As filed with the Securities and Exchange Commission on
December 30, 1998
Registration No. 333-67439
=================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________
AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
___________________________
DYNAMICWEB ENTERPRISES, INC.
(Name of Small Business Issuer in Its Charter)
New Jersey 7372 22-2267658
(State or other Juris- (Primary Standard (I.R.S. Employer
diction of Incorpora- Industrial Classif- Identification
tion or Organization ication Code Number) Number)
DynamicWeb Enterprises, Inc.
271 Route 46 West
Building F, Suite 209
Fairfield, New Jersey 07004
(973) 244-1000
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
Steven L. Vanechanos, Jr.
Chief Executive Officer
DynamicWeb Enterprises, Inc.
271 Route 46 West
Building F, Suite 209
Fairfield, New Jersey 07004
(973) 244-1000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Stephen F. Ritner, Esquire Irwin A. Kishner, Esquire
Scott H. Spencer, Esquire Herrick, Feinstein, LLP
Stevens & Lee 2 Park Avenue
One Glenhardie Corporate Center New York, New York 10016
1275 Drummers Lane (212) 592-1435
P.O. Box 236
Wayne, Pennsylvania 19087
(610) 964-1480
___________________________
Approximate date of commencement of proposed sale to the public:
From time to time, at the discretion of the selling shareholders,
after the effective date of this Registration Statement.
If any of the securities being registered on this form are
to be offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, other than securities
offered only in connection with dividend or interest reinvestment
plans, check the following box. [X]
If this Form is filed to register additional securities for
an offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same offering. [__]
If this Form is a post-effective registration statement
filed pursuant to Rule 462(c) under the Securities Act, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the
same offering. [__]
If delivery of the prospectus is expected to be made
pursuant to Rule 434 please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
=================================================================
Proposed Proposed
Title of Each Amount Maximum Maximum
Class of Secur- to be Offering Aggregate Amount of
ities to be Regis- Price Per Offering Registra-
Registered tered(1) Unit(1) Price(1) tion Fee
_________________________________________________________________
Common Stock 3,000 $2.43 $7,290 $2.15
- -----------------------------------------------------------------
Common Stock 769,230 $ 2.43 $1,869,229 $551.42
issuable upon
conversion of
convertible
preferred stock(2)
_________________________________________________________________
Common Stock 162,500 $6.00 $825,000 $287.62
issuable upon
exercise of
warrants(3)
_________________________________________________________________
Common Stock 45,000 $5.50 $247,500 $73.01
issuable upon
exercise of
options of
Perry & Co.(4)
_________________________________________________________________
Common Stock 45,000 $5.50 $247,500 $73.01
issuable upon
exercise of
options of
Joel Arberman.(4)
=================================================================
(1) Estimated pursuant to Rule 457(a) solely for purposes of
calculating the Registration Fee.
(2) Calculated pursuant to Rule 457(g)(3) in accordance with
paragraph (c), using the average of the bid and asked prices
on November 10, 1998, solely for the purposes of calculating
the Registration Fee.
(3) Calculated pursuant to Rule 457(g)(1) using a fixed
exercise price of $6.00 per share for the Common Stock,
solely for the purposes of calculating the Registration
Fee.
(4) Calculated pursuant to Rule 457(g)(1) using a fixed
exercise price of $5.50 per share for the Common Stock,
solely for the purposes of calculating the Registration
Fee.
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall become
effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
=================================================================
<PAGE>
Cross Reference Table
Location in Prospectus of
Information Required by Part I of Form S-2
Item
No. Caption Location in Prospectus
1 Front of the Registration Outside Front Cover Page
Statement and Outside Front
Cover Page of Prospectus
2 Inside Front and Outside Back Inside Front Cover Page
Cover Pages of Prospectus and Outside Back Cover
Pages, Additional
Information
3 Summary Information and Risk Prospectus Summary,
Factors Risk Factors
4 Use of Proceeds Not Applicable
5 Determination of Offering Offering Price
Price
6 Dilution Not Applicable
7 Selling Security Holders Selling Security Holders
8 Plan of Distribution Plan of Distribution
9 Description of Securities Description of Securities
10 Interests of Named Experts Legal Matters, Experts
and Counsel
11 Information with Respect to Incorporation of Certain
Registrant Information by Reference
12 Incorporation of Certain Incorporation of Certain
Information by Reference Information by Reference
13 Disclosure of Commission Disclosure of Commission
Position on Indemnification Position on
for Securities Act Indemnification for
Liabilities Securities Act
Liabilities
<PAGE>
PROSPECTUS
1,024,730 SHARES
DYNAMICWEB ENTERPRISES, INC.
COMMON STOCK
This prospectus ("Prospectus") relates to an total of
1,024,730 shares (the "Shares") of common stock, $.0001 par value
(the "Common Stock") of DynamicWeb Enterprises, Inc. Throughout
this Prospectus, DynamicWeb Enterprises, Inc. is referred to as
either the "Company," "DynamicWeb," or "we" or "us." The Shares
under this Prospectus are being sold by certain selling security
holders (the"Selling Security Holders") described below. The
Selling Security Holders are parties other than the Company who
either presently own Shares of the Company or who have a right to
acquire Shares of the Company in the future. This offering (the
"Offering") consists of six components:
(i) The Shaar Fund Ltd. (the "Shaar Fund") purchased 1,500
shares of Series A Convertible Preferred Stock (the "Preferred
Stock") and 137,500 Warrants (the "Shaar Warrants") in a
Regulation D private placement. A Regulation D private placement
is a sale of stock that does not require registration under the
Securities Act of 1933, as amended (the "1933 Act"). A total of
906,730 of the Shares has been acquired or may be acquired by the
Shaar Fund at different times by the exercise of conversion
rights of the Preferred Stock and the exercise of the Shaar
Warrants. The Shares acquired may be sold from time to time by
the Shaar Fund.
(ii) Perry & Co. ("Perry") received 45,000 stock options,
(the "Perry Options") as payment for investor relations services
it has agreed to provide to the Company under the terms of an
agreement dated April 2, 1998. The Perry Options give Perry &
Co. the right to purchase 45,000 Shares which may be sold from
time to time by Perry.
(iii) The Malachi Group, Inc. ("Malachi") received 8500
warrants (the "Malachi Warrants") as payment for investor
relations services it provided to the Company in 1998.
(iv) Peter Baxter, Jr. ("Baxter") received 1,000 shares of
Common Stock and 8500 warrants (the "Baxter Warrants") as payment
for investor relations services it provided to the Company in
1998.
(v) Joel Arberman ("Arberman") received 45,000 options (the
"Arberman Options") as payment for investor relations services he
agreed to provide to the Company under the terms of an agreement
dated April 2. 1998
(vi) Zazoff Associates, L.L.C. ("Zazoff") received 2,000
shares of Common Stock and 8000 warrants (the "Zazoff Warrants")
as payment for investor relations services it provided to the
Company in 1998.
The Company's Common Stock is traded on the National
Association of Securities Dealers, Inc. ("NASD") Over-the-Counter
("OTC") Bulletin Board under the symbol "DWEB."
The Company will not receive any of the money from any sales
made by the Selling Security Holders. All expenses of
registration incurred in connection with this offering are being
paid by the Company, but all selling and other expenses incurred
by the Selling Security Holders will be paid by the Selling
Security Holders if and when they sell their Shares. See
"Selling Security Holders."
THE SECURITIES OFFERED HERE ARE SPECULATIVE AND INVOLVE A
SUBSTANTIAL DEGREE OF RISK. PROSPECTIVE INVESTORS SHOULD
CAREFULLY CONSIDER THE FACTORS SET FORTH UNDER "RISK FACTORS" AT
PAGE 3.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is __________ __, 1998.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange
Commission (the "Commission") a Registration Statement on Form
S-2 (together with all amendments and exhibits thereto, the
"Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the securities
offered hereby. This Prospectus, which is Part I of the
Registration Statement, constitutes a part of the Registration
Statement and does not contain all of the information set forth
therein. Any statements contained herein concerning the
provisions of any contract or other document are not necessarily
complete and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the
Registration Statement. Each such statement is qualified in its
entirety by such reference. For further information with respect
to the Company and the securities offered hereby, reference is
made to the Registration Statement and the exhibits and schedules
thereto. A copy of the Registration Statement, with exhibits,
may be obtained from the Commission's office in Washington, DC at
450 Fifth Street, NW, Washington, DC 20549 upon payment of the
fees prescribed by the rules and regulations of the Commission,
or examined there without charge.
The Company is subject to the informational requirements of
the Exchange Act, and, in accordance therewith, files reports,
proxy statements, and other information with the Securities and
Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed with the Commission can be
inspected and copied at the public reference facilities of the
Commission at 450 Fifth Street, NW, Washington, DC 20549. Copies
of this material can also be obtained at prescribed rates from
the Public Reference Section of the Commission at its principal
office at 450 Fifth Street, NW. Washington, DC 20549. The
Commission maintains a World Wide Web site that contains reports,
proxy and information statements and other information regarding
issuers that file electronically with the Commission, such as the
Company. The address of such site is http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company incorporates by reference herein the following
documents filed with the Commission pursuant to the Exchange Act,
except those portions described in detail below.
1. The Company's Annual Report on Form 10-KSB for the
fiscal year ended September 30, 1997;
2. The Company's Quarterly Reports on Form 10-QSB for the
fiscal quarters ended December 31, 1997, March 31,
1998, and June 30, 1998.
3. The Company's Proxy Statement filed June 25, 1998.
4. All other reports filed pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934
since September 30, 1997.
This Prospectus is accompanied by a copy of the Company's
latest Form 10-KSB and Form 10-QSB\A No. 1. The Company will
provide upon request, without charge, to each person to whom a
prospectus is delivered a copy of the additional documents listed
above, other than exhibits to such documents (unless such
exhibits are specifically incorporated by reference into such
documents). Such requests should be made to: DynamicWeb
Enterprises, Inc., 271 Route 46 West, Building F, Suite 209,
Fairfield, New Jersey 07004. Telephone number (973) 244-1000.
ANY STATEMENT CONTAINED IN A DOCUMENT INCORPORATED OR
DEEMED TO BE INCORPORATED BY REFERENCE HEREIN SHALL BE DEEMED TO
BE MODIFIED OR SUPERSEDED FOR PURPOSES OF THIS PROSPECTUS TO THE
EXTENT THAT A STATEMENT CONTAINED HEREIN MODIFIES OR SUPERSEDES
SUCH STATEMENT. ANY SUCH STATEMENT SO MODIFIED OR SUPERSEDED
SHALL NOT BE DEEMED, EXCEPT AS SO MODIFIED OR SUPERSEDED, TO
CONSTITUTE A PART OF THIS PROSPECTUS.
<PAGE>
THE BUSINESS OF DYNAMICWEB ENTERPRISES, INC.
DynamicWeb is involved in the business of "electronic
commerce." The term "electronic commerce" is a shorthand
expression for how businesses use computers to electronically
send and receive business documents. This allows businesses to
reduce or eliminate the paperwork involved in buying and selling
their products.
DynamicWeb develops and sells computer software
products and provides services to businesses to help them engage
in electronic commerce.
Background of the Industry
In electronic commerce, computers and
telecommunications take the place of paper documents, mail and
faxes. Businesses now use computers to electronically send and
receive a wide variety of business documents. These include, for
example, product catalogs, price lists, purchase orders and
invoices.
Electronic Data Interchange ("EDI") is a specific form
of electronic commerce. It refers to when a business transmits
data with its customers or its vendors in the course of a
business transaction. A typical example of EDI is electronically
placing a purchase order for merchandise with a vendor, and
having the vendor electronically confirm the order and produce
an invoice when the goods are shipped. The computers of the
buyer and the seller communicate and exchange the relevant
information. They use an agreed-upon or standard format to do
so.
In an earlier stage of electronic commerce, companies
that wanted to do business electronically needed to have an
arrangement with special type of computer network. That network
is referred to as a value-added computer network, or "VAN." A
VAN provides standardized forms and acts as a kind of electronic
post office, where data and forms are exchanged, parties can
communicate via email, and funds can be electronically
transferred.
DynamicWeb's Products and Services
Primarily, our business is providing electronic
commerce services including the sale of the computer equipment
and software for customers who want to engage in electronic
commerce. We function as the customer's data service center in
support of their electronic commerce transactions. Second, we
provide consulting services in the area of electronic commerce.
We sell three principal electronic commerce packages:
<PAGE 1>
- Our first package is called EDIxchange(sm). It
allows businesses to deal with each other electronically through
a document exchange network. We sell this package primarily to
customers who do not have an internal electronic commerce
capability.
- Our second package is called EDIxchange(sm) Buy
or Sell. It allows businesses that already are set up to conduct
electronic commerce transactions to offer electronic commerce
capability to their customers or suppliers who do not yet have
that capability.
- Our third package is called EDIxchange
Connect(sm). It is a narrower product for companies that use the
RealWorld and Synchronics computerized accounting systems. It
allows users of those systems to either send or receive documents
electronically directly from within the accounting system. For
example, a company could electronically send the company's income
statement to another party. Additionally, we offer an option
with EDIxchange Connect(sm) that allows a business to
electronically create a shipping list or product list.
Current Customers
The following charts show some of our customers and the
packages that they are using.
EDIxchange(sm)
Company Business
Sound Design, Inc. Manufacturer of electronic equipment
Church & Dwight Manufacturers of Arm & Hammer Baking Soda
Royal Daulton Maker of fine china
Rusberrie Manufacturer of Gift Items
EDIxchange(sm) Buy or Sell
Company Business
Rite Aid Pharmacy Retail pharmacy chain
Southern New England Bell
Telephone Communications
Service Merchandise Retail discount chain
Linens N' Things Retail home accessories
Great American Knitting Mills Makers of Gold Toe socks
Recent Business Changes
In May 1998, we bought Design Crafting, Inc., a company
that provided electronic commerce consulting services. We felt
<PAGE 2> that the purchase of Design Crafting, Inc. would help us
expand our consulting services.
Before September of 1998, we had a business structure
that was composed of a parent company, DynamicWeb Enterprises,
Inc., and four subsidiaries. On September 30, 1998, we merged
all of the subsidiaries into the parent company to help
streamline the structure of our organization.
RISK FACTORS
The purchase of our common stock is very risky. You
should not invest any money you cannot afford to lose. Before
you buy our stock, you should carefully read this entire
Prospectus. We have highlighted for you what we think are the
major risks which could most affect our business. There are
certainly other risks that could affect our business.
Continuous Losses
DynamicWeb has been engaged in the electronic commerce
business since only March of 1996. We have lost money every
quarter since that time. As of June 30, 1998, we had lost a
total of $5,595,349. We cannot give assurances that we will soon
make a profit or if we will ever make a profit. Among other
things, we have to market and sell substantially more of our
products and services and hire and keep good employees. We
cannot give assurances that we will be successful in our efforts.
Auditors' Going Concern Considerations
Our auditors' opinion on our financial statements as of
September 30, 1997, calls attention to substantial doubts as to
the ability of the Company to continue as a going concern.
Need for More Capital
We raised approximately $3.2 million net of expenses
when we sold our stock in a public offering in February 1998. As
of August 1998, we had spent the money from the sale to run the
company. We raised a net amount of $779,000 from the sale of the
first portion of the Preferred Stock to the Shaar Fund in August,
1998. By December of 1998, we had used that money to run the
Company. We raised an additional $500,000 in the sale of the
second and final stage of the Preferred Stock in December of
1998. We anticipate that money will last until approximately
March 1999.
We believe we will need to raise a large amount of
additional capital to survive and to become a profitable
business. If we are not able to raise additional funding in a
timely manner, we may have to scale back our operations or
possibly cease operations. If we sell more common stock, the
interests of existing investors in DynamicWeb may be diluted,
<PAGE 3> meaning that their percentage ownership of the Company
will be reduced.
Expected Operating Losses
We expect to lose substantial amounts of money in the
near future. We do expect that our sales will increase
substantially in the near future. However, our expenses have been
increasing substantially and will continue to do so, because we
have hired more employees and need to spend more money to develop
and market our products. We cannot give any assurances that the
Company will ever be able to make a profit.
New Product Risk
Electronic commerce products are new. At this time,
there is limited use of electronic commerce products. As with
any new product, its acceptance by customers is unpredictable.
There are many competitors trying to sell the same kind of
products as DynamicWeb. We may never sell enough products to
make a profit.
Companies have used other traditional means of doing
business for many years. It is difficult to convince companies
to adopt new technology. We need to convince a large number of
industries that using electronic commerce means is the best way
for them to conduct business.
Dependence on the Internet
We have based our future on the development of the
Internet. The Internet is a way for a customer to use his or her
computer to access a worldwide network of computers. The
Internet allows a computer in one location to talk to or
communicate with a computer at any location in the world through
the network. The Internet has a number of problems that could
affect our business. Improvements are needed in protecting
information sent through the Internet; we need increased
reliability of the Internet and new, faster ways of transferring
information are necessary for our products to become more
attractive to customers. The Internet improvements are not under
our control. We must depend on others to address these
improvements.
At this time, the costs of using the Internet are based
on a monthly charge. For the monthly charge, a business can send
one or one million transactions over the network and the cost of
access does not change. We do not know if the favorable monthly
charge system will continue or if future government regulations
will drive up the cost of using the Internet.
The Internet lacks a uniform, consistent way to keep
company information sent via the Internet safe and secure. Until
this problem is addressed, use of the Internet to conduct
business is likely to develop more slowly. <PAGE 4>
Technology Changes
Technological changes in the computer software industry
happen rapidly. If we don't respond to those changes quickly and
efficiently, we will not be a competitive company in the
industry. We face a significant danger because we presently only
have three products to sell and they all provide essentially one
service.
Penny Stock
Any stock which falls below $5.00 per share selling
price in the public market is called a "Penny Stock." A Penny
Stock is subject to certain rules issued by the Securities and
Exchange Commission before an investor can purchase the shares.
These rules are designed to protect investors from gambling on
cheap stocks in hopes of picking the occasional big winner. When
our stock falls below $5.00 and becomes a Penny Stock, it makes
it difficult for a broker or dealer to sell the stock to an
investor because of the extra steps the broker/dealer must take
before selling the stock. Although there are exceptions to the
rules for certain institutional or high net worth individuals,
usually, the broker\dealer must: (a) determine the suitability of
the purchase for the particular investor; (b) provide a first
time investor in Penny Stock with a document disclosing the risks
of investing in this type of stock; and (c) have the purchase
approved by a compliance officer of the brokerage firm. These
rules have been enacted because of the history of the substantial
risk of the loss of an investment in Penny Stocks. Because of
the time required to comply with these requirements it could
become difficult for you to sell an investment in DynamicWeb if
our stock is subject to the "Penny Stock" rules. You may want to
sell your shares of the Company at a time when you can show a
profit, however by the time a sale of your shares is approved,
the stock price may have declined to the point where you will
have a loss on your investment. A sale of Penny Stock does not
usually take place as quickly as that of a stock trading on a
national stock exchange. Because of the difficulty in dealing in
Penny Stocks, many broker\dealers are unwilling to participate in
buying and selling our shares. Our stock has recently sold for
over $5.00, however the price has often been quoted below $5.00
and has been subject to the additional "Penny Stock" rules.
Market for Shares
Our common stock has not been traded actively and the
investment community has not shown a great deal of interest in
our shares. Simply, there have been relatively few buyers and
sellers of our stock. We have recently agreed to have our shares
marketed over the Internet. We had hoped that the additional
public exposure about us and our products would increase the
interest in our stock, but we have not seen a significant change
in the number of shares being traded. Because we are not traded
on a national exchange, the quotation for the price of our stock
is difficult for an investor to obtain without professional help.
<PAGE 5> Out stock quote is generally not found in many daily
newspaper quotations. All of these factors may make it difficult
to sell your shares of DynamicWeb, since investors do not have
easy access to information concerning our stock.
Competition
The electronic commerce industry is intensely
competitive and changes rapidly. There are many larger, more
established companies such as Microsoft and IBM that sell
electronic commerce packages. We are faced with significant
competition from those companies that are already established in
the industry. They have significantly more resources than we do.
We expect competition to intensify in the industry.
Reliance on Other Software
We use software that is licensed from other companies
with our software products. The licensed software is an
essential part of our products. We do not have exclusive rights
to any of the essential software; it can be licensed to anyone,
including our competitors. Any of the essential software could
become unavailable or too expensive for us to use with our
products. If any of the essential software licenses becomes
unavailable, our products would have to be redesigned or new
software obtained. There can be no assurance that is possible.
Reliance on PERL.
The Company's software is written using Practical
Extraction and Reporting Language ("PERL"). This language is
presently used to write software for use on the Internet.
Because the Internet design and standards for use are not
controlled by any certain organization or individual, the
continued use of PERL for Internet programs is not guaranteed.
If the programming language for the Internet were to change, we
could incur substantial expenses in an attempt to continue to
support and develop PERL.
Dependence on Distribution and Marketing Relationships
We do not have a large number of sales and marketing
employees. Consequently, our distribution channels are limited.
We need to achieve broad distribution of our products to generate
sales for the Company. We must maintain and develop
relationships with leading companies that market software
products and electronic commerce services.
Dependence on Intellectual Property Rights
We use software technology that was developed by us for
use on the Internet. We have applied for a patent on the
software, called NetCat, but have not yet been granted the
patent. We may not get the patent or even if we do it may not
sufficiently protect our rights in the technology. The patent
<PAGE 6> would not provide protection outside of the United
States. Even if the patent is granted, it may be challenged and
we may have to spend a significant amount of money to defend the
patent.
Patent infringement litigation is common in the
electronic commerce industry. We don't think we are infringing
on any patents or other intellectual property rights. However, if
we are accused of violating another company's intellectual
property rights, we may have to spend significant amounts of
money defending ourselves.
Risks Associated with Encryption Technology
The security of sending and receiving financial data
over the Internet is a major concern for our customers and for
us. We provide encryption of the data exchanged using our
products through the use of a third party encryption technology.
With the rapid advances and changes in the encryption technology
area, we cannot guarantee that the system we use to protect
customer data will not be compromised. If our system of
protection and others like it in use on the Internet become
compromised, it could materially affect our business. Convincing
customers to use the Internet for financial transactions without
being able to guarantee the privacy of their information would be
extremely difficult.
Liability and Availability of Insurance
We are responsible for the electronic exchange of many
types of business documents using our products and systems.
These documents include the operational documents of our
customers such as orders, invoices, shipping and payment
documents. If for any reason we were unable to provide our
service, we could be liable to our customers for their loss of
business. We carry insurance policies to try and protect us in
the event that we are sued by any customer for loss of business
due to our failure to provide contracted services. Although we
believe that we have adequate policies in effect, there is no
guarantee that they will be sufficient to cover all potential
losses.
Business Fluctuations
We are a new business venture. Most new business
ventures experience fluctuations in revenue as they build their
customer base and attempt to sell their new products in the
marketplace. Without a large client base with a history of
purchasing our services, we are unable to predict with any level
of confidence the levels of revenue we will be able to generate
over the near future. Our revenues could fluctuate over a wide
range as we pursue establishing our business. This fluctuation
may cause rapid changes in the price of our stock.
<PAGE 7>
Key Personnel
Our success will depend largely on retaining several of
our key senior management and technical personnel. This includes
our Chairman of the Board, Steven L. Vanechanos Jr., James D.
Conners, President of the Company and Kenneth R. Konikowski,
Executive Vice President of the Company. The Company requires
key personnel sign a confidentiality and non-competition
agreement as part of their employment but these do not protect us
from the loss of their knowledge and expertise were they to leave
the Company. We have key man life insurance in the amount of
$3,000,000 on Steven L. Vanechanos, Jr.
Ability to Attract Qualified Personnel
We feel our success in the future is highly dependent
on attracting additional highly skilled, technical, professional
services, management and sales and marketing personnel. The
market for these types of professionals is highly competitive and
more established companies are able to provide higher salaries
and better benefits. The intensely competitive nature of the
market for skilled personnel is expected to continue
indefinitely.
Management of Growth
If the Company were to experience a period of rapid
growth it would require significant changes in our current
operating structure and environment to handle that change. We
would need to change operations, hire more personnel, and improve
numerous internal Company policies and systems to accommodate the
change. There is no guarantee that the Company could
successfully manage those changes without a negative effect on
our revenues.
Ability to Issue Blank Check Preferred Stock: New Jersey Anti-
Takeover Provisions.
The Board of Directors has the authority to issue
5,000,000 shares of Preferred Stock without the approval of the
Shareholders. The Board can also determine any dividend,
conversion ratio or privilege pertaining to the Preferred Stock
without Shareholder approval. We have already issued 1500
Preferred Shares to the Shaar Fund, Ltd. Although the issuance
of Preferred Stock enables us to obtain additional revenue for
use by the Company in our operations it potentially makes us less
attractive and more difficult for a third party to acquire the
Company. The acquisition of the Company might be a welcome event
from the Company's viewpoint, the issuance of the Preferred Stock
could greatly hinder that possibility. A potential acquirer of
the Company may not be able to acquire a majority of the
outstanding stock needed to acquire the Company because of the
outstanding shares of Preferred Stock and the associated
conversion rights.
<PAGE 8>
Additionally, New Jersey Law prevents the Company from
engaging in a "business combination" with an "interested
stockholder" for a period of five years after the date on which
the person became an "interested stockholder". A person is
considered an "interested stockholder" once they own over 10% of
the Company's shares. The exception to this rule allows a
"business combination" if the Board of Directors had approved the
combination prior to the person becoming an "interested
stockholder. The application of this rule could make it
difficult for the Company to pursue what could be a positive
"business combination".
An additional hurdle to a potential positive
acquisition of the business by a third party is created by the
system of election of the Board of Directors. Our Company By-
Laws (the rules under which we must operate) require that our
Board of Directors be elected for staggered terms. This
provision of our By-Laws would make it difficult for a third
party to obtain control of the Company since they could only
elect a portion of the Board members at the expiration of each
term. This system of election of Directors reduces the
likelihood of the Company being viewed as an attractive
acquisition candidate.
Government Regulation and Legal Uncertainties.
Presently, we are not subject to direct regulation by
any federal or state governmental agency, other than the rules
that are applied to businesses in general. The general business
rules apply to doing business over the Internet. If the Internet
becomes more accepted as a means of doing business, it is
possible that additional rules specific to doing business on the
Internet could be issued by various agencies or governmental
bodies. If the Internet becomes subject to additional rules and
restrictions as to its use for businesses, it may have a
dampening effect on the growth of the use of the Internet for
electronic commerce.
Possible Volatility of Stock Price
Our stock price is subject to the volatility inherent
to a public company. Investors react to news of operating
results, innovations in the industry and changes in general
economic conditions. Stocks in the technology industry are
particularly volatile in their reaction to these types of
factors. There is always the possibility that our shareholders
will blame us for taking some inappropriate action that causes
the loss of their investment. In the past these types of
situations have resulted in shareholder litigation. If this type
of shareholder action were to happen, it would cost us
significant amounts of money to litigate.
<PAGE 9>
Substantial Options and Warrants Reserved
We have an Employee Stock Option Plan. We can issue
options to purchase a total of 234,764 shares of Common Stock to
our employees and officers under this Plan. To date, we have
issued 203,392 options. We also have a Stock Option Plan for
Outside Directors and we may issue a total of 78,254 options
under this Plan. We have granted 15,648 options to outside
directors to date. We have granted warrants to existing
shareholders to purchase 125,000 shares of the Company at $6.00 a
share in return for a previous contribution of their Common Stock
back to the Company. The Shaar Fund owns warrants for purchase
of 137,500 shares of Common Stock at $6.00 a share in connection
with a private placement of Preferred Stock. The exercise of any
or all of the Options and Warrants may further dilute the net
tangible book value of your investment in the Company.
Additionally, the holders of the options and warrants may
exercise them at a time when the Company would have been able to
sell the associated shares to someone else at a higher price.
PAGE 10
<PAGE>
SELLING SECURITY HOLDERS
Background
There are six Selling Security Holders: (i) the Shaar
Fund has the right to acquire up to 769,230 shares of the Common
Stock upon conversion of the Convertible Preferred Stock and up
to 137,500 additional shares of Common Stock upon exercise of the
Shaar Warrants; (ii) Perry & Co. has an option to purchase
45,000 shares of Common Stock, which option it received as
compensation for services rendered in 1998; (iii) The Malachi
Group, Inc. ("Malachi") has the right to acquire up to 8500
shares of Common Stock upon exercise of warrants received for
services rendered in 1998; (iv) Peter Baxter, Jr. ("Baxter")
received 1,000 shares of Common Stock and 8500 warrants as
payment for services rendered in 1998, the warrants give Baxter
the right to acquire an additional 8500 shares of Common Stock.
1998, ; (v) Zazoff Associates, L.L.C. ("Zazoff") received 2,000
shares of Common Stock and 8000 warrants as a payment for
services rendered in 1998, The warrants give Zazoff the right to
acquire an additional 8000 shares of Common Stock; and (vi) Joel
Arberman ("Arberman") has an option to purchase 45,000 shares of
Common Stock, which option it received as compensation for
services rendered in 1998.
The Shaar Fund
The registration statement of which this Prospectus is
a part is being filed, and the Shares offered hereby by the Shaar
Fund are included herein, pursuant to registration rights as
provided for in the registration rights agreement and option
agreements entered into between the Company and the Shaar Fund
(collectively, the "Shaar Registration Rights"). Due to the
ability of the Shaar Fund to determine when and whether they will
sell any Shares under this Prospectus and the uncertainty as to
how many of the shares of Preferred Stock and Warrants will be
converted or exercised, the Company is unable to determine the
exact number of shares that the Shaar Fund will actually sell
pursuant to this Prospectus.
In addition, the Company cannot determine how many
shares of Common Stock the Shaar Fund will acquire upon
conversion of the Preferred Stock, since the actual number of
shares of Common Stock to be issued upon the conversion of the
Series A Convertible Preferred Stock will be determined by a
formula. The tendering for conversion of each share of the
Preferred Stock, in the amount of $1,000 per share, will be
credited towards the purchase of the Common Stock at the
following prices: (i) for Preferred Stock exchanged between 0-180
days after purchase, the lesser of $5.50 a share or 85% of Market
Price (the average of the lowest 3 days (which do not have to be
consecutive) closing bid prices of the Common Stock for the 20
trading days immediately preceding the conversion of the common
stock (the "Market Price"),; (ii) for Preferred Stock exchanged
<PAGE 11> between 180-360 days after purchase, 80% of Market
Price; and (iii) for Preferred Stock exchanged 360 days or more
after purchase, 78% of Market Price.
The Shaar Fund is the holder of 1500 shares of the
Series A Convertible Preferred Stock. The Series A Convertible
Preferred Stock ranks (i) prior to any class or series of capital
stock of the Company created subsequent to its issue and
(ii) prior to the Common Stock; (iii) equally with any class or
series or capital stock of the company created subsequent to its
issue that specifically ranks on parity with the Series A
Convertible Preferred Stock. The Series A Convertible Preferred
Stock has a 6% per annum cumulative dividend preference. The
dividend preference applies to all classes of stock excepting a
class or series created of equal ranking, in which case, the
dividend is paid ratably between the equally ranked series. In
the event of a liquidation of the company, no distribution may be
made to any holder of any shares of any capital stock of the
Company prior to a distribution being made to the Series A
Convertible Preferred Stock. The Series A Convertible Preferred
Stock has no voting power except in corporate matters; (i)
affecting the rights, preferences and privileges of the stock
and; (ii) proposed liquidation, dissolution, merger,
consolidation or recapitalization actions.
The Shaar Fund is the holder of Warrants to purchase
137,500 shares of the Common Stock at an exercise price of $6.00
per share. The Warrants have no dividend, voting or preemption
rights. The holders of the Warrants are entitled solely to
exercise their rights with respect to the purchase of the Common
Stock of the Company.
Perry & Co.
The Common Stock relating to the Perry & Co. Option is
included herein pursuant to the registration rights provided for
in the agreement for investor relations services between the
Company and Perry & Co. Due to the ability of Perry & Co. to
determine when and whether it will sell any Shares under this
Prospectus, the Company is not able to determine the exact number
of shares that Perry & Co. will actually sell pursuant to this
Prospectus.
The Perry Options entitle the holder to purchase 45,000
shares of the Common Stock at an exercise price of $5.50 per
share. The Perry Options have no dividend, voting or preemption
rights. The holder of the Perry Options are entitled solely to
exercise their rights with respect to the purchase of the Common
Stock of the Company. The Perry Options expire April 2, 2000.
The Malachi Group, Inc.
The Common Stock relating to the Malachi warrants is
included herein pursuant to the registration rights provided for
in an agreement for investor relations services between the
<PAGE 12> Company and Malachi. Due to the ability of Malachi to
determine when and whether it will sell any Shares under this
Prospectus, the Company is not able to determine the exact number
of shares that Malachi will actually sell pursuant to this
Prospectus.
The Malachi Warrants entitle the holder to purchase
8500 shares of the Common Stock at an exercise price of $6.00 per
share. The Malachi Warrants have no dividend, voting or
preemption rights. The holder of the Malachi Warrants are
entitled solely to exercise their rights with respect to the
purchase of the Common Stock of the Company.
Peter Baxter, Jr.
The Common Stock and warrants held by Baxter is
included herein pursuant to the registration rights provided for
in an agreement for investor relations services between the
Company and Baxter. Due to the ability of Baxter to determine
when and whether it will sell any Shares under this Prospectus,
the Company is not able to determine the exact number of shares
that Baxter will actually sell pursuant to this Prospectus.
The Baxter Warrants entitle the holder to purchase 8500
shares of the Common Stock at an exercise price of $6.00 per
share. The Baxter Warrants have no dividend, voting or
preemption rights. The holder of the Baxter Warrants are
entitled solely to exercise their rights with respect to the
purchase of the Common Stock of the Company.
Joel Arberman
The Common Stock relating to the Arberman Options is
included herein pursuant to the registration rights provided for
in the agreement for investor relations services between the
Company and Joel Arberman. Due to the ability of Arberman. to
determine when and whether it will sell any Shares under this
Prospectus, the Company is not able to determine the exact number
of shares that Arberman will actually sell pursuant to this
Prospectus.
The Arberman Options entitle the holder to purchase
45,000 shares of the Common Stock at an exercise price of $5.50
per share. The Perry Options have no dividend, voting or
preemption rights. The holder of the Arberman Options are
entitled solely to exercise their rights with respect to the
purchase of the Common Stock of the Company. The Arberman
Options expire April 2, 2000.
Zazoff Associates, L.L.C.
The Common Stock and warrants held by Zazoff is
included herein pursuant to the registration rights provided for
in an agreement for investor relations services between the
Company and Zazoff. Due to the ability of Zazoff to determine
<PAGE 13> when and whether it will sell any Shares under this
Prospectus, the Company is not able to determine the exact number
of shares that Zazoff will actually sell pursuant to this
Prospectus.
The Zazoff Warrants entitle the holder to purchase 8000
shares of the Common Stock at an exercise price of $6.00 per
share. The Zazoff Warrants have no dividend, voting or
preemption rights. The holder of the Zazoff Warrants are
entitled solely to exercise their rights with respect to the
purchase of the Common Stock of the Company.
General
The following table identifies each Selling Security
Holder based upon information provided to the Company, set forth
as of September 30, 1998, with respect to the Shares beneficially
held by or acquirable by, as the case may be, each Selling
Security Holders and the shares of Common Stock beneficially
owned by the Selling Security Holders which are not covered by
this Prospectus. No Selling Security Holders or its affiliates
have held any position, office or other material relationship
with the Company. The percentage figures reflected in the table
are based upon (1) conversion of all shares of Preferred Stock
into shares of Common Stock at an assumed conversion price of
$1.95 per share, as provided in the Shaar Registration Rights,
(2) the exercise of all Shaar Warrants into shares of Common
Stock, (3) the exercise of all the Perry Options into shares of
Common Stock, (4) 2,246,317 shares of Common stock issued and
outstanding as of September 30, 1998. All Warrants and Options
are convertible at a one to one conversion rate.
<TABLE>
<CAPTION>
Common
Shares to be
Name of Selling Common Shares owned offered to
Selling Ownership Percentage
Security Holder prior to Registration Security
Holder of Common Stock
<S> <C> <C>
<C>
Shaar Fund, Ltd 0
906,730 0.0%
Perry & Co 0
45,000 0.0%
Joel Arberman 0
45,000 0.0%
Malachi Group, Inc 0
8,500 0.0%
Peter Baxter, Jr. 1000
8,500 0.0%
Zazoff Associates, LLC 2000
8,000 0.0%
</TABLE>
PLAN OF DISTRIBUTION
The registration statement of which this Prospectus forms a
part has been filed pursuant to the registration rights agreement
entered into between the Registrant and the Shaar Fund dated
August 7, 1998. To the Company's knowledge, as of the date
hereof, neither of the Selling Security Holders has entered into
any agreement, arrangement or understanding with any particular
broker or market maker with respect to the Shares offered by
either of them, nor does the Company know the identity of the
<PAGE 14> brokers or market makers which might participate in
such offering.
The Shares covered hereby may be offered and sold from time
to time by the Selling Security Holders. The Selling
Shareholders will act independently of the Company in making
decisions with respect to the timing, manner, and size of each
sale. Such sale may be made on the OTC Bulletin Board of
otherwise, at prices and on terms then prevailing or at prices
related to the then market price, or in negotiated transactions.
The Shares may be sold by one or more of the following methods:
(a) a block trade in which the broker-dealer engaged by a Selling
Security Holder will attempt to sell Shares as agent but may
position and resell a portion of the block as principal to
facilitate the transaction; (b) purchases by the broker-dealer as
principal and resale by such broker or dealer for its account
pursuant to this Prospectus; and (c) ordinary brokerage
transactions and transactions in which the broker solicits
purchasers. To the best of the Company's knowledge, neither of
the Selling Security Holders has, as of the date hereof, entered
into any arrangement with a broker or dealer for the sale of
shares through a block trade, special offering, or secondary
distribution of a purchase by a broker-dealer. In effecting
sales, broker-dealers engaged by a Selling Security Holder may
arrange for other broker-dealers to participate. Broker-dealers
may receive commissions or discounts from a Selling Security
Holder in amounts to be negotiated.
In offering the Shares, the Selling Security Holders and any
broker-dealers who execute sales for the Selling Security Holders
may be deemed to be "underwriters" within the meaning of the
Securities Act in connection with such sales, and any profits
realized by the Selling Security Holders and the compensation of
such broker-dealer may be deemed to be underwriting discounts and
commissions.
Rule 10b-6 under the Exchange Act prohibits participants in
a distribution from bidding for or purchasing for an account in
which the participant has a beneficial interest, any of the
securities that are the subject of the distribution. Rule 10b-7
under the Exchange Act governs bids and purchases made to
stabilize the price of a security in connection with a
distribution of the security.
There can be no assurance that a Selling Security Holders
will sell any or all of the shares of Common Stock registered
hereby.
DESCRIPTION OF THE SECURITIES TO BE REGISTERED
General
The Company's authorized capital stock consists of
50,000,000 shares of Common Stock, $.0001 par value per share,
and 5,000,000 shares of undesignated Preferred Stock. As of the
<PAGE 15> date of this Prospectus, there were 2,246,317 shares of
Common Stock issued and outstanding. As of September 30, 1998,
the Common Stock is held of record by approximately 392
stockholders.
Common Stock
Holders of Common Stock have the right to cast one
vote, in person or by proxy, for each share owned of record on
the record date (as defined in the Company's by-laws) on all
matters submitted to a vote of the holders of Common Stock,
including the election of directors. Holders of Common Stock do
not have cumulative voting rights, which means that holders of
more than 50% of the outstanding shares voting for the election
of the class of directors to be elected by the Common Stock can
elect all of such directors, and, in such event, the holders of
the remaining shares of Common Stock will be unable to elect any
of the Company's directors.
Holders of the Common Stock are entitled to share
ratably in such dividends as may be declared by the Board of
Directors out of funds legally available therefor, when, as and
if declared by the Board of Directors and are also entitled to
share ratably in all of the assets of the Company available for
distribution to holders of shares of Common Stock upon the
liquidation, dissolution or winding up of the affairs of the
Company. Holders of Common Stock do not have preemptive,
subscription or conversion rights. All outstanding shares of
Common Stock are, and those shares of Common Stock offered hereby
will be, validly issued, fully paid and non-assessable.
LEGAL MATTERS
Certain legal matters relating to the Common Stock
offered hereby have been passed upon for the Company by the law
firm of Stevens & Lee, Wayne, Pennsylvania and Lancaster,
Pennsylvania.
EXPERTS
The consolidated financial statements of DynamicWeb
Enterprises, Inc. and Design Crafting, Inc. incorporated by
reference or appearing in this Prospectus and Registration
Statement have been audited by Richard A. Eisner & Company, LLP,
independent auditors, to the extent indicated in their reports
thereon (which with respect to DynamicWeb Enterprises, Inc.
contains an explanatory paragraph with respect to substantial
doubt as to the ability of such company to continue as a going
concern) also appearing elsewhere herein and in the Registration
Statement or incorporated by reference. Such financial
statements have been incorporated herein by reference or included
herein in reliance upon such reports given upon the authority of
such firm as experts in accounting and auditing.
<PAGE 16>
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors,
officers or persons controlling the company pursuant to the
provisions set forth in the company's articles of incorporation,
the company has been informed that in the opinion of the
Securities and Exchange Commission, such indemnification is
against public policy as expressed in the act and is therefore
unenforceable.
PAGE 17
<PAGE>
DESIGN CRAFTING, INC.
FINANCIAL STATEMENTS
September 30, 1997 PAGE F-1
<PAGE>
Contents
Page
Financial Statements
Independent auditors' report................................ 1
Balance sheet as of September 30, 1997...................... 2
Statements of income for the years ended
September 30, 1997 and 1996................................. 3
Statement of changes in stockholder's equity
for each of the years ended September 30, 1997
and 1996.................................................... 4
Statements of cash flows for the years ended
September 30, 1997 and 1996................................. 5
Notes to financial statements............................... 6
PAGE F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Design Crafting, Inc.
We have audited the accompanying balance sheet of Design
Crafting, Inc. as of September 30, 1997, and the related
statements of income, changes in stockholder's equity and cash
flows for each of the years in the two year period then ended.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present
fairly, in all material respects, the financial position of
Design Crafting, Inc. as of September 30, 1997, and the results
of its operations and its cash flows for each of the years in the
two-year period then ended, in conformity with generally accepted
accounting principles.
/s/ Richard A. Eisner & Company, LLP
Florham Park, New Jersey
July 10, 1998
PAGE F-3
<PAGE>
Balance Sheet
September 30, 1997
ASSETS
Current assets:
Cash $ 5,015
Accounts receivable 56,812
Prepaid expenses and other current assets 468
Total current assets 62,295
Equipment, net of accumulated depreciation of $6,662 4,602
$66,897
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $30,597
Taxes payable - current 1,480
Taxes payable - deferred 6,195
Total current liabilities 38,272
STOCKHOLDER'S EQUITY
Common stock, no par value, authorized 1,000
shares issued and outstanding 100 shares 1,000
Retained earnings 27,625
Total stockholder's equity 28,625
$66,897
PAGE F-4
<PAGE>
Statements of Income
Year Ended
September 30,
1997 1996
Revenues - services $462,541 $311,363
Cost of services 384,244 241,427
Gross profit 78,297 69,936
Expenses:
Selling, general and administrative 65,772 58,905
Income before taxes 12,525 11,031
Income taxes 3,250 2,870
Net income $ 9,275 $ 8,161
PAGE F-5
<PAGE>
Statements of Changes in Stockholder's Equity
<TABLE>
<CAPTION>
Common Stock
Number of Retained
Shares Amount Earnings
Total
<S> <C> <C> <C>
<C>
Balance, October 1, 1995 100 $1,000 $10,189
$11,189
Net income -- -- 8,161
8,161
Balance, September 30, 1996 100 1,000 18,350
19,350
Net income -- -- 9,275
9,275
Balance, September 30, 1997 100 $1,000 $27,625
$28,625
</TABLE>
PAGE F-6
<PAGE>
Statements of Cash Flows
<TABLE>
<CAPTION>
Year
Ended
September
30,
1997
1996
<S> <C>
<C>
Cash flows from operating activities:
Net income $ 9,275
$ 8,161
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 2,948
648
Deferred income taxes 1,390
2,700
Changes in:
Accounts receivable (867)
(29,993)
Prepaid expenses and other current assets 718
687
Accounts payable and accrued expenses (10,249)
18,691
Taxes payable 1,310
(725)
Net cash provided by operating activities 4,525
169
Cash flows from investing activities:
Purchase of equipment (6,902)
(1,296)
Net decrease in cash (2,377)
(1,127)
Cash, beginning 7,392
8,519
Cash, ending $ 5,015
$ 7,392
Supplemental disclosure of cash flow information:
Cash paid for:
Income taxes $ 550
$ 895
</TABLE>
PAGE F-7
<PAGE>
Note A - Summary of Significant Accounting Policies and Basis of
Presentation
[1] Operations:
Design Crafting, Inc. (the "Company") is a software
developer and provides services primarily to customers in
the distribution, retail and financial industries.
In 1997, two customers and in 1996 one customer accounted
for approximately 91% and 99% of revenues, respectively. As
of September 30, 1997, two customers represented 100% of
accounts receivable. No allowance for bad debts is required.
[2] Revenue recognition:
Revenue is recognized as the work is performed and services
are provided at the customer's locations.
[3] Use of estimates:
The financial statements were prepared on an accrual basis
in conformity with generally accepted accounting principles;
estimates and assumptions were utilized to quantify certain
components of the financial statements in the absence of
specific amounts of the respective assets, liabilities,
revenues and expenses. Actual results could differ from
those estimates.
[4] Equipment:
Equipment is recorded at cost less accumulated depreciation.
Depreciation is provided using accelerated and
straight-line methods over the estimated lives of the assets
(2 to 3 years).
[5] Income taxes:
The Company accounts for income taxes under the provisions
of Statement of Financial Accounting Standard No. 109
Accounting for Income Taxes ("SFAS 109") which requires use
of the liability method of Accounting for Income Taxes. The
liability method 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. Deferred income taxes arise from temporary
differences resulting primarily from income and expense
items being reported on an accrual basis for financial
statement purposes and on a cash basis for tax purposes. As
a result, the Company had deferred federal and state
liabilities of $6,195 as of September 30, 1997.
<PAGE F-8>
Note B - Employee Benefit Plans
The Company has a qualified simplified employee pension (SEP)
under Section 408(k) of the Internal Revenue Code. Employer
contributions under a SEP are discretionary and are excluded from
the participants taxable income to the extent of 15% of the
participant's compensation subject to limits. The Company's
contributions to the plan were $25,742 and $7,573 for the years
ended September 30, 1997 and 1996, respectively.
Note C - Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following:
Wages $18,486
Payroll taxes 2,544
Employee benefit plan 7,796
Other 1,771
$30,597
Note D - Income Taxes
Year Ended
September 30,
1997 1996
Current tax expenses:
Federal $1,120 $ 20
State 740 150
1,860 170
Deferred tax expenses:
Federal 830 1,700
State 560 1,000
1,390 2,700
Provision for taxes $3,250 $2,870
The differences between the statutory income tax rate of 34% and
the income taxes reported on the statement of income and retained
earnings are as follows:
<TABLE>
<CAPTION>
Year Ended
September 30,
1997
1996
<S> <C> <C>
<C> <C>
Statutory rate $ 4,259 34% $
3,751 34%
Reduction due to graduated
income tax rate (2,380) (19)
(2,096) (19)
State taxes, net of federal benefit 1,105 9
978 9
Other 266 2
237 2
Provision for taxes $ 3,250 26% $
2,870 26%
</TABLE>
<PAGE F-9>
Note E - Business Combination
On May 1, 1998, the Company completed a merger with Dynamicweb
Enterprises, Inc. (Dynamicweb) by exchanging all of its issued
and outstanding stock for 92,500 shares of common stock of
Dynamicweb with a provision for up to an additional 10,000 shares
to be calculated under a formula based on the value at closing
and the realization of certain assets within 120 days of the
closing.
PAGE F-10
<PAGE>
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
Unaudited Pro Forma Condensed Financial Statements
On May 1, 1998, DynamicWeb Enterprises, Inc. and
subsidiaries (the "Company") completed a stock-for-stock exchange
transaction with Design Crafting, Inc. ("Design") which will be
accounted for as a purchase in accordance with Accounting
Principle Board No. 16. The following unaudited pro forma
condensed consolidated statement of operations for the year ended
September 30, 1997 and the unaudited pro forma consolidated
balance sheet as of September 30, 1997 are adjusted to give
effect to the combination with Design by the issuance by the
Company of 92,500 of its common shares in exchange for 100% of
the Design shares as if such transaction had occurred on
October 1, 1996 for the purposes of presenting pro forma
statement of operations data and as of September 30, 1997, for
presenting the pro forma balance sheet data.
The unaudited condensed pro forma consolidated balance sheet
and statement of operations should be read in conjunction with
the notes thereto and the audited financial statements of the
Company and Design and the notes thereto. The pro forma
information is not necessarily indicative of what the financial
position and results of operations would have been had the
transactions occurred earlier, nor do they purport to represent
the future financial position or results of operations of
DynamicWeb Enterprises, Inc. and subsidiaries.
Unaudited Pro Forma Condensed Financial Statement Adjustments
[1] To record the preliminary allocation of the purchase of
Design valued at $474,063. The pro forma information
includes the issuance of 92,500 shares of the Company's
common stock on May 1, 1998. It does not reflect any
contingently issuable shares, up to 10,000, that may be
issued in the event that the Company collects certain
amounts from the realization of certain assets reported on
the Design Crafting, Inc. balance sheet as of May 1, 1998.
[2] To record amortization of excess of cost over net
assets of acquired business over ten years.
[3] The pro forma weighted average number of shares
outstanding is as follows:
(a) Includes 654,597 shares of the Company's common
stock subsequently contributed by certain of the Company's
shareholders in exchange for 125,000 warrants.
(b) 92,500 shares issued in connection with the
purchase transaction as if they were outstanding for the
entire period presented. <PAGE F-11>
PAGE F-12
<PAGE>
DynamicWeb Enterprises, Inc. and Subsidiaries
Pro Forma Consolidated Balance Sheet Data
Unaudited
<TABLE>
<CAPTION>
Historical
- --------------------------------------
DynamicWeb
Enterprises,
Inc. Design
and Subsidiaries
Crafting, Inc. As Revised As Revised
as of
as of Pro Forma Pro Forma
September 30,
1997 September 30, 1997 Adjustments Consolidated
- ------------------ ------------------ -----------
- ------------
(Unaudited)
<S> <C>
<C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 188,270
$ 5,015 $ 193,285
Accounts receivable, less allowance for
doubtful accounts 100,425
56,812 157,237
Prepaid and other current assets 20,738
468 21,206
----------
-------- ----------
Total current assets 309,433
62,295 371,728
Property and equipment 284,512
4,602 289,114
Excess of cost over net assets of acquired
business
$445,438 445,438
Patents and trademarks, less accumulated
amortization 21,808
21,808
Customer list, less accumulated amortization 83,333
83,333
Deferred registration costs 128,169
128,169
Other assets and fees 60,461
60,461
----------
-------- -------- ----------
$ 887,716
$ 66,897 $445,438 $1,400,051
==========
======== ======== ==========
LIABILITIES
Current liabilities:
Accounts payable $ 182,340
$ 182,340
Accrued expenses 165,941
$ 30,597 196,538
Current maturities of long-term debt 7,925
7,925
Loan payable - banks 24,049
24,049
Loans from stockholders 117,163
117,163
Deferred revenue 15,065
15,065
Subordinated notes payable 840,873
840,873
Taxes payable - current
1,480 1,480
Taxes payable - deferred
6,195 6,195
----------
-------- ----------
Total current liabilities 1,353,356
38,272 1,391,628
Long-term debt, less current maturities 185,811
185,811
----------
-------- ----------
1,539,167
38,272 1,577,439
----------
-------- ----------
CAPITAL DEFICIENCY
$ (1,000)(1)
Common stock 214
1,000 9 (1) 223
Additional paid-in capital 3,530,324
474,054 (1) 4,004,378
Unearned portion of compensatory stock options (204,000)
(204,000)
Accumulated deficit (3,577,989)
27,625 (27,625)(1) (3,577,989)
----------
-------- -------- ----------
(251,451)
28,625 445,438 222,612
Less treasury stock (400,000)
(400,000)
----------
-------- -------- ----------
Total capital deficiency (651,451)
28,625 445,438 (177,388)
----------
-------- -------- ----------
$ 887,716
$ 66,897 $445,438 $1,400,051
==========
======== ======== ==========
</TABLE>
PAGE F-13
<PAGE>
DynamicWeb Enterprises, Inc. and Subsidiaries
Pro Forma Consolidated Statement of Operations Data
Unaudited
<TABLE>
<CAPTION>
Historical
- ---------------------------------------
DynamicWeb
Enterprises,
Inc. Design
and Subsidiaries
Crafting, Inc. As Revised As Revised
for the year
ended for the year ended Pro Forma Pro Forma
September 30,
1997 September 30, 1997 Adjustments Consolidated
(Unaudited)
<S> <C>
<C> <C> <C>
Net sales:
System sales $ 116,106
$ 116,106
Services 521,071
$462,541 983,612
----------
-------- ----------
637,177
462,541 1,099,718
----------
-------- ----------
Cost of sales:
System sales 40,323
40,323
Services 213,180
384,244 597,424
----------
-------- ----------
253,503
384,244 637,747
----------
-------- ----------
Gross profit 383,674
78,297 461,971
----------
-------- ----------
Expenses:
Selling, general and administrative 1,854,686
65,772 $ 44,543 (2) 1,965,001
Research and development 234,808
234,808
----------
-------- -------- ----------
2,089,494
65,772 44,543 2,199,809
----------
-------- -------- ----------
Operating income (loss) (1,705,820)
12,525 (44,543) (1,737,838)
Purchased research and development (713,710)
(713,710)
Interest expense (770,041)
(770,041)
Interest income 5,068
5,068
----------
-------- -------- ----------
Income (loss) before income taxes (3,184,503)
12,525 (44,543) (3,216,521)
Income tax (expense) benefit 21,700
(3,250) 18,450
----------
-------- -------- ----------
Net income (loss) $(3,162,803)
$ 9,275 $(44,543) $(3,198,071)
===========
======== ======== ===========
Pro forma net loss per pro forma weighted
average number of shares outstanding
$(2.16)
======
Pro forma weighted average number of shares
outstanding 1,386,383
(3)(a) 92,500 (3)(b) 1,478,883
==========
======== ===========
</TABLE>
PAGE F-14
<PAGE>
TABLE OF CONTENTS
Prospectus Summary........................................ 1
Recent Events............................................. 2
Risk Factors.............................................. 3
Selling Security Holders.................................. 16
Plan of Distribution...................................... 18
Description of Securities to be Registered................ 20
Additional Information.................................... 20
Legal Matters............................................. 20
Experts................................................... 20
Financial Statements...................................... F-1
PAGE F-15
<PAGE>
PART II
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses in
connection with filing this Registration Statement:
Securities and Exchange Commission filing fee....... $ 911.32
Printing and Engraving Expenses..................... 1,000.00
Accounting Fee and Expenses......................... 7,500.00
Legal Fees and Expenses............................. 25,000.00
Miscellaneous...................................... 500.00
Reimbursement of Legal Fees and Expenses to
Shaar Fund, Ltd................................... 5,000.00
Total.......................................... $39,911.32
Item 15. Indemnification of Directors and Officers.
The Registrant's Certificate of Incorporation provides that
the Registrant shall indemnify any person who is or was a
director, officer, employee or agent of the Registrant to the
fullest extent permitted by the New Jersey Business Corporation
Act (the "NJBCA"), and to the fullest extent otherwise permitted
by law. The NJBCA permits a New Jersey corporation to indemnify
its directors, officers, employees and agents against liabilities
and expenses they may incur in such capacities in connection with
any proceeding in which they may be involved, unless a judgment
or other final adjudication adverse to the director, officer,
employee or agent in question establishes that his or her acts or
omissions (a) were in breach of his or her duty of loyalty (as
defined in the NJBCA) to the Registrant or its shareholders,
(b) were not in good faith or involved a knowing violation of law
or (c) resulted in the receipt by the director, officer, employee
or agent of an improper personal benefit.
Pursuant to the Registrant's Certificate of Incorporation
and the NJBCA, no director or officer of the Registrant shall be
personally liable to the Registrant or to any of its shareholders
for damages for breach of any duty owed to the Registrant or its
shareholders, except for liabilities arising from any breach of
duty based upon an act or omission (i) in breach of such
director's or officer's duty of loyalty (as defined in the NJBCA)
to the Registrant or its shareholders, (ii) not in good faith or
involving a knowing violation of law or (iii) resulting in
receipt by such director or officer of an improper personal
benefit.
In addition, the Registrant's Bylaws include provisions to
indemnify its officers and directors and other persons against
expenses, judgments, fines and amounts incurred or paid in
settlement in connection with civil or criminal claims, actions,
suits or proceedings against such persons by reason of serving or
having served as officers, directors, or in other capacities, if
<PAGE II-1> such person acted in good faith, and in a manner such
person reasonably believed to be in or not opposed to the best
interests of the Registrant and, in a criminal action or
proceeding, if he had no reasonable cause to believe that his/her
conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contenders or its equivalent shall not, of itself,
create a presumption that the person did not act in good faith
and in a manner which he or she reasonably believed to be in or
not opposed to the best interests of the corporation or that he
or she had reasonable cause to believe his or her conduct was
unlawful. Indemnification as provided in the Bylaws shall be
made only as authorized in a specific case and upon a
determination that the person met the applicable standards of
conduct.
Item 16. Exhibits and Financial Statement Schedules.
EXHIBIT INDEX
Exhibit
Number Title
3.1.10 Amendment to the Certificate of Incorporation of
DynamicWeb Enterprises, Inc. dated August 6, 1998, as
filed with the State of New Jersey on August 7, 1998**
5.1 Form of Opinion of Stevens & Lee: Legality**
10.1 Release and Severance Agreement dated February 12, 1993
between Seahawk Capital Corporation and Robert S.
Friedenberg (incorporated by reference to Exhibit 10.2
to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1992).
10.2 Agreement dated February 24, 1995 between the
Registrant and Jonathan B. Lassers as to the purchase
of common stock (incorporated by reference to
Exhibit 10.1 to Registrant's Current Report on Form 8-K
dated as of May 8, 1995).
10.3 Amendment Agreement dated May 1, 1995 between the
Registrant and Jonathan B. Lassers as to the purchase
of common stock and common stock purchase warrants
(incorporated by reference to Exhibit 10.2 to
Registrant's Current Report on Form 8-K dated as of
May 8, 1995).
10.4 Agreement dated February 29, 1996 between the
Registrant and Jonathan B. Lassers as to the exchange
of common stock for his common stock purchase warrants
(incorporated by reference to Exhibit 10.4 filed with
Registrant's Report on Form 10-KSB for the year ended
September 30, 1996).
<PAGE II-2>
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 -K
dated November 30, 1996).
10.11 Amendment to Stock Purchase Agreement dated April 7,
1997 between the Registrant and Kenneth R. Konikowski
(incorporated by reference to Exhibit 10.11 filed with
Registrant's Report on Form 10-KSB for the year ended
September 30, 1996).
10.12 Lock-Up Agreement dated November 30, 1996 among the
Registrant, Steve L. Vanechanos, Jr. and Kenneth R.
Konikowski (incorporated by reference to Exhibit 10.12
filed with Registrant's Report on Form 10-KSB for the
year ended September 30, 1996).
10.13 Employment Agreement dated December 1, 1996 between the
Registrant and Kenneth R. Konikowski (incorporated by
reference to Exhibit 10.13 filed with Registrant's
Report on Form 10.KSB for the year ended September 30,
1996).
<PAGE II-3>
10.14 Employment Agreement dated May 1, 1998 between the
Registrant and Douglas Eadie **
10.15 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).
10.16 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).
10.17 Lease Agreement dated November 1, 1996 between Beauty
and Barber Institute, Inc. and DynamicWeb Transaction
Systems, Inc. (incorporated by reference to
Exhibit 10.16 filed with Registrant's Report on
Form 10-KSB for the year ended September 30, 1996).
10.18 Lease Agreement dated November 1, 1994 between Software
Associates, Inc. and The Mask Group (incorporated by
reference to Exhibit 10.17 filed with Registrant's
Report on Form 10-KSB for the year ended September 30,
1996).
10.19 Amendment No. 1 to Lease Agreement between Software
Associates, Inc. and The Mask Group (incorporated be
reference to Exhibit 3 to the Registrant's Form 8-K
dated September 9, 1997).
10.20 Employment Agreement dated August 26, 1997 between the
Registrant and James D. Conners (incorporated by
reference to Exhibit 1 to Registrant's Form 8-K dated
September 9, 1997).
10.21 Form of financial Consulting Agreement between the
Registrant and H.J. Meyers & Co., Inc. (incorporated by
reference to Exhibit 10.20 to Registrant's SB-2 filed
September 15, 1997).
10.22 Form of Mergers and Acquisition Agreement between the
Registrant and H.J. Meyers & Co., Inc. (incorporated by
reference to Exhibit 10.21 to Registrant's SB-2 filed
September 15, 1997).
10.23 Letter of amendment dated November 20, 1997 amending
Stock Purchase Agreement dated April 7, 1997 between
the Registrant and Kenneth R. Konikowski (incorporated
by reference to Exhibit 10.22 to Registrant's SB-2
filed September 15, 1997).
10.24 Letter of Amendment dated December 15, 1997 amending
Stock Purchase Agreement dated April 7, 1997 between
<PAGE II-4> the Registrant and Kenneth R. Konikowski
(incorporated by reference to Exhibit 10.23 to
Registrant's SB-2 filed September 15, 1997).
10.25 Form of Warrant and Warrant Agreement with certain
shareholders of Registrant (incorporated by reference
to Exhibit 10.24 to Registrant's SB-2 filed
September 15, 1997).
10.26 Securities Purchase Agreement dated August 7, 1998
between DynamicWeb Enterprises, Inc. and Shaar Fund
Ltd.**
10.27 Registration Rights Agreement dated August 7, 1998
between DynamicWeb Enterprises, Inc. and Shaar Fund
Ltd.**
10.28 Service Agreement and Option Grant with Perry & Co.
dated April 2, 1998.*
10.29 Letter Agreement dated December 3, 1998 between
DynamicWeb Enterprises, Inc. and Shaar Fund Ltd.*
16.1 Letter on change in certifying account (R. Andrew
Gately & Co.) (incorporated by reference to
Exhibit 16.1 to Registrant's Current Report on Form 8-K
dated February 19, 1997.
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).
23.1 Consent of Stevens & Lee (included in Exhibit 5.1)
23.2 Consent of Richard A. Eisner & Company, LLP*
* Filed herewith
** Previously filed
Item 17. Undertakings
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or
sales are being made, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by
section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of the
registration statement (or the most recent post
<PAGE II-5>-effective amendment thereof) which,
individually or in the aggregate, represent a
fundamental change in the information set forth in the
registration statement.
(iii) To include any material information with
respect to the plan of distribution not previously
disclosed in the registration statement or any material
change to such information in the registration
statement.
(2) That the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the Offering
of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-
effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
(b) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 ("Securities Act") may be
permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnifications against
public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such labilities (other than the payment by the Registrant
of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
PAGE II-6
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of
1933, the Registrant has duly caused this registration statement
to be signed on its behalf by the undersigned in the City of
Fairfield, State of New Jersey on November 11, 1998.
DYNAMICWEB ENTERPRISES, INC.
By:/s/ Steven L. Vanechanos, Jr.
Steven L. Vanechanos, Jr.
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Steven L.
Vanechanos, Jr., James D. Conners, Steve Vanechanos, Sr., and
Steven F. Ritner, Esquire, and each of them, his true and lawful
attorney-in-fact, as agent with full power of substitution and
resubstitution for him and in his name, place and stead, in any
and all capacity, to sign any or all amendments to this
Registration Statement and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting to each such
attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to
be done in and about the premises, as fully and to all intents
and purposes as each of them might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of
1933, as amended, this Registration Statement was signed below by
the following persons and in the capacities and on the dates
stated.
/s/STEVEN L. VANECHANOS, JR. Chief Executive Dec. 28, 1998
Steven L. Vanechanos, Jr. Officer and Director
/s/ STEVE VANECHANOS, SR. Treasurer, Chief Dec. 28, 1998
Steve Vanechanos, Sr. Financial Officer,
and Chief Accounting
Officer, Director
/s/ F. PATRICK AHEARN Director Dec. 28, 1998
F. Patrick Ahearn
/s/ DENIS CLARK Director Dec. 28, 1998
Denis Clark
/s/ FRANK T. DiPALMA Director Dec. 28, 1998
Frank T. DiPalma
<PAGE II-7>
/s/ ROBERT DROSTE Director Dec. 28, 1998
Robert Droste
/s/ KENNETH R. KONIKOWSKI Director Dec. 28, 1998
Kenneth R. Konikowski
PAGE II-8
<PAGE>
EXHIBIT INDEX
Exhibit
Number Title
3.1.10 Amendment to the Certificate of Incorporation of
DynamicWeb Enterprises, Inc. dated August 6, 1998, as
filed with the State of New Jersey on August 7, 1998**
5.1 Form of Opinion of Stevens & Lee: Legality**
10.1 Release and Severance Agreement dated February 12, 1993
between Seahawk Capital Corporation and Robert S.
Friedenberg (incorporated by reference to Exhibit 10.2
to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1992).
10.2 Agreement dated February 24, 1995 between the
Registrant and Jonathan B. Lassers as to the purchase
of common stock (incorporated by reference to
Exhibit 10.1 to Registrant's Current Report on Form 8-K
dated as of May 8, 1995).
10.3 Amendment Agreement dated May 1, 1995 between the
Registrant and Jonathan B. Lassers as to the purchase
of common stock and common stock purchase warrants
(incorporated by reference to Exhibit 10.2 to
Registrant's Current Report on Form 8-K dated as of
May 8, 1995).
10.4 Agreement dated February 29, 1996 between the
Registrant and Jonathan B. Lassers as to the exchange
of common stock for his common stock purchase warrants
(incorporated by reference to Exhibit 10.4 filed with
Registrant's Report on Form 10-KSB for the year ended
September 30, 1996).
10.5 Stock Exchange Agreement dated as of December 31, 1994
among the Registrant, John C. Fitton and Seahawk
Overseas Exploration Corporation (incorporated by
reference to Exhibit 10.4 to Registrant's Current
Report on Form 8-K dated as of May 8, 1995).
10.6 Stock Purchase Agreement dated March 5, 1996 among the
Registrant, DynamicWeb Transaction Systems, Inc.
("DWTS") and the shareholders of DWTS (incorporated by
reference to Exhibit 10.14 to Registrant's Annual
Report on Form 10-KSB for the year ended December 31,
1995).
10.7 Amendment to Stock Purchase Agreement dated May 14,
1996 between the Registrant and DWTS (incorporated by
reference to Exhibit 10.14(A) to Registrant's annual
<PAGE II-9> 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 -K
dated November 30, 1996).
10.11 Amendment to Stock Purchase Agreement dated April 7,
1997 between the Registrant and Kenneth R. Konikowski
(incorporated by reference to Exhibit 10.11 filed with
Registrant's Report on Form 10-KSB for the year ended
September 30, 1996).
10.12 Lock-Up Agreement dated November 30, 1996 among the
Registrant, Steve L. Vanechanos, Jr. and Kenneth R.
Konikowski (incorporated by reference to Exhibit 10.12
filed with Registrant's Report on Form 10-KSB for the
year ended September 30, 1996).
10.13 Employment Agreement dated December 1, 1996 between the
Registrant and Kenneth R. Konikowski (incorporated by
reference to Exhibit 10.13 filed with Registrant's
Report on Form 10.KSB for the year ended September 30,
1996).
10.14 Employment Agreement dated May 1, 1998 between the
Registrant and Douglas Eadie **
10.15 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).
10.16 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).
10.17 Lease Agreement dated November 1, 1996 between Beauty
and Barber Institute, Inc. and DynamicWeb Transaction
<PAGE II-10> Systems, Inc. (incorporated by reference
to Exhibit 10.16 filed with Registrant's Report on
Form 10-KSB for the year ended September 30, 1996).
10.18 Lease Agreement dated November 1, 1994 between Software
Associates, Inc. and The Mask Group (incorporated by
reference to Exhibit 10.17 filed with Registrant's
Report on Form 10-KSB for the year ended September 30,
1996).
10.19 Amendment No. 1 to Lease Agreement between Software
Associates, Inc. and The Mask Group (incorporated be
reference to Exhibit 3 to the Registrant's Form 8-K
dated September 9, 1997).
10.20 Employment Agreement dated August 26, 1997 between the
Registrant and James D. Conners (incorporated by
reference to Exhibit 1 to Registrant's Form 8-K dated
September 9, 1997).
10.21 Form of financial Consulting Agreement between the
Registrant and H.J. Meyers & Co., Inc. (incorporated by
reference to Exhibit 10.20 to Registrant's SB-2 filed
September 15, 1997).
10.22 Form of Mergers and Acquisition Agreement between the
Registrant and H.J. Meyers & Co., Inc. (incorporated by
reference to Exhibit 10.21 to Registrant's SB-2 filed
September 15, 1997).
10.23 Letter of amendment dated November 20, 1997 amending
Stock Purchase Agreement dated April 7, 1997 between
the Registrant and Kenneth R. Konikowski (incorporated
by reference to Exhibit 10.22 to Registrant's SB-2
filed September 15, 1997).
10.24 Letter of Amendment dated December 15, 1997 amending
Stock Purchase Agreement dated April 7, 1997 between
the Registrant and Kenneth R. Konikowski (incorporated
by reference to Exhibit 10.23 to Registrant's SB-2
filed September 15, 1997).
10.25 Form of Warrant and Warrant Agreement with certain
shareholders of Registrant (incorporated by reference
to Exhibit 10.24 to Registrant's SB-2 filed
September 15, 1997).
10.26 Securities Purchase Agreement dated August 7, 1998
between DynamicWeb Enterprises, Inc. and Shaar Fund
Ltd.**
10.27 Registration Rights Agreement dated August 7, 1998
between DynamicWeb Enterprises, Inc. and Shaar Fund
Ltd.**
<PAGE II-11>
10.28 Service Agreement and Option Grant with Perry & Co.
dated April 2, 1998.*
10.29 Letter Agreement dated December 3, 1998 between
DynamicWeb Enterprises, Inc. and Shaar Fund Ltd.*
16.1 Letter on change in certifying account (R. Andrew
Gately & Co.) (incorporated by reference to
Exhibit 16.1 to Registrant's Current Report on Form 8-K
dated February 19, 1997.
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).
23.1 Consent of Stevens & Lee (included in Exhibit 5.1)
23.2 Consent of Richard A. Eisner & Company, LLP*
* Filed herewith
** Previously filed
<PAGE II-12>
EXHIBIT 10.29
THE SHAAR FUND LTD.
c/o SHAAR ADVISORY SERVICES LTD.
62 King George Street, Apartment 4F
Jerusalem, Israel
December 2, 1998
VIA FEDERAL EXPRESS
DYNAMICWEB ENTERPRISES, INC.
Building F, Suite 209
271 Route 46 West
Fairfield, New Jersey 07001
Attention: Steven L. Vanechanos, Jr.
Re: $400,000 Investment by The Shaar Fund Ltd. in Series A
6% Convertible Preferred Shares and a Common Stock
Purchase Warrant of Dynamicweb Enterprises, Inc.
Gentlemen:
Reference is hereby made in this letter agreement (this
"Letter Agreement") to the following documents:
(i) the Securities Purchase Agreement dated as of
August 7, 1998 (the "Securities, Purchase Agreement")
between DYNAMICWEB ENTERPRISES, INC., a New Jersey
corporation with principal executive offices located at
271 Route 46 West, Fairfield, NJ 07004 (the "Company") and
THE SHAAR FUND, LTD. ("Buyer");
(ii) the Registration Rights Agreement dated as of
August 7, 1998 (the "Registration Rights Agreement") between
the Company and Buyer;
(iii) the Common Stock Purchase Warrant No. 1 dated as
of August 7, 1998 ("Warrant No. 1") issued by the Company to
Buyer to purchase 87,500 shares of the Company's common
stock, par value $0.0001 (the "Common Stock");
(iv) the Escrow Instructions dated as of August 7,
1998 (the "Escrow Instruction") among the Company, Buyer and
Herrick Feinstein LLP (the "Escrow Agent"; and
(v) all other documents and instruments executed and
delivered by the Company or Buyer on the Initial Funding
Date in order to consummate the transactions contemplated
pursuant to the Securities Purchase Agreement (collectively,
the "Ancillary Documents," and together with the Securities
Purchase Agreement, the Securities Purchase Agreement, the
<PAGE 1> Registration Rights Agreement, Warrant No. I and
the Escrow Instructions, collectively referred to as the
"Documents").
In order to consummate the acquisition by Buyer from
the Company of ___ shares of the Company's Series A 6%
Preferred Stock, par value $O.001 (collectively, the "New
Preferred Shares") and Common Stock Purchase Warrant No. 2
(the "New Warrant") to purchase ___ shares of the Company's
Common Stock (a copy of which is attached hereto as
Exhibit A) on the Second Funding Date, the parties hereto
hereby agree as follows:
1. Definitions. All capitalized terms that are used and
not defined herein shall have the respective meaning assigned to
them in the Securities Purchase Agreement.
2. Amendments to the Documents.
(a) The parties hereto covenant and agree that the
Documents are hereby deemed amended as follows:
(i) all references to Subsequently Issued
Preferred Shares in the Documents are amended to mean the
New Preferred Shares;
(ii) all references to Subsequently Issued
Warrants in the Documents are amended to mean the New
Warrant;
(iii) the reference to $675,000 as the amount of
the Second Purchase Price in Section 1.B. of the Securities
Purchase Agreement is hereby amended and changed to
$400,000;
(iv) the reference to the definition of the
Second Tranche in the Documents as being comprised of the
Subsequently Issued Preferred Shares and the Subsequently
Issued Warrants is amended and changed to reflect that the
Second Tranche is comprised of the New Preferred Shares and
the New Warrant.
(b) Without limiting the generality of the foregoing,
the following sections of the Documents are hereby amended as
follows:
(i) all references to 675 shares of Subsequently
Issued Preferred Shares and 67,500 Subsequently Issued
Warrants, respectively, in the first and second "WHEREAS"
clauses of the Securities Purchase Agreement are amended to
mean ___ shares of the New Preferred Shares and the New
Warrant to purchase ___ shares of Common Stock,
respectively;
(ii) the reference to the 675 shares of
Subsequently Issued Preferred Shares and 67,500 Subsequently
Issued Warrants in the first "WHEREAS" clause of the
<PAGE 2> Registration Rights Agreement is amended to mean
___ shares of Common Stock; and
(iii) the reference to the 675 shares of
Subsequently Issued Preferred Shares and 67,500 Subsequently
Issued Warrants in the first paragraph of the Escrow
Instructions is amended to mean ___ shares of the New
Preferred Shares and the New Warrant to purchase shares of
Common Stock.
3. Closing Conditions. The Company represents, warrants
and covenants that all of the Second Funding Requirements set
forth at Section I.B. of the Securities Purchase Agreement have
been completed and satisfied in all respects.
4. Conditions to the Buyer's Obligations. The Company
understands that Buyer's obligation to purchase the New Preferred
Shares and the New Warrant pursuant to this Letter Agreement and
the Documents is conditioned upon:
(a) Delivery by the Company to the Escrow Agent on the
Second Funding Date of one or more certificates (I/N/O Buyer)
evidencing the New Preferred Shares and the New Warrant to be
purchased by Buyer pursuant to this Letter Agreement on the
Second Funding Date;
(b) The accuracy in all respects on the Second Funding
Date of the representations and warranties of the Company
contained in the Securities Purchase Agreement as if made on the
Second Funding Date (except for representations and warranties
which, by their express terms, speak as of and relate to a
specified date, in which case such accuracy shall be measured as
of such specified date) and the performance by the Company in all
respects on or before the Second Funding Date of all covenants
and agreements of the Company required to be performed, by it
pursuant to this Agreement on or before the Second Funding Date;
(c) Buyer having received an opinion of counsel for
the Company, dated as of the Second Funding Date, in form, scope
and substance satisfactory to the Buyer;
(d) There not having occurred (i) any general
suspension of trading in, or limitation on prices listed for, the
Common Stock on NASD/BBS, (ii) the declaration of a banking
moratorium or any suspension of payments in respect of banks in
the United States, (iii) the commencement of a war, armed
hostilities or other international or national calamity directly
or indirectly involving the United States or any of its
territories, protectorates or possessions, or (iv) in the case of
the foregoing existing at the date of this Agreement, a material
acceleration or worsening thereof;
(e) There not having occurred any event or
development, and there being in existence no condition, having or
which reasonably and foreseeably could have a Material Adverse
Effect;
<PAGE 3>
(f) The Company shall have delivered to Buyer (as
provided in the Escrow Instructions) reimbursement of Buyer's
out-of-pocket costs and expenses incurred in connection with the
transactions contemplated by this Agreement and the Securities
Purchase Agreement (including the fees and disbursements of
Buyer's legal counsel);
(g) There shall not be in effect any Law or order,
ruling, judgment or writ of any court or public or governmental
authority restraining, enjoining or otherwise prohibiting any of
the transactions contemplated by this Letter Agreement or the
Securities Purchase Agreement; and
(h) Solely with respect to the closing date occurring
on the Second Funding Date, the Company shall have satisfied or
performed all of the Second Funding Requirements and all other
conditions set forth in Section I.B. of the Securities Purchase
Agreement, or Buyer shall have waived the Company's compliance
with such requirements.
5. Conditions to the Company's Obligations. The Buyer
understands that the Company's obligation to sell the New
Preferred Shares and the New Warrant on the Second Funding Date
to Buyer pursuant to this Agreement and the Documents is
conditioned upon:
(a) Delivery by Buyer to the Escrow Agent of $400,000
on the Second Funding Date;
(b) The accuracy in all material respects on the
Second Funding Date of the representations and warranties of
Buyer contained in the Securities Purchase Agreement as if made
on the Second Funding Date (except for representations and
warranties which, by their express terms, speak as of and relate
to a specified date, in which case such accuracy shall be
measured as of such specified date) and the performance by Buyer
in all material respects on or before the Second Funding Date of
all covenants and agreements of Buyer required to be performed by
it pursuant to this Letter Agreement or the Securities Purchase
Agreement on or before the Second Funding Date; and
(c) There shall not be in effect any Law or order,
ruling, judgment or writ of any court or public or governmental
authority restraining, enjoining or otherwise prohibiting any of
the transactions contemplated by this Letter Agreement or the
Securities Purchase Agreement.
6. Deliveries Upon the Second Funding Date. Upon the
Second Funding Date, the Company shall deliver to Buyer the
following documents and instruments, all in the form, scope and
substance satisfactory to Buyer:
(a) one or more certificates (I/N/0 Buyer) evidencing
the New Preferred Shares;
(b) the New Warrant (I/N/0 Buyer) in the form
attached hereto as Exhibit A; <PAGE 4>
(c) the opinion of counsel for the Company dated as of
the Second Funding Date in similar form to the opinion delivered
on the Initial Funding Date;
(d) an Officers' Certificate of the Company in similar
form to the Officers' Certificate delivered on the Initial
Funding Date;
(e) a Certificate of Good Standing as of the Second
Funding Date; and
(f) the Minutes of the Special Meeting of the Board of
Directors of the Company approving the transaction contemplated
by this Letter Agreement and the Documents.
7. Closing. The issuance and sale of the Second Tranche
shall occur on the Second Funding Date at the offices of the
Escrow Agent (as defined in the Securities Purchase Agreement) in
accordance with the terms and provisions of the Securities
Purchase Agreement.
8. Governing Law; Miscellaneous. This Letter Agreement
shall be governed by and interpreted in accordance with the laws
of the State of New York, without regard to the conflicts of law
principles of such state. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any
part of the City of New York or the state courts of the State of
New York sitting in the City of New York in connection with any
dispute arising under this Letter Agreement and hereby waives, to
the maximum extent permitted by law, any objection, including any
objection based on forum non conveniens, to the bringing of any
such proceeding in such jurisdictions. A facsimile transmission
of this signed Letter Agreement shall be legal and binding on all
parties hereto. This Letter Agreement may be signed in one or
more counterparts, each of which shall be deemed an original.
The headings of this Letter Agreement are for convenience of
reference and shall not form part of, or affect the
interpretation of, this Letter Agreement. if any provision of
this Letter Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this
Letter Agreement or the validity or enforceability of this Letter
Agreement in any other jurisdiction. This Letter Agreement may
be amended only by an instrument in writing signed by the party
to be charged with enforcement. This Letter Agreement supersedes
all prior agreements and understandings among the parties hereto
with respect to the subject matter hereof.
9. Notices. Except as may be otherwise provided herein,
any notice or other communication or delivery required or
permitted hereunder shall be in writing and shall be delivered
personally or sent by certified mail, postage prepaid, or by a
nationally recognized overnight courier service, and shall be
deemed given when so delivered personally or by overnight courier
service, or, if mailed, three (3) days after the date of deposit
in the United States mails, as follows:
<PAGE 5>
(a) if to the Company, to:
DYNAMICWEB ENTERPRISES, INC.
271 Route 46 West
Building F, Suite 209
Fairfield, NJ 07001
Attention: Steven L. Vanechanos, Jr.
Telephone: (973) 276-3107
Facsimile: (973) 575-9830
With a copy to:
Stevens & Lee
One Glenhardie Corporate Center Suite 202
Wayne, PA 19087-0234
Attention: Steve Ritner, Esq.
Telephone: (610) 964-1480
Facsimile: (610) 687-1384
(b) if to the Buyer, to
THE SHAAR FUND LTD.,
c/o SHAAR ADVISORY SERVICES LTD.
62 King George Street, Apartment 4F
Jerusalem, Israel
Attention: Samuel Levinson
with a copy to:
Herrick, Feinstein LLP
2 Park Avenue
New York, New York 10016
Attention: Irwin A. Kishner, Esq.
Telephone: (212) 592-1435
Facsimile: (212) 889-7577
The Company, the Buyer or the Escrow Agent may change the
foregoing address by notice given pursuant to this Section 9.
10. Confidentiality. Each of the Company and Buyer agrees
to keep confidential and not to disclose to or use for the
benefit of any third party the terms of this Letter Agreement or
any other information which at any time is communicated by the
other party as being confidential without the prior written
approval of the other party; provided, however, that this
provision shall not apply to information which, at the time of
disclosure, is already part of the public domain (except by
breach of this Letter Agreement) and information which is
required to be disclosed by law (including,without limitations
pursuant to Item 1O of Rule 601 of Regulation S-K under the
Securities Act and the Exchange Act).
11. Assignment. This Letter Agreement shall not be
assignable by either of the parties hereto without the prior
written consent of the other party, and any attempted assignment
contrary to the provisions hereby shall be null and void;
provided, however, that Buyer may assign its rights and <PAGE 6>
obligations hereunder, in whole or in part, to any affiliate of
Buyer who furnishes to the Company the representations and
warranties set forth in Section II of the Securities Purchase
Agreement and otherwise agrees to be bound by the terms of this
Letter Agreement and the Documents.
12. No Further Modification. Except as specifically
provided in this Letter Agreement, nothing herein contained shall
otherwise modify, reduce, amend or otherwise supplement the terms
and provisions of the Documents, each of which remain in full
force and effect.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
PAGE 7
<PAGE>
This letter is being delivered to you in duplicate. If it
accurately describes the agreement between us, kindly so indicate
by executing and returning one copy to the undersigned whereupon
it will constitute our agreement with respect to the matters set
forth above.
Sincerely,
THE SHAAR FUND, LTD.
By; INTERCARRIBBEAN SERVICES, INC.
By:_____________________________
Name:
Title:
AGREED TO AND ACCEPTED this
2nd day of December 1998.
DYNAMICWEB ENTERPRISES, INC.
By:___________________________
Name: Steven L. Vanechanos, Jr.
Title:
PAGE 8
<PAGE>
EXHIBIT A
COMMON STOCK PURCHASE WARRANT NO. 2
PAGE 9
<PAGE>
THIS COMMON STOCK PURCHASE WARRANT AND THE SECURITIES
REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE TRANSFERRED IN VIOLATION OF SUCH ACT,
THE RULES AND REGULATIONS THEREUNDER OR THE PROVISIONS
OF THIS COMMON STOCK PURCHASE WARRANT.
Number of Shares of Common Stock: ______
Warrant No. 2
COMMON STOCK PURCHASE WARRANT
To Purchase Common Stock of
Dynamicweb Enterprises, Inc.
THIS IS TO CERTIFY THAT The Shaar Fund Ltd., or registered
assigns, is entitled, at any time from the Initial Funding Date
(as hereinafter defined) to the Expiration Date (as hereinafter
defined), to purchase from DYNAMICWEB ENTERPRISES, INC., a New
Jersey corporation (the "Company"), 67,500 shares of Common Stock
(as hereinafter defined and subject to adjustment as provided
herein), in whole or in part, including fractional parts, at a
purchase price equal to $________ per share, all on the terms and
pursuant to conditions and pursuant to the purchase price equal
to the provisions hereinafter set forth.
1. DEFINITIONS
As used in this Common Stock Purchase War-rant (this
"Warrant"), the following terms have the respective meanings set
forth below:
"Additional Shares of Common Stock" shall mean all
shares of Common Stock issued by the Company after the Initial
Funding Date, other than Warrant Stock.
"Book Value" shall mean, in respect of any share of
Common Stock on any date herein specified, the consolidated book
value of the Company as of the last day of any month immediately
preceding such date, divided by the number of Fully Diluted
Outstanding shares of Common Stock as determined in accordance
with GAAP (assuming the payment of tile exercise prices for such
shares) by Richard A. Eisner & Company, LLP or any other firm of
independent certified public accountants of recognized national
standing selected by the Company and reasonably acceptable to the
Holder.
"Business Day" shall mean any day that is not a
Saturday or Sunday or a day on which banks are required or
permitted to be closed in the State of New York.
<PAGE 10>
"Commission" shall mean the Securities and Exchange
Commission or any other federal agency then administering the
Securities Act and other federal securities laws.
"Common Stock" shall mean (except where the context
otherwise indicates) the Common Stock, par value $0.0001, of the
Company as constituted on the Initial Funding Date, and any
capital stock into which such Common Stock may thereafter be
changed, and shall also include (i) capital stock of the Company
of any other class (regardless of how denominated) issued to the
holders of shares of Common Stock upon any reclassification
thereof which is also not preferred as to dividends or assets
over any other class of stock of the Company and which is not
subject to redemption and (ii) shares of common stock of any
successor or acquiring corporation received by or distributed to
the holders of Common Stock of the Company in the circumstances
contemplated by Section 4.4.
"Convertible Securities" shall mean evidences of
indebtedness, shares of stock or other securities which are
convertible into or exchangeable, with or without payment of
additional consideration in cash or property, for shares of
Common Stock, either immediately or upon the occurrence of a
specified date or a specified event.
"Current Warrant Price" shall mean, in respect of a
share of Common Stock at any date herein specified, the price at
which a share of Common Stock may be purchased pursuant to this
Warrant on such date.
"Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended, or any successor federal statute, and the
rules and regulations of the Commission thereunder, all as the
same shall be in effect from time to time.
"Exercise Period" shall mean the period during which
this Warrant is exercisable pursuant to Section 2.1.
"Expiration Date" shall mean December 1, 2001.
"Fully Diluted Outstanding" shall mean, when used with
reference to Common Stock, at any date as of which the number of
shares thereof is to be determined, all shares of Common Stock
Outstanding at such date and all shares of Common Stock issuable
in respect of this Warrant, outstanding on such date, and other
options or warrants to purchase, or securities convertible into,
shares of Common Stock outstanding on such date which would be
deemed outstanding in accordance with GAAP for purposes of
determining book value or net income per share.
"GAAP" shall mean generally accepted accounting
principles in the United States of America as from time to time
in effect.
"Holder" shall mean the Person in whose name the
Warrant or Warrant Stock set forth herein is registered on the
books of the Company maintained for such purpose. <PAGE 11>
"Initial Funding Date" means the date and time of the
issuance and sale of the Initially Issued Preferred Shares (as
defined in the Securities Purchase Agreement) and the Initially
Issued Warrants (as defined in the Securities Purchase Agreement)
in the First Tranche (as defined in the Securities Purchase
Agreement).
"Market Price" per Common Share means the average of
the closing bid prices of the Common Shares as reported on the
National Association of Securities Dealers, Inc. ("NASD"), Over
("OTC") the Counter Bulletin Board System ("BBS", together with
NASD and OTC, the "NASD/BBS"), or, if such security bid is not
listed or admitted to trading on the Nasdaq, on the principal
national security exchange or quotation system on which such
security is quoted or listed or admitted to trading, or, if not
quoted or listed or admitted to trading on any national
securities exchange or quotation system the closing bid price of
such security on the over-the-counter market on the day in
question as reported by the National Quotation Bureau
Incorporated, or a similar generally accepted reporting service,
or if not so available, in such manner as furnished by any member
firm of the NASD selected from time to time by the Board of
Directors of the Company for that purpose, or a price determined
in good faith by the Board of Directors of the Company as being
equal to the fair market value thereof, as the case may be, for
the five (5) Trading Days immediately preceding the Initial
Funding Date.
"Other Property" shall have the meaning set forth in
Section 4.4.
"Outstanding" shall mean, when used with reference to
Common Stock, at any date as of which the number of shares
thereof is to be determined, all issued shares of Common Stock,
except shares then owned or held by or for the account of the
Company or any subsidiary thereof, and shall include all shares
issuable in respect of outstanding scrip or any certificates
representing fractional interests in shares of Common Stock.
"Person" shall mean any individual, sole
proprietorship, partnership, joint venture. trust, incorporated
organization, association, corporation, institution, public
benefit corporation, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without
limitation, any instrumentality, division, agency, body or
department thereof).
"Registration Rights Agreement" shall mean the
Registration Rights Agreement dated a date even herewith by and
between the Company and The Shaar Fund Ltd., as it may be amended
from time to time.
"Restricted Common Stock" shall mean shares of Common
Stock which are, or which upon their issuance or the exercise of
this Warrant would be, evidenced by a certificate bearing the
restrictive legend set forth in Section 9.1(a).
<PAGE 12>
"Second Funding Date" means the date and time of the
issuance and sale of the New Preferred Shares (as defined in the
Securities Purchase Agreement) and the New Warrants (as defined
in the Securities Purchase Agreement) in the Second Tranche (as
defined in the Securities Purchase Agreement).
"Securities Act" shall mean the Securities Act of 1933,
as amended, or any successor federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall
be in effect at the time.
"Securities Purchase Agreement" shall mean the
Securities Purchase Agreement dated as of August 7, 1998 by and
between the Company and The Shaar Fund, Ltd. as it may be amended
from time to time.
"Transfer" shall mean any disposition of any Warrant or
Warrant Stock or of any interest in either thereof, which would
constitute a sale thereof within the meaning of the Securities
Act.
"Transfer Notice" shall have the meaning set forth in
Section 9.2.
"Warrants" shall mean this Warrant and all warrants
issued upon transfer, division or combination of, or in
substitution for, any thereof All Warrants shall at all times be
identical as to terms and conditions and date, except as to the
number of shares of Common Stock for which they may be exercised.
"Warrant Price" shall mean an amount equal to (i) the
number of shares of Common Stock being purchased upon exercise of
this Warrant pursuant to Section 2.1, multiplied by (ii) the
Current Warrant Price as of the date of such exercise.
"Warrant Stock" shall mean the shares of Common Stock
purchased by the holders of the Warrants upon the exercise
thereof.
2. EXERCISE OF WARRANT
2.1 Manner of Exercise. From and after the Second
Funding Date and until 5:00 P.M., New York time, on the
Expiration Date, Holder may exercise this Warrant, on any
Business Day, for all or any part of the number of shares of
Common Stock purchasable hereunder.
In order to exercise this Warrant, in whole or in
part, Holder shall deliver to the Company at its principal office
at 271 Route 46 West, Fairfield, New Jersey 07004, or at the
office or agency designated by the Company pursuant to
Section 12, (i) a written notice of Holder's of election to
exercise this Warrant, which notice shall specify the number of
shares of Common Stock to be purchased, (ii) payment of the
Warrant Price in Cash Or by wire transfer or cashier's check
drawn on a United States bank and (iii) this Warrant. Such
notice shall be substantially in the form of the subscription
<PAGE 13> form appearing at the end of this Warrant as Exhibit A,
duly executed by Holder or its agent or attorney. Upon receipt
of the items referred to in clauses (i), (ii) and (iii) above,
the Company shall, as promptly as practicable, and in any event
within five (5) Business Days thereafter, execute or cause to be
executed and deliver or cause to be delivered to Holder a
certificate or certificates representing the aggregate number of
full shares of Common Stock issuable upon such exercise, together
with cash in lieu of any fraction of a share, as hereinafter
provided. The stock certificate or certificates so delivered
shall be, to the extent possible, in such denomination or
denominations as Holder shall request in the notice and shall be
registered in the name of Holder or, subject to Section 9, such
other name as shall be designated in the notice. This Warrant
shall be deemed to have been exercised and such certificate or
certificates shall be deemed to have been issued, and Holder or
any other Person so designated to be named therein shall be
deemed to have become a holder of record of such shares for all
purposes, as of the date the notice, together with the cash or
check or checks and this Warrant, is received by the Company as
described above and all taxes required to be paid by Holder, if
any, pursuant to Section 2.2 prior to the issuance of such shares
have been paid. if this Warrant shall have been exercised in
part, the Company shall, at the time of delivery of the
certificate or certificates representing Warrant Stock, deliver
to Holder a new Warrant evidencing the rights of Holder to
purchase the unpurchased shares of Common Stock called for by
this Warrant, which new Warrant shall in all other respects be
identical with this Warrant, or, at the request of Holder,
appropriate notation may be made on this Warrant and the same
returned to Holder. Notwithstanding any provision herein to the
contrary, the Company shall not be required to register shares in
the name of any Person who acquired this Warrant (or pail
hereof) or any Warrant Stock otherwise than in accordance with
this Warrant.
2.2 Payment of Taxes and Charges. All shares of
Common Stock issuable upon the exercise of this Warrant pursuant
to the terms hereof shall be validly issued, fully paid and
nonassessable, freely tradeable and without any preemptive
rights. The Company shall pay all expenses in connection with,
and all taxes and other governmental charges that may be imposed
with respect to, the issue or delivery thereof, unless such tax
or charge is imposed by law upon Holder, in which case such taxes
or charges shall be paid by Holder. The Company shall not be
required, however, to pay any tax or other charge imposed in
connection with any transfer involved in the issue of any
certificate for shares of Common Stock issuable upon exercise of
this Warrant in any name other than that of Holder, and in such
case the Company shall not be required to issue or deliver any
stock certificate until such tax or other charge has been paid or
it has been established to the satisfaction of the Company that
no such tax or other charge is due.
2.3 Fractional Shares. The Company shall not be
required to issue a fractional share of Common Stock upon
exercise of any Warrant. As to any fraction of a share which
<PAGE 14> Holder would otherwise be entitled to purchase upon
such exercise, the Company shall pay a cash adjustment in respect
of such final fraction in an amount equal to the same fraction of
the Market Price per share of Common Stock as of the Initial
Funding Date.
2.4 Continued Validity. A holder of shares of Common
Stock issued upon the exercise, of this Warrant, in whole or in
part (other than a holder who acquires such shares after the same
have been publicly sold pursuant to a Registration Statement
under the Securities Act or sold pursuant to Rule 144
thereunder), shall continue to be entitled with respect to such
shares to all rights to which it would have been entitled as
Holder under Sections 9, 10 and 14 of this Warrant. The Company
will, at the time of exercise of this Warrant, in whole or in
part, upon the request of Holder, acknowledge in writing, in form
reasonably satisfactory to Holder, its continuing obligation to
afford Holder all such rights; provided, however, that if Holder
shall fail to make any such request, such failure shall not
affect the continuing obligation of the Company to afford to
Holder all such rights.
3. TRANSFER, DIVISION AND COMBINATION
3.1 Transfer. Subject to compliance with Section 9,
transfer of this Warrant and all rights hereunder, in whole or in
part, shall be registered on the books of the Company to be
maintained for such purpose, upon surrender of this Warrant at
the principal office of the Company referred to in Section 2.1 or
the office or agency designated by the Company pursuant to
Section 12, together with a written assignment of this Warrant
substantially in the form of Exhibit B hereto duly executed by
Holder or its agent or attorney and funds sufficient to pay any
transfer taxes payable upon the making of such transfer. Upon
such surrender and, if required, such payment, the Company shall,
subject to Section 9, execute and deliver a new Warrant or
Warrants in the name of the assignee or assignees and in the
denomination specified in such instrument of assignment, and
shall issue to the assignor a new Warrant evidencing the portion
of this Warrant not so assigned, and this Warrant shall promptly
be cancelled. A Warrant, if properly assigned in compliance with
Section 9, may be exercised by a new Holder for the purchase of
shares of Common Stock without having a new warrant issued.
3.2 Division and Combination. Subject to Section 9,
this Warrant may be divided or combined with other Warrants upon
presentation hereof at the aforesaid office or agency of the
Company, together with a written notice specifying the names and
denominations in which new Warrants are to be issued, signed by
Holder or its agent or attorney. Subject to compliance with
Section 3.1 and with Section 9, as to any transfer which may be
involved in such division or combination, the Company shall
execute and deliver a new Warrant or Warrants in exchange for the
Warrant or Warrants to be divided or combined in accordance with
such notice.
<PAGE 15>
3.3 Expenses. The Company shall prepare, issue and
deliver at its own expense (other than transfer taxes) the new
Warrant or Warrants under this Section 3.
3.4 Maintenance of Books. The Company agrees to
maintain, at its aforesaid office or agency, books for the
registration and the registration of transfer of the Warrants.
4. ADJUSTMENTS
The number of shares of Common Stock for which this
Warrant is exercisable, or the price at which such shares may be
purchased upon exercise of this Warrant, shall be subject to
adjustment from time to time as set forth in this Section 4. The
Company shall give Holder notice of any event described below
which requires an adjustment pursuant to this Section 4 at the
time of such event.
4.1 Stock Dividends, Subdivisions and Combinations.
If at any time the Company shall:
(a) take a record of the holders of its Common
Stock for the purpose of entitling them to receive a
dividend payable in, or other distribution of, Additional
Shares of Common Stock,
(b) subdivide its outstanding shares of Common
Stock into a larger number of shares of Common Stock, or
(c) combine its outstanding shares of Common
Stock into a smaller number of shares of Common Stock,
then (i) the number of shares of Common Stock for which this
Warrant is exercisable immediately after the occurrence of any
such event shall be adjusted to equal the number of shares of
Common Stock which a record holder of the same number of shares
of Common Stock for which this Warrant is exercisable immediately
prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (ii) the Current
Warrant Price shall be adjusted to equal (A) the Current Warrant
Price multiplied by the number of shares of Common Stock for
which this Warrant is exercisable immediately prior to the
adjustment divided by (B) the number of shares for which this
Warrant is exercisable immediately after such adjustment.
4.2 Certain Other Distribution. If at any time the
Company shall take a record of the holders of its Common Stock
for the purpose of entitling them to receive any dividend or
other distribution of:
(a) cash,
(b) any evidences of its indebtedness, any shares
of its stock or any other securities or property of any
nature whatsoever (other than cash, Convertible Securities
or Additional Shares of Common Stock), or
<PAGE 16>
(c) any warrants or other rights to subscribe for
or purchase any evidences of its indebtedness, any shares of
its stock or any other securities or property of any nature
whatsoever (other than cash, Convertible Securities or
Additional Shares of Common Stock),
then Holder shall be entitled to receive such dividend or
distribution as if Holder had exercised the Warrant. A
reclassification of the Common Stock (other than a change in par
value, or from par value to no par value or from no par value to
par value) into shares of Common Stock and shares of any other
class of stock shall be deemed a distribution by the Company to
the holders of its Common Stock of such shares of such other
class of stock within the meaning of this Section 4.2 and, if the
outstanding shares of Common Stock shall be changed into a larger
or smaller number of shares of Common Stock as a part of such
reclassification, such change shall be deemed a subdivision or
combination, as the case may be, of the outstanding shares of
Common Stock within the meaning of Section 4.1.
4.3 Other Provisions Applicable to Adjustments under
this Section. The following provisions shall be applicable to
the making of adjustments of the number of shares of Common Stock
for which this Warrant is exercisable and the Current Warrant
Price provided for in this Section 4:
(a) When Adjustments to Be Made. The adjustments
required by this Section 4 shall be made whenever and as
often as any specified event requiring an adjustment shall
occur. For the purpose of any adjustment, any specified
event shall be deemed to have occurred at the close of
business on the date of its occurrence.
(b) Fractional Interests. In computing
adjustments under this Section 4, fractional interests in
Common Stock shall be taken into account to the nearest
1/10th of a share.
(c) When Adjustment Not Required. If the Company
shall take a record of the holders of its Common Stock for
the purpose of entitling them to receive a dividend or
distribution or subscription or purchase rights and shall,
thereafter and before the distribution to stockholders
thereof, legally abandon its plan to pay or deliver such
dividend, distribution, subscription or purchase rights,
then thereafter no adjustment shall be required by reason of
the taking of such record and any such adjustment previously
made in respect thereof shall be rescinded and annulled.
(d) Challenge to Good Faith Determination.
Whenever the Board of Directors of the Company shall be
required to make a determination in good faith of the fair
value of any item under this Section 4, such determination
may be challenged in good faith by the Holder, and any
dispute shall be resolved by an investment banking firm of
recognized national standing selected by the Company and
acceptable to the Holder. <PAGE 17>
4.4 Reorganization, Reclassification, Merger,
Consolidation or Disposition of Assets. In case the Company shall
reorganize its capital, reclassify its capital stock, consolidate
or merge with or into another corporation (where the Company is
not the surviving corporation or where there is a change in or
distribution with respect to the Common Stock of the Company), or
sell, transfer or otherwise dispose of all or substantially all
its property, assets or business to another corporation and,
pursuant to the terms of such reorganization, reclassification,
merger, consolidation or disposition of assets, shares of common
stock of the successor or acquiring corporation, or any cash,
shares of stock or other securities or property of any nature
whatsoever (including warrants or other subscription or purchase
rights) in addition to or in lieu of common stock of the
successor or acquiring corporation ("Other Property"), are to be
received by or distributed to the holders of Common Stock of the
Company, then Holder shall have the night thereafter to receive,
upon exercise of the Warrant, the number of shares of common
stock of the successor or acquiring corporation or of the
Company, if it is the surviving corporation, and Other Property
receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets
by a holder of the number of shares of Common Stock for which
this Warrant is exercisable immediately prior to such event. In
case of any such reorganization, reclassification, merger,
consolidation or disposition of assets, the successor or
acquiring corporation (if other than the Company) shall expressly
assume the due and punctual observance and performance of each
and every covenant and condition of this Warrant to be performed
and observed by the Company and all the obligations and
liabilities hereunder, subject to such modifications as may be
deemed appropriate (as determined by resolution of the Board of
Directors of the Company) in order to provide for adjustments of
shares of Common Stock for which this War-rant is exercisable
which shall be as nearly equivalent as practicable to the
adjustments provided for in this Section 4. For purposes of this
Section 4.4, "common stock of the successor or acquiring
corporation" shall include stock of such corporation of any class
which is not preferred as to dividends or assets over any other
class of stock of such corporation and which is not subject to
redemption and shall also include any evidences of indebtedness,
shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the
arrival of a specified date or the happening of a specified event
and any warrants or other rights to subscribe for or purchase any
such stock. The foregoing provisions of this Section 4.4 shall
similarly apply to successive reorganizations, reclassifications,
mergers, consolidations or disposition of assets.
4.5 Other Action Affecting Common Stock. In case at
any time or from time to time the Company shall take any action
in respect of its Common Stock, other than any action described
in this Section 4, which would have a materially adverse effect
upon the rights of the Holder, the number of shares of Common
Stock and/or the purchase price thereof shall be adjusted in such
manner as may be equitable in the circumstances, as determined in
good faith by the Board of Directors-of the Company. <PAGE 18>
4.6 Certain Limitations. Notwithstanding anything
herein to the contrary, the Company agrees not to enter into any
transaction which, by reason of any adjustment hereunder, would
cause the Current Warrant Price to be less than the par value per
share of Common Stock.
5. NOTICES TO HOLDER
5.1 Notice of Adjustments. Whenever the number of
shares of Common Stock for which this Warrant is exercisable, or
whenever the price at which a share of such Common Stock may be
purchased upon exercise of the Warrants, shall be adjusted
pursuant to Section 4, the Company shall forthwith prepare a
certificate to be executed by the chief financial officer of the
Company setting forth, in reasonable detail, the event requiring
the adjustment and the method by which such adjustment was
calculated (including a description of the basis on which the
Board of Directors of the Company determined the fair value of
any evidences of indebtedness, shares of stock, other securities
or property or warrants or other subscription or purchase rights
referred to in Section 4.2), specifying the number of shares of
Common Stock for which this Warrant is exercisable and (if such
adjustment was made pursuant to Section 4.4 or 4.5) describing
the number and kind of any other shares of stock or Other
Property for which this warrant is exercisable, and any change in
the purchase price or prices thereof, after giving effect to such
adjustment or change. The Company shall promptly cause a signed
copy of such certificate to be delivered to the Holder in
accordance with Section 14.2. The Company shall keep at its
office or agency designated pursuant to Section 12 copies of all
such certificates and cause the same to be available for
inspection at said office during normal business hours by the
Holder or any prospective purchaser of a Warrant designated by
the Holder.
5.2 Notice of Corporate Action. If at any time
(a) the Company shall take a record of the
holders of its Common Stock for the purpose of entitling
them to receive a dividend or other distribution, or any
right to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other
securities or property, or to receive any other right, or
(b) there shall be any capital reorganization of
the Company, any reclassification or recapitalization of the
capital stock of the Company or any consolidation or merger
of the Company with, or any sale, transfer or other
disposition of all or substantially all the property, assets
or business of the Company to, another corporation, or
(c) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to
Holder (i) at least 3 0 days' prior written notice of the date on
which a record date shall be selected for such dividend,
<PAGE 19> distribution or right or for determining rights to vote
in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution,
liquidation or winding up, and (ii) in the case of any such
reorganization, reclassification, merger, consolidation, sale,
transfer, disposition, dissolution, liquidation or winding up, at
least 30 days' prior written notice of the date when the same
shall take place. Such notice in accordance with the foregoing
clause also shall specify (i) the date on which any such record
is to be taken for the purpose of such dividend, distribution or
right, the date on which the holders of Common Stock shall be
entitled to any such dividend, distribution or right, and the
amount and character thereof, and (ii) the date on which any such
reorganization, reclassification, merger, consolidation, sale,
transfer, disposition, dissolution, liquidation or winding up is
to take place and the time, if any such time is to be fixed, as
of which the holders of Common Stock shall be entitled to
exchange their shares of Common Stock for securities or other
property deliverable upon such reorganization, reclassification,
merger, consolidation, sale, transfer, disposition, dissolution,
liquidation or winding up. Each such written notice shall be
sufficiently given if addressed to Holder at the last address of
Holder appearing on the books of the Company and delivered in
accordance with Section 14.2.
6. NO IMPAIRMENT
The Company shall not by any action including, without
limitation, amending its certificate of incorporation or through
any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of
any of the terms of this Warrant, but will at all times in good
faith assist in) the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to
protect the rights of Holder against impairment. Without
limiting the generality of the foregoing, the Company will
(a) not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the amount
payable therefor upon such exercise immediately Prior to such
increase in par value, (b) take all such action as may be
necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable shares of Common
Stock upon the exercise of this warrant, and (c) use its best
efforts to obtain all such authorizations, exemptions or consents
from any public regulatory body having jurisdiction thereof as
may be necessary to enable the Company to perform its obligations
under this Warrant.
Upon the request of Holder, the Company will at any
time during the period this Warrant is outstanding acknowledge in
writing, in form satisfactory to Holder, the continuing validity
of this Warrant and the obligations of the Company hereunder.
<PAGE 20>
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK
From and after the Initial Funding Date, the Company
shall at all times reserve and keep available for issue upon the
exercise of Warrants such number of its authorized but unissued
shares of Common Stock as will be sufficient to permit the
exercise in full of all outstanding Warrants. All shares of
Common Stock which shall be so issuable, when issued upon
exercise of any Warrant and payment therefor in accordance with
the terms of such Warrant, shall be duly and validly issued and
fully paid and nonassessable, and not subject to preemptive
rights.
Before taking any action which would cause an
adjustment reducing the Current Warrant Price below the then par
value, if any, of the shares of Common Stock issuable upon
exercise of the Warrants, the Company shall take any corporate
action which may be necessary in order that the Company may
validly and legally issue fully paid and non-assessable shares of
such Common Stock at such adjusted Current Warrant Price.
Before taking any action which would result in an
adjustment in the number of shares of Common Stock for which this
Warrant is exercisable or in the Current Warrant Price, the
Company shall obtain all such authorizations or exemptions
thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by
the Company to the holders of its Common Stock with respect to
which any provision of Section 4 refers to the taking of a record
of such holders, the Company will in each such case take such a
record and will take such record as of the close of business on a
Business Day. The Company will not at any time, except upon
dissolution, liquidation or winding up of the Company, close its
stock transfer books or Warrant transfer books so as to result in
preventing or delaying the exercise or transfer of any Warrant.
9. RESTRICTIONS ON TRANSFERABILITY
The Warrants and the Warrant Stock shall not be
transferred, hypothecated or assigned before satisfaction of the
conditions specified in this Section 9, which conditions are
intended to ensure compliance with the provisions of the
Securities Act with respect to the Transfer of any Warrant or any
Warrant Stock. Holder, by acceptance of this Warrant, agrees to
be bound by the provisions of this Section 9. <PAGE 21>
9.1 Restrictive Legend.
(a) The Holder by accepting this Warrant and any
Warrant Stock agrees that this Warrant and the Warrant Stock
issuable upon exercise hereof may not be assigned or
otherwise transferred unless and until (i) the Company has
received an opinion of counsel for the Holder that such
securities may be sold pursuant to an exemption from
registration under the Securities Act of 1933, as amended
(the "Securities Act") or (ii) a registration statement
relating to such securities has been filed by the Company
and declared effective by the Commission.
Each certificate for Warrant Stock issuable
hereunder shall bear a legend as follows unless such
securities have been sold pursuant to an effective
registration statement under the Securities Act:
"These securities have not been registered under
the Securities Act of 1933, as amended (the "Securities
Act"), or the securities laws of any state, and are
being offered and sold pursuant to an exemption from
the registration requirements of the Securities Act and
such laws. These securities may not be sold or
transferred except pursuant to an effective
registration statement under the Securities Act or
pursuant to an available exemption from the
registration requirements of the Securities Act or such
other laws."
(b) Except as otherwise provided in this
Section 9, the Warrant shall be stamped or otherwise
imprinted with a legend in substantially the following form:
"This Warrant and the securities represented
hereby have not been registered under the Securities
Act of 1933, as amended, and may not be transferred in
violation of such Act, the rules and regulations
thereunder or the provisions of this Warrant."
9.2 Notice of Proposed Transfers. Prior to any
Transfer or attempted Transfer of any Warrants or any shares of
Restricted Common Stock, the Holder shall give ten days, prior
written notice (a "Transfer Notice") to the Company of Holder's
intention to effect such Transfer, describing the manner and
circumstances of the proposed Transfer, and obtain from counsel
to Holder who shall be reasonably satisfactory to the Company, an
opinion that the proposed Transfer of such Warrants or such
Restricted Common Stock may be effected without registration
under the Securities Act. After receipt of the Transfer Notice
and opinion, the Company shall, within five days thereof, notify
the Holder as to whether such opinion is reasonably satisfactory
and, if so, such holder shall thereupon be entitled to Transfer
such Warrants or such Restricted Common Stock, in accordance with
the terms of the Transfer Notice. Each certificate, if any,
evidencing such shares of Restricted Common Stock issued upon
such Transfer shall bear the restrictive legend set forth in
<PAGE 22> Section 9.1(a), and the Warrant issued upon such
Transfer shall bear the restrictive legend set forth in
Section 9.1(b), unless in the opinion of such counsel such legend
is not required in order to ensure compliance with the Securities
Act. The Holder shall not be entitled to Transfer such Warrants
or such Restricted Common Stock until receipt of notice from the
Company under this Section 9.2(a) that such opinion is reasonably
satisfactory.
9.3 Required Registration. Pursuant to the terms and
conditions set forth in the Registration Rights Agreement, the
Company shall prepare and file with the Commission not later than
the sixtieth (60th) day after the Initial Funding Date, a
Registration Statement relating to the offer and sale of the
Common Stock issuable upon exercise of the Warrants and shall use
its best efforts to cause the Commission to declare such
Registration Statement effective under the Securities Act as
promptly as practicable but no later than one hundred and twenty
(120) days after the Initial Funding Date.
9.4 Termination of Restrictions. Notwithstanding the
foregoing provisions of Section 9, the restrictions imposed by
this Section upon the transferability of the Warrants, the
Warrant Stock and the Restricted Common Stock (or Common Stock
issuable upon the exercise of the Warrants) and the legend
requirements of Section 9.1 shall terminate as to any particular
Warrant or share of Warrant Stock or Restricted Common Stock (or
Common Stock issuable upon the exercise of the warrants) (1) when
and so long as such security shall have been effectively
registered under the Securities Act and disposed of pursuant
thereto or (ii) when the Company shall have received an opinion
of counsel reasonably satisfactory to it that such shares may be
transferred without registration thereof under the Securities
Act. Whenever the restrictions imposed by Section 9 shall
terminate as to this Warrant, as hereinabove provided, the Holder
hereof shall be entitled to receive from the Company upon written
request of the Holder, at the expense of the Company, a new
Warrant bearing the following legend in place of the restrictive
legend set forth hereon:
"THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN
WARRANT CONTAINED IN SECTION 9 HEREOF TERMINATED ON
____________, 19_, AND ARE OF NO FURTHER FORCE AND
EFFECT."
All Warrants issued upon registration of transfer, division or
combination of, or in substitution for, any Warrant or Warrants
entitled to bear such legend shall have a similar legend endorsed
thereon. Whenever the restrictions imposed by this Section shall
terminate as to any share of Restricted Common Stock, as
hereinabove provided, the holder thereof shall be entitled to
receive from the Company, at the Company's expense, a new
certificate representing such Common Stock not bearing the
restrictive legend set forth in Section 9. 1 (a).
9.5 Listing on Securities Exchange. If the Company
shall list any shares of Common Stock on any securities exchange,
<PAGE 23> it will, at its expense, list thereon, maintain and,
when necessary, increase such listing of, all shares of Common
Stock issued or, to the extent permissible under the applicable
securities exchange rules, issuable upon the exercise of this
Warrant so long as any shares of Common Stock shall be so listed
during any such Exercise Period.
o r SUPPLYING INFORMATION
The Company shall cooperate with Holder in supplying
such information as may be reasonably necessary for Holder to
complete and file any information reporting forms presently or
hereafter required by the Commission as a condition to the
availability of an exemption from the Securities Act for the sale
of any Warrant or Restricted Common Stock.
11. LOSS OR MUTILATION
Upon receipt by the Company from Holder of evidence
reasonably satisfactory to it of the ownership of and the loss,
theft, destruction or mutilation of a Warrant and indemnity
reasonably satisfactory to it (it being understood that the
written agreement of the Holder shall be sufficient indemnity),
and in case of mutilation upon surrender and cancellation hereof,
the Company will execute and deliver in lieu hereof a new Warrant
of like tenor to Holder; provided, in the case of mutilation, no
indemnity shall be required if this Warrant in identifiable form
is surrendered to the Company for cancellation.
12. OFFICE OF THE COMPANY
As long as any of the Warrants remain outstanding, the
Company shall maintain an office or agency (which may be the
principal executive offices of the Company) where the Warrants
may be presented for exercise, registration of transfer, division
or combination as provided in this Warrant.
13. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative
action by Holder to purchase shares of Common Stock, and no
enumeration herein of the rights or privileges of Holder hereof,
shall give rise to any liability of Holder for the purchase price
of any Common Stock or as a stockholder of the Company, whether
such liability is asserted by the Company or by creditors of the
Company.
14. MISCELLANEOUS
14.1 Nonwaiver and Expenses. No course of dealing or
any delay or failure to exercise any right hereunder on the part
of Holder shall operate as a waiver of such right or otherwise
prejudice Holder's rights, powers or remedies. If the Company
fails to make, when due, any payments provided for hereunder, or
fails to comply with any other provision of this Warrant, the
Company shall pay to Holder such amounts as shall be sufficient
to cover any costs and expenses including, but not limited to,
<PAGE 24> reasonable attorneys' fees, including those of
appellate proceedings, incurred by Holder in collecting any
amounts due pursuant hereto or in otherwise enforcing any of its
rights, powers or remedies hereunder.
14.2 Notice Generally. Except as may be otherwise
provided herein, any notice or other communication or delivery
required or permitted hereunder shall be in writing and shall be
delivered personally or sent by certified mail, postage prepaid,
or by a nationally recognized overnight courier service, and
shall be deemed given when so delivered personally or by
overnight courier service, or, if mailed, three (3) days after
the date of deposit in the United States mails, as follows:
(1) if to the Company, to:
DYNAMICWEB ENTERPRISES, INC.
271 Route 46W, Building F, Suite 209
Fairfield, New Jersey 07004
Attention: Steven L. Vanechanos, Jr.
Telephone: (973) 276-3107
Facsimile: (973) 575-9830
With a copy to:
STEVENS & LEE
One Glenhardie Corporate Center, Suite 202
Wayne, PA 19087-0234
Attention: Steve Ritner, Esq.
Telephone: (610) 964-1480
Facsimile: (610) 687-1384
(2) if to the Holder, to:
THE SHAAR FUND LTD., c/o SHAAR ADVISORY
SERVICES LTD. 62 King George Street,
Apartment 4F Jerusalem, Israel
Attention: Samuel Levinson
With a copy to:
HERRICK, FEINSTEIN LLP
2 Park Avenue
New York, New York 10016
Attention: Irwin A. Kishner, Esq.
Telephone: (212) 592-1435
Facsimile: (212) 889-7577
The Company or the Holder may change the foregoing address by
notice given pursuant to this Section 14.2.
14.3 Indemnification. The Company agrees to indemnify
and hold harmless Holder from and against any liabilities,
obligations, losses, damages, penalties, actions, judgments,
suits, claims, costs, attorneys' fees, expenses and disbursements
of any kind which may be imposed upon, incurred by or asserted
against Holder in any manner relating to or arising out of any
<PAGE 25> failure by the Company to perform or observe in any
material respect any of its covenants, agreements, undertakings
or obligations set forth in this Warrant; provided, however, that
the Company will not be liable hereunder to the extent that any
liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, attorneys' fees, expenses or
disbursements are found in a final non-appealable judgment by a
court to have resulted from Holder's gross negligence, bad faith
or willful misconduct in its capacity as a stockholder or
warrantholder of the Company.
14.4 Remedies. Holder in addition to being entitled to
exercise all rights granted by law, including recovery of
damages, will be entitled to specific performance of its rights
under Section 9 of this Warrant. The Company agrees that
monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of
Section 9 of this Warrant and hereby agrees to waive the defense
in any action for specific performance that a remedy at law would
be adequate.
14.5 Successors and Assigns. Subject to the provisions
of Sections 3.1 and 9, this Warrant and the rights evidenced
hereby shall inure to the benefit of and be binding upon the
successors of the Company and the successors and assigns of
Holder. The provisions of this Warrant are intended to be for
the benefit of all Holders from time to time of this Warrant and,
with respect to Section 9 hereof, holders of Warrant Stock, and
shall be enforceable by any such Holder or holder of Warrant
Stock.
14.6 Amendment. This Warrant and all other Warrants may
be modified or amended or the provisions hereof waived with the
written consent of the Company and the Holder.
14.7 Severability. Wherever possible, each provision
of this Warrant shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of
this Warrant shall be prohibited by or invalid under applicable
law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Warrant.
14.8 Headings. The headings used in this Warrant are
for the convenience of reference only reference only and shall
not, for any purpose, be deemed a part of this Warrant.
14.9 Governing Law. This Warrant shall be governed by
the laws of the State of New York, without regard to the
provisions thereof relating to conflict of laws.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
PAGE 26
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant
to be duly executed and its corporate sea.1 to be impressed
hereon and attested by its Secretary or an Assistant Secretary.
Dated: December 2. 1998
DYNAMICWEB ENTERPRISES, INC.
By:___________________________________
Name: Steven L. Vanechanos, Jr.
Title: Chief Executive Officer
Attest:
By: _______________________
Name:
Title:
[SEAL]
PAGE 27
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably
exercises this warrant for the purchase of Shares of Common Stock
of Dynamicweb Enterprises, Inc. and herewith makes payment
therefor, all at the price and on the terms and conditions
specified in this Warrant and requests that certificates for the
shares of Common Stock hereby purchased (and any securities or
other property issuable upon such exercise) be issued in the
name of and delivered to whose address is and, if such shares of
Common Stock shall not include all of the shares of Common Stock
issuable as provided in this Warrant, that a new Warrant of like
tenor and date for the balance of the shares of Common Stock
issuable hereunder be delivered to the undersigned.
(Name of Registered owner)
(Signature of Registered Owner)
Street Address)
(city) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with
the name as written upon the face of the within Warrant
in every particular, without alteration or enlargement
or any change whatsoever.
PAGE 28
<PAGE>
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this
Warrant hereby sells, assigns and transfers unto the Assignee
named below all of the rights of the undersigned under this
Warrant, with respect to the number of shares of Common Stock set
forth below:
No. of Shares of
Name and Address of Assignee Common Stock
and does hereby irrevocably constitute and appoint attorney-in-
fact to register such transfer on the books of maintained for the
purpose, with full power of substitution in the premises.
Dated: Print Name:
Signature:
Witness:
NOTICE: The signature on this assignment must correspond with
the name as written upon the face of the within Warrant
in every particular, without alteration or enlargement
or any change whatsoever.
<PAGE 29>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the reference to our firm under the caption
"Experts" and to the use of our report dated July 10, 1998 with
respect to the financial statements of Design Crafting, Inc. in
the Registration Statement (Amendment No. 1 to Form S-2) and
related prospectus of DynamicWeb Enterprises, Inc. for the
registration of 1,024,730 shares of its common stock and to the
incorporation by reference therein of our report dated
November 11, 1997 (December 12, 1997 with respect to Note F,
December 12, 1997 with respect to Note G[6] and January 9, 1998
with respect to Note G[5]) with respect to the consolidated
financial statements of DynamicWeb Enterprises, Inc. and
subsidiaries included in its annual report (Form 10-KSB) for the
year ended September 30, 1997, filed with the Securities and
Exchange Commission.
/s/ Richard A. Eisner & Company, LLP
New York, New York
December 28, 1998
