prior to the effective date of such
termination.
(b) If Executive's employment is terminated by Employer
during the Term other than as provided in (a) above, or if Executive shall
voluntarily terminate his employment during the Term for Good Reason, Executive
shall be entitled to receive, and Employer shall be obligated to pay and
provide Executive, the following amounts:
(i) In a lump sum, an amount equal to the commuted
value of the base salary of Executive in effect or authorized at the time of
termination for the period remaining in the Term (determined by discounting all
payments at a rate equal to the bond equivalent yield of the latest two-year
Treasury Bill auction) to be paid in cash in the month next following
Executive's termination of employment and to be treated as a supplemental wage
payment under applicable Treasury Regulations subject to federal tax
withholding at the flat percentage rate applicable thereto, said amount to be
in lieu of any amount otherwise payable to Executive under any then effective
severance
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pay plan of Employer applicable to all or any class of employees of Employer.
(ii) To the extent that any form of compensation
previously granted to Executive, including stock options granted as provided in
Paragraph 6 above, shall not be fully vested or shall require additional
service as an employee at the time of the termination of Executive's
employment, Executive shall be credited with additional service through the end
of the Term for such purpose.
(iii) During the balance of Executive's Term,
Executive shall continue to receive such perquisites as he was receiving at the
time of termination of his employment and shall also continue to participate in
all life, health, disability and similar insurance plans and programs of
Employer to the extent that such continued participation is possible under the
general terms and provisions of such plans and programs, with Employer and
Executive paying the same portion of cost of each such plan or program as
existed at the time of Executive's termination. In the event that Executive's
continued participation in any group plans or programs is not permitted, then
in lieu thereof, Employer shall acquire, with the same cost sharing, individual
insurance policies providing comparable coverage for Executive; provided that
Employer shall not be obligated to pay for any such individual coverage more
than Employer's cost of such group coverage; and provided further, if any such
individual coverage is unavailable at such cost, then Employer shall pay to
Executive annually for such remaining Term an amount equal to the amount of the
annual contributions, payments, credits, or allocations made by Employer for
such insurance on Executive's behalf in the year immediately preceding the
termination of Executive's employment (or an annualized amount based on any
shorter period of employment).
9. CONFIDENTIAL INFORMATION. Executive understands that in the
course of his employment by Employer, Executive will receive certain trade
secrets, lists of customers and other confidential information concerning the
business or purposes of Employer, and which Employer desires to protect.
Executive understands that, among other things, [the management, method,
operating techniques, procedures and methods, forms, customer lists,
prospective acquisitions, employee lists, training manuals and procedures,
hardware systems, software programs, etc.] are confidential and are not at any
time during or after the period of Executive's employment by Employer to be
revealed to anyone outside Employer without specific written authorization by
Employer. Executive further agrees that he will not divulge to anyone outside
Employer any of the aforementioned confidential information or trade secrets so
long as the confidential or secret nature of such information shall continue.
Executive further agrees not to use any such confidential information or trade
secrets in competing with Employer at any time during or after his employment
by Employer.
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<PAGE> 6
[10. CUSTOMER SOLICITATION. The executive recognizes and
acknowledges that during employment the Executive will have access to, learn,
be provided with and, in some cases, will prepare and create certain
confidential and proprietary business information, including, but not limited
to, client and customer information and customer lists, all of which are of
substantial value to the Employer's business. The Employee agrees that in
addition to any other limitation, for a period of one year after the
termination of employment hereunder, the Employee will not, on his or her
behalf or on behalf of any other person, firm, corporation, call on any of the
Employer's customers, or any of its affiliates or subsidiaries for the purpose
of soliciting and/or providing to any of these customers any customer
information relating to Employer's services, nor will the Employee in any way,
directly or indirectly, for himself or herself, or on behalf of any other
person, firm, or corporation, solicit, divert, or take away any customer of the
Employer, its affiliates, or its subsidiaries.
11. Employee Solicitation. The Executive agrees that during his
employment with Employer and for one year after termination of employment, the
Executive will not, on behalf of himself or herself or on behalf of any other
person, firm, or corporation, solicit any of the employees of Employer nor will
the Executive in any way, directly, or indirectly, for himself or herself, or
on behalf of any other person, firm or corporation, solicit, divert, or take
away any employees of the Employer.
12. Inventions. Ideas, inventions, and other developments or
improvements conceived by the Executive, alone or with others, during
employment, whether or not during working hours, that are within Employer's
business operations's scope or that relate to any of the Employer's work or
projects, are the Employer's exclusive property. The Executive shall assist
the Employer at its expense to obtain patents for any patentable ideas,
inventions, or other developments, and shall execute all documents necessary to
obtain these patents in the Employer's name.
13. COVENANTS BY EXECUTIVE NOT TO COMPETE WITH EMPLOYER.
(a) Upon termination of Executive's employment by
Employer for any reason, Employee covenants and agrees as follows:
(i) That he will not at any time during the period
of 1 year(s) from and after such termination directly or indirectly or in any
manner or under any circumstances or conditions whatsoever be or become
interested, as an individual, partner, principal, agent, clerk, employee,
stockholder, officer, director, trustee, or in any other capacity whatsoever
(except as owner of stock of a public corporation in a nominal amount) in any
other business similar to the business of Employer, or in any way in
competition with the business of Employer within the United States, nor will
Employee engage or participate in,
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directly or indirectly (whether as an officer, director, employee, partner,
consultant, holder or an equity or debt investment, lender or in any other
manner or capacity), or lend his name (or any part or variant thereof) to, any
business which is, or as a result of the Executive's engagement or
participation would become, competitive with any aspect of the business of
Employer in the Area or solicit any officer, director, employee or agent of
Employer to become an officer, director, employee or agent of Executive, his
respective affiliates or anyone else. Ownership, in the aggregate, of less
than one percent (1%) of the outstanding shares of capital stock of any
corporation with one or more classes of its capital stock listed on a national
securities exchange or publicly traded in the over-the-counter market shall not
constitute a violation of the foregoing provision. For purposes of this
Paragraph 13(a), "Employer" shall be limited to Employer, and any successor
thereto, and the "business of Employer" shall be limited to its business as an
electronic commerce company, and any other lines of business developed or
entered into by it during the Term.
(ii) Executive hereby acknowledges that his services
are unique and extraordinary, and are not readily replaceable, and hereby
expressly agrees that Employer, in enforcing the covenants contained in
Paragraphs 9 through 13 herein, in addition to any other remedies provided for
herein or otherwise available at law, shall be entitled in any court of equity
having jurisdiction to an injunction restraining him in the event of a breach,
actual or threatened, of the agreements and covenants contained in these
Paragraphs.
(iii) The parties hereto believe that the restrictive
covenants of this Paragraph 13 are reasonable. However, if at any time it
shall be determined by any court of competent jurisdiction that this Paragraph
13 or any portion of them as written, are unenforceable because the
restrictions are unreasonable, the parties hereto agree that such portions as
shall have been determined to be unreasonably restrictive shall thereupon be
deemed so amended as to make such restrictions reasonable in the determination
of such court, and the said covenants, as so modified, shall be enforceable
between the parties to the same extent as if such amendments had been made
prior to the date of any alleged breach of said covenants.
(iv) This entire Paragraph 13 will be deemed null
and void in the event termination occurs pursuant to Material Breach as defined
in Paragraph 1.e.
(b) Executive hereby acknowledges the reasonableness of
the covenant not to compete, including the reasonableness of it's scope,
duration and geographic area. Executive further acknowledges that the Employer
is a national company that does business and competes for business with other
entities throughout the entire United States.
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<PAGE> 8
14. RESIGNATION. In the event that Executive's services hereunder
are terminated under any of the provisions of this Agreement (except by death),
Executive agrees that he will deliver his written resignation as Executive Vice
President, such resignation to become effective immediately.
15. INSURANCE. Employer shall have the right at is own cost and
expense to apply for and to secure in its own name, or otherwise, life, health
or accident insurance or any or all medical examination and otherwise to obtain
Executive's cooperation in connection with the procurement of any such
insurance, and any claims thereunder.
16. RELEASE. As a condition of receiving payments or benefits
provided for in Paragraph 8(a) of this Agreement, at the request of Employer,
Executive shall execute and deliver for the benefit of Employer, a general
release in the form set forth in Attachment A, and such release shall become
effective in accordance with its terms. The failure or refusal of Executive to
sign such a release or the revocation of such a release shall cause the
termination of any and all obligations of Employer to make payments or provide
benefits hereunder, and the forfeiture of the right of Executive to receive any
such payments and benefits. Executive acknowledges that Employer has advised
him to consult with an attorney prior to signing this Agreement and that he
has, in fact, consulted with an attorney.
17. NOTICES. All notices under this Agreement shall be in writing
and shall be deemed effective when delivered in person to Executive, or if
mailed, postage prepaid, registered or certified mail, addressed, in the case
of Executive, to his last known address as carried on the personnel records of
Employer, and, in the case of Employer, to the corporate headquarters or to
such other address as the party to be notified may specify by notice to the
other party. Executive hereby agrees to give Employer not less than thirty
(30) days' advance notice of his intended resignation or other termination from
Employer, whether or not at the end of the Term. Employer hereby agrees to
give Executive not less than 30 days advance notice if it should decide not to
extend the Term of this Agreement beyond December 1, 2001.
18. SUCCESSORS AND ASSIGNS. The rights and obligations of
Employer under this Agreement shall inure to the benefit of and shall be
binding upon the successors and assigns of Employer, including, without
limitation, any corporation, individual or other person or entity which may
acquire all or substantially all the assets and business of Employer, or of any
division of Employer for which Executive has primary management responsibility,
or with or into which Employer may be consolidated or merged or any surviving
corporation in any merger involving Employer. All references in this Agreement
to Employer shall be deemed to include all such successors and assigns. This
Agreement shall inure to the benefit of and be enforceable by Executive's
personal or legal representatives, executors, administrators, successors,
heirs, distributes, devisees and
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legatees. If Executive should die following termination of his employment and
prior to the receipt of all amounts due to him, if any, under this Agreement,
then all such amounts not previously paid to Executive shall, unless otherwise
provided herein, be paid in accordance with the terms of this Agreement to
Executive's devisee, legatee or other designee or, if there be no such
designee, to Executive's estate.
19. ARBITRATION. Any dispute under this Agreement which may arise
between the parties hereto shall be submitted to binding arbitration in New
Jersey in accordance with the Rules of the American Arbitration Association.
Said Arbitrator must be mutually acceptable to the parties.
20. SEVERABILITY. If any of the terms or conditions of this
Agreement shall be declared void or unenforceable by any court or
administrative body of competent jurisdiction, such term or condition shall be
deemed severable from the remainder of this Agreement, and the other terms and
conditions of this Agreement shall continue to be valid and enforceable.
21. AMENDMENT. This Agreement may be modified or amended only by
an instrument in writing executed by the parties hereto.
22. CONSTRUCTION. This Agreement shall supersede and replace all
prior agreements and understandings between the parties hereto on the subject
matter covered hereby. This Agreement shall be governed and construed under
the laws of the State of New Jersey. Words of the masculine gender mean and
include correlative words of the feminine gender. Paragraph headings are for
convenience only and shall not be considered a part of the terms and provisions
of the Agreement.
/s/ Steve Vanechanos, Jr. /s/ Kenneth Konikowski
- - ------------------------- -----------------------------
Steve Vanechanos, Jr. Kenneth Konikowski
President Executive
Date: 11/30/96 Date: 11/30/96
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<PAGE> 10
RELEASE
We advise you to consult an attorney before you sign this Release.
You have until the date which is seven (7) days after the Release is signed and
returned to __________ to change your mind and revoke your Release. Your
Release shall not become effective or enforceable until after that date.
In consideration for the benefits provided under your Employment
Agreement with _________, by your signature below you agree not to make any
claims of any kind against __________, its past and present and future parent
corporations, subsidiaries, divisions, subdivisions, affiliates and related
companies or their successors and assigns, any and all past, present and future
Directors, officers, fiduciaries or employees (all parties referred to in the
foregoing are hereinafter referred to as the "Releasees") before any agency,
court or other forum, and you agree to release the Releasees from all claims,
known or unknown, arising in any way from any actions taken by the Releasees up
to the date of this Release, including, without limiting the foregoing, any
claim for wrongful discharge or breach of contract or any claims arising under
the Age Discrimination in Employment Act of 1967, Title VII of the Civil Rights
Act of 1964, the Americans with Disabilities Act of 1990, the Employee
Retirement Income Security Act of 194, or any other federal, state or local
statute or regulation and any claim for attorneys' fees, expenses or costs of
litigation, except that this Release is not intended, and shall not be
construed, to release __________ from any vested obligations it may have under
its employee pension benefits plans.
THE PRECEDING PARAGRAPH MEANS THAT BY SIGNING THIS RELEASE YOU WILL
HAVE WAIVED ANY RIGHT YOU MAY HAVE TO BRING A LAWSUIT OR MAKE ANY LEGAL CLAIM
AGAINST THE RELEASEES BASED ON ANY ACTIONS TAKEN BY THE RELEASEES UP TO THE
DATE OF THIS RELEASE.
By signing this Release, you further agree as follows:
10. You have read this Release carefully and fully understand its
terms;
11. You have had at least twenty-one (21) days to consider the
terms of the Release;
12. You have seven (7) days from the date you sign this Release to
revoke it by written notification to __________. After this seven (7) day
period, this Release is final and binding and may not be revoked;
13. You have been advised to seek legal counsel and have had an
opportunity to do so;
14. You would not otherwise be entitled to the benefits provided
under your Employment Agreement with __________ had you
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not agreed to waive any right you have to bring a lawsuit or legal claim
against the Releasees; and
15. Your agreement to the terms set forth above is voluntary.
Name:
-------------------------
Signature: Date:
--------------------- ---------------
Received by: Date:
------------------- ---------------
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THIS LEASE AGREEMENT, made the ______ day of
_________________, 1996,
Between BEAUTY AND BARBER INSTITUTE, INC. residing or located
at 11811 North Tatum Boulevard, Suite 1085, in the City of Phoenix in the
County of ________________ and State of Arizona, herein designated as the
Landlord,
And DYNAMICWEB TRANSACTION SYSTEMS, INC. residing or located
at _________________________ in the __________________ of ______________ in the
County of ________________________ and State of _______________________, herein
designated as the Tenant;
WITNESSETH THAT, the Landlord does hereby lease to the Tenant
and the Tenant does hereby rent from the Landlord, the following described
premises: Suites E208, E209 and E210 totalling approximately 2,622 square feet
at Fairfield Commons, 271 Route 46 West, Fairfield, New Jersey 07004 for a term
of five (5) years commencing on November 1, 1996, and ending on October 31,
2001, to be used and occupied only and for no other purpose than office use.
Tenant, shall be permitted to take possession of the Premises immediately upon
the payment of the security provided for herein, it being agreed that the first
month's rent is due on or before March 1, 1997.
UPON THE FOLLOWING CONDITIONS AND COVENANTS:
1st: The Tenant covenants and agrees to pay to the Landlord,
as rent for and during the term hereof, the sum of $_________________ in the
following manner:
SEE ADDENDUM ANNEXED HERETO
2nd: The Tenant has examined the premises and has entered
into this lease without any representation on the part of the Landlord as to
the condition thereof. The Tenant shall take good care of the premises and
shall at the Tenant's own cost and expense, make all repairs, including
painting and decorating, and shall maintain the premises in good condition and
state of repair, and at the end or other expiration of the term hereof, shall
deliver up the rented premises in good order and condition, wear and tear from
a reasonable use thereof, and damage by the elements not resulting from the
neglect or fault of the Tenant, excepted. The Tenant shall neither encumber
nor obstruct the sidewalks, driveways, yards, entrances, hallways and stairs,
but shall keep and maintain the same in a clean condition, free from debris,
trash, refuse, snow and ice.
3rd: In case of the destruction of or any damage to the glass
in the leased premises, or the destruction of or damage of any kind whatsoever
to the said premises, caused by the carelessness, negligence or improper
conduct on the part of the Tenant or the Tenant's agents, employees, guests,
licensees, invitees, subtenants, assignees or successors, the Tenant shall
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repair the said damage or replace or restore any destroyed parts of the
premises, as speedily as possible, at the Tenant's own cost and expense.
4th: No alterations, additions or improvements shall be made,
and no climate regulating, air conditioning, cooling, heating or sprinkler
systems, television or radio antennas, heavy equipment, apparatus and fixtures,
shall be installed in or attached to the leased premises, without the written
consent of the Landlord. Unless otherwise provided herein, all such
alterations, additions or improvements and systems, when made, installed in or
attached to the said premises, shall belong to and become the property of the
Landlord and shall be surrendered with the premises and as part thereof upon
the expiration or sooner termination of this lease, without hindrance,
molestation or injury.
5th: The Tenant shall not place nor allow to be placed any
signs of any kind whatsoever, upon or about the said premises or any part
thereof, except of a design and structure and in or at such places as may be
indicated and consented to by the Landlord in writing. In case the Landlord or
the Landlord's agents, employees or representatives shall deem it necessary to
remove any such signs in order to paint or make any repairs, alterations or
improvements in or upon said premises or any part thereof, they may be so
removed, but shall be replaced at the Landlord's expense when the said repairs,
alterations or improvements shall have been completed. Any signs permitted by
the Landlord shall at all times conform with all municipal ordinances or other
laws and regulations applicable thereto.
6th: The Tenant shall pay when due all the rents or charges
for water or other utilities used by the Tenant, which are or may be assessed
or imposed upon the leased premises or which are or may be charged to the
Landlord by the suppliers thereof during the term hereof, and if not paid, such
rents or charges shall be added to and become payable as additional rent with
the installment of rent next due or within 30 days of demand therefor,
whichever occurs sooner.
7th: The Tenant shall promptly comply with all laws,
ordinances, rules, regulations, requirements and directives of the Federal,
State and Municipal Governments or Public Authorities and of all their
departments, bureaus and subdivisions, applicable to and affecting the said
premises, their use and occupancy, for the correction, prevention and abatement
of nuisances, violations or other grievances in, upon or connected with the
said premises, during the term hereof; and shall promptly comply with all
orders, regulations, requirements and directives of the Board of Fire
Underwriters or similar authority and of any insurance companies which have
issued or are about to issue policies of insurance covering the said premises
and its contents, for the prevention of fire or other casualty, damage or
injury, at the Tenant's own cost and expense.
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8th: The Tenant, at Tenant's own cost and expense, shall
obtain or provide and keep in full force for the benefit of the Landlord,
during the term hereof, general public liability insurance, insuring the
Landlord against any and all liability or claims of liability arising out of,
occasioned by or resulting from any accident or otherwise in or about the
leased premises, for injuries to any person or persons, for limits of not less
than $1 million for injuries to one person and $1 million for injuries to more
than one person, in any one accident or occurrence, and for loss or damage to
the property of any person or persons, for not less than $100,000.00. The
policy or policies of insurance shall be of a company or companies authorized
to do business in this State and shall be delivered to the Landlord, together
with evidence of the payment of the premiums therefor, not less than fifteen
days prior to the commencement of the term hereof or of the date when the
Tenant shall enter into possession, whichever occurs sooner. At least fifteen
days prior to the expiration or termination date of any policy, the Tenant
shall deliver a renewal or replacement policy with proof of the payment of the
premium therefor. The Tenant also agrees to and shall save, hold and keep
harmless and indemnify the Landlord from and for any and all payments,
expenses, costs, attorney fees and from and for any and all claims and
liability for losses or damage to property or injuries to persons occasioned
wholly or in part by or resulting from any acts or omissions by the Tenant or
the Tenant's agents, employees, guests, licensees, subtenants, assignees or
successors or for any cause [TEXT ILLEGIBLE].
9th: The Tenant shall not, without the written consent of the
Landlord, assign, mortgage or hypothecate this lease, nor sublet the premises
or any part thereof.
10th: The Tenant shall not occupy or use the leased premises
or any part thereof, nor permit or suffer the same to be occupied or used for
any purposes other than as herein limited, nor for any purposes deemed
unlawful, disreputable, or extra hazardous, on account of fire or other
casualty.
11th: This lease shall not be lien against the said premises
in respect to any mortgages that may hereafter be placed upon said premises.
The recording of such mortgage or mortgages shall have preference and
precedence and be superior and prior in lien to this lease, irrespective of the
date of recording and the Tenant agrees to execute any instruments, without
cost, which may be deemed necessary or desirable, to further effect the
subordination of this lease to any such mortgage or mortgages. A refusal by
the Tenant to execute such instruments shall entitle the Landlord to the option
of cancelling this lease, and the term hereof is hereby expressly limited
accordingly.
12th: If the land and premises leased herein, or of which the
leased premises are a part, or any portion thereof, shall be taken under
eminent domain or condemnation proceedings, or if suit or other actions shall
be instituted for the taking or
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<PAGE> 4
condemnation thereof, or if in lieu of any format condemnation proceedings or
actions, the Landlord shall grant an option to purchase and or shall sell and
convey the said premises or any portion thereof, to the governmental or other
public authority, agency, body or public utility, seeking to take said land and
premises or any portion thereof, then this lease, at the option of the
Landlord, shall terminate, and the term hereof shall end as of such date as the
Landlord shall fix by notice in writing; and the Tenant shall have no claim or
right to claim or be entitled to any portion of any amount which may be awarded
as damages or paid as the result of such condemnation proceedings or paid as
the purchase price for such option, sale or conveyance in lieu of formal
condemnation proceedings; and all rights of the Tenant to damages, if any, are
hereby assigned to the Landlord. The Tenant agrees to execute and deliver any
instruments, at the expense of the Landlord, as may be deemed necessary or
required to expedite any condemnation proceedings or to effectuate a proper
transfer of title to such governmental or other public authority, agency, body
or public utility seeking to take or acquire the said lands and premises or any
portion thereof. The Tenant covenants and agrees to vacate the said premises,
remove all the Tenant's personal property therefrom and deliver up peaceable
possession thereof to the Landlord or to such other party designated by the
Landlord in the aforementioned notice. Failure by the Tenant to comply with
any provisions in this clause shall subject the Tenant to such costs, expenses,
damages and losses as the Landlord may incur by reason of the Tenant's breach
hereof.
13th: In case of fire or other casualty, the Tenant shall
give immediate notice to the Landlord. If the premises shall be partially
damaged by fire, the elements or other casualty, the Landlord shall repair the
same as speedily as practicable, but the Tenant's obligation to pay the rent
hereunder shall not cease. If, in the opinion of the Landlord, the premises be
so extensively and substantially damaged as to render them untenantable, then
the rent shall cease until such time as the premises shall be made tenantable
by the Landlord. However, if, in the opinion of the Landlord, the premises be
totally destroyed or so extensively and substantially damaged as to require
practically a rebuilding thereof, then the rent shall be paid up to the time of
such destruction and then and from thenceforth this lease shall come to an end.
In no event however, shall the provisions of this clause become effective or be
applicable, if the fire or other casualty and damage shall be the result of the
carelessness, negligence or improper conduct of the Tenant or the Tenant's
agents, employees, guests, licensees, invitees, subtenants, assignees or
successors. In such case, the Tenant's liability for the payment of the rent
and the performance of all the covenants, conditions and terms hereof on the
Tenant's part to be performed shall continue and the Tenant shall be liable to
the Landlord for the damage and loss suffered by the Landlord. If the Tenant
shall have been insured against any of the risks herein covered, then the
proceeds of such insurance shall be paid over to the Landlord to the extent of
the
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<PAGE> 5
Landlord's costs and expenses to make the repairs hereunder, and such insurance
carriers shall have no recourse against the Landlord for reimbursement.
14th: If the Tenant shall fail or refuse to comply with and
perform any conditions and covenants of the within lease, the Landlord may, if
the Landlord so elects, carry out and perform such conditions and covenants, at
the cost and expense of the Tenant, and the said cost and expense shall be
payable on demand, or at the option of the Landlord shall be added to the
installment of rent due immediately thereafter but in no case later than one
month after such demand, whichever occurs sooner, and shall be due and payable
as such. This remedy shall be in addition to such other remedies as the
Landlord may have hereunder by reason of the breach by the Tenant of any of the
covenants and conditions in this lease contained.
15th: The Tenant agrees that the Landlord and the Landlord's
agents, employees or other representatives, shall have the right to enter into
and upon the said premises or any part thereof, at all reasonable hours, for
the purpose of examining the same or making such repairs or alterations therein
as may be necessary for the safety and preservation thereof. This clause shall
not be deemed to be covenant by the Landlord nor be construed to create an
obligation on the part of the Landlord to make such inspection or repairs.
16th: The Tenant agrees to permit the Landlord and the
Landlord's agents, employees or other representatives to show the premises to
persons wishing to rent or purchase the same, and Tenant agrees that on and
after next preceding the expiration of the term hereof, the Landlord or the
Landlord's agents, employees or other representatives shall have the right to
place notices on the front of said premises or any part hereof, offering the
premises for rent or for sale; and the Tenant hereby agrees to permit the same
to remain thereon without hindrance or molestation.
17th: If for any reason it shall be impossible to obtain fire
and other hazard insurance on the buildings and improvements on the leased
premises, in an amount and in the form and in insurance companies acceptable to
the Landlord, the Landlord may, if the Landlord so elects at any time
thereafter, terminate this lease and the term hereof, upon giving to the Tenant
fifteen days notice in writing of the Landlord's intention so to do, and upon
the giving of such notice, this lease and the term thereof shall terminate. If
by reason of the use to which the premises are put by the Tenant or character
of or the manner in which the Tenant's business is carried on, the insurance
rates for fire and other hazards shall be increased, the Tenant shall upon
demand, pay to the Landlord, as rent, the amounts by which the premiums for
such insurance are increased. Such payment shall be paid with the next
installment of rent but in no case later than one month after such demand,
whichever occurs sooner.
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<PAGE> 6
18th: Any equipment, fixtures, goods or other property of the
Tenant, not removed by the Tenant upon the termination of this lease, or upon
any quitting, vacating or abandonment of the premises by the Tenant or upon the
Tenant's eviction, shall be considered as abandoned and the Landlord shall have
the right, without any notice to the Tenant, to sell or otherwise dispose of
the same, at the expense of the Tenant, and shall not be accountable to the
Tenant for any part of the proceeds of such sale, if any.
19th: If there should occur any default on the part of the
Tenant in the performance of any conditions and covenants herein contained, or
if during the term hereof the premises or any part thereto shall be or become
abandoned or deserted, vacated, or vacant, or should the Tenant be evicted by
summary proceedings or otherwise, the Landlord, in addition to any other
remedies herein contained or as may be permitted by law, may either by force or
otherwise, without being liable for prosecution therefor, or for damages,
re-enter the said premises and the same have and again possess and enjoy; and
as agent for the Tenant or otherwise, re-let the premises and receive the rents
therefor and apply the same, first to the payment of such expenses, reasonable
attorney fees and costs, as the Landlord may have been put to in re-entering
and repossessing the same and in making such repairs and alterations as may be
necessary; and second to the payment of the rents due hereunder. The Tenant
shall remain liable for such rents as may be in arrears and also the rents as
may accrue subsequent to the re-entry by the Landlord, to the extent of the
difference between the rents reserved hereunder and the rents, if any, received
by the Landlord during the remainder of the unexpired term hereof, after
deducting the aforementioned expenses, fees and costs; the same to be paid as
such deficiencies arise and are ascertained each month.
20th: Upon the occurrence of any of the contingencies set
forth in the preceding clause, or should the Tenant be adjudicated a bankrupt,
insolvent or placed in receivership, or should proceedings be instituted by or
against the Tenant for bankruptcy, insolvency, receivership, agreement of
composition or assignment for the benefit of creditors, or if this lease or the
estate of the Tenant hereunder shall pass to another by virtue of any court
proceedings, writ of execution, levy, sale, or by operation of law, the
Landlord may, if the Landlord so elects, at any time thereafter, terminate this
lease and the term hereof, upon giving to the Tenant or to any trustee,
receiver, assignee or other person in charge of or acting as custodian of the
assets or property of the Tenant, five days notice in writing, of the
Landlord's intention so to do. Upon the giving of such notice, this lease and
the term hereof shall end on the date fixed in such notice as if the said date
was the date originally fixed in this lease for the expiration hereof; and the
Landlord shall have the right to remove all persons, goods, fixtures and
chattels therefrom, by force or otherwise, without liability for damages.
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<PAGE> 7
21st: The Landlord shall not be liable for any damage or
injury which may be sustained by the Tenant or any other person, as a
consequence of the failure, breakage, leakage or obstruction of the water,
plumbing, stream, sewer, waste or soil pipes, roof, drains, leaders, gutters,
valleys, downspouts or the like or of the electrical, gas, power, conveyor,
refrigeration, sprinkler, airconditioning, or heating systems, elevators or
hoisting equipment; or by reason of the elements; or resulting from the
carelessness, negligence or improper conduct on the part of any other Tenant or
of the Landlord or the Landlord's or this or any other Tenant's agents,
employees, guests, licensees, invitees, subtenants, assignees or successors; or
attributable to any interference with, interruption of or failure, beyond the
control of the landlord, of any services to be furnished or supplied by the
Landlord.
22nd: The various rights, remedies, options and elections of
the Landlord, expressed herein, are cumulative, and the failure of the Landlord
to enforce strict performance by the Tenant of the conditions and covenants of
this lease or to exercise any election or option or to resort or have recourse
to any remedy herein conferred or the acceptance by the Landlord of any
installment of rent after any breach by the Tenant, in any one or more
instances, shall not be construed or deemed to be a waiver of a relinquishment
for the future by the Landlord of any such conditions and covenants, options,
elections or remedies, but the same shall continue in full force and effect.
23rd: This lease and the obligation of the Tenant to pay the
rent hereunder and to comply with the covenants and conditions hereof, shall
not be affected, curtailed, impaired or excused because of the Landlord's
inability to supply any service or material called for herein, by reason of any
rule, order, regulation or preemption by any governmental entity, authority,
department, agency or subdivision or for any delay which may arise by reason of
negotiations for the adjustment of any fire or other casualty loss or because
of strikes or other labor trouble or for any cause beyond the control of the
Landlord.
24th: The terms, conditions, covenants and provisions of this
lease shall be deemed to be severable. If any clause or provision herein
contained shall be adjudged to be invalid or unenforceable by a court of
competent jurisdiction or by operation of any applicable law, it shall not
affect the validity of any other clause or provision herein, but such other
clauses or provisions shall remain in full force and effect.
25th: All notices required under the terms of this lease
shall be given and shall be complete by mailing such notices by certified or
registered mail, return receipt requested, to the address of the parties as
shown at the head of this lease, or to such other address as may be designated
in writing, which notice of change of address shall be given in this same
manner.
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<PAGE> 8
26th: The Landlord covenants and represents that the Landlord
is the owner of the premises herein leased and has the right and authority to
enter into, execute and deliver this lease; and does further covenant that the
Tenant on paying the rent and performing the conditions and covenants herein
contained, shall and may peaceably and quietly have, hold and enjoy the leased
premises for the term aforementioned.
27th: This lease contains the entire contract between the
parties. No representative, agent or employee of the Landlord has been
authorized to make any representations or promises with reference to the within
letting or to vary, alter or modify the terms hereof. No additions, changes or
modifications, renewals or extensions hereof, shall be binding unless reduced
to writing and signed by the Landlord and the Tenant.
28th: If in any calendar year during the term and of any
renewal or extension of the term hereof, the annual municipal taxes assessed
against the land and improvements leased hereunder or of which the premises
herein leased are a part, shall be greater than the municipal taxes assessed
against the said lands and improvements for the calendar year 1996, which is
hereby designated as the base year, then, in addition to the rent herein fixed,
the Tenant agrees to pay a sum equal to One Hundred (100%) percent of the
amount by which said tax exceeds the annual tax for the base year, inclusive of
any increase during any such calendar year. The said sum shall be considered
as additional rent and shall be paid in as many equal installments as there are
months remaining in the calendar year in which said taxes exceed the taxes for
the base year, on the first day of each month, in advance, during the remaining
months of that year. If the term hereof shall commence after the first day of
January or shall terminate prior to the last day of December in any year, then
such additional rent resulting from a tax increase shall be proportionately
adjusted for the fraction of the calendar year involved.
29th: If any mechanics' or other liens shall be created or
filed against the leased premises by reason of labor performed or materials
furnished for the Tenant in the erection, construction, completion, alteration,
repair or addition to any building or improvement, the Tenant shall upon
demand, at the Tenant's own cost and expense, cause such lien or liens to be
satisfied and discharged of record together with any Notices of Intention that
may have been filed. Failure so to do, shall entitle the Landlord to resort to
such remedies as are provided herein in the case of any default of this lease,
in addition to such as are permitted by law.
30th: The Tenant waives all rights of recovery against the
Landlord or Landlord's agents, employees or other representatives, for any
loss, damages or injury of any nature whatsoever to property or persons for
which the Tenant is insured. The Tenant shall obtain from Tenant's insurance
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<PAGE> 9
carriers and will deliver to the Landlord, waivers of the subrogation rights
under the respective policies.
31st: The Tenant has this day deposited with the Landlord the
sum of $6,118.00 as security for the payment of the rent hereunder and the full
and faithful performance by the Tenant of the covenants and conditions on the
part of the Tenant to be performed. Said sum shall be returned to the Tenant,
without interest, after the expiration of the term hereof, provided that the
Tenant has fully and faithfully performed all such covenants and conditions and
is not in arrears in rent. During the term hereof, the Landlord may, if the
Landlord so elects, have recourse to such security, to make good any default by
the Tenant, in which event the Tenant shall on demand, promptly restore said
security to its original amount. Liability to repay said security to the
Tenant shall run with the reversion and title to said premises, whether any
change in ownership thereof be by voluntary alienation or as the result of
judicial sale, foreclosure or other proceedings, or the exercise of a right of
taking or entry by any mortgagee. The Landlord shall assign or transfer said
security, for the benefit of the Tenant, to any subsequent owner or holder of
the reversion or title to said premises, in which case the assignee shall
become liable for the repayment thereof as herein provided, and the assignor
shall be deemed to be released by the Tenant from all liability to return such
security. This provision shall be applicable to every alienation or change in
title and shall in no wise be deemed to permit the Landlord to retain the
security after termination of the Landlord's ownership of the reversion or
title. The Tenant shall not mortgage, encumber or assign said security without
the written consent of the Landlord.
The Landlord may pursue the relief or remedy sought in any
invalid clause, by conforming the said clause with the provisions of the
statutes or the regulations of any governmental agency in such case made and
provided as if the particular provisions of the applicable statutes or
regulations were set forth herein at length.
In all references herein to any parties, persons, entities or
corporations the use of any particular gender or the plural or singular number
is intended to include the appropriate gender or number as the text of the
within instrument may require. All the terms, covenants and conditions herein
contained shall be for and shall inure to the benefit of and shall bind the
respective parties hereto, and their heirs, executors, administrators, personal
or legal representatives, successors and assigns.
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IN WITNESS WHEREOF, the parties hereto have hereunto set their
hands and seals, or caused these presents to be signed by their proper
corporate officers and their proper corporate seal to be hereto affixed, the
day and year first above written.
BEAUTY AND BARBER INSTITUTE, INC.
Signed, Sealed and Delivered By: /s/ Fred Polk
in the presence of -------------------------------
or Attested by Landlord
DYNAMICWEB TRANSACTION SYSTEMS, INC.
By: /s/ Nina Pescatore
-------------------------------
Tenant
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State of New Jersey, County of ___________________________ } ss.: Be it
Remembered that on _______________________, 19___, before me, the subscriber,
__________________________, personally appeared
______________________________________, who, I am satisfied, __________ the
person _______ named in and who executed the within Instrument, and thereupon
____________ acknowledged that ___________ signed, sealed and delivered the
same as ____________ act and deed, for the uses and purposes therein expressed.
- - -----------------------------------------
State of New Jersey, County of ___________________________ } ss.: Be it
Remembered that on _______________________, 19___, before me, the subscriber,
__________________________, personally appeared
______________________________________, who, being by me duly sworn on h
___________ oath, deposes and makes proof to my satisfaction, that ______ he is
the ________________ Secretary of ______________________________ the
Corporation named in the within Instrument; that _____________________________
is the President of said Corporation; that the execution, as well as the making
of this Instrument, has been duly authorized by a proper resolution of the
Board of Directors of the said Corporation; that deponent well knows the
corporate seal of said Corporation; and that the seal affixed to said
Instrument is the proper corporate seal and was thereto affixed and said
Instrument signed and delivered by said ___________________ President as and
for the voluntary act and deed of said Corporation, in presence of deponent,
who thereupon subscribed h ______________ named thereto as attesting witness.
Sworn to and subscribed before me,
the date aforesaid.
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LEASE
--------------------------------
BEAUTY AND BARBER INSTITUTE, INC.
TO
DYNAMIC WEB, INC.
---------------------------------
Dated, , 1996
---------------------------------
Expires, December 30, 2002
Rent, $ See attached Addendum
SIMON, SARVER & ROSENBERG, P.A.
ONE PASSAIC AVENUE
FAIRFIELD, NEW JERSEY 07004
ATTENTION: MARTIN SARVER, ESQ.
Prepared by: Martin Sarver, Esq.
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ASSIGNMENT OF LEASE
For one dollar and other good and valuable consideration, the Tenant
as Assignor, assigns this Lease and all the Assignor's rights and privileges
therein, including any and all monies deposited with the Landlord as security,
subject to all the terms, covenants and conditions contained therein; and the
Assignee accepts this Assignment of Lease and assumes and agrees to comply with
and be bound by the terms, covenants and conditions in said Lease contained.
The signature of the Landlord hereto is evidence of the Landlord's consent to
and acceptance of this Assignment of Lease.
- - ------------------------------ ------------------------------
Assignee Assignor
------------------------------
Landlord
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RIDER TO LEASE AGREEMENT
THIS RIDER is annexed to and made a part of the Lease Agreement dated
October 11, 1996, between BEAUTY AND BARBER INSTITUTE, INC., as "Landlord", and
DYNAMICWEB TRANSACTION SYSTEMS, INC., as "Tenant".
The printed portion of the Lease Agreement is hereby modified and
supplemented as follows. Wherever three is any conflict between the Rider and
the Lease Agreement, the provisions of this Rider are paramount and the Lease
Agreement shall be construed accordingly.
SECTION 1ST:
Delete the printed Section 1st in its entirety and replace it with the
following:
"1st: The Tenant covenants and agrees to pay to the Landlord, as rent
for and during the Term hereof the sum of $177,203.50 in the following manner:
Between March 1, 1997 and October 31, 1997, the sum of
$24,472.00 payable monthly at the rate of $3,059.00 per month;
Between November 1, 1997 and October 31, 1998, the sum of
$36,708.00 payable monthly at the rate of $3,059.00 per month;
Between November 1, 1998 and October 31, 1998, the sum of
$38,019.00 payable monthly at the rate of $3,168.25 per month;
Between November 1, 1999 and October 31, 2000, the sum of
$38,674.50 payable monthly at the rate of $3,222.88 per month;
Between November 1, 2000 and October 31, 2001, the sum of
$39,330.00 payable monthly at the rate of $3,277.50 per month;
Tenant acknowledges that the rent is a net rent except that Landlord
will pay the underlying municipal taxes as provided for in Paragraph 28th, will
pay the condominium fees and will pay the common area maintenance expenses, and
Tenant agrees that it will pay all other expenses associated with the use and
occupancy of the Premises including, but not limited to utilities, repairs,
etc."
SECTION 4TH:
Add the following to the end of the printed Section 4th:
"Tenant shall be permitted to make the alterations and improvements
set forth on the attached drawing, but Tenant shall be responsible for all
costs associated with said alterations and improvements. Any portable
non-permanent work stations installed by Tenant shall remain the property of
the Tenant and shall be removed by the Tenant at the termination of this
Lease."
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SECTION 9TH:
Add the following to the end of the printed Section 9th:
"Landlord shall not unreasonably withhold its consent to an assignment
or sublease of the Premises or any part thereof."
SECTION 32ND:
Tenant acknowledges that the Premises is a condominium and agrees to
abide by the terms and conditions of the condominium association.
SECTION 33RD:
Tenant shall have the right of first refusal to purchase the Premises.
SECTION 34TH:
Landlord and Tenant agree that in the event the Landlord transfers
ownership of the Premises this Lease shall continue in full force and effect.
SECTION 35TH:
Notwithstanding anything herein to the contrary, Tenant shall be
permitted to take possession of the Premises immediately upon payment of the
security provided for herein and the first month's rent shall be due and
payable on or before March 1, 1997.
IN WITNESS WHEREOF, the undersigned have caused its duly authorized
representatives to set their hands and seals as of the day and year first above
written.
ATTEST: BEAUTY AND BARBER INSTITUTE, INC.
- - ------------------------- BY: /s/ Fred Polk
-------------------------------
ATTEST: DYNAMICWEB TRANSACTION SYSTEMS, INC.
- - ------------------------- BY: /s/ Nina Pescatore
------------------
15
<PAGE> 1
LEASE AGREEMENT
LEASE AGREEMENT, made between The Mask Group, 36 Pinebrook Rd.,
Towaco, NJ 07082 (Landlord) and Software Associates, Inc. 219 Paterson Ave.,
Little Falls, NJ 07424 (Tenant).
For good consideration it is agreed between the parties as follows:
1). Landlord hereby leases and rents to the Tenant the premises
described as follows:
The property consists of an Office Condominium Units located at
Fairfield Commons, 271 Rt 46 W, Fairfield, NJ 07004, Units designated as F107,
F108, F109, F110.
2). This lease shall be in effect for a term of 25 years,
commencing on July 1, 1994 and ending on June 30, 2018.
3). Tenant shall pay the landlord the annual rent of $37,500.00
during said term, in monthly payments of $3,125.00, each, payable monthly in
advance.
4). The Tenant will give the Landlord a Security amount equal to
1.5 times the monthly rental amount. The Security shall be held by the
Landlord during the term of the Lease. The Landlord may deduct any expenses
incurred in connection with the Tenant's failure to comply with any agreement
in this Lease. For example, if the Tenant does not leave the premises in good
condition at the end of the Term, the Security may be used to put it in good
condition. If the amount needed exceeds the Security, the Tenant shall pay the
additional amount to the Landlord on demand. Within 30 days after the end of
the Term, the Landlord shall return to the Tenant (A) the Security, less any
deductions made under this lease, (B) a statement itemizing the deductions.
5). Landlord is entitled to annual rent increases not to exceed 5%
of the prior annual rental amount.
6). The tenant may not do any of the following without the
landlord's written consent: (A) Assign this lease, (B) Sublet all or any part
of this lease.
7). Utilities, Services, Fees. Tenant is responsible for the
following: (A) Heat (B) Hot and Cold Water (C) Electric (D) Air Conditioning
(E) Telephone (F) Cleaning (G) Garbage removal. (H) Condo Association Fees.
The Landlord shall not be liable to the Tenant for any interruption
or delay of these services beyond the control of the Landlord.
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<PAGE> 2
8). Tenant's Repairs, Maintenance and Compliance. The Tenant
shall:
(A) Promptly comply with all laws, orders, rules and
requirements of any governmental authorities, property owners association,
insurance carriers, board of fire underwriters.
(B) Keep and maintain the Premises in a neat, safe, clean,
and sanitary manner. Vehicles may be driven or parked only in the designated
parking areas.
(C) Take care of the Premises and all the Fixtures in it.
(D) Promptly make all necessary repairs and replacements to
the Premises and all equipment and fixtures in it whenever the need results
from the Tenants act or neglect. This includes damage caused by the Tenant's
employees, or guests.
(E) Promptly notify the Landlord when there are conditions
in need of repair.
(F) Remove from the Premise all garbage and debris and take
to the disposal area for collection
(G) Use all Electric, Plumbing, Sanitary, Heating, Cooking,
and other facilities in and around the House in a safe and reasonable way.
(H) Obey any written instructions of the Landlord for the
care and use of appliances, equipment, and other personal property in the
Premises.
(I) Keep nothing inflammable or dangerous in the Premise.
NOTE. The Tenant shall pay for all expenses necessary to comply with the
above.
9). Landlord's Repairs. The Landlord shall, at the Landlord's
expense make necessary repairs and replacements to the Premise and all
equipment and fixtures in it if not caused by the act or neglect of the Tenant,
the Tenant's employees, or guests
10). Access to the_Premises. The Landlord shall have access to the
premise on reasonable notice to the Tenant to (A) inspect the Premise, (B) make
necessary repairs, alterations or improvements (C) supply necessary services
(D) show the Premise to potential renters, contractors, and insurers.
11). No Alteration or Installation of Equipment. The Tenant shall
not make any changes or additions to the Premise without the Landlord's written
consent. Any changes made by the
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<PAGE> 3
Tenant without the Landlord's written consent shall be removed by the Tenant on
demand.
12). Fire and other casualty.__The Tenant shall give the Landlord
immediate notice of any fire or other casualty in the Premise. If the Premise
cannot be used because of fire or casualty, the Tenant is not required to pay
rent for the time the Premise is unusable. If the fire or casualty is caused
by act or neglect of the Tenant or the Tenant's employees or guests, the Tenant
shall pay for all repairs and all other damages. In that case the Tenant must
pay the rent for the full Term. If the Premise is partially damaged by fire or
casualty without the act or neglect of the Tenant, the Landlord shall repair it
as soon as possible. This Lease shall terminate if the Premise is totally
destroyed by fire or other casualty without the act or neglect of the Tenant or
the Tenant's employees or guests.
13). Non-liability of Landlord. The Landlord is not liable for
loss, injury or damage to any person or property unless it has to do with the
Landlord's act or neglect. The Tenant shall repay the Landlord any monies
spent by the Landlord due to the Tenant's act or neglect. The Tenant is
responsible for all acts or neglect of the Tenant's employees or guests. The
Tenant may obtain insurance to cover this liability.
14). Violation, Eviction, Re-entry and Damages. The Landlord may
evict the Tenant for violation of any agreement in this Lease and for all other
causes provided by Law. The Landlord may then re-enter and regain possession
of the Premise. The Landlord may sue the Tenant for all damages, including loss
of rental income and reasonable attorney's fees, resulting from the Tenant's
violation of any agreement in this lease.
15). Notices. All notices given under this Lease shall be in
writing. Unless otherwise provided by law, they may be given by personal
delivery to the other party, or by certified mail. Notices shall be addressed
to each party at the addresses listed at the beginning of this Lease.
16). Survival. If any agreement of this Lease is contrary to Law,
the rest of the Lease shall remain in force.
17). No Changes. The parties have read this Lease. It contains
their entire agreement. It may not be changed except in writing signed by the
Landlord and the Tenant.
18). End of Term. At the end of the Term, the Tenant shall leave
the Premise clean and in good condition, remove all of the Tenant's property,
repair any damage that might have occurred, and return the Premise to the
Landlord in the same condition as it was at the beginning of the Term, except
for normal wear caused by reasonable use.
3
<PAGE> 4
19). Binding. This Lease binds the Landlord and the Tenant and
their Heirs, personal representatives, successors, and lawful assigns.
20). Signatures. The Landlord and the Tenant agree to the terms of
this Lease by signing below.
/s/ Kenneth R. Konikowski 7/1/94
- - ------------------------------ ------------------------
LANDLORD DATE
/s/ Kenneth R. Konikowski 7/1/94
- - ------------------------------ ------------------------
TENANT DATE
4
<PAGE> 1
SUBSIDIARIES OF THE REGISTRANT
As of the filing of this Report, DynamicWeb Enterprises, Inc. has the
following subsidiaries:
Name of Subsidiary State of Incorporation
- - ------------------ ----------------------
DynamicWeb Transaction Systems, Inc. New Jersey
Megascore, Inc. Delaware
Software Associates, Inc. New Jersey
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
DYNAMICWEB ENTERPRISES, INC.
(formerly Seahawk Capital Corporation)
FINANCIAL DATA SCHEDULE
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 174,403
<SECURITIES> 0
<RECEIVABLES> 104,846
<ALLOWANCES> 34,328
<INVENTORY> 0
<CURRENT-ASSETS> 276,989
<PP&E> 330,113
<DEPRECIATION> 90,224
<TOTAL-ASSETS> 536,177
<CURRENT-LIABILITIES> 76,832
<BONDS> 210,095
0
0
<COMMON> 655
<OTHER-SE> 261,029
<TOTAL-LIABILITY-AND-EQUITY> 536,177
<SALES> 147,337
<TOTAL-REVENUES> 460,067
<CGS> 71,205
<TOTAL-COSTS> 152,399
<OTHER-EXPENSES> 748,433
<LOSS-PROVISION> 34,421
<INTEREST-EXPENSE> 23,271
<INCOME-PRETAX> (440,765)
<INCOME-TAX> 0
<INCOME-CONTINUING> (455,230)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (455,230)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
