As filed with the Securities and Exchange Commission on
November 16, 1998
Registration No.
=================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________
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 794,872 $2.43 $1,931,539 $569.80
issuable upon
conversion of
convertible
preferred stock(2)
_________________________________________________________________
Common Stock 155,000 $6.00 $930,000 $274.35
issuable upon
exercise of
warrants(3)
_________________________________________________________________
Common Stock 90,000 $2.43 $227,700 $67.17
issuable upon
exercise of
options of
Perry & Co.(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(c), using the average of the
bid and asked prices for the Common Stock on November 10,
1998, 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
1,039,872 SHARES
DYNAMICWEB ENTERPRISES, INC.
COMMON STOCK
This prospectus ("Prospectus") relates to an aggregate of
1,039,872 shares (the "Shares") of common stock, $.0001 par value
(the "Common Stock") of DynamicWeb Enterprises, Inc (the
"Company") which are being sold by certain selling security
holders (the"Selling Security Holders") described below. This
offering (the "Offering") consists of two components:
(i) A total of 949,872 of the Shares may be sold from time
to time by the Shaar Fund, Ltd.(the "Shaar Fund"). The Shaar
Fund has acquired or may acquire those Shares upon conversion of
1,550 Shares of Series A Convertible Preferred Stock and the
exercise of 155,000 Warrants owned by the Shaar Fund. The Shaar
Fund purchased the Shares of Series A Convertible Preferred Stock
(the "Preferred Stock") and the Warrants (the "Shaar Warrants")
in a Regulation D private placement. That transaction was exempt
from the registration provisions of the Securities Act of 1933,
as amended (the "1933 Act").
(ii) An additional 90,000 Shares may be sold from time to
time by Perry & Co. ("Perry"). Perry has acquired or will
acquire those Shares upon exercise of 90,000 stock options (the
"Perry Options") received as consideration for investor relations
services it has agreed to provide to the Company under the terms
of an agreement dated April 2, 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 receive no part of the proceeds of any
sales made by the Selling Security Holders hereunder. All
expenses of registration incurred in connection with this
offering are being borne by the Company, but all selling and
other expenses incurred by the Selling Security Holders will be
borne by the Selling Security Holders. 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>
PROSPECTUS SUMMARY
The Company
The Company is engaged in the business of developing,
marketing and supporting computer software products and services
that enable businesses to engage in electronic commerce.
Electronic commerce ("EC") is the conducting of business
transactions using telecommunications and computers to exchange
and process commercial information and transactional documents.
Electronic Data Interchange ("EDI") is a part of Electronic
Commerce. EDI is the application-to-application transmission of
business documents such as purchase orders and invoices using
industry-standard formats. For example, manufacturers of goods
can create electronic catalogues of their products and prices
such that their customers will have the ability to electronically
enter purchase orders and complete the purchase, payment and
other documentation of a purchase transaction.
Electronic commerce has traditionally involved the use of a
third-party or private value-added computer network ("VAN") to
perform EDI, e-mail, and electronic funds transfers and to
provide services related to electronic forms, bulletin board and
electronic catalogues. A VAN is, in effect, an electronic post
office which electronically receives and delivers mail, in this
case commercial documents, to the intended recipient.
The Company's products and services work with all major VAN
providers and also work over the Internet.
The Company's business is organized into two principal
segments: transaction processing and professional services.
Transaction processing consists of the Company providing its
computer hardware and software to its customers for those
customers to conduct their business transactions electronically.
The Company charges transaction and set-up fees for that service.
Professional services consists of EDI and related consulting
services provided to clients regarding their EDI needs.
The Company has three principal software, service and
consulting packages for the markets and customers described
above:
EDIxchange(SM) - EDIxchange is a managed service provided by
the Company that allows for the transfer of information
between trading partners. The service includes EDI mapping
and the translation and routing of business documents
between third party EDI (VAN) networks, the Internet and the
private computer networks maintained by the parties to the
business transaction. Generally referred to as "EDI
outsourcing," this service offers businesses cost-effective
alternatives to investing in an in-house EDI system.
<PAGE 1>
EDIxchange(SM) Buy or Sell - The Company's EDIxchange Buy or
Sell program provides a seamless and cost effective way for
EDI-enabled suppliers or retailers to extend their EDI
network and conduct electronic commerce with their non-EDI
trading partners. EDIxchange Buy or Sell bridges the
Internet with traditional EDI networks such as VANs by using
the Company's EDIxchange service bureau. This product
allows businesses which do not have in-house EDI capability
to communicate electronically with EDI-enabled business
partners, using only Internet access and a standard Web
browser. A Web browser, such as Netscape or Internet
Explorer, allows Internet users to access various Web Sites
on the Internet.
EDIxchange Connect(SM) - The Company has developed
application interface modules for two third party midrange
accounting software systems, RealWorld and Synchronics.
Designed for businesses using those systems, EDIxchange
Connect allows a business to import and export business
documents electronically from those software applications.
Generally, the Company sells this product through
distributors of Real World and Synchronics software. The
Company offers as an option to EDIxchange Connect its
automated delivery product known as Shiptrac. ShipTrac
which is the Company's Windows-based software application
designed for manufacturers and suppliers of goods and which
electronically creates a shipping manifest or list of
products that are being shipped to a particular customer or
distribution center.
As of June 30, 1998, the Company's EDIxchange Buy or Sell
customers included Rite-Aid Pharmacy, Southern New England
Telephone, Service Merchandise, Linens N' Things (EDI-enabled
purchasers), and Great American Knitting Mills, makers of Goldtoe
socks (an EDI-enabled seller). Customers using the Company's
EDIxchange service bureau include Sound Design, a manufacturer of
electronic equipment, Church & Dwight, manufacturers of Arm &
Hammer baking soda, Royal Dalton, makers of fine china, and Kings
Supermarket, a supermarket chain located in the Northeast United
States.
The Company's executive offices are located at 271 Route 46
West, Building F, Suite 209, Fairfield, New Jersey 07004 and its
telephone number is (973) 244-1000.
Recent Events
The Company acquired all of the stock of Design Crafting,
Inc. ("DCI") on May 1, 1998. DCI was a corporation engaged in
the consulting business, with an emphasis on EDI consulting. The
acquisition of DCI is intended to enhance the Company's
professional services and consulting business. The acquisition
of DCI was accounted for under the purchase method of accounting.
<PAGE 2>
Certain financial statements pertaining to DCI are included
in this Prospectus at page F-1.
Effective September 30, 1998, the Company merged all of its
subsidiaries with and into the Company. Prior to that time the
subsidiaries were DynamicWeb Transaction Systems, Inc. ("DWTS"),
Software Associates, Inc. ("SA"), Megascore, Inc. ("Megascore"),
and DCI. The Company directly succeeded to all of the operations
of each of the former subsidiaries.
RISK FACTORS
An investment in the Common Stock offered hereby involves a
high degree of risk and should not be made by persons who cannot
afford the loss of their entire investment. Prospective
investors, prior to making an investment decision, should
consider carefully, in addition to the other information
contained in this Prospectus (including the financial statements
and notes thereto), the following factors. This Prospectus
contains, in addition to historical information, forward-looking
statements that involve risks and uncertainties. The Company's
actual results could differ materially. Factors that could cause
or contribute to such differences include, but are not limited
to, those discussed below, as well as those discussed elsewhere
in this Prospectus.
Continuous Net Losses; Auditors' Report Going Concern
Considerations. The Company has only a limited operating history
upon which an evaluation of the Company and its prospects can be
based. The Company has conducted its present business only since
March of 1996. The Company completed public offering of common
stock on February 6, 1998, in which it raised net proceeds of
approximately $3.2 million. The Company has incurred continuous
and substantial net losses, and the proceeds of that public
offering were fully utilized by August 1998. No assurance can be
made that the Company will become profitable in the near future,
if at all. The Company's prospects are subject to all of the
risks encountered by a company in an early stage of development,
particularly in light of the uncertainties relating to the new
and evolving markets in which the Company intends to operate. To
address these risks, the Company must, among other things:
further develop or acquire rights to supporting software from
third parties; successfully implement its marketing strategy;
respond to competitive developments; attract, retain and motivate
qualified personnel; and develop, upgrade, and protect its
technology. No assurance can be given that the Company will
succeed in addressing any or all of these issues; and the failure
to do so would have a material adverse effect on the Company's
business, prospects, financial condition and operating results.
The auditors' opinion on the Company's financial statements as of
September 30, 1997, calls attention to substantial doubts as to
the ability of the Company to continue as a going concern as of
the date of those financial statements. As of June 30, 1998, the
Company had an accumulated deficit of $5,595,349.
<PAGE 3>
Need for Substantial Additional Capital. Management
estimates that the Company will need to raise substantial
additional capital in order to complete its business plan. The
Shaar Fund, Ltd. has agreed to invest an additional $675,000
provided that the Company meets certain criteria as of the date
of this Prospectus. The Company currently does not meet two of
the criteria in that the bid price of the Common Stock has fallen
below $4.00 per share and the average daily trading volume of the
Common Stock is below 20,000 shares per day (See "Risk Factors --
Uncertain Public Market for the Company's Common Stock"). There
is no assurance that the Shaar Fund will complete its investment
in the Company. In the event the Company is unable to obtain
additional funding in a timely manner, it will be unable to
complete its present business plan, it may need to significantly
scale down its operations or it may be required to cease its
business operations. There can be no assurance that the Company
will be able to obtain the additional capital required in a
timely manner or that it will be able to complete its business
plan. If any additional capital is raised in equity offerings,
the interests of investors who purchase the Common Stock in this
Offering may be diluted.
Anticipated Operating Losses. The Company anticipates
realizing only limited revenue for the foreseeable future. The
Company's ability to generate meaningful revenue thereafter is
subject to substantial uncertainty. The Company anticipates that
its operating expenses will increase substantially in the
foreseeable future. It has hired a substantial number of
additional employees and has and will make other significant
expenditures to further develop its technology, increase its
marketing activities, create and expand the distribution channels
for its products and services, and broaden its customer support
capabilities. Accordingly, the Company expects to incur losses
for the foreseeable future. No assurance can be given that the
Company's products and services will be developed, marketed,
expanded, or rendered successfully or on a timely basis, if at
all, or that the Company will be successful in obtaining market
acceptance of its products and services. No assurance can be
given that the Company will ever be able to achieve or sustain
operating profitability.
Early Stage of Market Development; Unproven Acceptance of
the Company's Products and Services. The Company's products and
services are designed to facilitate electronic commerce. A major
focus of the Company's products and services is the Internet,
which is a worldwide communications system that allows computer
users to transmit and receive messages and information over
telephone and other communications lines using terminals or
computers. See "Dependence on the Internet and on Internet
Infrastructure Development" below. The market for the Company's
products and services is at an early stage of development, is
evolving rapidly, and is characterized by an increasing number of
market entrants who have introduced or are developing competing
products and services. As is typical for a new and rapidly
evolving industry, demand and market acceptance for recently
<PAGE 4> introduced products and services are subject to a high
level of uncertainty. Market acceptance will depend, in large
part, upon the ability of the Company to demonstrate the
advantages and cost effectiveness of its products and services
over existing products and services. There can be no assurance
that the Company will be able to market its products and services
successfully or that its current or future products and services
will be accepted in the marketplace. As a result of the
Company's recent introduction of its products and services into
the market and their limited use to date, there can be no
assurance that the Company's products and services will achieve
market acceptance or will produce substantial revenues.
Dependence on the Internet and on Internet Infrastructure
Development. The use of the Company's products and services is
dependent upon the continued development of an industry and
infrastructure for providing Internet access and carrying
Internet traffic. The commercial market for products and
services for use with the Internet and the World Wide Web has
only recently begun to develop. The Internet may not prove to be
a viable commercial marketplace or communications network because
of many factors, including inadequate development of the
necessary capacity, problems with reliability, lack of acceptable
levels of security, or lack of timely development of
complementary products, such as high speed modems. The Internet
suffers from many problems related to performance, reliability,
congestion and delay. Customers may experience frustration
waiting for transactions to be processed. Consequently, they may
forego using the Company's products and services.
Further, there can be no assurance that the Internet will
retain its current pricing structure, which is generally flat-
rate, independent of volume, and independent of the time of day.
Federal regulation of access fees to the Internet may cause an
increase in costs to the businesses utilizing the Company's
products and services.
The adoption of the Internet for commerce and as a means of
communication, particularly by those individuals and enterprises
that historically have relied upon traditional means of commerce
and communication, will require a broad acceptance of new methods
of conducting business and exchanging information. Enterprises
that already have invested substantial resources in other methods
of conducting business may be reluctant or slow to adopt a new
strategy that may limit or compete with their existing business.
Individuals with established patterns of purchasing goods and
services and effecting payments may be reluctant to alter those
patterns.
Thus far, significant commercial use of the Internet has not
developed, in part, because of the lack of security and
verification processes. Although the Company's products and
services are compatible with existing and apparently emerging
security and verification products, there can be no assurance
that widespread commercial use of the Internet for electronic
<PAGE 5> commerce will develop, or that even if such use does
develop, that the Company's products and services will achieve
market acceptance. If the Company's market fails to develop or
develops more slowly than expected, or if the infrastructure for
the Internet is not adequately developed, or if the Company's
products and services do not achieve market acceptance by a
significant number of individuals and businesses, the Company's
business, financial condition, prospects and operating results
will be materially and adversely affected.
Ability to Respond to Rapid Change. The Company's future
success will depend significantly on its ability to enhance its
current products and services and develop or acquire and market
new products and services which keep pace with technological
developments and evolving industry standards as well as respond
to changes in customer needs. The market for EDI products and
Internet software products is characterized by rapidly changing
technology, evolving industry standards and customer demands, and
frequent new product introductions and enhancements. The Company
will be required to manage effectively its strategic position in
a rapidly changing environment. There can be no assurance that
the Company will be successful in developing or acquiring product
or service enhancements or new products or services to address
changing technologies and customer requirements adequately, that
it will introduce such products or services on a timely basis, if
at all, or that any such product or service enhancements will be
successful in the marketplace. The Company's delay or failure to
develop or acquire technological improvements or to adapt its
products or services to technological change would have a
material adverse effect on the Company's business, financial
condition, prospects, and operating results. The failure of the
Company's management team to respond effectively to and manage
rapidly changing technological and business conditions as well as
the growth of its own business, should it occur, could have
material adverse impact on the Company's business, financial
condition, prospects, and operating results. See "Reliance on
Limited Number of Products."
Difficulty of Trading "Penny Stock." Because the Company's
Common Stock trades on the NASD's OTC Bulletin Board Service, if,
at any time, the bid price of the Company's Common Stock falls
below $5.00 per share, and under certain other circumstances, the
Company's Common Stock may be subject to rules that impose
additional sales practice and market making requirements on
broker-dealers who sell or make a market in lower-priced
securities which constitute "penny stocks." The additional
requirements will generally apply if sales are made to persons
other than established customers (as defined in such rules) and
accredited investors (generally, institutions and, for
individuals, an investor with assets in excess of $1,000,000 or
annual income exceeding $200,000 or $300,000 together with such
investor's spouse). For transactions covered by these rules, the
broker-dealer must make a special suitability determination for
the purchaser and must have received the purchaser's written
consent to the transaction prior to the purchase. Consequently,
<PAGE 6> many broker-dealers may be unwilling to sell or make a
market in the Company's securities because of the added
disclosure requirements, thereby making it more difficult for
purchasers in this Offering to resell the Common Stock in the
secondary market. As of November 10, 1998, the Company's bid
price was $2.31 and the Company is subject to the penny stock
rules.
Uncertain Public Market for the Company's Common Stock. The
Company's Common Stock is traded on the NASD's OTC Bulletin Board
Service. There is no assurance that an active trading market
will develop or be sustained. As of September 17, 1998, the
Company's underwriters and its principal market maker --
H.J. Meyers & Co. -- ceased operations, no longer provided
support for the Company stock, and the volume of trades
materially declined. The investment community could show little
or no interest in the Company in the future. As a result,
purchasers of the Company's securities may have difficulty in
selling such securities should they desire to do so. It is
substantially more difficult for investors in securities listed
on the OTC Bulletin Board to dispose of such securities or to
obtain accurate quotations regarding such securities, as compared
to securities listed on more established trading markets, such as
the NASDAQ Small Cap Market System.
Reliance on Limited Number of Products and Services. The
Company expects that substantially all of its revenues will be
derived from its EDIxchange product and service, its EDIxchange
Buy and Sell program service, its related EDI consulting
services, and (to a lesser extent) its EDIxchange Connect
product. If these products and services are not successful,
whether as a result of technological change, competition or any
other factors, the Company's business, financial condition,
prospects and operating results will be adversely affected.
Although the Company is continuing to develop its existing
products, it presently has no plans to develop or produce
additional products and services for the foreseeable future.
Technological Change. The market for the Company's proposed
services is characterized by rapidly changing technology and
evolving industry standards. The Company will likely be required
to design, develop, test, introduce and support new services and
enhancements on a timely basis that meet changing customer needs
and respond to technological developments and emerging industry
standards. The Company's proposed services are now designed
around certain technical standards. While the Company intends to
provide compatibility with the standards promulgated by leading
industry participants and groups, widespread adoption of a
proprietary or closed standard could preclude the Company from
effectively marketing or developing its products or services. No
assurance can be given that the Company will be able to respond
to technological changes or evolving industry standards in a
timely manner, if at all; or that the standards upon which the
Company's services are or will be based will be accepted by the
industry. In addition, no assurance can be given that services
<PAGE 7> or technologies developed by others will not render the
Company's services noncompetitive or obsolete. In the event that
services or technologies developed by others render the services
of the Company impracticable, noncompetitive or obsolete, or the
industry in which the Company hopes to compete develops and
adopts a proprietary standard to which the Company does not have
access, or the Company is not able to respond to technological
developments or emerging industry standards, there could be a
material adverse effect on the Company's business, financial
condition, prospects and operating results.
Risks of Defects and Development Delays. The Company has
not sold a material amount of its services or products. Products
and services based on sophisticated software and computing
systems often encounter development delays and the underlying
software most often contains undetected errors, bugs, or failures
when introduced or when the volume of services provided
increases. The Company may experience delays in the development
of the software and computing systems underlying the Company's
proposed products and services. In addition, there can be no
assurance that, despite testing by the Company and potential
customers, errors will not be found in the underlying software,
or that the Company will not experience development delays, which
could result in delays in the market acceptance of its products
and services and could have a material adverse effect on the
Company's business, financial condition, prospects and operating
results. See "BUSINESS."
Competition. The EC and EDI markets are intensely
competitive and subject to rapid technological change and
evolving industry standards. The Company does and will compete
with many companies that have substantially greater financial,
marketing, technical and human resources than the Company. Among
the principal competitors in EDI and specifically in the delivery
of EDI over the Internet are, at present, Harbinger Corporation,
Sterling Commerce, GEIS, Netscape, Actra (which is wholly owned
by Netscape), Open Market, Premenos, Icat, Interworld Technology
Ventures, Elcom International, Broadvision, Connect, IBM,
Microsoft, EDS, and MCI, each of which has announced plans to
design and develop software products and to provide services that
facilitate electronic commerce over the Internet. Some of those
competitors operate VANS. Several of these companies utilize the
same encryption technology from RSA that the Company incorporates
in its products. Virtually all of the Company's current and
potential competitors have longer operating histories, greater
name recognition, larger installed customer bases and
significantly greater financial, technical and marketing
resources than the Company. Such competitors may be able to
undertake more extensive marketing campaigns, adopt more
aggressive pricing policies and make more attractive offers to
potential customers. In addition, many of the Company's current
or potential competitors, such as Netscape, Microsoft and AT&T,
have broad distribution channels that may be used to bundle
competing products directly to end-users or purchasers. If such
competitors were to bundle products that compete with the Company
<PAGE 8> for sale to their customers, any demand the Company is
able to create for its products and services may be substantially
reduced, and the ability of the Company to broaden the
utilization of its products and services would be substantially
diminished. No assurance can be given that the Company will be
able to compete effectively with current or future competitors or
that such competition will not have a material adverse effect on
the Company's business, financial condition, prospects and
operating results. See "BUSINESS."
New Market Entrants. In addition to existing competitors,
there are many companies that may enter the market in the future
with new technologies, products and services that may be
competitive with services offered or to be offered by the
Company. Because there are many potential entrants to the field,
many of which are likely to have substantially greater resources
than the Company, it is extremely difficult to assess which
companies are likely to offer competitive products and services
in the future, and in some cases it is difficult to discern
whether an existing product or service is competitive with the
Company's services. The Company expects competition to persist
and intensify in the future. It should be noted that companies
that historically have produced text, audio, video, graphics, art
and animation ("multimedia" companies), and companies that
historically have owned various forms of communication media such
as cable, broadcasting, and telecommunications ("cross-media"
companies) are encroaching upon and entering into each other's
historic businesses. This may signal a further expansion by
those integrated companies into the EDI and related fields. If
the market becomes congested with competition, the Company may
not be able to compete effectively in its intended marketplace.
Dependence on Third-Party Intellectual Property Rights. The
Company currently licenses certain proprietary and patented
technology from third parties. Most of the Company's [planned]
[?] services incorporating data encryption and authentication is
based on proprietary software of RSA Data Security ("RSA"). The
RSA software is incorporated in certain other software licensed
to the Company from Community Connexion related to the Web server
utilized by the Company. The RSA software is available on a non-
exclusive basis. No assurance can be given that the encryption
software presently available to the Company will continue to be
available to the Company on commercially reasonable terms, or at
all. Additionally, there is no assurance that if a new
encryption technology develops, that it will be available to the
Company on commercially acceptable terms, if at all.
The Company also licenses Cybercash software, which is
credit card verification software, on a non-exclusive basis. No
assurance can be given that Cybercash will continue to be
available to the Company on commercially reasonable terms, if at
all. The lack of availability of credit card verification
software could have a material adverse effect on the Company's
business, financial condition, prospects, and operating results.
<PAGE 9>
No assurance can be given that the Company's third party
licenses will continue to be available to the Company on
commercially reasonable terms, if at all. The Company bears the
risk that all third party technology supplied to the Company is
actually owned by the party supplying the technology and does not
infringe upon the rights of others. Any threat of infringement
or misappropriation against these third parties may in turn cause
substantial interference with the Company's right to utilize that
technology. The loss of or inability to maintain any of those
software licenses could result in delays in introduction of the
Company's products and services until equivalent software, if
available, is identified, licensed and integrated into the
Company's planned services, which could have a material adverse
effect on the Company's business, financial condition, prospects
and operating results.
Because certain of the Company's products incorporate
software developed and maintained by third parties, the Company
is dependent upon such third parties' ability to enhance their
current products, to develop new products on a timely and cost-
effective basis and to respond to emerging industry standards and
other technological changes. There can be no assurance that the
Company would be able to replace the functionality provided by
the third party software currently offered in conjunction with
the Company's products in the event that such software becomes
obsolete or incompatible with future versions of the Company's
products or is otherwise not adequately maintained or updated.
The absence of or any significant delay in the replacement of
that functionality could have a material adverse effect on the
Company's business, financial condition, prospects and operating
results.
Reliance on PERL. The Company's proprietary software is
written in Practical Extraction and Reporting Language ("PERL"),
which is the computer programming language utilized for Internet
applications. Because the Internet is not controlled or
supervised by any one person or group, the evolution and
continued utilization of PERL cannot be controlled or predicted.
Changes in or the elimination of PERL could cause the Company to
have to assume responsibility for support and development of
PERL, which could have a material adverse effect on the Company's
business, financial condition, prospects, and operating results.
Dependence on Distribution and Marketing Relationships. The
Company has few sales and marketing employees and does not have
established distribution channels for its services. In order to
generate substantial revenue, the Company must achieve broad
distribution of its services to businesses and individuals and
secure general adoption of its services and technology. A key
element of the Company's current business and its future business
strategy is to maintain and develop relationships with leading
companies that market software products and EDI-related services.
Dependence on Intellectual Property Rights; Risk of
Infringement. The Company's success and ability to compete are
<PAGE 10> dependent in part upon its proprietary technology
relating to its NetCat software. The Company has applied for a
patent with the United States Patent and Trademark Office
covering that software. but to date no patent has been granted.
There can be no assurance that the applied-for patent will be
granted, or, if granted, will be effective to protect the
Company's rights in its NetCat technology. The Company's patent,
if issued by the United States Patent and Trademark Office, would
offer no protection outside of the United States. The Company's
patent, if issued, may be subsequently challenged. If the patent
is challenged the counsel and other fees in defending the patent,
together with loss of management's time, could be substantial.
Those adverse consequences also could occur with respect to the
trademarks, trade secrets, or other intellectual property rights
of the Company.
In addition, the software and electronic commerce industries
are characterized by the existence of a large number of patents,
and litigation based on allegations of patent infringement is
common. From time to time, third parties may assert exclusive
patent, copyright, trademark and other intellectual property
rights to technologies that are important to the Company.
Although the Company believes that it is not infringing on the
rights of any third parties, there can be no assurance that third
parties will not assert infringement claims against the Company,
that any such assertion of infringement will not result in
litigation or that the Company would prevail in such litigation
or be able to license any valid and infringed patents of third
parties on commercially reasonable terms.
Risks Associated with Encryption Technology. A significant
barrier to Internet commerce are the problems and risks
associated with exchanging financial information securely over
public networks. The Company relies on encryption and
authentication technology licensed from third parties to provide
the security and authentication necessary to effect the secure
exchange of financial information over the Internet, including
public key cryptography technology licensed from RSA. No
assurance can be given that advances in computer capabilities,
new discoveries in the field of cryptography or other events or
developments will not result in a compromise or breach of the RSA
cryptography technology or other algorithms used by the Company
to protect customer transaction data. If any such compromise of
the Company's security were to occur, it could have a material
adverse effect on the Company's business, financial condition,
prospects and operating results. In addition, no assurance can
be given that existing security systems of others will not be
penetrated or breached, which could have a material adverse
effect on the market acceptance of Internet security services,
which in turn could have a material and adverse effect on the
Company's business, financial condition, prospects and operating
results.
Liability and Availability of Insurance. The Company is
responsible for the electronic transmission of commercial
<PAGE 11> transaction data for its customers, including, but not
limited to, purchase orders, payments, invoices, and advance ship
notices. If the Company were unable to fulfill its contractual
obligations to its customers, whether due to failure of its
software, to failure of the Internet, EDI or telecommunications
services to function properly, to failure of its employees,
contractors, agents or representatives, or for any other reason,
the Company could be subject to claims for the value of the lost
business to its customers. The liability could be substantial.
If the Company incurs substantial liability to its customers due
to its breach. it may materially and adversely affect the
Company's ability to complete its plan of operation. The
Company's standard agreements with its customers contain
provisions which attempt to limit the liability of the Company
for such matters, including the customers lost data, lost
profits, or other incidental or consequential damages arising out
of, or in connection with, the customer's use or inability to use
the Company's software or services, or the negligence of the
Company. In addition, in May, 1997 the Company purchased general
liability and professional liability insurance policies that are
intended to cover the foregoing liabilities. The general
liability policy provides coverage of $1 million per claim and
$2 million in the aggregate; and the Company has an additional
$1 million umbrella liability policy. The professional liability
policy provides coverage of $1 million per claim and $1 million
in the aggregate. The Company intends to maintain such coverage
and to evaluate increasing it from time to time, subject to
availability on commercially reasonable terms.
Fluctuating Results; Cyclical Business. The Company's
future revenues and operating results may fluctuate materially as
a result of, among other things, the timing of the introduction
of, or enhancements to, the Company's products and services,
demand for the Company's products and services, the timing of
introduction of products or services by the Company's
competitors, market acceptance of Internet commerce, the timing
and rate at which the Company increases its expenses to support
projected growth, the budgeting and purchasing practices of its
customers, the length of the customer product evaluation process
for the Company's products, the size and timing of customer
orders, competitive conditions in the industry, and other factors
inherent in a new, developing business. Fluctuations in revenues
and operating results may cause volatility in the Company's stock
price. See "Possible Volatility of Stock Price."
Dependence Upon Key Personnel. The Company's success will
depend in part upon the retention of key senior management and
technical personnel, particularly Steven L. Vanechanos, Jr.,
co-founder of the Company and Chairman of the Board, James D.
Conners, President of the Company, and Kenneth R. Konikowski,
Executive Vice President of the Company. The loss of the
services of any of the Company's key personnel could have a
material adverse effect on the Company's business, prospects,
financial condition and operating results. The Company has a
policy that all of the Company's employees must sign <PAGE 12>
confidentiality agreements, and that certain of its employees
also sign non-competition agreements. The Company presently
maintains key man life insurance on Steven L. Vanechanos, Jr. in
the amount of $3,000,000. There can be no assurance that the
Company will be able or willing to continue to maintain such
insurance at present coverage levels.
Ability to Attract Qualified Personnel. The Company
believes that its future success also depends upon its ability to
attract and retain additional highly skilled technical,
professional services, management and sales and marketing
personnel. The market for skilled computer programmers and other
technically skilled employees is highly competitive and other
companies with greater resources can provide higher salaries and
greater benefits. To attract quality personnel, the Company may
be required to offer Common Stock or stock options, which will
dilute investors' interests. The market for these individuals
has historically been, and the Company expects that it will
continue to be, intensely competitive. The Company's inability
to attract and retain qualified employees could have a material
adverse effect on the Company's business, financial condition,
prospects, and operating results.
Management of Growth. If the Company experiences a period
of rapid growth, a significant strain may be placed on the
Company's financial, management and other resources. The
Company's future performance will depend in part on its ability
to manage change in its operations and will require the Company
to hire additional management and technical personnel,
particularly in areas of marketing and customer support. In
addition, the Company's ability to manage its growth effectively
will require it to continue to improve its operational and
financial control systems and infrastructure and management
information systems, and to attract, train, motivate, manage and
retain key employees. If the Company's management were unable to
manage growth effectively, there could be a material adverse
effect on the Company's business, financial condition, prospects,
and operating results.
Ability to Issue Blank Check Preferred Stock; New Jersey
Anti-Takeover Provisions. Under the Company's Certificate of
Incorporation, the Board of Directors has the authority to issue
up to 5,000,000 shares of preferred stock and to determine the
price, rights, preferences and privileges of those shares without
any further vote or action by the stockholders. The Company has
issued 875 shares of Convertible Preferred Stock to the Shaar
Fund, LTD and has reserved an additional 675 shares with certain
rights, preferences and privileges set forth in a Certificate of
Amendment to the Certificate of Incorporation dated August 7,
1998 and with the Secretary of State of New Jersey. The rights
of the holders of Common Stock will be subject to, and may be
adversely affected by, the rights of the holders of any preferred
stock that has been issued or may be issued in the future. The
issuance of shares of preferred stock, while potentially
providing desirable flexibility in connection with possible
<PAGE 13> acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to
acquire a majority of the outstanding voting stock of the
Company.
In addition, the Company is subject to the anti-takeover
provisions of the New Jersey Shareholder Protection Act, which,
among other things, prohibits it from engaging in a "business
combination" with an "interested stockholder" for a period of
five years after the date of the transaction in which the person
became an interested stockholder (the "Stock Acquisition Date"),
unless the business combination is approved by the Company's
Board of Directors prior to the Stock Acquisition Date. The
application of such Act also could have the effect of delaying or
preventing a change in control of the Company.
Furthermore, certain provisions of the Certificate of
Incorporation and the Company's Bylaws, including provisions that
provide for the Board of Directors to be divided into three
classes to serve for staggered three year terms, as well as
certain contractual provisions, could limit the price that
certain investors might be willing to pay in the future for
shares of the Common Stock and may have the effect of delaying or
preventing a change in control of the Company. These provisions
may also reduce the likelihood of an acquisition of the Company
at a premium price by another person or entity.
Government Regulation and Legal Uncertainties. The Company
is not currently subject to direct regulation by any federal or
state governmental agency, other than regulations applicable to
businesses generally. The laws generally applicable to business
will also be applicable to doing business over the Internet.
Laws relating to advertising, buying and selling goods and
services, contracts, payments, privacy, obscenity, defamation,
taxation, export controls, unfair competition and deceptive trade
practices, among other things, will likely apply to online
activities as well, and numerous criminal statutes may apply.
There are currently few laws or regulations directly applicable
to access to, or commerce on, the Internet. If the Internet
becomes more generally accepted, it is possible that a number of
laws and regulations may be adopted with respect to the Internet.
Such laws may address user privacy, pricing and characteristics
and quality of products and services, among other things. The
adoption of any laws or regulations governing commerce on the
Internet may result in decreased growth or use of the Internet,
which could have an adverse effect on the Company's business,
financial condition, prospects and operating results. Moreover,
the applicability to the Internet of existing laws governing
issues such as property ownership, libel and personal privacy is
uncertain.
Possible Volatility of Stock Price. The market price of the
Company's Common Stock is likely to be highly volatile and could
be subject to wide fluctuations in response to quarterly
variations in operating results, announcements of technological
<PAGE 14> innovations or new software or services by the Company
or its competitors, changes in financial estimates by securities
analysts, or other events or factors, many of which are beyond
the Company's control. In addition, the stock market has
experienced significant price and volume fluctuations that have
particularly affected the market prices of equity securities of
many high technology companies and that often have been unrelated
to the operating performance of such companies. These broad
market fluctuations may adversely affect the market price of the
Company's Common Stock. In the past, following periods of
volatility in the market price for a company's securities,
securities class action litigation has often been instituted.
Such litigation could result in substantial costs and a diversion
of management attention and resources, which could have a
material adverse effect on the Company's business, financial
condition, prospects or operating results.
Substantial Options and Warrants Reserved. Under the
Company's 1997 Employee Stock Option Plan, the Company may issue
options to purchase up to an aggregate of 334,764 shares of
Common Stock to employees and officers, and, as of the date of
this Prospectus, options to purchase 203,392 shares have been
granted under that plan. Further, under the Company's Stock
Option Plan for Outside Directors, the Company may issue options
to purchase up to an aggregate of 78,254 shares of Common Stock
to its outside directors, including certain mandatory grants,
and, as of the date of this Prospectus, options to purchase
15,648 shares have been granted under that plan. In connection
with the contribution of Common Stock by certain existing
shareholders of the Company, the Company has granted Warrants to
purchase 125,000 shares of Common Stock at an exercise price of
$6.00 per share. In connection with the Company's private
placement with The Shaar Fund, the Company will grant to the
Representative warrants to purchase up to 155,000 shares of
Common Stock at a purchase price of $6.00 per share. Perry & Co.
holds options to purchase 90,000 shares of Common Stock at $6.00
per share. The exercise of any or all of such options and
warrants may further dilute the net tangible book value of the
Common Stock and an investor's interest in the Company. Further,
the holders of such options and warrants may exercise them at a
time when the Company would otherwise be able to obtain
additional equity capital on terms more favorable to the Company.
PAGE 15
<PAGE>
SELLING SECURITY HOLDERS
Background
There are two Selling Security Holders: First, the Shaar
Fund has the right to acquire up to 794,872 shares of the Common
Stock upon conversion of the Convertible Preferred Stock and up
to 155,000 additional shares of Common Stock upon exercise of the
Shaar Warrants. Second, Perry & Co. has an option to purchase
90,000 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 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 875 shares of the Series A
Convertible Preferred Stock and has the right to purchase an
additional 675 shares. 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
<PAGE 16> 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 155,000
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 90,000
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.
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 <PAGE 17>
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 0 949,872 28.9%
Perry & Co 0 90,000 2.7%
</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
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
<PAGE 18> 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
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.
<PAGE 19>
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.
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 20
<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.
<PAGE F-11>
(b) 92,500 shares issued in connection with the
purchase transaction as if they were outstanding for the
entire period presented.
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>
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.*
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
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-
effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the
information set forth in the registration statement.
<PAGE II-5>
(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 Nov. 11, 1998
Steven L. Vanechanos, Jr. Officer and Director
/s/ STEVE VANECHANOS, SR. Treasurer, Chief Nov. 11, 1998
Steve Vanechanos, Sr. Financial Officer,
and Chief Accounting
Officer, Director
/s/ F. PATRICK AHEARN Director Nov. 11, 1998
F. Patrick Ahearn
/s/ DENIS CLARK Director Nov. 11, 1998
Denis Clark
/s/ FRANK T. DiPALMA Director Nov. 11, 1998
Frank T. DiPalma
<PAGE II-7>
/s/ ROBERT DROSTE Director Nov. 11, 1998
Robert Droste
/s/ KENNETH R. KONIKOWSKI Director Nov. 11, 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>
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 <PAGE II-12>
Exhibit 10.14
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT made as of this 1st day of
May, 1998, by and between DYNAMICWEB ENTERPRISES, INC. (the
"Company"), a New Jersey corporation having its principal office
at 271 Route 46 West, Building F, Suite 209, Fairfield, New
Jersey 07004 and DOUGLAS EADIE (the "Executive"), an individual
residing at 44 Rolling Hill Drive, Morristown, NJ 07960.
BACKGROUND
The Company is engaged in the business of developing,
marketing, supporting Year 2000-compliant software products and
services that enable businesses to engage in electronic commerce
utilizing the Internet and traditional Electronic Data
Interchange (EDI) technologies and consulting services related to
the foregoing ("the Business"). The Executive has experience and
expertise in providing software and electronic commerce
consulting to various middle market and large businesses. In
connection with the foregoing, the Company has agreed to employ
the Executive, and the Executive has agreed to accept employment
by the Company, on the terms and conditions set forth in this
Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and of
the mutual covenants set forth herein, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. Employment. The Company hereby employs the
Executive, and the Executive hereby accepts such employment, on
the terms and conditions set forth in this Agreement.
2. Duties of Employee. The Executive is engaged as
Executive Vice President of the Company and shall perform and
discharge well and faithfully such duties, including providing
consulting services to customers of the Company, supervision of
the Company's EDI consulting operations and such other duties as
may be assigned to the Executive from time to time by the Vice
President of Professional Services Group, the President or the
CEO. The Executive shall devote his full time, attention, and
energies to the business of the Company and shall not, during the
Employment Period (as defined in Section 3 of this Agreement), be
employed or involved in any other business activity, whether or
not such activity is pursued for gain, profit, or other pecuniary
advantage. This Section 2 shall not be construed as preventing
the Executive from investing the Executive's personal assets in
businesses which do not compete with the Company or any affiliate
of the Company, where the form or manner of such investments will
not require services on the part of the Executive in the
operation of the affairs of the business in which such <PAGE 1>
investments are made and in which the Executive's participation
is solely that of a private investor.
3. Term of Employment. The Executive's employment
under this Agreement shall be for a period (the "Employment
Period") commencing on and be effective as of May 1, 1998
("Effective Date") and ending on March 31, 1999; provided,
however, that this Agreement shall be automatically renewed on
April 1, 1999 and on April 1 of each subsequent year (the "Annual
Renewal Date") for one (1) additional year so that the Agreement
shall continue for a period ending one (1) year from each Annual
Renewal Date unless either party shall give written notice of
nonrenewal to the other party at least thirty (30) days prior to
an Annual Renewal Date in which event this Agreement shall
continue in effect for a term ending on the Annual Renewal Date
immediately following such notice. Notwithstanding the
foregoing, the Executive's employment may be terminated in
accordance with one of the following provisions:
(a) The Executive's employment may be terminated
by the Company at any time during the Employment Period for Cause
(as hereinafter defined) upon giving notice of such termination
at least ten (10) days prior to the date upon which such
termination shall take effect. If the Executive's employment is
terminated by the Company for Cause under the provisions of this
Section 3(a), all rights of the Executive under this Agreement
shall cease as of the effective date of such termination. As
used in this Agreement, "Cause" shall mean any of the following:
(i) the Executive's conviction of or plea of
guilty or nolo contendere to a felony, a crime involving
fraud, embezzlement, falsehood, or moral turpitude, or the
actual incarceration of the Executive for a period of thirty
(30) days;
(ii) the Executive's material failure to
follow the good faith instructions of the Vice President of
Professional Services Group, the President or the CEO, with
respect to the Company or its operations, following notice
of such good faith instructions;
(iii) the Executive's willful failure to
substantially perform the Executive's duties to the Company,
other than a failure resulting from the Executive's
incapacity because of physical or mental illness, which
willful failure results in demonstrable injury to the
Company;
(iv) any act of discrimination or harassment
in connection with another employee of the Company or an
employee or representative of a vendor, customer, or any
business or entity doing business with or considering doing
business with the Company; or
<PAGE 2>
(v) breach by the Executive of the
provisions of Section 6, Section 7 or Section 8 of this
Agreement.
(b) The Executive's employment may be terminated
by the Executive by retirement or voluntary termination at any
time during the Employment Period. If the Executive retires or
voluntarily terminates his employment prior to the end of the
Employment Period, or the Executive dies, the Executive's
employment shall be deemed to cease as of the date of the
Executive's retirement, voluntary termination, or death, as the
case may be. If the Executive's employment terminates under the
provisions of this Section 3(b), all rights of the Executive
under this Agreement shall cease as of the date of such
retirement, voluntary termination, or death and any benefits
payable to the Executive shall be determined in accordance with
the Company's retirement and insurance programs then in effect.
(c) If the Executive is incapacitated by
accident, sickness, or otherwise so as to render the Executive
mentally or physically incapable of performing the services
required of the Executive under this Agreement for an aggregate
of one hundred twenty (120) days during any period of twelve (12)
months, upon the expiration of either of such periods or at any
time thereafter, the Executive's employment may be terminated for
disability ("Disability") immediately upon giving the Executive
notice to that effect. If the Executive's employment is
terminated for Disability under the provisions of this Section
3(c), all rights of the Executive under this Agreement shall
cease as of the last business day of the week in which such
termination occurs and any benefits payable to the Executive
shall be determined in accordance with the Company's insurance
programs then in effect.
4. Employment Period Compensation and Other Benefits.
(a) Base Salary. For services rendered by the
Executive under this Agreement, the Company shall pay the
Executive a base salary during the Employment Period at the rate
of One Hundred Forty Thousand Dollars ($140,000) per year,
payable in the same manner as salaries of other executive
officers of the Company.
(b) Benefit Plans. During the Employment Term,
Executive shall be entitled to participate in such employee
benefit plans or programs, including medical, dental, life,
accident and disability insurance, pension, incentive
compensation and other benefit plans as the Company may have in
effect, from time to time, upon terms and in accordance with
policies and procedures of the Company then in effect and
applicable to similarly situated executive officers and other key
management employees of the Company, provided, however, that the
Company reserves the right to adopt, amend or discontinue any
such plans at any time.
<PAGE 3>
(c) Vacation. During the Employment Term,
Executive shall receive three weeks (15 working days) of vacation
in each calendar year, to be taken and determined in accordance
with vacation policies and procedures applicable to similarly
situated executive officers and other key management employees of
the Company. Executive also shall be entitled to all paid
holidays to which similarly situated executives and key
management employees of the Company are entitled.
(d) Expense Reimbursement. The Company shall pay
or reimburse Executive for all reasonable and necessary business,
travel and entertainment expenses incurred by Executive, within
the Company's established budget, during the Employment Term in
connection with the performance of Executive's duties and
responsibilities hereunder, upon submission of appropriate
invoices, receipts and other documentation, all in accordance
with the standard policies and procedures of the Company
applicable to similarly situated executive officers and other key
management employees of the Company. Notwithstanding the
foregoing, prior approval of the Company shall be required for
any expenditure in excess of $500.
(e) Automobile Expense. The Company shall
provide the Executive with a monthly allowance of $500 per month
to be used for costs and expenses related to the use and
operation of a motor vehicle for the conduct of business on
behalf of the Company, including without limitation, the cost of
the vehicle or vehicle lease, maintenance and repair of the
vehicle and insurance. Executive shall be responsible for
maintaining such records as may be required by the Internal
Revenue Service and other taxing authorities to provide support
for the business purpose of the vehicle. Executive shall
indemnify the Company for any claims by the Internal Revenue
Service or other taxing authority in connection with the payment
of the motor vehicle expense or the payment of taxes, if any,
thereon.
5. Bonus Payments. Executive shall be entitled to
bonus compensation, in addition to his Base Salary, as follows:
Calculation of Bonus
Bonus Period Compensation
4/1/98 to 12/31/98 25% of consulting revenue generated
by and through the efforts of
Executive and former employees of
Design Crafting, Inc. received by
the Company in excess of $110,000
each quarter prorated where
necessary.
1/1/99 and thereafter Commissions on all revenues
received by the Company from all
electronic commerce consulting
services as agreed <PAGE 4>
6. Nonsolicitation of Customers and Employees.
(a) The Executive hereby acknowledges and
recognizes the highly competitive nature of the Business of the
Company and accordingly agrees that, during the Employment Period
and for a period of one year following the date of termination of
the Executive's employment under this Agreement ("the Termination
Date"), unless otherwise agreed to in writing by the Company, the
Executive shall not either directly or indirectly, in any manner
or capacity, whether as principal, agent, partner, officer,
director, employee, joint venturer, salesman, or corporate
Shareholder or otherwise for the benefit of any Person (as
defined below), (i) render services to, or solicit the rendering
of services to any Person in competition with the business of the
Company, which then is, or at any time during a period of one
year prior to the Termination Date was a Customer (as defined
below) of the Company, or (ii) engage in such conduct of any kind
whatsoever with any Person, which is then or has been at any time
during a period of one year prior to the Termination Date a
Customer, employee, salesperson, agent or representative of the
Company in any manner which interferes or might interfere with
the relationship of the Company with such Person, in an effort to
obtain such Person as a Customer, supplier, employee,
salesperson, agent or representative of any Business in
competition with the Company, or (iii) hire or participate in the
hiring by any Person of any employee of the Company.
"Person" means any individual, trust, partnership,
corporation, limited liability company, association, or other
legal entity.
"Customer" means any Person with which the Company
is currently engaged to provide consulting or other electronic
commerce services ("Services"), has been engaged to provide
Services within twelve (12) months prior to the date of
termination of the Executive's employment under this Agreement,
actively marketed, discussed a project with, negotiated with,
provided a bid to or otherwise communicated with in an effort to
obtain an engagement to provide Services or products sold by the
Company.
(b) It is expressly understood and agreed that
although the Executive and the Company consider the restrictions
contained in Section 6(a) of this Agreement reasonable for the
purpose of preserving for the Company its good will and other
proprietary rights, if a final judicial determination is made by
a court having jurisdiction that the time or territory or any
other restriction contained in Section 6(a) of this Agreement is
an unreasonable or otherwise unenforceable restriction against
the Executive, the provisions of Section 6(a) of this Agreement
shall not be rendered void but shall be deemed amended to apply
as to such maximum time and territory and to such other extent as
such court may judicially determine or indicate to be reasonable.
<PAGE 5>
7. Disclosure of Confidential Information. The
Executive acknowledges that the Company's trade secrets, as they
may exist from time to time, and confidential information
concerning its software, software architecture, products,
programs, technical information, procurement and sales activities
and procedures, identity of customers and potential customers,
business plans, business and commercial contracts and agreements,
promotion and pricing techniques, employment related techniques
and agreements and credit and financial data concerning customers
are valuable, special and unique assets of the Company. In light
of the highly competitive nature of the industry in which the
Company's business is conducted, the Executive further agrees
that all knowledge and information described in the preceding
sentence not in the public domain and heretofore or in the future
obtained by the Executive shall be considered confidential
information. In recognition of this fact, Executive agrees that
he will not disclose any of such secrets, processes or
information to any person or other entity for any reason or
purpose whatsoever, except as necessary in the performance of his
duties as an employee of the Company and then only upon a written
confidentiality agreement in such form and content as requested
by the Company from time to time, nor shall the Executive make
use of any such secrets, processes or information (other than
information in the public domain) for his own purposes or for the
benefit of any person or other entity (except the Company and its
subsidiaries) under any circumstances. The provisions contained
in this Section 7 shall also apply to information obtained by the
Executive with respect to any subsidiary of or company affiliated
with the Company.
8. Business Information. Upon the termination of his
employment with the Company, Executive (or, as appropriate, his
personal representatives) shall deliver to the Company (without
retaining copies of the same), all plans, designs, customer
lists, correspondence, records, documents, accounts and papers of
any description and any other property of the Company within the
possession or under the control of Executive (or, as appropriate,
his personal representatives) and relating to the affairs and
business of the Company, whether drafted, created or compiled by
Executive or received by Executive from other individuals or
entities (whether employees of or affiliated with the Company).
9. Remedies. The Executive acknowledges and agrees
that the Company's remedy at law for a breach or threatened
breach of any of the provisions of Section 6, Section 7 or
Section 8 of this Agreement would be inadequate and, in
recognition of this fact, in the event of a breach or threatened
breach by the Executive of any of the provisions of Section 6,
Section 7 or Section 8 of this Agreement, it is agreed that, in
addition to any remedy at law, the Company shall be entitled to
without posting any bond, and the Executive agrees not to oppose
the Company's request for, equitable relief in the form of
specific performance, temporary restraining order, temporary or
permanent injunction, or any other equitable remedy which may
then be available. Nothing herein contained shall be construed
<PAGE 6> as prohibiting the Company from pursuing any other
remedies available to it for such breach or threatened breach.
If a court of law having jurisdiction grants any equitable remedy
to the Company seeking to enforce the provisions of this
Agreement, the Executive shall reimburse the Company for all
reasonable attorneys' fees and costs incurred in seeking to
enforce this Agreement.
10. Notices. Any notice required or permitted under
this Agreement shall be sufficient if it is in writing and shall
be deemed given at the time sent certified mail, with return
receipt requested, addressed as follows:
If to the Executive:
Douglas Eadie
44 Rolling Hill Drive
Morristown, NJ 07960
With a copy to:
Alan J. Rich, Esquire
Rich and Friedman
5 Sylvan Way
Parsippany, NJ 07054
If to the Company:
DynamicWeb Enterprises, Inc.
271 Route 46 West, Bldg. F
Suite 209
Fairfield, NJ 07004
Attn: James Connors, President
With a copy to:
Stephen F. Ritner, Esquire
Stevens & Lee
One Glenhardie Corporate Center
1275 Drummers Lane
P.O. Box 236
Wayne, PA 19087-0236
Changes in the addresses may be effected at any time and from
time to time by notice similarly given.
11. No Waiver. Failure by either party to this
Agreement at any time or times hereafter to require strict
performance by the other party of any of the provisions, terms,
or conditions contained in this Agreement shall not waive,
affect, or diminish any right of the first party at any time or
times hereafter to demand strict performance therewith, and with
respect to any other provisions, terms, or conditions contained
in this Agreement. Any waiver of such provision, term, or
condition shall not waive or affect any other failure to perform
a provision, term, or condition of this Agreement, whether prior
or subsequent thereto, and whether of the same or a different
<PAGE 7> type. None of the provisions, terms, or conditions of
this Agreement shall be deemed to have been waived by any act or
knowledge of a party hereto except by an instrument in writing
signed by that party and directed to the other specifying such
waiver.
12. Severability. The invalidity or unenforceability
of any provision of this Agreement shall in no event affect the
validity or enforceability of any other provision. With respect
to the provisions of Section 6 of this Agreement, in the event
any court of competent jurisdiction determines that such
provisions are unreasonable or contrary to law with respect to
their time or geographic restriction, or both, the parties hereto
authorize such court to substitute such restrictions as it deems
appropriate without invalidating such paragraph and/or this
Agreement.
13. Binding Effect and Benefit. The provisions of
this Agreement shall be binding upon, and shall inure to the
benefit of, the successors and assigns of the Company, and the
heirs, representatives, executors, devisees, and legatees of the
Executive.
14. No Assignment. This Agreement shall not be
assignable by either party hereto, except by the Company to any
successor to its business that is financially capable of assuming
the obligations of the Company hereunder.
15. Captions. The captions of the several paragraphs
and subparagraphs of this Agreement are inserted for convenience
or reference only. They constitute no part of this Agreement and
are not to be considered in the construction hereof.
16. Counterparts. This Agreement may be executed in
any number of counterparts, each of which will be deemed one and
the same instrument which may be sufficiently evidenced by any
one counterpart.
17. Jurisdiction and Service of Process. Any action
or proceeding seeking to enforce any term or provision of this
Agreement may be instituted against a party only in the courts of
the State of New Jersey situated in the County of Essex, or, if a
party can not acquire jurisdiction, in the United States District
Court for the District of New Jersey sitting at Newark, and the
parties irrevocably consent and submit to the exclusive
jurisdiction of such courts (and of the appropriate appellate
courts) in any such action or proceeding and waive any objection
which they may now have or hereafter have to the laying of the
venue of any such action or proceeding in such courts. Service
of process, and any other notice or communication, in any such
action or proceeding shall be effective against or as to a party
if given by first class certified mail or registered mail, return
receipt requested, or by any other means of mail which requires a
signed receipt, postage prepaid, mailed to such party at the
address to which such party is to be sent notices in accordance
<PAGE 8> with the Notice provisions of this Agreement set forth
in Section 10, above and the parties irrevocably consent to such
service of process, giving of notices and transmission of
communications. This Section shall not diminish or otherwise
affect the right of a party to serve process in any manner
permitted by applicable law.
18. Applicable Law. The provisions of this Agreement
are to be construed, administered, and enforced in accordance
with the domestic, internal law of the State of New Jersey,
without regard to its conflicts of laws principles.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first above written.
DYNAMICWEB ENTERPRISES, INC.
ATTEST:
____________________________ By \s\ Steven L. Vanechanos, Jr.
Secretary Steve Vanechanos, Jr.
CEO
WITNESS:
\s\ Nina Pescatore \s\ Douglas Eadie (SEAL)
Douglas Eadie <PAGE 9>
EXHIBIT 10.26
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT dated as of August 7,
1998, 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
undersigned ("Buyer").
WITNESSETH:
WHEREAS, Buyer desires to purchase from Company, and
the Company desires to issue and sell to the Buyer, upon the
terms and subject to the conditions of this Agreement, (i) 875
shares of the Company's Series A 6% Convertible Preferred Stock,
par value $0.001 (collectively, the "Initially Issued Preferred
Shares") and 87,500 Common Stock Purchase Warrants in the form
attached hereto as Exhibit A (collectively, the "Initially Issued
Warrants") on the Initial Funding Date (as defined herein) (the
"First Tranche"); and (ii) 675 shares of the Company's Series A
6% Convertible Preferred Stock, par value $0.001 (collectively,
the "Subsequently Issued Preferred Shares" and together with the
Initially Issued Preferred Shares, collectively referred to as
the "Preferred Shares") and 67,500 Common Stock Purchase Warrants
in the form attached hereto as Exhibit B (collectively, the
"Subsequently Issued Warrants" and together with the Initially
Issued Warrants, collectively referred to as the "Warrants") on
the Second Funding Date (as defined herein) (the "Second
Tranche");
WHEREAS, upon the terms and subject to the
designations, preferences and rights set forth in the Company's
Certificate of Amendment to the Company's Certificate of
Incorporation in the form attached hereto as Exhibit C (the
"Certificate of Amendment"), the Preferred Shares are convertible
into shares of the Company's common stock, par value $0.0001 (the
"Common Stock");
WHEREAS, the Initially Issued Warrants, upon the terms
and subject to the conditions therein, will for a period of three
(3) years from the Initial Funding Date be exercisable to
purchase 87,500 shares of Common Stock, and the Subsequently
Issued Warrants, upon the terms and subject to the conditions
therein, will for a period of three (3) years from the Second
Funding Date be exercisable to purchase 67,500 shares of Common
Stock;
NOW THEREFORE, in consideration of the premises and the
mutual covenants contained herein, the parties hereto, intending
to be legally bound, hereby agree as follows:
<PAGE 1>
I. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS
A. Transaction. Subject to the terms and conditions
contained herein, Buyer hereby agrees to purchase from the
Company, and the Company has offered and hereby agrees to issue
and sell to the Buyer in a transaction exempt from the
registration and prospectus delivery requirements of the
Securities Act of 1933, as amended (the "Securities Act"), the
Preferred Shares and the Warrants.
B. Purchase Price; Form of Payment. The purchase
price for the Initially Issued Preferred Shares and the Initially
Issued Warrants to be purchased in the First Tranche by Buyer
hereunder shall be $875,000 (the "Initial Purchase Price"). If
the Second Funding Requirements (as defined herein) have been
satisfied or performed in full, as the case may be, then within
fifteen (15) business days thereafter, as determined by Buyer,
the Company shall sell and issue to Buyer and Buyer shall
purchase from the Company on the same terms and pursuant to the
same conditions contained herein and in the Subsequently Issued
Warrants, the Subsequently Issued Preferred Shares and the
Subsequently Issued Warrants (the date of the closing of such
purchase, issuance and sale of the Subsequently Issued Preferred
Shares and Subsequently Issued Warrants is referred to herein as
the "Second Funding Date"). The purchase price for the
Subsequently Issued Preferred Shares and the Subsequently Issued
Warrants to be purchased in the Second Tranche on the Second
Funding Date by Buyer hereunder shall be $675,000 (the "Second
Purchase Price").
For purposes of this Agreement, the term "Second
Funding Requirements" means that each of the following conditions
precedent have been satisfied and fulfilled:
(i) the Company has satisfied and performed each
of its obligations and covenants contained herein and in the
other Documents (as defined herein) that are required to be
performed by the Company up to and including the Second
Funding Date;
(ii) each of the conditions precedent set forth
in Article IX hereof shall have been satisfied and fulfilled
in all respects up to and including the Second Funding Date;
(iii) the Company shall have timely filed the
registration statement (the "Registration Statement")
required to be filed by the Company pursuant to Section 2 of
the Registration Rights Agreement (as defined herein);
(iv) the Registration Statement shall have been
timely declared effective by the Securities and Exchange
Commission (the "Commission") as required pursuant to the
terms and conditions of the Documents;
<PAGE 2>
(v) the Registration Statement shall have
remained effective for at least thirty (30) consecutive
trading days from the date such Registration Statement was
initially declared effective by the Commission (such thirty
(30) day period being referred to herein as the "30 Day
Period");
(vi) during the 30 Day Period the average closing
bid price of the Company's Common Stock, par value $0.0001,
as reported on the National Association of Securities
Dealers, Inc. ("NASD") Over the Counter ("OTC") Bulletin
Board Service ("BBS", and together with NASD and OTC, the
"NASD/BBS"), shall have been at least equal to $4.00 per
share (as adjusted for any stock splits or stock dividends
and like events);
(vii) on the last trading day of the 30 Day
Period, the closing bid price for the Company's Common
Stock, par value $0.0001, shall be at least $4.00 per share
(as adjusted for any stock splits or stock dividends and
like events), as reported on the NASD/BBS; and
(viii) during the 30 Day Period the Company's
Common Stock, par value $0.0001, shall have had an average
trading volume (as adjusted for any stock splits or stock
dividends and like events), as reported on the NASD/BBS for
the 30 Day Period of at least 20,000 shares per trading day.
Buyer shall pay the Initial Purchase Price and the
Second Purchase Price by wire transfer of immediately available
funds to the escrow agent (the "Escrow Agent") identified in
those certain Escrow Instructions of even date herewith, a copy
of which is attached hereto as Exhibit D (the "Escrow
Instructions"). Simultaneously against receipt by the Escrow
Agent of the Purchase Price, the Company shall deliver one or
more duly authorized, issued and executed certificates (I/N/O
Buyer or, if the Company otherwise has been notified, I/N/O
Buyer's nominee) evidencing the Preferred Shares and the Warrants
which the Buyer is purchasing in the First Tranche and Second
Tranche, as the case may be, to the Escrow Agent or its
designated depository. By executing and delivering this
Agreement, Buyer and the Company each hereby agrees to observe
the terms and conditions of the Escrow Instructions, all of which
are incorporated herein by reference as if fully set forth
herein.
C. Method of Payment. Payment into escrow of the
Initial Purchase Price and the Second Purchase Price shall be
made by wire transfer of immediately available funds to:
Chase Manhattan Bank
1211 Avenue of the Americas
New York, New York 10036
<PAGE 3>
For the Account of: Herrick, Feinstein LLP
Attorney Trust Account
Account-# 967-123445
ABA Reference# 021-000-021
Simultaneously with the execution of this Agreement, the Buyer
shall deposit with the Escrow Agent the Initial Purchase Price
and the Company shall deposit with the Escrow Agent the Initially
Issued Preferred Shares and the Initially Issued Warrants
representing the securities to be purchased, issued and sold in
the First Tranche. On the Second Funding Date, the Buyer shall
deposit with the Escrow Agent the Second Purchase Price and the
Company shall deposit with the Escrow Agent the Subsequently
Issued Preferred Shares and the Subsequently Issued Warrants
representing the securities to be purchased, issued and sold in
the Second Tranche.
II. BUYER'S REPRESENTATIONS, WARRANTIES; ACCESS TO
INFORMATION; INDEPENDENT INVESTIGATION.
Buyer represents and warrants to and covenants and
agrees with the Company as follows:
A. Buyer is purchasing the Initially Issued Preferred
Shares, the Subsequently Issued Preferred Shares, the Initially
Issued Warrants, the Subsequently Issued Warrants, the Common
Stock issuable upon exercise of the Warrants (the "Warrant
Shares") and the shares of Common Stock issuable upon conversion
of the Preferred Shares (the "Conversion Shares" and,
collectively with the Preferred Shares, the Warrants and the
Warrant Shares, the "Securities") for its own account, for
investment purposes only and not with a view towards or in
connection with the public sale or distribution thereof in
violation of the Securities Act.
B. Buyer is (i) an "accredited investor" within the
meaning of Rule 501 of Regulation D under the Securities Act,
(ii) experienced in making investments of the kind contemplated
by this Agreement, (iii) capable, by reason of its business and
financial experience, of evaluating the relative merits and risks
of an investment in the Securities, and (iv) able to afford the
loss of its investment in the Securities.
C. Buyer understands that the Securities are being
offered and sold by the Company in reliance on an exemption from
the registration requirements of the Securities Act and
equivalent state securities and "blue sky" laws, and that the
Company is relying upon the accuracy of, and Buyer's compliance
with, Buyer's representations, warranties and covenants set forth
in this Agreement to determine the availability of such exemption
and the eligibility of Buyer to purchase the Securities;
D. Buyer has been furnished with or provided access
to all materials relating to the business, financial position and
results of operations of the Company, and all other materials
<PAGE 4> requested by Buyer to enable it to make an informed
investment decision with respect to the Securities.
E. Buyer acknowledges that it has been furnished with
copies of the Company's Annual Report on Form 10-KSB for the
fiscal year ended September 30, 1997, and all other reports and
documents heretofore filed by the Company with the Commission
pursuant to the Securities Act and the Securities Exchange Act of
1934, as amended (the "Exchange Act") since September 30, 1997
(collectively, the "Commission Filings").
F. Buyer acknowledges that in making its decision to
purchase the Securities it has been given an opportunity to ask
questions of and to receive answers from the Company's executive
officers, directors and management personnel concerning the terms
and conditions of the private placement of the Securities by the
Company.
G. Buyer understands that the Securities have not
been approved or disapproved by the Commission or any state
securities commission and that the foregoing authorities have not
reviewed any documents or instruments in connection with the
offer and sale to it of the Securities and have not confirmed or
determined the adequacy or accuracy of any such documents or
instruments.
H. This Agreement has been duly and validly
authorized, executed and delivered by Buyer and is a valid and
binding agreement of Buyer enforceable against it in accordance
with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar
laws affecting creditors' rights and remedies generally.
I. Neither Buyer nor its affiliates nor any person
acting on its or their behalf has the intention of entering, or
will enter into, at any time prior to the conversion of the
Initially Issued Preferred Stock, Initially Issued Warrants,
Subsequently Issued Preferred Stock or Subsequently Issued
Warrants, any put option, short position or other similar
instrument or position with respect to the Common Stock and
neither Buyer nor any of its affiliates nor any person acting on
its or their behalf will use at any time shares of Common Stock
acquired pursuant to this Agreement to settle any put option,
short position or other similar instrument or position that may
have been entered into prior to the execution of this Agreement.
<PAGE 5>
III. COMPANY'S REPRESENTATIONS
The Company represents and warrants to Buyer that:
A. Capitalization.
1. The authorized capital stock of the Company
consists of: (i) 50,000,000 shares of Common Stock, of which
2,141,370 shares are issued and outstanding and 66,660 are held
in treasury on the date hereof, and (ii) 5,000,000 shares of
"blank check" preferred stock, of which no shares are issued and
outstanding on the date hereof. All of the issued and
outstanding shares of Common Stock have been duly authorized and
validly issued and are fully paid and non-assessable. As of the
date hereof, the Company has outstanding 219,040 stock options
and 125,000 warrants to purchase shares of Common Stock. The
Conversion Shares and Warrant Shares have been duly and validly
authorized and reserved for issuance by the Company, and when
issued by the Company upon conversion of, or in lieu of accrued
dividends on, the Preferred Shares, on exercise of the Warrants
will be duly and validly issued, fully paid and non-assessable
and will not subject the holder thereof to personal liability by
reason of being such holder. There are no preemptive,
subscription, "call" or other similar rights to acquire the
Common Stock (including the Conversion Shares and Warrant Shares)
that have been issued or granted to any person, except as
disclosed on Schedule III.A.1. hereto or otherwise previously
disclosed in writing to Buyer.
2. Except as disclosed on Schedule III.A.2.
hereto, the Company does not own or control, directly or
indirectly, any interest in any other corporation, partnership,
limited liability company, unincorporated business organization,
association, trust or other business entity.
B. Organization; Reporting Company Status.
1. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State
of New Jersey and is duly qualified as a foreign corporation in
all jurisdictions in which the failure to so qualify would have a
material adverse effect on the business, properties, prospects,
condition (financial or otherwise) or results of operations of
the Company or on the consummation of any of the transactions
contemplated by this Agreement (a "Material Adverse Effect").
2. The Company has registered the Common Stock
pursuant to Regulation S of the Exchange Act and has filed with
the Commission all reports and information required to be filed
by it pursuant to all reporting obligations under Section 13(a)
or 15(d), as applicable, of the Exchange Act for the 12-month
period immediately preceding the date hereof. The Common Stock
is listed and traded on the NASD/BBS and the Company has not
received any notice regarding, and to its knowledge there is no
<PAGE 6> threat, of the termination or discontinuance of the
eligibility of the Common Stock for such listing.
C. Authorized Shares. The Company has duly and
validly authorized and reserved for issuance shares of Common
Stock sufficient in number for the conversion, of the Preferred
Shares (assuming for purposes of this Section III.C. a Conversion
Price (as defined in the Certificate of Amendment to the
Certificate of Incorporation) of $2.00) and the exercise of the
Warrants. The Company understands and acknowledges the
potentially dilutive effect to the Common Stock of the issuance
of the Preferred Shares and Warrant Shares upon conversion of the
Preferred Shares and exercise of the Warrants. The Company
further acknowledges that its obligation to issue Conversion
Shares upon conversion of the Preferred Shares and Warrant Shares
upon exercise of the Warrants in accordance with this Agreement,
the Preferred Shares and the Warrants is absolute and
unconditional regardless of the dilutive effect that such
issuance may have on the ownership interests of other
stockholders of the Company.
D. Authority; Validity and Enforceability. The
Company has the requisite corporate power and authority to file
and perform its obligations under the Certificate of Amendment
and to enter into the Documents (as hereinafter defined), and to
perform all of its obligations hereunder and thereunder
(including the issuance, sale and delivery to Buyer of the
Securities). The execution, delivery and performance by the
Company of the Documents, and the consummation by the Company of
the transactions contemplated hereby and thereby (including,
without limitation, the filing of the Certificate of Amendment
with the New Jersey Secretary of State's office, the issuance of
the Preferred Shares, the Warrants and the issuance and
reservation for issuance of the Conversion Shares and Warrant
Shares), has been duly authorized by all necessary corporate
action on the part of the Company. Each of the Documents has
been duly validly executed and delivered by the Company and the
Certificate of Amendment has been duly filed with the New Jersey
Secretary of State's office by the Company and each instrument
constitutes a valid and binding obligation of the Company
enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors,
rights and remedies generally. The Securities have been duly and
validly authorized for issuance by the Company and, when executed
and delivered by the Company, will be valid and binding
obligations of the Company enforceable against it in accordance
with their terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar
laws affecting creditors' rights and remedies generally. For
purposes of this Agreement, the term "Documents" means (i) this
Agreement; (ii) the Registration Rights Agreement of even date
herewith between the Company and Buyer, a copy of which is
annexed hereto as Exhibit E (the "Registration Rights <PAGE 7>
Agreement"); (iii) the Warrants; and (iv) the Escrow
Instructions.
E. Authorization of the Securities. The
authorization, issuance, sale and delivery of the Preferred
Shares and Warrants has been duly authorized by all requisite
corporate action on the part of the Company. As of the Initial
Funding Date, the Initially Issued Preferred Shares and the
Initially Issued Warrants, and the Conversion Shares and the
Warrant Shares upon their issuance in accordance with the
Certificate of Amendment and the Initially Issued Warrants,
respectively, will be validly issued and outstanding, fully paid
and nonassessable, and not subject to any preemptive rights,
rights of first refusal or other similar rights. As of the
Second Funding Date, the Subsequently Issued Preferred Shares and
the Subsequently Issued Warrants, and the Conversion Shares and
the Warrant Shares upon their issuance in accordance with the
Certificate of Amendment and the Initially Issued Warrants,
respectively, will be validly issued and outstanding, fully paid
and nonassessable, and not subject to any preemptive rights,
rights of first refusal or other similar rights.
F. Non-contravention. The execution and delivery by
the Company of the Documents, the issuance of the Securities, and
the consummation by the Company of the other transactions
contemplated hereby and thereby, including, without limitation,
the filing of the Certificate of Amendment with the New Jersey
Secretary of State's office, do not and will not conflict with or
result in a breach by the Company of any of the terms or
provisions of, or constitute a default (or an event which, with
notice, lapse of time or both, would constitute a default) under
(i) the articles of incorporation or by-laws of the Company or
(ii) any indenture, mortgage, deed of trust or other material
agreement or instrument to which the Company is a party or by
which its properties or assets are bound, or any law, rule,
regulation, decree, judgment or order of any court or public or
governmental authority having jurisdiction over the Company or
any of the Company's properties or assets, except as to
(ii) above such conflict, breach or default which would not have
a Material Adverse Effect.
G. Approvals. No authorization, approval or consent
of any court or public or governmental authority is required to
be obtained by the Company for the issuance and sale of the
Preferred Shares (and the Conversion Shares and Warrant Shares)
to Buyer as contemplated by this Agreement, except such
authorizations, approvals and consents that have been obtained by
the Company prior to the date hereof.
H. Commission Filings. None of the Commission
Filings contained at the time they were filed any untrue
statement of a material fact or omitted to state any material
fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under
which they were made, not misleading. <PAGE 8>
I. Absence of Certain Changes. Since the Balance
Sheet Date (as defined in Section III.M.), there has not occurred
any change, event or development in the business, financial
condition, prospects or results of operations of the Company, and
there has not existed any condition having or reasonably likely
to have, a Material Adverse Effect.
J. Full Disclosure. There is no fact known to the
Company (other than general economic or industry conditions known
to the public generally) that has not been fully disclosed in
writing to the Buyer that (i) reasonably could be expected to
have a Material Adverse Effect or (ii) reasonably could be
expected to materially and adversely affect the ability of the
Company to perform its obligations pursuant to this Agreement,
the Certificate of Amendment, the Registration Rights Agreement
or the Escrow Instructions.
K. Absence of Litigation. There is no action, suit,
claim, proceeding, inquiry or investigation pending or, to the
Company's knowledge, threatened, by or before any court or public
or governmental authority which, if determined adversely to the
Company, would have a Material Adverse Effect.
L. Absence of Events of Default. No "Event of
Default" (as defined in any agreement or instrument to which the
Company is a party) and no event which, with notice, lapse of
time or both, would constitute an Event of Default (as so
defined), has occurred and is continuing, which could have a
Material Adverse Effect.
M. Financial Statements; No Undisclosed Liabilities.
The Company has delivered to Buyer true and complete copies of
its audited balance sheet as at September 30, 1997, and the
related audited statements of operations and cash flows for the
fiscal year ended September 30, 1997, including the related notes
and schedules thereto (collectively, the "Financial Statements"),
and all management letters, if any, from the Company's
independent auditors relating to the dates and periods covered by
the Financial Statements. Each of the Financial Statements is
complete and correct in all material respects, has been prepared
in accordance with United States General Accepted Accounting
Principles ("GAAP") (subject, in the case of the interim
Financial Statements, to normal year end adjustments and the
absence of footnotes) and in conformity with the practices
consistently applied by the Company without modification of the
accounting principles used in the preparation thereof, and fairly
presents the financial position, results of operations and cash
flows of the Company as at the dates and for the periods
indicated. For purposes hereof, the audited balance sheet of the
Company as at September __, 1997, is hereinafter referred to as
the "Balance Sheet" and September 30, 1997, is hereinafter
referred to as the "Balance Sheet Date". The Company has no
indebtedness, obligations or liabilities of any kind (whether
accrued, absolute, contingent or otherwise, and whether due or to
become due) that would have been required to be reflected in,
<PAGE 9> reserved against or otherwise described in the Balance
Sheet or in the notes thereto in accordance with GAAP, which was
not fully reflected in, reserved against or otherwise described
in the Balance Sheet or the notes thereto or was not incurred in
the ordinary course of business consistent with the Company's
past practices since the Balance Sheet Date.
N. Compliance with Laws; Permits. The Company is in
compliance with all laws, rules, regulations, codes, ordinances
and statutes (collectively "Laws") applicable to it or to the
conduct of its business, except for such noncompliance which
would not have a Material Adverse Effect. The Company possesses
all permits, approvals, authorizations, licenses, certificates
and consents from all public and governmental authorities which
are necessary to conduct its business, except for those the
absence of which would not have a Material Adverse Effect.
O. Related Party Transactions. Except as set forth
on Schedule III.O. hereto, neither the Company nor any of its
officers, directors or "Affiliates" (as such term is defined in
Rule 12b-2 under the Exchange Act) has borrowed any moneys from
or has outstanding any indebtedness or other similar obligations
to the Company. Except as set forth on Schedule III.O. hereto,
neither the Company nor any of its officers, directors or
Affiliates (i) owns any direct or indirect interest constituting
more than a one percent equity (or similar profit participation)
interest in, or controls or is a director, officer, partner,
member or employee of, or consultant to or lender to or borrower
from, or has the right to participate in the profits of, any
person or entity which is (x) a competitor, supplier, customer,
landlord, tenant, creditor or debtor of the Company, (y) engaged
in a business related to the business of the Company, or (z) a
participant in any transaction to which the Company is a party
(other than in the ordinary course of the Company's business) or
(ii) is a party to any contract, agreement, commitment or other
arrangement with the Company.
P. Insurance. The Company maintains insurance
coverage with financially sound and reputable insurers and such
insurance coverage is adequate, consistent with industry
standards and the Company's historical claims experience, and
includes coverage for such things as property and casualty,
general liability, workers' compensation, personal injury and
other similar types of insurance. The Company has not received
notice from, and has no knowledge of any threat by, any insurer
(that has issued any insurance policy to the Company) that such
insurer intends to deny coverage under or cancel, discontinue or
not renew any insurance policy presently in force.
Q. Securities Law Matters. Based, in part, upon the
representations and warranties of Buyer set forth in Section 11
hereof, the offer and sale by the Company of the Securities is
exempt from (i) the registration and prospectus delivery
requirements of the Securities Act and the rules and regulations
of the Commission thereunder and (ii) the registration and/or
<PAGE 10> qualification provisions of all applicable state
securities and "blue sky" laws. Other than pursuant to an
effective registration statement under the Securities Act, the
Company has not issued, offered or sold the Preferred Shares or
any shares of Common Stock (including for this purpose any
securities of the same or a similar class as the Preferred Shares
or Common Stock, or any securities convertible into or
exchangeable or exercisable for the Preferred Shares or Common
Stock or any such other securities) within the one-year next
preceding the date hereof, except as disclosed on Schedule III.Q.
hereto or otherwise previously disclosed in writing to Buyer, and
the Company shall not directly or indirectly take, and shall not
pen-nit any of its directors, officers or Affiliates directly or
indirectly to take, any action (including, without limitation,
any offering or sale to any person or entity of the Preferred
Shares or shares of Common Stock), so as to make unavailable the
exemption from Securities Act registration being relied upon by
the Company for the offer and sale to Buyer of the Preferred
Shares (and the Conversion Shares) as contemplated by this
Agreement. No form of general solicitation or advertising has
bee n used or authorized by the Company or any of its officers,
directors or Affiliates in connection with the offer or sale of
the Preferred Shares (and the Conversion Shares) as contemplated
by this Agreement or any other agreement to which the Company is
a party.
R. Environmental Matters.
1. The operations of the Company are in
compliance with all applicable Environmental Laws and all permits
issued pursuant to Environmental Laws or otherwise;
2. the Company has obtained or applied for all
permits required under all applicable Environmental Laws
necessary to operate its business;
3. the Company is not the subject of any
outstanding written order of or agreement with any governmental
authority or person respecting (i) Environmental Laws,
(ii) Remedial Action or (iii) any Release or threatened Release
of Hazardous Materials;
4. the Company has not received, since
September 30, 1997, any written communication alleging that it
may be in violation of any Environmental Law or any permit issued
pursuant to any Environmental Law, or may have any liability
under any Environmental Law;
5. the Company does not have any current
contingent liability in connection with any Release of any
Hazardous Materials into the indoor or outdoor environment
(whether on-site or off-site);
6. except as set forth on Schedule III.R.6
hereto, to the Company's knowledge, there are no investigations
<PAGE 11> of the business, operations, or currently or previously
owned, operated or leased property of the Company pending or
threatened which could lead to the imposition of any liability
pursuant to any Environmental Law;
7. there is not located at any of the properties
of the Company, any (A) underground storage tanks, (B) asbestos-
containing material or (C) equipment containing polychlorinated
biphenyls; and,
8. the Company has provided to Buyer all
environmentally related audits, studies, reports, analyses, and
results of investigations that have been performed with respect
to the currently or previously owned, leased or operated
properties of the Company.
For purposes of this Section III.R.:
"Environmental Law" means any foreign, federal,
state or local statute, regulation, ordinance, or rule of common
law as now or hereafter in effect in any way relating to the
protection of human health and safety or the environment
including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C. Section 9601 et
seq.), the Hazardous Materials Transportation Act (49 U.S.C. App.
Section 1801 et seq.), the Resource Conservation and Recovery Act (42
U.S.C. Section 6901 et seq.), the Clean Water Act (33 U.S.C. Section 1251 et
seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq.), the Toxic
Substances Control Act (15 U.S.C. Section 2601 et seq.), the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Section 136 et
seq.), and the Occupational Safety and Health Act (29 U.S.C.
Section 651 et seq.), and the regulations promulgated pursuant thereto.
"Hazardous Material" means any substance, material
or waste which is regulated by the United States, Canada or any
of its provinces, or any state or local governmental authority
including, without limitation, petroleum and its by-products,
asbestos, and any material or substance which is defined as a
"hazardous waste," "hazardous substance," "hazardous material,"
"restricted hazardous waste," "industrial waste," "solid waste,"
"contaminant," "pollutant," "toxic waste" or "toxic substance"
under any provision of any Environmental Law;
"Release" means any release, spill, filtration,
emission, leaking, pumping, injection, deposit, disposal,
discharge, dispersal, or leaching into the indoor or outdoor
environment, or into or out of any property;
"Remedial Action" means all actions to (x) clean
up, remove, treat or in any other way address any Hazardous
Material; (y) prevent the Release of any Hazardous Material so it
does not endanger or threaten to endanger public health or
welfare or the indoor or outdoor environment; or (z) perform pre-
remedial studies and investigations or post-remedial monitoring
and care. <PAGE 12>
S. Labor Matters. The Company is not party to any
labor or collective bargaining agreement and there are no labor
or collective bargaining agreements which pertain to employees of
the Company. No employees of the Company are represented by any
labor organization and none of such employees has made a pending
demand for recognition, and there are no representation
proceedings or petitions seeking a representation proceeding
presently pending or, to the Company's knowledge, threatened to
be brought or filed, with the National Labor Relations Board or
other labor relations tribunal. There is no organizing activity
involving the Company pending or to the Company's knowledge,
threatened by any labor organization or group of employees of the
Company. There are no (i) strikes, work stoppages, slowdowns,
lockouts or arbitrations or (ii) material grievances or other
labor disputes pending or, to the knowledge of the Company,
threatened against or involving the Company. There are no unfair
labor practice charges, grievances or complaints pending or, to
the knowledge of the Company, threatened by or on behalf of any
employee or group of employees of the Company.
T. ERISA Matters. The Company and its ERISA
Affiliates are in compliance in all material respects with all
provisions of ERISA applicable to it. No Reportable Event has
occurred, been waived or exists as to which the Company or any
ERISA Affiliate was required to file a report with the Pension
Benefits Guaranty Corporation, and the present value of all
liabilities under all Plans (based on those assumptions used to
fund such Plans) did not, as of the most recent annual valuation
date applicable thereto, exceed the value of the assets of all
such Plans in the aggregate. None of the Company or ERISA
Affiliates has incurred any Withdrawal Liability that could
result in a Material Adverse Effect. None of the Company or
ERISA Affiliates has received any notification that any
Multiemployer Plan is in reorganization or has been terminated
within the meaning of Title IV of ERISA, and no Multiemployer
Plan is reasonably expected to be in reorganization or
termination where such reorganization or termination has resulted
or could reasonably be expected to result in increases to the
contributions required to be made to such Plan or otherwise.
For purposes of this Section III.T.:
"ERISA" means the Employee Retirement Income
Security Act of 1974, or any successor statute, together with the
regulations thereunder, as the same may be amended from time to
time.
"ERISA Affiliate" means any trade or business
(whether or not incorporated) that was, is or hereafter may
become, a member of a group of which the Company is a member and
which is treated as a single employer under Section 414 of the Internal
Revenue Code of 1986, as amended (the "Internal Revenue Code").
"Multiemployer Plan" means a multiemployer plan as
defined in Section 4001(a)(3) of ERISA to which the Company or
any ERISA Affiliate (other than one considered an ERISA Affiliate
<PAGE 13> only pursuant to subsection (m) or (o) of Section 414 of the
Internal Revenue Code) is making or accruing an obligation to
make contributions, or has within any of the preceding five plan
years made or accrued an obligation to make contributions.
"PBGC" means the Pension Benefit Guaranty
Corporation referred to and defined in ERISA or any successor
thereto.
"Plan" means any pension plan (other than a
Multiemployer Plan) subject to the provision of Title IV of ERISA
or Section 412 of the Internal Revenue Code that is maintained for
employees of the Company or any ERISA Affiliate.
"Reportable Event" means any reportable event as
defined in Section 4043(b) of ERISA or the regulations issued
thereunder with respect to a Plan (other than a Plan maintained
by an ERISA Affiliate that is considered an ERISA Affiliate only
pursuant to subsection (n) or (o) of Section 414 of the Internal
Revenue Code.
"Withdrawal Liability" means liability to a
Multiemployer Plan as a result of a complete or partial
withdrawal from such Multiemployer Plan, as such terms are
defined in Part I of Subtitle E of Title IV of ERISA.
U. Tax Matters.
1. The Company has filed all Tax Returns which
it is required to file under applicable Laws, except for such Tax
Returns in respect of which the failure to so file does not and
could not have a Material Adverse Effect; all such Tax Returns
are true and accurate in all material respects and have been
prepared in compliance with all applicable Laws; the Company has
paid all Taxes due and owing by it (whether or not such Taxes are
required to be shown on a Tax Return) and have withheld and paid
over to the appropriate taxing authorities all Taxes which it is
required to withhold from amounts paid or owing to any employee,
stockholder, creditor or other third parties; and since the
Balance Sheet Date, the charges, accruals and reserves for Taxes
with respect to the Company (including any provisions for
deferred income taxes) reflected on the books of the Company are
adequate to cover any Tax liabilities of the Company if its
current tax year were treated as ending on the date hereof.
2. No claim has been made by a taxing authority
in a jurisdiction where the Company does not file tax returns
that such corporation is or may be subject to taxation by that
jurisdiction. There are no foreign, federal, state or local tax
audits or administrative or judicial proceedings pending or being
conducted with respect to the Company; no information related to
Tax matters has been requested by any foreign, federal, state or
local taxing authority; and, except as disclosed above, no
written notice indicating an intent to open an audit or other
review has been received by the Company from any foreign,
<PAGE 14> federal, state or local taxing authority. There are no
material unresolved questions or claims concerning the Company's
Tax liability. The Company (A) has not executed or entered into
a closing agreement pursuant to Section 7121 of the Internal Revenue
Code or any predecessor provision thereof or any similar
provision of state, local or foreign law; or (B) has not agreed
to or is required to make any adjustments pursuant to Section 481(a) of
the Internal Revenue Code or any similar provision of state,
local or foreign law by reason of a change in accounting method
initiated by the Company or any of its subsidiaries or has any
knowledge that the IRS has proposed any such adjustment or change
in accounting method, or has any application pending with any
taxing authority requesting permission for any changes in
accounting methods that relate to the business or operations of
the Company. The Company has not been a United States real
property holding corporation within the meaning of Section 897(c)(2) of
the Internal Revenue Code during the applicable period specified
in Section 897(c)(1)(A)(ii) of the Internal Revenue Code.
3. The Company has not made an election under
Section 341(f) of the Internal Revenue Code. The Company is not liable
for the Taxes of another person that is not a subsidiary of the
Company under (A) Treas. Reg. Section 1.1502-6 (or comparable
provisions of state, local or foreign law), (B) as a transferee
or successor, (C) by contract or indemnity or (D) otherwise. The
Company is not a party to any tax sharing agreement. The Company
has not made any payments, is obligated to make payments or is a
party to an agreement that could obligate it to make any payments
that would not be deductible under Section 280G of the Internal Revenue
Code.
For purposes of this Section III.U.:
"IRS" means the United States Internal Revenue
Service.
"Tax" or "Taxes" means federal, state, county,
local, foreign, or other income, gross receipts, ad valorem,
franchise, profits, sales or use, transfer, registration, excise,
utility, environmental, communications, real or personal
property, capital stock, license, payroll, wage or other
withholding, employment, social security, severance, stamp,
occupation, alternative or add-on minimum, estimated and other
taxes of any kind whatsoever (including, without limitation,
deficiencies, penalties, additions to tax, and interest
attributable thereto) whether disputed or not.
"Tax Return" means any return, information report
or filing with respect to Taxes, including any schedules attached
thereto and including any amendment thereof.
V. Property. The Company has good and marketable
title to all real and personal property owned by it, free and
clear of all liens, encumbrances and defects except such as are
described on Schedule III.V. hereto or such as do not materially
<PAGE 15> affect the value of such property and do not interfere
with the use made and proposed to be made of such property by the
Company; and any real property and buildings held under lease by
the Company are held by it under valid, subsisting and
enforceable leases with such exceptions as are not material and
do not interfere with the use made and proposed to be made of
such property and buildings by the Company.
W. Intellectual Property. The Company owns or
possesses adequate and enforceable rights to use all patents,
patent applications, trademarks, trademark applications, trade
names, service marks, copyrights, copyright applications,
licenses, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information,
systems or procedures) and other similar rights and proprietary
knowledge (collectively, "Intangibles") necessary for the conduct
of its business as now being conducted including, but not limited
to, those described on Schedule III.W. hereto. The Company is
not infringing upon or in conflict with any right of any other
person with respect to any Intangibles. Except as disclosed on
Schedule III.W. hereto, no claims have been asserted by any
person to the ownership or use of any Intangibles and the Company
has no knowledge of any basis for such claim.
X. Internal Controls and Procedures. The Company
maintains accurate books and records and internal accounting
controls which provide reasonable assurance that (i) all
transactions to which the Company is a party or by which its
properties are bound are executed with management's
authorization; (ii) the reported accountability of the Company's
assets is compared with existing assets at regular intervals;
(iii) access to the Company's assets is permitted only in
accordance with management's authorization; and (iv) all
transactions to which the Company is a party or by which its
properties are bound are recorded as necessary to permit
preparation of the financial statements of the Company in
accordance with U.S. generally accepted accounting principles.
Y. Payments and Contributions. Neither the Company
nor any of its directors, officers or, to its knowledge, other
employees has (i) used any Company funds for any unlawful
contribution, endorsement, gift, entertainment or other unlawful
expense relating to political activity; (ii) made any direct or
indirect unlawful payment of Company funds to any foreign or
domestic government official or employee; (iii) violated or is in
violation of any provision of the Foreign Corrupt Practices Act
of 1977, as amended; or (iv) made any bribe, rebate, payoff,
influence payment, kickback or other similar payment to any
person with respect to Company matters.
Z. No Misrepresentation. No representation or
warranty of the Company contained in this Agreement, any
schedule, annex or exhibit hereto or any agreement, instrument or
certificate furnished by the Company to Buyer pursuant to this
Agreement, contains any untrue statement of a material fact or
<PAGE 16> omits to state a material fact required to be stated
therein or necessary to make the statements therein, not
misleading.
IV. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
A. Restrictive Legend. Buyer acknowledges and agrees
that, upon issuance pursuant to this Agreement, the Securities
(and any shares of Common Stock issued in conversion of the
Preferred Shares or exercise of the Warrants) shall have endorsed
thereon a legend in substantially the following form (and a stop-
transfer order may be placed against transfer of the Preferred
Shares and the Conversion Shares until such legend has been
removed):
"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. Filings. The Company shall make all necessary
Commission Filings and "blue sky" filings required to be made by
the Company in connection with the sale of the Securities to the
Buyer as required by all applicable Laws, and shall provide a
copy thereof to the Buyer promptly after such filing.
C. Reporting Status. So long as the Buyer
beneficially owns any of the Securities, the Company shall timely
file all reports required to be filed by it with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act.
D. Use of Proceeds. The Company shall use the net
proceeds from the sale of the Securities (excluding amounts paid
by the Company for legal fees and finder's fees in connection
with such sale) solely for general corporate and working capital
purposes.
E. Listing. Except to the extent the Company lists
its Common Stock on The New York Stock Exchange, the Company
shall use its best efforts to maintain its listing of the Common
Stock on NASD/BBS.
F. Reserved Conversion Shares. The Company at all
times from and after the date hereof shall have a sufficient
number of shares of Common Stock duly and validly authorized and
reserved for issuance to satisfy the conversion, in full, of the
1,550 Preferred Shares (assuming for purposes of this <PAGE 17>
Section IV.F., a Conversion Price (as defined in the Certificate
of Amendment) of $4.50) and upon the exercise of the Warrants.
In the event the Current Market Price (as defined in the
Certificate of Amendment) declines to $2.50, the Company shall,
within 10 days of the occurrence of such event, authorize and
reserve for issuance such additional shares of Common Stock
sufficient in number for the conversion, in full, of the
Preferred Shares, assuming for purposes of this Section IV.F. a
Conversion Price (as defined in the Certificate of Amendment) of
$1.95 per share.
G. Right of First Refusal. If the Company should
propose (the "Proposal") to issue Common Stock or securities
convertible into Common Stock at a price less than the Current
Market Price (as defined in the Certificate of Amendment), or
debt at less than par value or having an effective annual
interest rate in excess of 9.9% (each a "Right of First Refusal
Security" and collectively, the "Right of First Refusal
Securities"), in each case on the date of issuance during the
period ending two years after the Closing Date (the "Right of
First Refusal Period"), the Company shall be obligated to offer
the Buyer on the terms set forth in the Proposal (the "Offer")
and the Buyer shall have the right, but not the obligation, to
accept such Offer on such terms. If during the Fight of First
Refusal Period, the Company provides written notice to the Buyer
that it proposes to issue any Right of First Refusal Securities
on the terms set forth in the Proposal, then the Buyer shall have
ten (10) business days to accept or reject such offer in writing.
if the Company fails to: (i) issue a Proposal during the Right
of First Refusal Period, (ii) offer the Buyer the opportunity to
complete the transaction as set forth in the Proposal, or
(iii) enter into an agreement with the Buyer, at such terms after
the Buyer has accepted the Offer, then the Company shall pay to
the Buyer, as liquidated damages, an amount in total equal to ten
percent (10%) of the amount paid to the Company for the Right of
First Refusal Securities. The foregoing Right of First Refusal
is and shall be senior in right to any other right of first
refusal issued by the Company, except for the right of first
refusal granted by the Company to H.J. Meyers & Co., Inc., which
has an approximate remaining term of eighteen (18) months, to any
other Person (as defined in the Certificate of Amendment)
including, but not limited to, the holders of the Company's
outstanding Series A Shares. Notwithstanding the foregoing, the
Buyer shall have no rights under this Section IV.G. in respect of
Common Stock or any other securities of the Company issuable
(i) upon the exercise or conversion of options, warrants or other
rights to purchase securities of the Company outstanding as of
the date hereof or (ii) to officers, directors or employees of
the Company or any of its subsidiaries.
<PAGE 18>
V. TRANSFER AGENT INSTRUCTIONS.
A. The Company undertakes and agrees that no
instruction other than the instructions referred to in this
Section V and customary stop transfer instructions prior to the
registration and sale of the Common Stock pursuant to an
effective Securities Act registration statement will be given to
its transfer agent for the Common Stock and that the Common Stock
issuable upon conversion of the Preferred Shares and exercise of
the Warrants otherwise shall be freely transferable on the books
and records of the Company as and to the extent provided in this
Agreement, the Registration Rights Agreement and applicable law.
Nothing contained in this Section V.A. shall affect in any way
Buyer's obligations and agreement to comply with all applicable
securities laws upon resale of such Common Stock. If, at any
time, Buyer provides the Company with an opinion of counsel
reasonably satisfactory to the Company that registration of the
resale by Buyer of such Common Stock is not required under the
Securities Act and that the removal of restrictive legends is
permitted under applicable law, the Company shall permit the
transfer of such Common Stock and, promptly instruct the
Company's transfer agent to issue one or more certificates for
Common Stock without any restrictive legends endorsed thereon.
B. The Company shall permit Buyer to exercise its
right to convert the Preferred Shares by telecopying an executed
and completed Notice of Conversion to the Company. Each date on
which a Notice of Conversion is telecopied to and received by the
Company in accordance with the provisions hereof shall be deemed
a Conversion Date. The Company shall transmit the certificates
evidencing the shares of Common Stock issuable upon conversion of
any Preferred Shares (together with certificates evidencing any
Preferred Shares not being so converted) to Buyer via express
courier, by electronic transfer or otherwise, within five
business days after receipt by the Company of the Notice of
Conversion (the "Delivery Date"). Within 30 days after Buyer
delivers the Notice of Conversion to the Company, Buyer shall
deliver to the Company the Preferred Shares being converted.
C. The Company shall permit Buyer to exercise its
right to purchase shares of Common Stock pursuant to exercise of
the Warrants in accordance with its applicable terms of the
Warrants. The last date that the Company may deliver shares of
Common Stock issuable upon any exercise of Warrants is referred
to herein as the "Warrant Delivery Date."
D. The Company understands that a delay in the
issuance of the shares of Common Stock issuable in lieu of cash
dividends on the Preferred Shares, upon the conversion of the
Preferred Shares or exercise of the Warrants beyond the
applicable Dividend Payment Due Date (as defined in the
Certificate of Amendment), Delivery Date or Warrant Delivery Date
could result in economic loss to Buyer. As compensation to Buyer
for such loss (and not as a penalty), the Company agrees to pay
to Buyer for late issuance of Common Stock issuable in lieu of
<PAGE 19> cash dividends on the Preferred Shares, upon conversion
of the Preferred Shares or exercise of the Warrants in accordance
with the following schedule (where "No. Business Days" is defined
as the number of business days beyond seven (7) days from the
Dividend Payment Due Date (as that term is defined in the
Certificate of Amendment), the Delivery Date on the Warrant
Delivery Date, as applicable):
Compensation For Each 10
Shares of Preferred Shares
Not Converted Timely or
500 Shares of Common Stock
Issuable In Payment of
No. Business Days Dividends Not Issued Timely
1 $ 25
2 $ 50
3 $ 75
4 $100
5 $125
6 $150
7 $175
8 $200
9 $225
10 $250
more than 10 $250 + $100 for each Business
Day Late beyond 10 days
The Company shall pay to Buyer the compensation described above
by the transfer of immediately available funds upon Buyer's
demand. Nothing herein shall limit Buyer's right to pursue
actual damages for the Company's failure to issue and deliver
Common Stock to Buyer, and in addition to any other remedies
which may be available to Buyer, in the event the Company fails
for any reason to effect delivery of such shares of Common Stock
within five business days after the relevant Dividend Payment Due
Date, the Delivery Date or the Warrant Delivery Date, as
applicable, Buyer shall be entitled to rescind the relevant
Notice of Conversion or exercise of Warrants by delivering a
notice to such effect to the Company whereupon the Company and
Buyer shall each be restored to their respective original
positions immediately prior to delivery of such Notice of
Conversion on delivery.
<PAGE 20>
VI. DELIVERY INSTRUCTIONS.
The Securities shall be delivered by the Company to the
Escrow Agent pursuant to Section I.B. hereof on a "delivery-
against-payment basis" at the closing of the First Tranche and
the Second Tranche.
VII. FUNDING DATES.
The date and time of the issuance and sale of the
Initially Issued Preferred Shares and the Initially Issued
Warrants in the First Tranche (the "Initial Funding Date", and
together with the Second Funding Date, the "Closing Dates") shall
be the date hereof or such other as shall be mutually agreed upon
in writing. The issuance and sale of the Initially Issued
Preferred Shares and the Initially Issued Warrants in the First
Tranche and the Subsequently Issued Preferred Shares and the
Subsequently Issued Warrants in the Second Tranche shall occur on
their respective Closing Dates, at the offices of the Escrow
Agent. Notwithstanding anything to the contrary contained
herein, the Escrow Agent shall not be authorized to release to
the Company the Initial Purchase Price or the Second Purchase
Price and to Buyer the certificate(s) (I/N/O Buyer) evidencing
the Initially Issued Preferred Shares and the Initially Issued
Warrants in the First Tranche and the Subsequently Issued
Preferred Shares and the Subsequently Issued Warrants in the
Second Tranche, respectively, being purchased by Buyer unless the
conditions set forth in VIII.C. and IX.G hereof have been
satisfied.
VIII. CONDITIONS TO THE COMPANY'S OBLIGATIONS.
The Buyer understands that the Company's obligation to
sell the Securities on the Closing Dates to Buyer pursuant to
this Agreement is conditioned upon:
A. Delivery by Buyer to the Escrow Agent of the
Initial Purchase Price on the Initial Funding Date and the Second
Purchase Price on the Second Funding Date, respectively.
B. The accuracy in all material respects on the
Closing Dates of the representations and warranties of Buyer
contained in this Agreement as if made on the Closing Dates
(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 Closing Dates of all covenants and agreements of Buyer
required to be performed by it pursuant to this Agreement on or
before the Closing Dates;
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 Agreement. <PAGE 21>
IX. CONDITIONS TO BUYER'S OBLIGATIONS.
The Company understands that Buyer's obligation to
purchase the Securities on the Closing Dates pursuant to this
Agreement is conditioned upon:
A. Delivery by the Company to the Escrow Agent on the
Initial Funding Date and on the Second Funding Date of one or
more certificates (I/N/O Buyer) evidencing the Securities to be
purchased by Buyer pursuant to this Agreement on the Initial
Funding Date and the Second Funding Date, respectively;
B. The accuracy in all respects on the Closing Dates
of the representations and warranties of the Company contained in
this Agreement as if made on the Closing Dates (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
Closing Dates of all covenants and agreements of the Company
required to be performed by it pursuant to this Agreement on or
before the Closing Dates;
C. Buyer having received an opinion of counsel for
the Company, dated the Closing Dates, 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.
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 (including the fees
and disbursements of Buyer's legal counsel up to a maximum of
$30,000 plus disbursements).
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 Agreement.
<PAGE 22>
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. hereof.
X. TERMINATION.
A. Termination by Mutual Written Consent. This
Agreement may be terminated and the transactions contemplated
hereby may be abandoned, for any reason and at any time prior to
the Closing Dates, by the mutual written consent of the Company
and Buyer.
B. Termination by the Company or Buyer. This
Agreement may be terminated and the transactions contemplated
hereby may be abandoned by action of the Company or Buyer if
(i) the Initial Funding Date shall not have occurred at or prior
to 5:00 p.m., New York City time, on August 14, 1998; provided,
however, that the right to terminate this Agreement pursuant to
this Section X.B.(i) shall not be available to any party whose
failure to fulfill any of its obligations under this Agreement
has been the cause of or resulted in the failure of the Initial
Funding Date to occur at or before such time and date or (ii) any
court or public or governmental authority shall have issued an
order, ruling, judgment or writ, or there shall be in effect any
Law, restraining, enjoining or otherwise prohibiting the
consummation of any of the transactions contemplated by this
Agreement.
C. Termination by Buyer. This Agreement may be
terminated and the transactions contemplated hereby may be
abandoned by Buyer at any time prior to the Initial Funding Date
or the Second Funding Date, if (i) the Company shall have failed
to comply with any of its covenants or agreements contained in
this Agreement, (ii) there shall have been a breach by the
Company with respect to any representation or warranty made by it
in this Agreement, or (iii) there shall have occurred any event
or development, or there shall be in existence any condition,
having or reasonably and foreseeably likely to have a Material
Adverse Effect.
D. Termination by the Company. This Agreement may be
terminated and the transactions contemplated hereby may be
abandoned by the Company at any time prior to the Closing Dates,
if (i) Buyer shall have failed to comply with any of its
covenants or agreements contained in this Agreement or (ii) there
shall have been a breach by Buyer with respect to any
representation or warranty made by it in this Agreement.
<PAGE 23>
XI. SURVIVAL; INDEMNIFICATION.
A. The representations, warranties and covenants made
by each of the Company and Buyer in this Agreement, the annexes,
schedules and exhibits hereto and in each instrument, agreement
and certificate entered into and delivered by them pursuant to
this Agreement, shall survive the Closing Dates and the
consummation of the transactions contemplated hereby. In the
event of a breach or violation of any of such representations,
warranties or covenants, the party to whom such representations,
warranties or covenants have been made shall have all rights and
remedies for such breach or violation available to it under the
provisions of this Agreement or otherwise, whether at law or in
equity, irrespective of any investigation made by or on behalf of
such party on or prior to the Closing Dates.
B. The Company hereby agrees to indemnify and hold
harmless the Buyer, its Affiliates and their respective officers,
directors, partners and members (collectively, the "Buyer
Indemnitees"), from and against any and all losses, claims,
damages, judgments, penalties, liabilities and deficiencies
(collectively, "Losses"), and agrees to reimburse the Buyer
Indemnitees for all out-of-pocket expenses (including the fees
and expenses of legal counsel), in each case promptly as incurred
by the Buyer Indemnitees and to the extent arising out of or in
connection with:
1. any misrepresentation, omission of fact or
breach of any of the Company's representations or warranties
contained in this Agreement or the other Documents, or the
annexes, schedules or exhibits hereto or thereto or any
instrument, agreement or certificate entered into or
delivered by the Company pursuant to this Agreement or the
other Documents; or
2. any failure by the Company to perform any of
its covenants, agreements, undertakings or obligations set
forth in this Agreement or the other Documents, or the
annexes, schedules or exhibits hereto or thereto or any
instrument, agreement or certificate entered into or
delivered by the Company pursuant to this Agreement or the
other Documents.
C. Buyer hereby agrees to indemnify and hold harmless
the Company, its Affiliates and their respective officers,
directors, partners and members (collectively, the "Company
Indemnitees"), from and against any and all Losses, and agrees to
reimburse the Company Indemnitees for all out-of-pocket expenses
(including the fees and expenses of legal counsel), in each case
promptly as incurred by the Company Indemnitees and to the extent
arising out of or in connection with:
1. any misrepresentation, omission of fact, or
breach of any of Buyer's representations or warranties
contained in this Agreement or the other Documents, or the
<PAGE 24> annexes, schedules or exhibits hereto or thereto
or any instrument, agreement or certificate entered into or
delivered by Buyer pursuant to this Agreement or the other
Documents; or
2. any failure by Buyer to perform in any
material respect any of its covenants, agreements,
undertakings or obligations set forth in this Agreement or
the other Documents or any instrument, certificate or
agreement entered into or delivered by Buyer pursuant to
this Agreement or the other Documents.
D. Promptly after receipt by either party hereto
seeking indemnification pursuant to this Section XI (an
"Indemnified Party") of written notice of any investigation,
claim, proceeding or other action in respect of which
indemnification is being sought (each, a "Claim"), the
Indemnified Party promptly shall notify the party against whom
indemnification pursuant to this Section XI is being sought (the
"Indemnifying Party") of the commencement thereof, but the
omission to so notify the Indemnifying Party shall not relieve it
from any liability that it otherwise may have to the Indemnified
Party, except to the extent that the Indemnifying Party is
materially prejudiced and forfeits substantive rights and
defenses by reason of such failure. In connection with any Claim
as to which both the Indemnifying Party and the Indemnified Party
are parties, the Indemnifying Party shall be entitled to assume
the defense thereof. Notwithstanding the assumption of the
defense of any Claim by the Indemnifying Party, the Indemnified
Party shall have the right to employ separate legal counsel and
to participate in the defense of such Claim, and the Indemnifying
Party shall bear the reasonable fees, out-of-pocket costs and
expenses of such separate legal counsel to the Indemnified Party
if (and only if): (x) the Indemnifying Party shall have agreed
to pay such fees, out-of-pocket costs and expenses, (y) the
Indemnified Party and the Indemnifying Party reasonably shall
have concluded that representation of the Indemnified Part), and
the Indemnifying Party by the same legal counsel would not be
appropriate due to actual or, as reasonably determined by legal
counsel to the Indemnified Party, potentially differing interests
between such parties in the conduct of the defense of such Claim,
or if there may be legal defenses available to the Indemnified
Party that are in addition to or disparate from those available
to the Indemnifying Party, or (z) the Indemnifying Party shall
have failed to employ legal counsel reasonably satisfactory to
the Indemnified Party within a reasonable period of time after
notice of the commencement of such Claim. If the Indemnified
Party employs separate legal counsel in circumstances other than
as described in clauses (x), (y) or (z) above, the fees, costs
and expenses of such legal counsel shall be borne exclusively by
the Indemnified Party. Except as provided above, the
Indemnifying Party shall not, in connection with any Claim in the
same jurisdiction, be liable for the fees and expenses of more
than one firm of legal counsel for the Indemnified Party
(together with appropriate local counsel). The Indemnifying
<PAGE 25> Party shall not, without the prior written consent of
the Indemnified Party (which consent shall not unreasonably be
withheld), settle or compromise any Claim or consent to the entry
of any judgment that does not include an unconditional release of
the Indemnified Party from all liabilities with respect to such
Claim or judgment.
E. In the event one party hereunder should have a
claim for indemnification that does not involve a claim or demand
being asserted by a third party, the Indemnified Party promptly
shall deliver notice of such claim to the Indemnifying Party. If
the Indemnified Party disputes the claim, such dispute shall be
resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in
accordance with the procedures and rules of the American
Arbitration Association. Judgment upon any award rendered by any
arbitrators may be entered in any court having competent
jurisdiction thereof.
XII. GOVERNING LAW: MISCELLANEOUS.
This 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 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 Agreement shall be legal
and binding on all parties hereto. This Agreement may be signed
in one or more counterparts, each of which shall be deemed an
original. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the
interpretation of, this Agreement. if any provision of this
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 Agreement or the
validity or enforceability of this Agreement in any other
jurisdiction. This Agreement may be amended only by an
instrument in writing signed by the party to be charged with
enforcement. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the
subject matter hereof.
XIII. 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,
<PAGE 26> 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 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
(2) 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
(3) if to the Escrow Agent, 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 XIII.
<PAGE 27>
XIV. 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 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 Agreement) and
information which is required to be disclosed by law (including,
without limitation, pursuant to Item 10 of Rule 601 of
Regulation S-K under the Securities Act and the Exchange Act).
XV. ASSIGNMENT.
This Agreement shall not be assignable by either of the
parties hereto prior to the Closing 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 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 hereof and otherwise agrees to be bound by
the terms of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly
executed and delivered this Agreement on the date first written
above.
THE COMPANY:
DYNAMICWEB ENTERPRISES, INC.
By/s/Steven L. Vanechanos, Jr.
Name: Steven L. Vanechanos, Jr.
Title: Chief Executive Officer
BUYER:
THE SHAAR FUND LTD.
By: INTERCARRIBBEAN SERVICES, INC.
By/s/ Samuel Levinson
Name: Samuel Levinson
PAGE 28
<PAGE>
EXHIBIT A
Common Stock Purchase Warrant No. 1
PAGE 29
<PAGE>
EXHIBIT B
Common Stock Purchase Warrant No. 2
PAGE 30
<PAGE>
EXHIBIT C
Certificate of Amendment
PAGE 31
<PAGE>
EXHIBIT D
Escrow Instructions
PAGE 32
<PAGE>
EXHIBIT E
Registration Rights Agreement
PAGE 33
<PAGE>
Schedule III.A.2
Subsidiaries
PAGE 34
<PAGE>
Schedule III.C.
Authorized Shares
PAGE 35
<PAGE>
Schedule III.O.
Related Party Transactions
PAGE 36
<PAGE>
Schedule III.Q.
Securities Law Matters
PAGE 37
<PAGE>
Schedule III.R.6.
Environmental Matter
PAGE 38
<PAGE>
Schedule III.V.
Property
PAGE 39
<PAGE>
Schedule III.W.
Intellectual Property <PAGE 40>
EXHIBIT 10.27
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT dated this ____ day of
August, 1998 (this "Agreement"), between DYNAMICWEB ENTERPRISES,
INC., a New Jersey corporation, with principal executive offices
located at 271 Route 46 West, Fairfield, New Jersey 071004 (the
"Company"), and the undersigned (the "Initial Investor").
WITNESSETH:
WHEREAS, upon the terms and subject to the conditions
of the Securities Purchase Agreement dated as of August _, 1998,
between the Initial Investor and the Company (the "Securities
Purchase Agreement"), the Company has agreed to issue and sell to
the Initial Investor (1) on the date hereof, 875 shares of the
Company's Series A 6% Convertible Preferred Stock, par value
$0.001 (collectively, the "Initially Issued Preferred Shares")
which, upon the terms of and subject to the conditions of the
Company's Certificate of Amendment to the Company's Certificate
of Incorporation (the "Certificate of Amendment"), are
convertible into shares of the Company's common stock, par value
$0.0001 (the "Common Stock") and Common Stock Purchase Warrants
(collectively, the "Initially Issued Warrants") to purchase
87,500 shares of Common Stock (the "First Tranche"); and (ii)
subsequent to the date hereof, upon the terms and conditions
contained in the Securities Purchase Agreement, including the
satisfaction of the conditions precedent contained therein, an
additional 675 shares of the Company's Series A 6% Convertible
Preferred Stock, par value $0.001 (collectively, the
"Subsequently Issued Preferred Shares" and together with the
Initially Issued Preferred Shares, collectively referred to as
the "Preferred Shares") and 67,500 Common Stock Purchase Warrants
(collectively, the Subsequently Issued Warrants" together with
the Initially Issued Warrants, collectively referred to as the
"Warrants") on the Second Funding Date (as defined herein) (the
"Second Tranche"); and
WHEREAS, to induce the Initial Investor to execute and
deliver the Securities Purchase Agreement, the Company has agreed
to provide with respect to the Common Stock issued or issuable in
lieu of cash dividend payments on the Preferred Shares, upon
conversion of the Preferred Shares and exercise of the Warrants
certain registration rights under the Securities Act;
NOW, THEREFORE, in consideration of the premises and
the mutual covenants contained herein, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. Definitions.
(a) As used in this Agreement, the following
terms shall have the following meanings:
<PAGE 1>
(i) "Affiliate", of any specified Person
means any other Person who directly, or indirectly through one or
more intermediaries, is in control of, is controlled by, or is
under common control with, such specified Person. For purposes
of this definition, control of a Person means the power, directly
or indirectly, to direct or cause the direction of the management
and policies of such Person whether by contract, securities,
ownership or otherwise; and the terms "controlling" and
"controlled" have the respective meanings correlative to the
foregoing.
(ii) "Commission" means the Securities and
Exchange Commission.
(iii) "Current Market Price' on any date of
determination means the closing bid price of a share of the
Common Stock on such day as reported on the National Association
of Securities Dealers, Inc. ("NASD") Over the Counter ("OTC")
Bulletin Board System ("BBS", together with NASD and OTC, the
"NASDfBBS"), or, if such security is not listed or admitted to
trading on the NASD/BBS, 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 NASD member firm 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.
(iv) "Exchange Act" means the Securities
Exchange Act of 1934, as amended, and the rules and regulations
of the Commission thereunder, or any similar successor statute.
(v) "Initial Funding Date" means the date
and time of the issuance and sale of the Initially Issued
Preferred Shares and the Initially Issued Warrants in the First
Tranche.
(vi) "Investors" means the Initial Investor
and any transferee or assignee of Registrable Securities who
agrees to become bound by all of the terms and provisions of this
Agreement in accordance with Section 8 hereof.
(vii) "Public Offering" means an offer
registered with the Commission and the appropriate state
securities commissions by the Company of its Common Stock and
made pursuant to the Securities Act.
(viii) "Person" means any individual,
partnership, corporation, limited liability company, joint stock
<PAGE 2> company, association, trust, unincorporated
organization, or a government or agency or political subdivision
thereof.
(ix) "Prospectus" means the prospectus
(including, without limitation, any preliminary prospectus and
any final prospectus filed pursuant to Rule 424(b) under the
Securities Act, including any prospectus that discloses
information previously omitted from a prospectus filed as part of
an effective registration statement in reliance on Rule 430A
under the Securities Act) included in the Registration Statement,
as amended or supplemented by any prospectus supplement with
respect to the terms of the offering of any portion of the
Registrable Securities covered by the Registration Statement and
by all other amendments and supplements to such prospectus,
including all material incorporated by reference in such
prospectus and all documents filed after the date of such
prospectus by the Company under the Exchange Act and incorporated
by reference therein.
(x) "Registrable Securities" means the
Common Stock issued or issuable (i) in lieu of cash dividend
payments on the Preferred Shares (assuming all of the Preferred
Shares included in the First Tranche and the Second Tranche have
been issued and sold), (ii) upon conversion of the Preferred
Shares (assuming all of the Preferred Shares included in the
First Tranche and the Second Tranche have been issued and sold)
or (iii) upon exercise of the Warrants (assuming all of the
Warrants included in the First Tranche and the Second Tranche
have been issued and sold); provided, however, a share of Common
Stock shall cease to be a Registrable Security for purposes of
this Agreement when it no longer is a Restricted Security.
(xi) "Registration Statement" means a
registration statement of the Company filed on an appropriate
form under the Securities Act providing for the registration of,
and the sale on a continuous or delayed basis by the holders of,
all of the Registrable Securities pursuant to Rule 415 under the
Securities Act, including the Prospectus contained therein and
forming a part thereof, any amendments to such registration
statement and supplements to such Prospectus, and all exhibits
and other material incorporated by reference in such registration
statement and Prospectus.
(xii) "Restricted Security" means any share
of Common Stock issued or issuable in lieu of cash dividend
payments on the Preferred Shares, upon conversion of the
Preferred Shares or exercise of the Warrants except any such
share that (i) has been registered pursuant to an effective
registration statement under the Securities Act and sold in a
manner contemplated by the Prospectus included in the
Registration Statement, (ii) has been transferred in compliance
with the resale provisions of Rule 144 under the Securities Act
(or any successor provision thereto) or is transferable pursuant
to paragraph (d) of Rule 144 under the Securities Act (or any
<PAGE 3> successor provision thereto), or (iii) other-,vise has
been transferred and a new share of Common Stock not subject to
transfer restrictions under the Securities Act has been delivered
by or on behalf of the Company.
(xiii) "Second Funding Date" means the date
and time of the issuance and sale of the Subsequently Issued
Preferred Shares and the Subsequently Issued Warrants in the
Second Tranche.
(xiv) "Securities Act" means the Securities
Act of 1933, as amended, and the rules and regulations of the
Commission thereunder, or any similar successor statute.
(b) All capitalized terms used and not defined
herein have the respective meaning assigned to them in the
Securities Purchase Agreement.
2. Registration.
(a) Filing and Effectiveness of Registration
Statement. The Company shall prepare and file with the
Commission not later than sixty (60) days after the Initial
Funding Date, a Registration Statement relating to the offer and
sale of all of the Registrable Securities 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 not later than one hundred and twenty (1 20) days
after the Initial Funding Date, assuming for purposes hereof a
Conversion Price under the Certificate of Amendment of $2.50 per
share. The Company shall not include any other securities in the
Registration Statement relating to the offer and sale of the
Registrable Securities, except for shares of Common Stock issued
or issuable upon exercise of stock options granted under the
Company's 1997 Stock Option Plan, as amended, and 90,000 shares
of Common Stock issued or issuable under Stock Options granted to
Perry and Co. The Company shall notify the Initial Investor by
written notice that such Registration Statement has been declared
effective by the Commission within 24 hours of such declaration
by the Commission.
(b) Registration Default. If the Registration
Statement covering the Registrable Securities or the Additional
Registrable Securities (as defined in Section 2(d) hereof)
required to be filed by the Company pursuant to Section 2(a) or
2(d) hereto as the case may be, is not (i) filed with the
Commission within sixty (60) days after the Initial Funding Date
or (ii) declared effective by the Commission within one hundred
and twenty (120) days after the Initial Funding Date (either of
which, without duplication, an "Initial Date"), then the Company
shall make the payments to the Initial Investor as provided in
the next sentence as liquidated damages and not as a penalty.
The amount to be paid by the Company to the Initial Investor
shall be determined as of each Computation Date (as defined
below), and such amount shall be equal to 2% (the "Liquidated
<PAGE 4> Damage Rate") of the aggregate of the Initial Purchase
Price and the Second Purchase Price (as each such term is defined
in the Securities Purchase Agreement) from the Initial Date to
the first Computation Date and for each Computation Date
thereafter, calculated on a pro rata basis to the date on which
the Registration Statement is filed with (in the event of an
Initial Date pursuant to (c)(i) above) or declared effective by
(in the event of an Initial Date pursuant to (c)(ii) above) the
Commission (the "Periodic Amount") provided, however, that in no
event shall the Liquidated Damages be less than $25,000. The
full Periodic Amount shall be paid by the Company to the Initial
Investor by wire transfer of immediately available funds within
three days after each Computation Date.
As used in this Section 2(b), "Computation Date"
means the date which is 10 days after the Initial Date and, if
the Registration Statement required to be filed by the Company
pursuant to Section 2(a) has not theretofore been declared
effective by the Commission, each date which is 30 days after the
previous Computation Date until such Registration Statement is so
declared effective.
Notwithstanding the above, if the Registration
Statement covering the Registrable Securities or the Additional
Registrable Securities (as defined in Section 2(d) hereof)
required to be filed by the Company pursuant to Section 2(a) or
2(d) hereof, as the case may be, is not filed with the Commission
by the sixtieth (60th) day after the Initial Funding Date, the
Company shall be in default of this Registration Rights
Agreement.
(c) Eligibility for Use of Form S-3. The Company
is not currently eligible to file a Registration Statement on
Form S-3 because it does not meet its minimum financial
requirements. The Company agrees that at such time as it meets
all the requirements for the use of Securities Act Registration
Statement on Form S-2 it shall file all reports and information
required to be filed by it with the Commission in a timely manner
and take all such other action so as to maintain such eligibility
for the use of such form. Until such time as the Company is
eligible to file such Registration Statement on Form S-2 or Form
S-3, the Company agrees that it shall file a Securities Act
Registration Statement on Form SB-2 with the Commission in a
timely manner and take all such other action so as to maintain
such eligibility for the use of such form.
(d) In the event the Current Market Price
declines to $2.50, the Company shall, to the extent required by
the Securities Act (because the additional shares were not
covered by the Registration Statement filed pursuant to
Section 2(a)), as reasonably determined by the Initial Investor,
file an additional Registration Statement with the Commission for
such additional number of Registrable Securities as would be
issuable upon conversion of the Preferred Shares and exercise of
the Warrants (the "Additional Registrable Securities") in
<PAGE 5> addition to those previously registered, assuming a
Conversion Price of $2.00 per share. The Company shall, to the
extent required by the Securities Act, as reasonably determined
by the Initial Investor, prepare and file with the Commission not
later than the 30th day thereafter, a Registration Statement
relating to the offer and sale of such Additional Registrable
Securities 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 not later than 60
days thereafter. The Company shall not include any other
securities in the Registration Statement relating to the offer
and sale of such additional Registrable Securities.
(e) (i) If the Company proposes to register any
of its warrants. Common Stock or any other shares of common
stock of the Company under the Securities Act (other than a
registration (A) on Form S-8 or S-4 or any successor or similar
forms, (B) relating to Common Stock or any other shares of common
stock of the Company issuable upon exercise of employee share
options or in connection with any employee benefit or similar
plan of the Company or (C) in connection with a direct or
indirect acquisition by the Company of another Person or any
transaction with respect to which Rule 145 (or any successor
provision) under the Securities Act applies), whether or not for
sale for its own account, it will each such time, give prompt
written notice at least 20 days prior to the anticipated filing
date of the registration statement relating to such registration
to the Initial Investor, which notice shall set forth such
Initial Investor's rights under this Section 3(e) and shall offer
the Initial Investor the opportunity to include in such
registration statement such number of Registrable Shares as the
Initial Investor may request. Upon the written request of an
Initial Investor made within ten (10) days after the receipt of
notice from the Company (which request shall specify the number
of Registrable Shares intended to be disposed of by such Initial
Investor), the Company will use its best efforts to effect the
registration under the Securities Laws of all Registrable Shares
that the Company has been so requested to register by the Initial
Investor, to the extent requisite to permit the disposition of
the Registrable Shares so to be registered; provided, however,
that (A) if such registration involves a Public Offering, the
Initial Investor must sell their Registrable Shares to the
underwriters selected as provided in Section 3(b) hereof on the
same terms and conditions as apply to the Company and (B) if, at
any time after giving written notice of its intention to register
any Registrable Shares pursuant to this Section 3 and prior to
the effective date of the registration statement filed in
connection with such registration, the Company shall determine
for any reason not to register such Registrable Shares, the
Company shall give written notice to the Initial Investor and,
thereupon, shall be relieved of its obligation to register any
Registrable Shares in connection with such registration. The
Company's obligations under this Section 2(e) shall terminate on
the date that the registration statement to be filed in <PAGE 6>
accordance with Section 2(a) is declared effective by the
Commission.
(ii) If a registration pursuant to this
Section 2(e) involves a Public Offering and the managing
underwriter thereof advises the Company that, in its view, the
number of shares of Common Stock, Warrants or other shares of
Common Stock that the Company and the Initial Investor intend to
include in such registration exceeds the largest number of shares
of Common Stock or Warrants (including any other shares of Common
Stock or Warrants of the Company) that can be sold without having
an adverse effect on such Public Offering (the "Maximum Offering
Size"), the Company will include in such registration, only that
number of shares of Common Stock or Warrants, as applicable, such
that the number of Registrable Shares registered does not exceed
the Maximum Offering Size, with the difference between the number
of shares in the Maximum Offering Size and the number of shares
to be issued by the Company to be allocated (after including all
shares to be issued and sold by the Company) among the Company
and the Initial Investor pro rata on the basis of the relative
number of Registrable Shares offered for sale under such
registration by each of the Company and the Initial Investor.
If as a result of the proration provisions of
this Section 2(e)(ii), any, Initial Investor is not entitled to
include all such Registrable Shares in such registration, such
Initial Investor may elect to withdraw its request to include any
Registrable Shares in such registration. With respect to
registrations pursuant to this Section 2(e), the number of
securities required to satisfy any underwriters' over-allotment
option shall be allocated pro rata among the Company and the
Initial Investor on the basis of the relative number of
securities otherwise to be included by each of them in the
registration with respect to which such over-allotment option
relates.
3. Obligations of the Company. In connection with
the registration of the Registrable Securities, the Company
shall:
(a) Promptly (i) prepare and file with the
Commission such amendments (including post-effective amendments)
to the Registration Statement and supplements to the Prospectus
as may be necessary to keep the Registration Statement
continuously effective and in compliance with the provisions of
the Securities Act applicable thereto so as to permit the
Prospectus forming part thereof to be current and useable by
Investors for resales of the Registrable Securities for a period
of two years from the date on which the Registration Statement is
first declared effective by the Commission (the "Effective Time")
or such shorter period that will terminate when all the
Registrable Securities covered by the Registration Statement have
been sold pursuant thereto in accordance with the plan of
distribution provided in the Prospectus, transferred pursuant to
Rule 144 under the Securities Act or otherwise transferred in a
<PAGE 7> manner that results in the delivery of new securities
not subject to transfer restrictions under the Securities Act
(the "Registration Period") and (ii) take all lawful action such
that each of (A) the Registration Statement and any amendment
thereto does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, not misleading and (B) the Prospectus forming part of
the Registration Statement, and any amendment or supplement
thereto, does not at any time during the Registration Period
include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which
they were made, not misleading. Notwithstanding the foregoing
provisions of this Section 3(a), the Company may, during the
Registration Period, suspend the use of the Prospectus for a
period not to exceed 60 days (whether or not consecutive) in any
12-month period if the Board of Directors of the Company
determines in good faith that because of valid business reasons,
including pending mergers or other business combination
transactions, the planned acquisition or divestiture of assets,
pending material corporate developments and similar events, it is
in the best interests of the Company to suspend such use, and
prior to or contemporaneously with suspending such use the
Company provides the Investors with written notice of such
suspension, which notice need not specify the nature of the event
giving rise to such suspension. At the end of any such
suspension period, the Company shall provide the Investors with
written notice of the termination of such suspension.
(b) During the Registration Period, comply with
the provisions of the Securities Act with respect to the
Registrable Securities of the Company covered by the Registration
Statement until such time as all of such Registrable Securities
have been disposed of in accordance with the intended methods of
disposition by the Investors as set forth in the Prospectus
forming part of the Registration Statement;
(c) (i) Prior to the filing with the Commission
of any Registration Statement (including any amendments thereto)
and the distribution or delivery of any Prospectus (including any
supplements thereto), provide draft copies thereof to the
Investors and reflect in such documents all such comments as the
Investors (and their counsel) reasonably may propose and (ii)
furnish to each Investor whose Registrable Securities are
included in the Registration Statement and its legal counsel
identified to the Company, (A) promptly after the same is
prepared and publicly distributed, filed with the Commission, or
received by the Company, one copy of the Registration Statement,
each Prospectus, and each amendment or supplement thereto, and
(B) such number of copies of the Prospectus and all amendments
and supplements thereto and such other documents, as such
Investor may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such Investor;
<PAGE 8>
(d) (i) Register or qualify the Registrable
Securities covered by the Registration Statement under such
securities or "blue sky" laws of such jurisdictions as the
Investors who hold a majority-in-interest of the Registrable
Securities being offered reasonably request, (ii) prepare and
file in such jurisdictions such amendments (including post-
effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness
thereof at all times during the Registration Period, (iii) take
all such other lawful actions as may be necessary to maintain
such registrations and qualifications in effect at all times
during the Registration Period, and (iv) take all such other
lawful actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided,
however, that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business in
any jurisdiction where it would not otherwise be required to
qualify but for this Section 3(d);
(e) As promptly as practicable after becoming
aware of such event, notify each Investor of the occurrence of
any event, as a result of which the Prospectus included in the
Registration Statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were
made, not misleading, and promptly prepare an amendment to the
Registration Statement and supplement to the Prospectus to
correct such untrue statement or omission, and deliver a number
of copies of such supplement and amendment to each Investor as
such Investor may reasonably request;
(f) As promptly as practicable after becoming
aware of such event, notify each Investor who holds Registrable
Securities being sold (or, in the event of an underwritten
offering, the managing underwriters) of the issuance by the
Commission of any stop order or other suspension of the
effectiveness of the Registration Statement at the earliest
possible time and take all lawful action to effect the
withdrawal, recession or removal of such stop order or other
suspension;
(g) Cause all the Registrable Securities covered
by the Registration Statement to be listed on the principal
national securities exchange, and included in an inter-dealer
quotation system of a registered national securities association,
on or in which securities of the same class or series issued by
the Company are then listed or included;
(h) Maintain a transfer agent and registrar,
which may be a single entity, for the Registrable Securities not
later than the effective date of the Registration Statement;
(i) Cooperate with the Investors who hold
Registrable Securities being offered to facilitate the timely
<PAGE 9> preparation and delivery of certificates for the
Registrable Securities to be offered pursuant to the Registration
Statement and enable such certificates for the Registrable
Securities to be in such denominations or amounts, as the case
may be, as the Investors reasonably may request and registered in
such names as the Investor may request; and, within three
business days after a Registration Statement which includes
Registrable Securities is declared effective by the Commission,
deliver and cause legal counsel selected by the Company to
deliver to the transfer agent for the Registrable Securities
(with copies to the Investors whose Registrable Securities are
included in such Registration Statement) an appropriate
instruction and, to the extent necessary, an opinion of such
counsel;
(j) Take all such other lawful actions reasonably
necessary to expedite and facilitate the disposition by the
Investors of their Registrable Securities in accordance with the
intended methods therefor provided in the Prospectus which are
customary under the circumstances;
(k) Make generally available to its security
holders as soon as practicable, but in any event not later than
three (3) months after (i) the effective date (as defined in Rule
158(c) under the Securities Act) of the Registration Statement,
and (ii) the effective date of each post-effective amendment to
the Registration Statement as the case may be, an earnings
statement of the Company and its subsidiaries complying with
Section 11(a) of the Securities Act and the rules and regulations
of the Commission thereunder (including, at the option of the
Company, Rule 158);
(l) In the event of an underwritten offering,
promptly include or incorporate in a Prospectus supplement or
post-effective amendment to the Registration Statement such
information as the managers reasonably agree should be included
therein and to which the Company does not reasonably object and
make all required filings of such Prospectus supplement or
post-effective amendment as soon as practicable after it is
notified of the matters to be included or incorporated in such
Prospectus supplement or post-effective amendment;
(m) (i) Make reasonably available for inspection
by Investors, any underwriter participating in any disposition
pursuant to the Registration Statement, and any attorney,
accountant or other agent retained by such Investors or any such
underwriter all relevant financial and other records, pertinent
corporate documents and properties of the Company and its
subsidiaries, and (ii) cause the Company's officers, directors
and employees to supply all information reasonably requested by
such Investors or any such underwriter, attorney, accountant or
agent in connection with the Registration Statement, in each
case, as is customary for similar due diligence examinations;
provided, however, that all records, information and documents
that are designated in writing by the Company, in good faith, as
<PAGE 10> confidential, proprietary or containing any material
nonpublic information shall be kept confidential by such
Investors and any such underwriter, attorney, accountant or agent
(pursuant to an appropriate confidentiality agreement in the case
of any such holder or agent), unless such disclosure is made
pursuant to judicial process in a court proceeding (after first
giving the Company an opportunity promptly to seek a protective
order or otherwise limit the scope of the information sought to
be disclosed) or is required by law, or such records, information
or documents become available to the public generally or through
a third party not in violation of an accompanying obligation of
confidentiality; provided, however, that such records,
information and documents shall be used by such person solely for
the purpose of determining that disclosures made in the
Registration Statement are true and correct, and for no other
purpose; and provided further that, if the foregoing inspection
and information gathering would otherwise disrupt the Company's
conduct of its business, such inspection and information
gathering shall, to the maximum extent possible, be coordinated
on behalf of the Investors and the other parties entitled thereto
by one firm of counsel designed by and on behalf of the majority
in interest of Investors and other parties;
(n) In connection with any underwritten offering,
make such representations and warranties to the Investors
participating in such underwritten offering and to the managers,
in form, substance and scope as are customarily made by the
Company to underwriters in secondary underwritten offerings;
(o) In connection with any underwritten offering,
obtain opinions of counsel to the Company (which counsel and
opinions (in form, scope and substance) shall be reasonably
satisfactory to the managers) addressed to the underwriters,
covering such matters as are customarily covered in opinions
requested in secondary underwritten offerings (it being agreed
that the matters to be covered by such opinions shall include,
without limitation, as of the date of the opinion and as of the
Effective Time of the Registration Statement or most recent post-
effective amendment thereto, as the case may be, the absence from
the Registration Statement and the Prospectus, including any
documents incorporated by reference therein, of an untrue
statement of a material fact or the omission of a material fact
required to be stated therein or necessary to make the statements
therein (in the case of the Prospectus, in light of the
circumstances under which they were made) not misleading, subject
to customary limitations);
(p) In connection with any underwritten offering,
obtain "cold comfort" letters and updates thereof from the
independent public accountants of the Company (and, if necessary,
from the independent public accountants of any subsidiary of the
Company or of any business acquired by the Company, in each case
for which financial statements and financial data are, or are
required to be, included in the Registration Statement),
addressed to each underwriter participating in such underwritten
<PAGE 11> offering (if such underwriter has provided such letter,
representations or documentation, if any, required for such cold
comfort letter to be so addressed), in customary form and
covering matters of the type customarily covered in "cold
comfort" letters in connection with secondary underwritten
offerings;
(q) In connection with any underwritten offering,
deliver such documents and certificates as may be reasonably
required by the managers, if any; and
(r) In the event that any broker-dealer
registered under the Exchange Act shall be an "Affiliate" (as
defined in Rule 2729(b)(1) of the rules and regulations of the
National Association of Securities Dealers, Inc. (the "NASD
Rules") (or any successor provision thereto)) of the Company or
has a "conflict of interest" (as defined in Rule 2720(b)(7) of
the NASD Rules (or any successor provision thereto)) and such
broker-dealer shall underwrite, participate as a member of an
underwriting syndicate or selling group or assist in the
distribution of any Registrable Securities covered by the
Registration Statement, whether as a holder of such Registrable
Securities or as an underwriter, a placement or sales agent or a
broker or dealer in respect thereof, or otherwise, the.Company
shall assist such broker-dealer in complying with the
requirements of the NASD Rules, including, without limitation, by
(A) engaging a "qualified independent underwriter" (as defined in
Rule 2720(b)(15) of the NASD Rules (or any successor provision
thereto)) to participate in the preparation of the Registration
Statement relating to such Registrable Securities, to exercise
usual standards of due diligence in respect thereof and to
recommend the public offering price of such Registrable
Securities, (B) indemnifying such qualified independent
underwriter to the extent of the indemnification of underwriters
provided in Section 6(a) hereof, and (C) providing such
information to such broker-dealer as may be required in order for
such broker-dealer to comply with the requirements of the NASD
Rules.
4. Obligations of the Investors. In connection with
the registration of the Registrable Securities, the Investors
shall have the following obligations:
(a) It shall be a condition precedent to the
obligations of the Company to complete the registration pursuant
to this Agreement with respect to the Registrable Securities of a
particular Investor that such Investor shall furnish to the
Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of
the Registrable Securities held by it as shall be reasonably
required to effect the registration of such Registrable
Securities and shall execute such documents in connection with
such registration as the Company may reasonably request. As
least seven days prior to the first anticipated filing date of
the Registration Statement, the Company shall notify each
<PAGE 12> Investor of the information the Company requires from
each such Investor (the "Requested Information") if such Investor
elects to have any of its Registrable Securities included in the
Registration Statement. If at least two business days prior to
the anticipated filing date the Company has not received the
Requested Information from an Investor (a "Non-Responsive
Investor") , then the Company may file the Registration Statement
without including Registrable Securities of such Non-Responsive
Investor and have no further obligations to the Non-Responsive
Investor;
(b) Each Investor by its acceptance of the
Registrable Securities agrees to cooperate with the Company in
connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the
Company in writing of its election to exclude all of its
Registrable Securities from the Registration Statement; and
(c) Each Investor agrees that, upon receipt of
any notice from the Company of the occurrence of any event of the
kind described in Section 3(e) or 3(f), it shall immediately
discontinue its disposition of Registrable Securities pursuant to
the Registration Statement covering such Registrable Securities
until such Investor's receipt of the copies of the supplemented
or amended Prospectus contemplated by Section 3(e) and, if so
directed by the Company, such Investor shall deliver to the
Company (at the expense of the Company) or destroy (and deliver
to the Company a certificate of destruction) all copies in such
Investor's possession, of the Prospectus covering such
Registrable Securities current at the time of receipt of such
notice.
5. Expenses of Registration. All expenses, other
than underwriting discounts and commissions, incurred in
connection with registrations, filings or qualifications pursuant
to Section 3, but including, without limitation, all
registration, listing, and qualifications fees, printing and
engraving fees, accounting fees, and the fees and disbursements
of counsel for the Company, and the reasonable fees of one firm
of counsel to the holders of a majority in interest of the
Registrable Securities shall be borne by the Company.
6. Indemnification and Contribution.
(a) The Company shall indemnify and hold harmless
each Investor and each underwriter, if any, which facilitates the
disposition of Registrable Securities, and each of their
respective officers and directors and each person who controls
such Investor or underwriter within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act (each such
person being sometimes hereinafter referred to as an "Indemnified
Person") from and against any losses, claims, damages or
liabilities, joint or several, to which such Indemnified Person
may become subject under the Securities Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in
<PAGE 13> respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement or an omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, not
misleading, or arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in any
Prospectus or an omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under
which they were made, not misleading; and the Company hereby
agrees to reimburse such Indemnified Person for all reasonable
legal and other expenses incurred by them in connection with
investigating or defending any such action or claim as and when
such expenses are incurred; provided, however, that the Company
shall not be liable to any such Indemnified Person in any such
case to the extent that any such loss, claim, damage or liability
arises out of or is based upon (i) an untrue statement or alleged
untrue statement made in, or an omission or alleged omission
from, such Registration Statement or Prospectus in reliance upon
and in conformity with written information furnished to the
Company by such Indemnified Person expressly for use therein or
(ii) in the case of the occurrence of an event of the type
specified in Section 3(e), the use by the Indemnified Person of
an outdated or defective Prospectus after the Company has
provided to such Indemnified Person an updated Prospectus
correcting the untrue statement or alleged untrue statement or
omission or alleged omission giving rise to such loss, claim,
damage or liability.
(b) Indemnification by the Investors and
Underwriters. Each Investor agrees, as a consequence of the
inclusion of any of its Registrable Securities in a Registration
Statement, and each underwriter, if any, which facilitates the
disposition of Registrable Securities shall agree, as a
consequence of facilitating such disposition of Registrable
Securities, severally and not jointly, to (i) indemnify and hold
harmless the Company, its directors (including any person who,
with his or her consent, is named in the Registration Statement
as a director nominee of the Company), its officers who sign any
Registration Statement and each person, if any, who controls the
Company within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act, against any losses,
claims, damages or liabilities to which the Company or such other
persons may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact
contained in such Registration Statement or Prospectus or arise
out of or are based upon the omission or alleged omission to
state therein a material fact required to be ;Stated therein or
necessary to make the statements therein (in light of the
circumstances under which they were made, in the case of the
Prospectus), not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue
<PAGE 14> statement or omission or alleged omission was made in
reliance upon and in conformity with written information
furnished to the Company by such holder or underwriter expressly
for use therein; provided, however, that no Investor or
underwriter shall be liable under this Section 6(b) for any
amount in excess of the net proceeds paid to such Investor or
underwriter in respect of shares sold by it, and (ii) reimburse
the Company for any legal or other expenses incurred by the
Company in connection with investigating or defending any such
action or claim as such expenses are incurred.
(c) Notice of Claims, etc. Promptly after
receipt by a party seeking indemnification pursuant to this
Section 6 (an "Indemnified Party") of written notice of any
investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "Claim"), the
Indemnified Party promptly shall notify the party against whom
indemnification pursuant to this Section 6 is being sought (the
"Indemnifying Party") of the commencement thereof; but the
omission to so notify the Indemnifying Party shall not relieve it
from any liability that it otherwise may have to the Indemnified
Party, except to the extent that the Indemnifying Party is
materially prejudiced and forfeits substantive rights and
defenses by reason of such failure. In connection with any Claim
as to which both the Indemnifying Party and the Indemnified Party
are parties, the Indemnifying Party shall be entitled to assume
the defense thereof Notwithstanding the assumption of the defense
of any Claim by the Indemnifying Party, the Indemnified Party
shall have the right to employ separate legal counsel and to
participate in the defense of such Claim, and the Indemnifying
Party shall bear the reasonable fees, out-of-pocket costs and
expenses of such separate legal counsel to the Indemnified Party
if (and only if): (x) the Indemnifying Party shall have agreed to
pay such fees, costs and expenses, (y) the Indemnified Party and
the Indemnifying Party shall reasonably have concluded that
representation of the Indemnified Party by the Indemnifying Party
by the same legal counsel would not be appropriate due to actual
or, as reasonably determined by legal counsel to the Indemnified
Party, potentially differing interests between such parties in
the conduct of the defense of such Claim, or if there may be
legal defenses available to the Indemnified Party that are in
addition to or disparate from those available to the Indemnifying
Party, or (z) the Indemnifying Party shall have failed to employ
legal counsel reasonably satisfactory to the Indemnified Party
within a reasonable period of time after notice of the
commencement of such Claim. If the Indemnified Party employs
separate legal counsel in circumstances other than as described
in clauses (x) , (y) or (z) above, the fees, costs and expenses
of such legal counsel shall be borne exclusively by the
Indemnified Party. Except as provided above, the Indemnifying
Party shall not, in connection with any Claim in the same
jurisdiction, be liable for the fees and expenses of more than
one firm of counsel for the Indemnified Party (together with
appropriate local counsel). The Indemnifying Party shall not,
without the prior written consent of the Indemnifying Party
<PAGE 15> (which consent shall not unreasonably be withheld),
settle or compromise any Claim or consent to the entry of any
judgment that does not include an unconditional release of the
Indemnifying Party from all liabilities with respect to such
Claim or judgment.
(d) Contribution. If the indemnification
provided for in this Section 6 is unavailable to or insufficient
to hold harmless an Indemnified Person under subsection (a) or
(b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein,
then each Indemnifying Party shall contribute to the amount paid
or payable by such Indemnified Party as a result of such losses,
claims, damages or liabilities (or actions in respect thereof) in
such proportion as is appropriate to reflect the relative fault
of the Indemnifying Party and the Indemnified Party in connection
with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof),
as well as any other relevant equitable considerations. The
relative fault of such Indemnifying Party and Indemnified Party
shall be determined by reference to, among other things, Whether
the untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to
information supplied by such Indemnified Party or by such
Indemnified Party, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such
statement or omission. The parties hereto agree that it would
not be just and equitable if contribution pursuant to this
Section 6(d) were determined by pro rata allocation (even if the
Investors or any underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to in this
Section 6 (d) . The amount paid or payable by an Indemnified
Party as a result of the losses, claims, damages or liabilities
(or actions in respect thereof) referred to above shall be deemed
to include any legal or other fees or expenses reasonably
incurred by such indemnified party in connection with
investigating or defending any such action or claim. No person
guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such
fraudulent misrepresentation. The obligations of the Investors
and any underwriters in this Section 6(d) to contribute shall be
several in proportion to the percentage of Registrable Securities
registered or underwritten, as the case may be, by them and not
joint.
(e) Notwithstanding any other provision of this
Section 6, in no event shall any (i) Investor be required to
undertake liability to any person under this Section 6 for any
amounts in excess of the dollar amount of the proceeds to be
received by such Investor from the sale of such Investor's
Registrable Securities (after deducting any fees, discounts and
commissions applicable thereto) pursuant to any Registration
Statement under which such Registrable Securities are to be
<PAGE 16> registered under the Securities Act and
(ii) underwriter be required to undertake liability to any Person
hereunder for any amounts in excess of the aggregate discount,
commission or other compensation payable to such underwriter with
respect to the Registrable Securities underwritten by it and
distributed pursuant to the Registration Statement.
(f) The obligations of the Company under this
Section 6 shall be in addition to any liability which the Company
may otherwise have to any Indemnified Person and the obligations
of any Indemnified Person under this Section 6 shall be in
addition to any liability which such Indemnified Person may
otherwise have to the Company. The remedies provided in this
Section 6 are not exclusive and shall not limit any rights or
remedies which may otherwise be available to an indemnified party
at law or in equity.
7. Rule 144. With a view to making available to the
Investors the benefits of Rule 144 under the Securities Act or
any other similar rule or regulation of the Commission that may
at any time permit the Investors to sell securities of the
Company to the public without registration ("Rule 144"), the
Company agrees to use its best efforts to:
(a) comply with the provisions of
paragraph (c)(1) of Rule 144; and
all reports and other documents required to be filed by the
Company pursuant to Section 13 or 15(d) under the Exchange Act;
and, if at any time it is not required to file such reports but
in the past had been required to or did file such reports, it
will, upon the request of any Holder, make available other
information as required by, and so long as necessary to permit
sales of, its Registrable Securities pursuant to Rule 144.
8. Assignment. The rights to have the Company
register Registrable Securities pursuant to this Agreement shall
be automatically assigned by the Investors to any permitted
transferee of all or any portion of such securities (or all or
any portion of any Preferred Shares or Warrant of the Company
which is convertible into such securities) of Registrable
Securities only if. (a) the Investor agrees in writing with the
transferee or assignee to assign such rights, and a copy of such
agreement is furnished to the Company within a reasonable time
after such assignment, (b) the Company is, within a reasonable
time after such transfer or assignment, furnished with written
notice of (i) the name and address of such transferee or assignee
and (ii) the securities with respect to which such registration
rights are being transferred or assigned, (c) immediately
following such transfer or assignment, the securities so
transferred or assigned to the transferee or assignee constitute
Restricted Securities, and (d) at or before the time the Company
received the written notice contemplated by clause (b) of this
<PAGE 17> sentence the transferee or assignee agrees in writing
with the Company to be bound by all of the provisions contained
herein.
9. Amendment and Waiver. Any provision of this
Agreement may be amended and the observance thereof may be waived
(either generally or in a particular instance and either
retroactively or prospectively) , only with the written consent
of the Company and Investors who hold a majority-in-interest of
the Registrable Securities. Any amendment or waiver effected in
accordance with this Section 9 shall be binding upon each
Investor and the Company.
10. Miscellaneous.
(a) A person or entity shall be deemed to be a
holder of Registrable Securities whenever such person or entity
owns of record such Registrable Securities. If the Company
receives conflicting instructions, notices or elections from two
or more persons or entities with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such
Registrable Securities.
(b) If, after the date hereof and prior to the
Commission declaring the Registration Statement to be filed
pursuant to Section 2(a) effective under the Securities Act, the
Company grants to any Person any registration rights with respect
to any Company securities which are more favorable to such other
Person than those provided in this Agreement, then the Company
forthwith shall grant (by means of an amendment to this Agreement
or otherwise) identical registration rights to all Investors
hereunder.
(c) 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 <PAGE 18>
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 Initial Investor, 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
(3) if to any other Investor, at such
address as such Investor shall have
provided in writing to the Company.
The Company, the Initial Investor or any Investor may change the
foregoing address by notice given pursuant to this Section 10(c).
(d) Failure of any party to exercise any right or
remedy under this Agreement or otherwise, or delay by a party in
exercising such right or remedy, shall not operate as a waiver
thereof
(e) This Agreement shall be governed by and
interpreted in accordance with the laws of the State of New York.
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
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.
(f) The remedies provided in this Agreement are
cumulative and not exclusive of any remedies provided by law. If
any term, provision, covenant or restriction of this Agreement is
held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provision,
covenants and restrictions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or
invalidated, and the parties hereto shall use their best efforts
<PAGE 19> to find and employ an alternative means to achieve the
same or substantially the same result as that contemplated by
such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that
they would have executed the remaining terms, provisions,
covenants and restrictions without including any of such that may
be hereafter declared invalid, illegal, void or unenforceable.
(g) The Company shall not enter into any
agreement with respect to its securities that is inconsistent
with the rights granted to the holders of Registrable Securities
in this Agreement or otherwise conflicts with the provisions
hereof. The Company is not currently a party to any agreement
granting any registration rights with respect to any of its
securities to any person which conflicts with the Company's
obligations hereunder or gives any other party the right to
include any securities in any Registration Statement filed
pursuant hereto, except for such rights and conflicts as have
been irrevocably waived, and except for the Company's agreement
with Perry and Co. to register the underlying Common Stock with
respect to 90,000 stock options granted to Perry and Co. Without
limiting the generality of the foregoing, without the written
consent of the Holders of a majority in interest of the
Registrable Securities, the Company shall not grant to any person
the right to request it to register any of its securities under
the Securities Act unless the rights so granted are subject in
all respect to the prior rights of the holders of Registrable
Securities set forth herein, and are not otherwise in conflict or
inconsistent with the provisions of this Agreement. The
restrictions on the Company's rights to grant registration rights
under this paragraph shall terminate on the date the Registration
Statement to be filed pursuant to Section 2(a) is declared
effective by the Commission.
(h) This Agreement, the Securities Purchase
Agreement, the Escrow Instructions, dated as of the date hereof
(the "Escrow Instructions"), between the Company, the Initial
Investor and Herrick, Feinstein LLP, the Preferred Shares and the
Warrants constitute the entire agreement among the parties hereto
with respect to the subject matter hereof. There are no
restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein. This Agreement, the
Securities Purchase Agreement, the Escrow Instructions, the
Certificate of Amendment and the Warrants supersede all prior
agreements and undertakings among the parties hereto with respect
to the subject matter hereof.
(i) Subject to the requirements of Section 8
hereof, this Agreement shall inure to the benefit of and be
binding upon the successors and assigns of each of the parties
hereto.
(j) All pronouns and any variations thereof refer
to the masculine, feminine or neuter, singular or plural, as the
context may require. <PAGE 20>
(k) The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise
affect the meaning thereof.
(l) The Company acknowledges that any failure by
the Company to perform its obligations under Section 3, or any
delay in such performance could result in direct damages to the
Investors and the Company agrees that, in addition to any other
liability the Company may have by reason of any such failure or
delay, the Company shall be liable for all direct damages caused
by such failure or delay.
(m) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all
of which shall constitute one and the same agreement. A
facsimile transmission of this signed Agreement shall be legal
and binding on all parties hereto.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties have caused this
Agreement to be duty executed and delivered as of the date first
above written.
DYNAMICWEB ENTERPRISES, INC.
By_________________________________
Name: Steven L. Vanechanos, Jr.
Title: Chief Executive Officer
THE SHAAR FUND LTD.
By: INTERCARIBBEAN SERVICES, LTD.
By____________________________
Name:
Title:
PAGE 21
<PAGE>
IN WITNESS WHEREOF, the parties have caused this
Agreement to be duly executed and delivered as of the date first
above written.
DYNAMICWEB ENTERPRISES, INC.
By /s/Steven L. Vanechanos, Jr.
Name: Steven L. Vanechanos, Jr.
Title: Chief Executive Officer
THE SHAAR FUND LTD.
By: INTERCARIBBEAN SERVICES. LTD.
By /s/ Samuel Levinson
Name: Samuel Levinson
<PAGE 22>
EXHIBIT 10.28
4/02/98
Steve Vanechanos, Jr.
DynamicWeb Enterprises, Inc.
271 Route 46 West
Building F, Suite 209
Fairfield, NJ 07004
Dear Steve:
This letter confirms the terms of the agreement between
DynamicWeb Enterprises, Inc. ("DWEB") and Perry & Co. ("Perry").
1. Engagement. The company has agreed to engage Perry as
an independent contractor and consultant to provide investor
relation services to the DWEB, and Perry has agreed to provide
these services to DWEB, subject to the terms and conditions
described in this letter.
2. Term. The initial term of the engagement is for a
period of one year from the date of this letter. This agreement
may be renewed at the end of the initial term, and at the end of
any subsequent renewal term, for successive three-month periods,
but only upon written notice by DWEB to Perry that it desire to
continue the engagement. Both parties acknowledge that the
parties' judgment of the quality of services provided by Perry
will be subjective, and that DWEB therefore has the absolute
right to determine its satisfaction with these services.
Accordingly, there is no obligation, implied or otherwise, of
DWEB to renew this agreement for successive terms.
3. Services. Perry will provide ongoing research coverage
(while retaining the ultimate and unhampered right to determine
whether to pronounce DWEB a buy, sell or otherwise in its
published reports), update reports, corporate profiles/postcards,
coverage announcements for news wires, free access to proprietary
investor databases, free access to proprietary broker databases
and consultation on securing nonproprietary investor and broker
databases. Perry will also be available to provide counseling on
style and content of investor relations material (DWEB will be
responsible for ascertaining that said material meets all
jurisdictional and regulatory requirements prior to public
distribution) database management, lead generation and lead
distribution and report distribution.
Perry will additionally provide DWEB with a premium position
(first page, standard-sized "Watch List" banner) on the website,
the Internet Stock Review, while operating, at no additional
cost. <PAGE 1>
Perry additionally will distribute (or notify the
availability of) to the subscribers of the Internet Stock Review
Online newsletter, Press Releases and/or Corporate Profiles
created by AV Newswire. AV Newswire creates audio and video
enhanced corporate press releases, corporate announcements and
product/service announcements. DWEB would have to contract
separately with AV Newswire for the production of any such
enhanced services.
4. Costs. DWEB will be responsible for all printing and
distribution, press release and/or advertising costs recommended
by Perry and pre-approved and prepaid by DWEB. DWEB will also be
responsible for all travel related costs incurred by Perry when
providing its services as determined by Perry and pre-approved
and prepaid by DWEB.
5. Compensation for Services. DWEB will pay Perry a fee
of $2,500 per month, payable monthly, in advance. In addition,
DWEB will grant to Perry options to purchase 45,000 shares of
DWEB and grant to Joel Arberman) ("Arberman") options to purchase
45,000 shares of DWEB at a price of $5.50 per share. The options
granted to Perry and Arberman will enable Perry and Arberman to
purchase such shares at any time commencing from time of
engagement at the above-stated price and up until _____ years
from the date of engagement. The options will enable Perry and
Arberman to purchase freely-traded shares (free of restrictive
legend) of DWEB.
Perry and DWEB agree that this compensation is a
nonrefundable payment for engagement of services. If DWEB
decides to terminate this agreement prior to end of the initial
term, no refund will be forthcoming to DWEB or be payable by
Perry.
6. Additional Obligations of Perry. Perry agrees that, in
connection with its investor relation services to DWEB, it will
abide by the following conditions:
(a) Perry will not release any financial or other
material information about DWEB without prior written consent and
approval of DWEB.
(b) Perry will not conduct any meetings with financial
analysts without informing the DWEB in writing in advance of the
proposed meeting.
(c) Perry will not release any information or data
about DWEB to any selected person(s), entity(s) and/or group(s)
if Perry is aware that such information or data has not been or
is not concurrently or generally disclosed by the company.
(d) After notice by DWEB of filing for a proposed
public offering of securities, and during any period of
restriction on publicity, Perry shall not engage in any public
<PAGE 2> relations efforts not in the normal course of business
without the prior written approval of legal counsel for DWEB.
(e) Perry will indemnify DWEB from all claims,
liability, costs or other expenses (including reasonable
attorneys' fees) incurred by DWEB as a result of any inaccurate
information concerning DWEB released by Perry, unless such
information was provided to Perry by DWEB, or as a result of any
breach by Perry of any of the terms and conditions of this
agreement.
7. Additional Obligations of the Company. DWEB agrees
that, in connection with this agreement, it will indemnify Perry
from all claims, liability, costs or other expenses (including
reasonable attorneys' fees) incurred by Perry as a result of any
inaccurate information concerning Perry provided by DWEB or any
of its officers or directors to Perry, or as a result of any
breach by DWEB of any of the terms and conditions of this
agreement. If, in DWEB's judgment, any material non-public
information concerning DWEB cannot be revealed, DWEB will advise
Perry that a quiet period is in effect. DWEB will not conduct
any unsolicited email campaigns without Perry's specific written
consent for any such campaign.
8. Independent Contractor. Perry is an independent
contractor responsible for compensation of its agents, employees
and representatives, as well as all applicable withholding and
taxes (including unemployment compensation) and all workers'
compensation insurance.
9. Assignment. The rights and obligations of each party
to this agreement may not be assigned without the prior written
consent of the other party.
10. Entire Agreement. This letter agreement between DWEB
and Perry contains the entire agreement between them. This
agreement may not be modified or extended except in writing and
signed by DWEB and Perry.
11. Arbitration and Waiver of Jury Trial. ANY DISPUTE
BASED UPON OR ARISING OUT OF THIS LETTER AGREEMENT SHALL BE
SUBJECT TO BINDING ARBITRATION TO BE HELD IN LOS ANGELES COUNTY,
CALIFORNIA BEFORE A RETIRED CALIFORNIA SUPERIOR COURT JUDGE.
JUDGMENT ON THE ARBITRATOR'S AWARD SHALL BE FINAL AND BINDING,
AND MAY BE ENTERED IN ANY COMPETENT COURT. AS A PRACTICAL
MATTER, BY AGREEING TO ARBITRATE ALL PARTIES ARE WAIVING JURY
TRIAL.
12. Attorneys' Fees. The prevailing party in any
arbitration or litigation arising out of or relating to this
letter agreement shall be entitled to recover all attorneys' fees
and all costs (whether or not such costs are recoverable pursuant
to California Code of Civil Procedure) as may be incurred in
connection with either obtaining or collecting any judgment
<PAGE 3> and/or arbitration award, in addition to any other
relief to which that party may be entitled.
Please sign this letter agreement in the space provided
below to indicate your agreement with the terms stated in this
letter.
Sincerely,
By /s/ Roland R. Perry
Roland R. Perry
President, Perry & Co.
AGREED AND ACCEPTED:
DynamicWeb Enterprises, Inc.
By /s/ Steve Vanechanos, Jr.
Steve Vanechanos, Jr.
Chief Executive Officer <PAGE 4>
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 (Form S-2) and related prospectus of
DynamicWeb Enterprises, Inc. for the registration of
1,039,872 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
November 13, 1998
EXHIBIT 3.1.10
CERTIFICATE OF
AMENDMENT TO THE
CERTIFICATE OF INCORPORATION
OF
DYNAMICWEB ENTERPRISES, INC.
Pursuant to the provision of N.J.S.A. 14:7-2, the
undersigned corporation, for the purpose of amending its
Certificate of Incorporation, hereby certifies as follows:
(a) The name of the "Corporation" is DynamicWeb
Enterprises, Inc.
(b) Article Sixth of the Corporation's Certificate of
Incorporation is hereby amended by adding the
terms of Series A 6% Convertible Preferred Stock
set forth in the resolution duly adopted by the
Corporation's Board of Directors which is attached
hereto as Exhibit A and made part hereof.
(c) The resolution was adopted by the Board of
Directors at a special meeting of the Board of
Directors on August 6, 1998.
(d) The Certificate of Incorporation is amended so
that the designation and number of shares of each
class and series acted upon in the resolution, and
the relative rights, preferences and limitations
of each such class and series, are stated in the
resolution.
IN TESTIMONY WHEREOF, the Corporation has caused this
Certificate of Amendment to the Certificate of Incorporation to
be executed by a duly authorized officer as of the 6th day of
August, 1998.
DYNAMICWEB ENTERPRISES, INC.
By: /s/ Steve Vanechanos, Jr.
Steve Vanechanos, Jr.
Chairman and Chief Executive
Officer
PAGE 1
<PAGE>
EXHIBIT A
TERMS OF
SERIES A 6% CONVERTIBLE PREFERRED STOCK
OF
DYNAMICWEB ENTERPRISES, INC.
RESOLVED, that pursuant to the authority granted to and
vested in the Board of Directors of this Corporation (the "Board
of Directors" or the "Board") in accordance with the provisions
of its Certificate of Incorporation, the Board of Directors
hereby authorizes a series of the Corporation's previously
authorized Preferred Stock, no par value (the "Preferred Stock"),
and hereby states the designation and number of shares, and fixes
the relative rights, preferences, privileges, powers and
restrictions thereof as follows (it being acknowledged and agreed
that the following terms of the Series A 6% Convertible Preferred
Stock may not be amended, rescinded or modified in any way
without the consent of all of the holders of the Series A 6%
Convertible Preferred Stock then outstanding):
Series A 6% Convertible Preferred Stock:
ARTICLE 1
DEFINITIONS
SECTION 1.1 Definitions. The terms defined in this
Article whenever used in this Certificate of Amendment have the
following respective meanings:
(a) "Additional Capital Shares" has the meaning
set forth in Section 6.1(c).
(b) "Affiliate" has the meaning ascribed to such
term in Rule 12b-2 under the Securities Exchange Act of 1934, as
amended.
(c) "Business Day" means a day other than
Saturday, Sunday or any day on which banks located in the State
of New York are authorized or obligated to close.
(d) "Capital Shares" means the Common Shares and
any other shares of any other class or series of common stock,
whether now or hereafter authorized and however designated, which
have the right to participate in the distribution of earnings and
assets (upon dissolution, liquidation or winding-up) of the
Corporation.
(e) "Closing Date" means August 7, 1998.
(f) "Common Shares" or "Common Stock" means
shares of common stock, $0.0001 par value, of the Corporation.
<PAGE 2>
(g) "Common Stock Issued at Conversion" when used
with reference to the securities issuable upon conversion of the
Series A Preferred Stock, means all Common Shares now or
hereafter Outstanding and securities of any other class or series
into which the Series A Preferred Stock hereafter shall have been
changed or substituted, whether now or hereafter created and
however designated.
(h) "Conversion Date" means any day on which all
or any portion of shares of the Series A Preferred Stock is
converted in accordance with the provisions hereof.
(i) "Conversion Notice" has the meaning set forth
in Section 6.2.
(j) "Conversion Price" means on any date of
determination the applicable price for the conversion of shares
of Series A Preferred Stock into Common Shares on such day as set
forth in Section 6.1.
(k) "Conversion Ratio" means on any date of
determination the applicable percentage of the Market Price for
conversion of shares of Series A Preferred Stock into Common
Shares on such day as set forth in Section 6.1.
(l) "Corporation" means DYNAMICWEB ENTERPRISES,
INC., a New Jersey corporation, and any successor or resulting
corporation by way of merger, consolidation, sale or exchange of
all or substantially all of the Corporation's assets, or
otherwise.
(m) "Current Market Price" means on any date of
determination the closing bid price of a Common Share on such day
as reported on the National Association of Securities Dealers,
Inc. ("NASD") Over the Counter ("OTC") Bulletin Board System
("BBS, and together with NASD and OTC, the "NASD/BBS").
(n) "Default Dividend Rate" shall be equal to the
Preferred Stock Dividend Rate plus an additional 6% per annum.
(o) "Holder" means The Shaar Fund Ltd., any
successor thereto, or any Person to whom the Series A Preferred
Stock is subsequently transferred in accordance with the
provisions hereof.
(p) "Market Disruption Event" means any event
that results in a material suspension or limitation of trading of
Common Shares on the NASD/BBS.
(q) "Market Price" per Common Share means the
arithmetic mean of the three (3) lowest closing bid prices of the
Common Shares as reported on the NASD/BBS for three (3) Trading
Days in any Valuation Period, it being understood that such three
(3) Trading Days during any Valuation Period need not be
consecutive. <PAGE 3>
(r) "Outstanding" when used with reference to
Common Shares or Capital Shares (collectively, "Shares"), means,
on any date of determination, all issued and outstanding Shares,
and includes all such Shares issuable in respect of outstanding
scrip or any certificates representing fractional interests in
such Shares; provided, however, that any such Shares directly or
indirectly owned or held by or for the account of the Corporation
or any Subsidiary of the Corporation shall not be deemed
"Outstanding" for purposes hereof.
(s) "Person" means an individual, a corporation,
partnership, an association, a limited liability company,
unincorporated business organization, a trust or other entity or
organization, and any government or political subdivision or any
agency or instrumentality thereof.
(t) "Registration Rights Agreement" means that
certain Registration Rights Agreement dated a date even herewith
between the Corporation and The Shaar Fund Ltd.
(u) "SEC" means the United States Securities and
Exchange Commission.
(v) "Securities Act" means the Securities Act of
1933, as amended, and the rules and regulations of the SEC
thereunder, all as in effect at the time.
(w) "Securities Purchase Agreement" means that
certain Securities Purchase Agreement dated a date even herewith
between the Corporation and The Shaar Fund Ltd.
(x) "Series A Preferred Stock" means the Series A
6% Convertible Preferred Stock of the Corporation or such other
convertible Preferred Stock exchanged therefor as provided in
Section 2.1.
(y) "Stated Value" has the meaning set forth in
Article 2.
(z) "Subsidiary" means any entity of which
securities or other ownership interests having ordinary voting
power to elect a majority of the board of directors or other
persons performing similar functions are owned directly or
indirectly by the Corporation.
(aa) "Trading Day" means any day on which
purchases and sales of securities authorized for quotation on the
NASD/BBS are reported thereon and on which no Market Disruption
Event has occurred.
(ab) "Valuation Event" has the meaning set forth
in Section 6.1.
(ac) "Valuation Period" means the twenty (20)
Trading Day period immediately preceding the Conversion Date.
<PAGE 4>
All references to "cash" or "$" herein means currency
of the United States of America.
ARTICLE 2
DESIGNATION AND AMOUNT
The designation of this series, which consists of
1,550 shares of Preferred Stock, is Series A 6% Convertible
Preferred Stock (the "Series A Preferred Stock") and the stated
value shall be One Thousand Dollars ($1,000) per share (the
"Stated Value").
ARTICLE 3
BANK
SECTION 3.1
The Series A Preferred Stock shall rank (i) prior to
the Common Stock; (ii) prior to any class or series of capital
stock of the Corporation hereafter created other than "Pari Passu
Securities" (collectively, with the Common Stock, "Junior
Securities"); and (iii) pari passu with any class or series of
capital stock of the Corporation hereafter created specifically
ranking on parity with the Series A Preferred Stock ("Pari Passu
Securities").
ARTICLE 4
DIVIDENDS
SECTION 4.1
(a) (i) The Holder shall be entitled to receive,
and the Board of Directors shall be required to declare, out of
funds legally available for the payment of dividends, dividends
(subject to Sections 4(a)(ii) hereof) at the rate of 6% per annum
(computed on the basis of a 360-day year) (the "Dividend Rate")
on the Liquidation Value (as defined below) of each share of
Series A Preferred Stock on and as of the most recent Dividend
Payment Due Date (as defined below) with respect to each Dividend
Period (as defined below). Dividends on the Series A Preferred
Stock shall be cumulative from the date of issue, whether or not
declared for any reason, including if such declaration is
prohibited under any outstanding indebtedness or borrowings of
the Corporation or any of its Subsidiaries, or any other
contractual provision binding on the Corporation or any of its
Subsidiaries, and whether or not there shall be funds legally
available for the payment thereof.
(ii) Each dividend shall be payable in equal
quarterly amounts on each March 31, June 30, September 30 and
December 31 of each year (each, a "Dividend Payment Due Date"),
<PAGE 5> commencing September 30, 1998, to the holders of record
of shares of the Series A Preferred Stock, as they appear on the
stock records of the Corporation at the close of business on any
record date, not more than 60 days or less than 10 days preceding
the payment dates thereof, as shall be fixed by the Board of
Directors. For the purposes hereof, "Dividend Period" means the
quarterly period commending on and including the day after the
immediately preceding Dividend Payment Date and ending on and
including the immediately subsequent Dividend Payment Date.
Accrued and unpaid dividends for any past Dividend Period may be
declared and paid at any time, without reference to any Dividend
Payment Due Date, to holders of record on such date, not more
than 15 days preceding the payment date thereof, as may be fixed
by the Board of Directors.
(iii) At the option of the Corporation, the
dividend shall be paid in cash or through the issuance of duly
and validly authorized and issued, fully paid and nonassessable,
freely tradeable shares of the Common Stock valued at the Market
Price. The Common Stock to be issued in lieu of cash payments
shall be registered for resale in the Registration Statement (as
defined in the Registration Rights Agreement) to be filed by the
Corporation to register the Common Stock issuable upon conversion
of the shares of Series A Preferred Stock and exercise of the
Warrants as set forth in the Registration Rights Agreement.
Notwithstanding the foregoing, until such Registration Statement
(as defined in the Registration Rights Agreement) has been
declared effective under the Securities Act by the SEC, payment
of dividends on the Series A Preferred Stock shall be in cash.
(b) The Holder shall not be entitled to any
dividends in excess of the cumulative dividends, as herein
provided, on the Series A Preferred Stock. Except as provided in
this Article 4, no interest, or sum of money in lieu of interest,
shall be payable in respect of any dividend payment or payments
on the Series A Preferred Stock that may be in arrears.
(c) So long as any shares of the Series A
Preferred Stock are outstanding, no dividends, except as
described in the next succeeding sentence, shall be declared or
paid or set apart for payment on Pari Passu Securities for any
period unless full cumulative dividends required to be paid in
cash have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart
for such payment on the Series A Preferred Stock for all Dividend
Periods terminating on or prior to the date of payment of the
dividend on such class or series of Pari Passu Securities. When
dividends are not paid in full or a sum sufficient for such
payment is not set apart, as aforesaid, all dividends declared
upon shares of the Series A Preferred Stock and all dividends
declared upon any other class or series of Pari Passu Securities
shall be declared ratably in proportion to the respective amounts
of dividends accumulated and unpaid on the Series A Preferred
Stock and accumulated and unpaid on such Pari Passu Securities.
<PAGE 6>
(d) So long as any shares of the Series A
Preferred Stock are outstanding, no dividends shall be declared
or paid or set apart for payment or other distribution declared
or made upon Junior Securities, nor shall any Junior Securities
be redeemed, purchased or otherwise acquired (other than a
redemption, purchase or other acquisition of shares of Common
Stock made for purposes of an employee incentive or benefit plan
(including a stock option plan) of the Corporation or any
subsidiary, (all such dividends, distributions, redemptions or
purchases being hereinafter referred to as a "Junior Securities
Distribution") for any consideration (or any moneys be paid to or
made available for a sinking fund for the redemption of any
shares of any such stock) by the Corporation, directly or
indirectly, unless in each case (i) the full cumulative dividends
required to be paid in cash on all outstanding shares of the
Series A Preferred Stock and any other Pari Passu Securities
shall have been paid or set apart for payment for all past
Dividend Periods with respect to the Series A Preferred Stock and
all past dividend periods with respect to such Pari Passu
Securities, and (ii) sufficient funds shall have been paid or set
apart for the payment of the dividend for the current Dividend
Period with respect to the Series A Preferred Stock and the
current dividend period with respect to such Pari Passu
Securities.
ARTICLE 5
LIQUIDATION PREFERENCE
SECTION 5.1
(a) If the Corporation shall commence a voluntary
case under the Federal bankruptcy laws or any other applicable
Federal or State bankruptcy, insolvency or similar law, or
consent to the entry of an order for relief in an involuntary
case under any law or to the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part
of its property, or make an assignment for the benefit of its
creditors, or admit in writing its inability to pay its debts
generally as they become due, or if a decree or order for relief
in respect of the Corporation shall be entered by a court having
jurisdiction in the premises in an involuntary case under the
Federal bankruptcy laws or any other applicable Federal or state
bankruptcy, insolvency or similar law resulting in the
appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the
Corporation or of any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and any
such decree or order shall be unstayed and in effect for a period
of thirty (30) consecutive days and, on account of any such
event, the Corporation shall liquidate, dissolve or wind up, or
if the Corporation shall otherwise liquidate, dissolve or wind up
(each such event being considered a "Liquidation Event"), no
distribution shall be made to the holders of any shares of
capital stock of the Corporation upon liquidation, dissolution or
<PAGE 7> winding up unless prior thereto, the holders of shares
of Series A Preferred Stock, subject to Article 5, shall have
received the Liquidation Preference (as defined in Article 5(c))
with respect to each share. If upon the occurrence of a
Liquidation Event, the assets and funds available for
distribution among the holders of the Series A Preferred Stock
and holders of Pari Passu Securities shall be insufficient to
permit the payment to such holders of the preferential amounts
payable thereon, then the entire assets and funds of the
Corporation legally available for distribution to the Series A
Preferred Stock and the Pari Passu Securities shall be
distributed ratably among such shares in proportion to the ratio
that the Liquidation Preference payable on each such share bears
to the aggregate liquidation Preference payable on all such
shares.
(b) At the option of each Holder, the sale,
conveyance of disposition of all or substantially all of the
assets of the Corporation, the effectuation by the Corporation of
a transaction or series of related transactions in which more
than 50% of the voting power of the Corporation is disposed of,
or the consolidation, merger or other business combination of the
Corporation with or into any other Person (as defined below) or
Persons when the Corporation is not the survivor shall either:
(i) be deemed to be a liquidation, dissolution or winding up of
the Corporation pursuant to which the Corporation shall be
required to distribute, upon consummation of and as a condition
to, such transaction an amount equal to one hundred percent
(100%) of the Liquidation Preference with respect to each
outstanding share of Series A Preferred Stock in accordance with
and subject to the terms of this Article 5 or (ii) be treated
pursuant to Article 5(c)(iii) hereof; provided, that all holders
of Series A Preferred Stock shall be deemed to elect the option
set forth in clause (i) hereof if at least a majority in interest
of such holders elect such option.
(c) For purposes hereof, the "Liquidation
Preference" with respect to a share of the Series A Preferred
Stock shall mean an amount equal to the sum of (i) the Stated
Value thereof, plus (ii) an amount equal to thirty percent (30%)
of such Stated Value, plus (iii) the aggregate of all accrued and
unpaid dividends on such share of Series A Preferred Stock until
the most recent Dividend Payment Due Date; provided that, in the
event of an actual liquidation, dissolution or winding up of the
Corporation, the amount referred to in clause (iii) above shall
be calculated by including accrued and unpaid dividends to the
actual date of such liquidation, dissolution or winding up,
rather than the Dividend Payment Due Date referred to above.
ARTICLE 6
CONVERSION OF PREFERRED STOCK
SECTION 6.1 Conversion; Conversion Price. At the
option of the Holder, the shares of Preferred Stock may be
converted, either in whole or in part, into Common Shares
<PAGE 8> (calculated as to each such conversion to the nearest
1/100th of a share), at any time, and from time to time following
the date of issuance of the Series A Preferred Stock (the "Issue
Date") at a Conversion Price per share of Common Stock equal to
the lesser of: (i) ____________, or (ii) 85% of the Market
Price; provided that any unconverted Series A Preferred Stock
remaining one hundred and eighty (180) days after the Closing
Date may be converted, at the sole option of the Holder, at a
Conversion Price per share of Common Stock equal to 80% of the
Market Price, provided, further, that any unconverted Series A
Preferred Stock remaining three hundred and sixty (360) days
after the Closing Date may be converted, at the sole option of
the Holder, at a Conversion Price per share of Common Stock equal
to 78% of the Market Price; provided, however, that the Holder
shall not have the right to convert any portion of the Series A
Preferred Stock to the extent that the issuance to the Holder of
Common Shares upon such conversion would result in the Holder
being deemed the "beneficial owner" of 5% or more of the then
outstanding Common Shares within the meaning of Rule 13d-3 of the
Securities Exchange Act of 1934, as amended. At the
Corporation's option, the amount of accrued and unpaid dividends
as of the Conversion Date shall not be subject to conversion but
instead may be paid in cash as of the Conversion Date; if the
Corporation elects to convert the amount of accrued and unpaid
dividends at the Conversion Date into Common Stock, the Common
Stock issued to the Holder shall be valued at the Conversion
Price. Notwithstanding the previous sentence, in no event shall
the Holder have the right to convert that portion of the Series A
Preferred Stock to the extent that the issuance of Common Shares
upon the conversion of such Series A Preferred Stock, when
combined with shares of Common Stock received upon other
conversions of Series A Preferred Stock by such Holder and any
other holders of Series A Preferred Stock, would exceed 19.99% of
the Common Stock outstanding on the Closing Date. Within ten
(10) Business Days after the receipt of the Conversion Notice
which upon conversion would, when combined with shares of Common
Stock received upon other conversions of Series A Preferred Stock
by such Holder and any other holders of Series A Preferred Stock
and Warrants, exceed 19.99% of the Common Stock outstanding on
the Closing Date, the Corporation shall redeem all remaining
outstanding shares of Series A Preferred Stock at one hundred and
twenty-five percent (125%) of the Stated Value thereof, together
with all accrued and unpaid dividends thereon, in cash, to the
date of redemption.
The Holder of the Series A Preferred Stock may exercise
its right of conversion of such shares as follows: (i) 33-1/3%
of the aggregate number of Series A Preferred Shares issued to
the Holder from sixty (60) days after the Closing Date;
(ii) 66-2/3% of the aggregate number of Series A Preferred Shares
issued to the Holder from ninety (90) days after the Closing
Date; and (iii) thereafter, 100% of the aggregate number of
Series A Preferred Shares issued to the Holder from one hundred
and twenty (120) days after the Closing Date.
<PAGE 9>
The number of shares of Common Stock due upon
conversion of Series A Preferred Stock shall be (i) the number of
shares of Series A Preferred Stock to be converted, multiplied by
(ii) the Stated Value and divided by (iii) the applicable
Conversion Price.
Within two (2) Business Days of the occurrence of a
Valuation Event, the Corporation shall send notice (the
"Valuation Event Notice") of such occurrence to the Holder.
Notwithstanding anything to the contrary contained herein, if a
Valuation Event occurs during any Valuation Period, a new
Valuation Period shall begin on the Trading Day immediately
following the occurrence of such Valuation Event and end on the
Conversion Date; provided that, if a Valuation Event occurs on
the fifth day of any Valuation Period, then the Conversion Price
shall be the Current Market Price of the Common Shares on such
day; and provided, further, that the Holder may, in its
discretion, postpone such Conversion Date to a Trading Day which
is no more than five (5) Trading Days after the occurrence of the
latest Valuation Event by delivering a notification to the
Corporation within two (2) Business Days of the receipt of the
Valuation Event Notice. In the event that the Holder deems the
Valuation Period to be other than the five (5) Trading Days
immediately prior to the Conversion Date, the Holder shall give
written notice of such fact to the Corporation in the related
Conversion Notice at the time of conversion.
For purposes of this Section 6.1, a "Valuation Event" shall mean
an event in which the Corporation at any time during a Valuation
Period takes any of the following actions:
(a) subdivides or combines its Capital Shares;
(b) makes any distribution of its Capital Shares;
(c) issues any additional Capital Shares (the
"Additional Capital Shares"), otherwise than as provided in the
foregoing Sections 6.1(a) and 6.1(b) above, at a price per share
less, or for other consideration lower, than the Current Market
Price in effect immediately prior to such issuances, or without
consideration, except for issuances under employee benefit plans
consistent with those presently in effect and issuances under
presently outstanding warrants, options or convertible
securities;
(d) issues any warrants, options or other rights
to subscribe for or purchase any Additional Capital Shares and
the price per share for which Additional Capital Shares may at
any time thereafter be issuable pursuant to such warrants,
options or other rights shall be less than the Current Market
Price in effect immediately prior to such issuance;
(e) issues any securities convertible into or
exchangeable or exercisable for Capital Shares and the
consideration per share for which Additional Capital Shares may
<PAGE 10> at any time thereafter be issuable pursuant to the
terms of such convertible, exchangeable or exercisable securities
shall be less than the Current Market Price in effect immediately
prior to such issuance;
(f) makes a distribution of its assets or
evidences of indebtedness to the holders of its Capital Shares as
a dividend in liquidation or by way of return of capital or other
than as a dividend payable out of earnings or surplus legally
available for the payment of dividends under applicable law or
any distribution to such holders made in respect of the sale of
all or substantially all of the Corporation's assets (other than
under the circumstances provided for in the foregoing
Sections 6.1(a) through 6.1(e)); or
(g) takes any action affecting the number of
Outstanding Capital Shares, other than an action described in any
of the foregoing Sections 6.1(a) through 6.1(f) hereof,
inclusive, which in the opinion of the Corporation's Board of
Directors, determined in good faith, would have a material
adverse effect upon the rights of the Holder at the time of a
conversion of the Preferred Stock.
SECTION 6.2 Exercise of Conversion Privilege.
(a) Conversion of the Series A Preferred Stock
may be exercised, in whole or in part, by the Holder by
telecopying an executed and completed notice of conversion in the
form annexed hereto as Annex I (the "Conversion Notice") to the
Corporation. Each date on which a Conversion Notice is
telecopied to and received by the Corporation in accordance with
the provisions of this Section 6.2 shall constitute a Conversion
Date. The Corporation shall convert the Preferred Stock and
issue the Common Stock Issued at Conversion effective as of the
Conversion Date. The Conversion Notice also shall state the name
or names (with addresses) of the persons who are to become the
holders of the Common Stock Issued at Conversion in connection
with such conversion. The Holder shall deliver the shares of
Series A Preferred Stock to the Corporation by express courier
within 30 days following the date on which the telecopied
Conversion Notice has been transmitted to the Corporation. Upon
surrender for conversion, the Preferred Stock shall be
accompanied by a proper assignment hereof to the Corporation or
be endorsed in blank. As promptly as practicable after the
receipt of the Conversion Notice as aforesaid, but in any event
not more than seven (7) Business Days after the Corporation's
receipt of such Conversion Notice, the Corporation shall
(i) issue the Common Stock issued at Conversion in accordance
with the provisions of this Article 6, and (ii) cause to be
mailed for delivery by overnight courier to the Holder (X) a
certificate or certificate(s) representing the number of Common
Shares to which the Holder is entitled by virtue of such
conversion, (Y) cash, as provided in Section 6.3, in respect of
any fraction of a Share issuable upon such conversion and
(Z) cash in the amount of accrued and unpaid dividends as of the
<PAGE 11> Conversion Date. Such conversion shall be deemed to
have been effected at the time at which the Conversion Notice
indicates so long as the Preferred Stock shall have been
surrendered as aforesaid at such time, and at such time the
rights of the Holder of the Preferred Stock, as such, shall cease
and the Person and Persons in whose name or names the Common
Stock Issued at Conversion shall be issuable shall be deemed to
have become the holder or holders of record of the Common Shares
represented thereby. The Conversion Notice shall constitute a
contract between the Holder and the Corporation, whereby the
Holder shall be deemed to subscribe for the number of Common
Shares which it will be entitled to receive upon such conversion
and, in payment and satisfaction of such subscription (and for
any cash adjustment to which it is entitled pursuant to
Section 6.4), to surrender the Preferred Stock and to release the
Corporation from all liability thereon. No cash payment
aggregating less than $1.00 shall be required to be given unless
specifically requested by the Holder.
(b) If, at any time (i) the Corporation
challenges, disputes or denies the right of the Holder hereof to
effect the conversion of the Preferred Stock into Common Shares
or otherwise dishonors or rejects any Conversion Notice delivered
in accordance with this Section 6.2 or (ii) any third party who
is not and has never been an Affiliate of the Holder commences
any lawsuit or proceeding or otherwise asserts any claim before
any court or public or governmental authority which seeks to
challenge, deny, enjoin, limit, modify, delay or dispute the
right of the Holder hereof to effect the conversion of the
Preferred Stock into Common Shares, then the Holder shall have
the right, by written notice to the Corporation, to require the
Corporation to promptly redeem the Series A Preferred Stock for
cash at a redemption price equal to one hundred and twenty
percent (120%) of the Stated Value thereof together with all
accrued and unpaid dividends thereon (the "Mandatory Purchase
Amount"). Under any of the circumstances set forth above, the
Corporation shall be responsible for the payment of all costs and
expenses of the Holder, including reasonable legal fees and
expenses, as and when incurred in disputing any such action or
pursuing its rights hereunder (in addition to any other rights of
the Holder).
SECTION 6.3 Fractional Shares. No fractional Common
Shares or scrip representing fractional Common Shares shall be
issued upon conversion of the Series A Preferred Stock. Instead
of any fractional Common Shares which otherwise would be issuable
upon conversion of the Series A Preferred Stock, the Corporation
shall pay a cash adjustment in respect of such fraction in an
amount equal to the same fraction. No cash payment of less than
$1.00 shall be required to be given unless specifically requested
by the Holder.
SECTION 6.4 Reclassification, Consolidation, Merger or
Mandatory Share Exchange. At any time while the Series A
Preferred Stock remains outstanding and any shares thereof has
<PAGE 12> not been converted, in case of any reclassification or
change of Outstanding Common Shares issuable upon conversion of
the Series A Preferred Stock (other than a change in par value,
or from par value to no par value per share, or from no par value
per share to par value or as a result of a subdivision or
combination of outstanding securities issuable upon conversion of
the Series A Preferred Stock) or in case of any consolidation,
merger or mandatory share exchange of the Corporation with or
into another corporation (other dm a merger or mandatory share
exchange with another corporation in which the Corporation is a
continuing corporation and which does not result in any
reclassification or change, other than a change in par value, or
from par value to no par value per share, or from no par value
per share to par value, or as a result of a subdivision or
combination of Outstanding Common Shares upon conversion of the
Series A Preferred Stock), or in the case of any sale or transfer
to another corporation of the property of the Corporation as an
entirety or substantially as an entirety, the Corporation, or
such successor, resulting or purchasing corporation, as the case
may be, shall, without payment of any additional consideration
therefor, execute a new Series A Preferred Stock providing that
the Holder shall have the right to convert such new Series A
Preferred Stock (upon terms and conditions not less favorable to
the Holder than those in effect pursuant to the Series A
Preferred Stock) and to receive upon such exercise, in lieu of
each Common Share theretofore issuable upon conversion of the
Series A Preferred Stock, the kind and amount of shares of stock,
other securities, money or property receivable upon such
reclassification, change, consolidation, merger, mandatory share
exchange, sale or transfer by the holder of one Common Share
issuable upon conversion of the Series A Preferred Stock had the
Series A Preferred Stock been converted immediately prior to such
reclassification, change, consolidation, merger, mandatory share
exchange or sale or transfer. The provisions of this Section 6.4
shall similarly apply to successive reclassifications, changes,
consolidations, mergers, mandatory share exchanges and sales and
transfers.
SECTION 6.5 Adjustments to Conversion Ratio. For so
long as any shares of the Series A Preferred Stock are
outstanding, if the Corporation (i) issues and sells pursuant to
an exemption from registration under the Securities Act
(A) Common Shares at a purchase price on the date of issuance
thereof that is lower than the Conversion Price, (B) warrants or
options with an exercise price representing a percentage of the
Current Market Price with an exercise price on the date of
issuance of the warrants or options that is lower than the agreed
upon exercise price for the Holder, except for employee stock
option agreements or stock incentive agreements of the
Corporation, or (C) convertible, exchangeable or exercisable
securities with a right to exchange at lower than the Current
Market Price on the date of issuance or conversion, as
applicable, of such convertible, exchangeable or exercisable
securities, except for stock option agreements or stock incentive
agreements; and (ii) grants the right to the purchaser(s) thereof
<PAGE 13> to demand that the Corporation register under the
Securities Act such Common Shares issued or the Common Shares for
which such warrants or options may be exercised or such
convertible, exchangeable or exercisable securities may be
converted, exercised or exchanged, then the Conversion Ratio
shall be reduced to equal the lowest of any such lower rates.
SECTION 6.6 Optional Redemption Under Certain
Circumstances. At anytime after the date of issuance of the
Series A Preferred Stock until the Mandatory Conversion Date (as
defined below), the Corporation, upon notice delivered to the
Holder as provided in Section 6.7, may redeem, in cash, the
Series A Preferred Stock (but only with respect to such shares as
to which the Holder has not theretofore furnished a Conversion
Notice in compliance with Section 6.2), at one hundred and
fifteen (115%) of the Stated Value thereof (the "Optional
Redemption Price"), together with all accrued and unpaid
dividends thereon to the date of redemption (the "Redemption
Date").
SECTION 6.7 Notice of Redemption. Notice of
redemption pursuant to Section 6.6 shall be provided by the
Corporation to the Holder in writing (by registered mail or
overnight courier at the Holder's last address appearing in the
Corporation's security registry) not less than ten (10) nor more
than fifteen (15) days prior to the Redemption Date, which notice
shall specify the Redemption Date and refer to Section 6.6
(including, a statement of the Market Price per Common Share) and
this Section 6.7.
SECTION 6.8 Surrender of Preferred Stock. Upon any
redemption of the Series A Preferred Stock pursuant to
Sections 6.6 or 6.7, the Holder shall either deliver the Series A
Preferred Stock by hand to the Corporation at its principal
executive offices or surrender the same to the Corporation at
such address by express courier. Payment of the optional
Redemption Price specified in Section 6.6 shall be made by the
Corporation to the Holder against receipt of the Series A
Preferred Stock (as provided in this Section 6.8) by wire
transfer of immediately available funds to such account(s) as the
Holder shall specify to the Corporation. If payment of such
redemption price is not made in full by the Mandatory Redemption
Date or the Redemption Date, as the case may be, the Holder shall
again have the right to convert the Series A Preferred Stock as
provided in Article 6 hereof.
SECTION 6.9 Mandatory Conversion. On the second
anniversary of the date of this Agreement (the "Mandatory
Conversion Date"), the Corporation shall convert all Series A
Preferred Stock outstanding at the Conversion Price.
Notwithstanding the previous sentence, in no event shall the
Corporation convert that portion of the Series A Preferred Stock
to the extent that the issuance of Common Shares upon the
conversion of such Series A Preferred Stock, when combined with
shares of Common Stock received upon other conversions of
<PAGE 14> Series A Preferred Stock by such Holder and any other
holders of Series A Preferred Stock and Warrants, would exceed
19.99% of the Common Stock outstanding on the Closing Date.
Within ten (10) Business Days after the Mandatory Conversion
Date, the Corporation shall redeem all remaining outstanding
Series A Preferred Stock at one hundred and thirty-five percent
(135%) of the Stated Value thereof, together with all accrued and
unpaid dividends thereon, in cash, to the date of redemption.
ARTICLE 7
VOTING RIGHTS
The holders of the Series A Preferred Stock have no
voting power, except as otherwise provided by the New Jersey
Business Corporation Law ("NJBCL"), in this Article 7, and in
Article 8 below.
Notwithstanding the above, the Corporation shall
provide each holder of Series A Preferred Stock with prior
notification of any meeting of the shareholders (and copies of
proxy materials and other information sent to shareholders). In
the event of any taking by the Corporation of a record of its
shareholders for the purpose of determining shareholders who are
entitled to receive payment of any dividend or other
distribution, any right to subscribe for, purchase or otherwise
acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities
or property, or to receive any other right, or for the purpose of
determining shareholders who are entitled to vote in connection
with any proposed liquidation, dissolution or winding up of the
Corporation, the Corporation shall mail a notice to each holder,
at least thirty (30) days prior to the consummation of the
transaction or event, whichever is earlier), of the date on which
any such acting is to be taken for the purpose of such dividend,
distribution, right or other event, and a brief statement
regarding the amount and character of such dividend,
distribution, right or other event to the extent known at such
time.
To the extent that under the NJBCL the vote of the
holders of the Series A Preferred Stock, voting separately as a
class or series as applicable, is required to authorize a given
action of the Corporation, the affirmative vote or consent of the
holders of at least a majority of the shares of the Series A
Preferred Stock represented at a duly held meeting at which a
quorum is present or by written consent of a majority of the
shares of Series A Preferred Stock (except as otherwise may be
required under the NJBCL) shall constitute the approval of such
action by the class. To the extent that under the NJBCL holders
of the Series A Preferred Stock are entitled to vote on a matter
with holders of Common Stock, voting together as one class, each
share of Series A Preferred Stock shall be entitled to a number
of votes equal to the number of shares of Common Stock into which
it is then convertible using the record date for the taking of
such vote of shareholders as the date as of which the Conversion
<PAGE 15> Price is calculated. Holders of the Series A Preferred
Stock shall be entitled to notice of all shareholder meetings or
written consents (and copies of proxy materials and other
information sent to shareholders) with respect to which they
would be entitled to vote, which notice would be provided
pursuant to the Corporation's bylaws and the NJBCL.
ARTICLE 8
PROTECTIVE PROVISIONS
So long as shares of Series A Preferred Stock are
outstanding, the Corporation shall not, without first obtaining
the approval (by vote or written consent, as provided by the
NJBCL) of the holders of at least a majority of the then
outstanding shares of Series A Preferred Stock:
(a) alter or change the rights, preferences or
privileges of the Series A Preferred Stock;
(b) create any new class or series of capital
stock having a preference over the Series A Preferred Stock as to
distribution of assets upon liquidation, dissolution or winding
up of the Corporation ("Senior Securities") or alter or change
the rights, preferences or privileges of any Senior Securities so
as to affect adversely the Series A Preferred Stock;
(c) increase the authorized number of shares of
Series A Preferred Stock; or
(d) do any act or thing not authorized or
contemplated by this Certificate of Amendment which would result
in taxation of the holders of shares of the Series A Preferred
Stock under Section 305 of the Internal Revenue Code of 1986, as
amended (or any comparable provision of the Internal Revenue Code
as hereafter from time to time amended).
In the event holders of at least a majority of the
then outstanding shares of Series A Preferred Stock agree to
allow the Corporation to alter or change the rights, preferences
or privileges of the shares of Series A Preferred Stock, pursuant
to subsection (a) above, so as to affect the Series A Preferred
Stock, then the Corporation will deliver notice of such approved
change to the holders of the Series A Preferred Stock that did
not agree to such alteration or change (the "Dissenting Holders")
and Dissenting Holders shall have the right for a period of
thirty (30) days to convert pursuant to the terms of this
Certificate of Amendment as they exist prior to such alteration
or change or continue to hold their shares of Series A Preferred
Stock.
<PAGE 16>
ARTICLE 9
MISCELLANEOUS
SECTION 9.1 Loss, Theft, Destruction of Preferred
Stock. Upon receipt of evidence satisfactory to the Corporation
of the loss, theft, destruction or mutilation of shares of
Series A Preferred Stock and, in the case of any such loss, theft
or destruction, upon receipt of indemnity or security reasonably
satisfactory to the Corporation, or, in the case of any such
mutilation, upon surrender and cancellation of the Series A
Preferred Stock, the Corporation shall make, issue and deliver,
in lieu of such lost, stolen, destroyed or mutilated shares of
Series A Preferred Stock, new shares of Series A Preferred Stock
of like tenor. The Series A Preferred Stock shall be held and
owned upon the express condition that the provisions of this
Section 9.1 are exclusive with respect to the replacement of
mutilated, destroyed, lost or stolen shares of Series A Preferred
Stock and shall preclude any and all other rights and remedies
notwithstanding any law or statute existing or hereafter enacted
to the contrary with respect to the replacement of negotiable
instruments or other securities without the surrender thereof.
SECTION 9.2 Who Deemed Absolute Owner. The
Corporation may deem the Person in whose name the Series A
Preferred Stock shall be registered upon the registry books of
the Corporation to be, and may treat it as, the absolute owner of
the Series A Preferred Stock for the purpose of receiving payment
of dividends on the Series A Preferred Stock, for the conversion
of the Series A Preferred Stock and for all other purposes, and
the Corporation shall not be affected by any notice to the
contrary. All such payments and such conversion shall be valid
and effectual to satisfy and discharge the liability upon the
Series A Preferred Stock to the extent of the sum or sums so paid
or the conversion so made.
SECTION 9.3 Notice of Certain Events. In the case of
the occurrence of any event described in Sections 6.1, 6.6 or 6.7
of this Certificate of Amendment, the Corporation shall cause to
be mailed to the Holder of the Series A Preferred Stock at its
last address as it appears in the Corporation's security
registry, at least twenty (20) days prior to the applicable
record, effective or expiration date hereinafter specified (or,
if such twenty (20) days notice is not possible, at the earliest
possible date prior to any such record, effective or expiration
date), a notice stating (x) the date on which a record is to be
taken for the purpose of such dividend, distribution, issuance or
granting of rights, options or warrants, or if a record is not to
be taken, the date as of which the holders of record of Series A
Preferred Stock to be entitled to such dividend, distribution,
issuance or granting of rights, options or warrants are to be
determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation
or winding-up is expected to become effective, and the date as of
which it is expected that holders of record of Series A Preferred
<PAGE 17> Stock will be entitled to exchange their shares for
securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale transfer,
dissolution, liquidation or winding-up.
SECTION 9.4 Register. The Corporation shall keep at
its principal office a register in which the Corporation shall
provide for the registration of the Series A Preferred Stock.
Upon any transfer of the Series A Preferred Stock in accordance
with the provisions hereof, the Corporation shall register such
transfer on the Series A Preferred Stock register.
The Corporation may deem the person in whose name the
Series A Preferred Stock shall be registered upon the registry
books of the Corporation to be, and may treat it as, the absolute
owner of the Series A Preferred Stock for the purpose of
receiving payment of dividends on the Series A Preferred Stock,
for the conversion of the Series A Preferred Stock and for all
other purposes, and the Corporation shall not be affected by any
notice to the contrary. All such payments and such conversions
shall be valid and effective to satisfy and discharge the
liability upon the Series A Preferred Stock to the extent of the
sum or sums so paid or the conversion or conversions so made.
SECTION 9.5 Withholding. To the extent required by
applicable law, the Corporation may withhold amounts for or on
account of any taxes imposed or levied by or on behalf of any
taxing authority in the United States having jurisdiction over
the Corporation from any payments made pursuant to the Series A
Prefer-red Stock.
SECTION 9.6 Headings. The headings of the Articles and
Sections of this Certificate of Amendment are inserted for
convenience only and do not constitute a part of this Certificate
of Amendment.
PAGE 18
<PAGE>
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PAGE 19
<PAGE>
ANNEX I
FORM OF CONVERSION NOTICE
TO: _________________________
_________________________
_________________________
The undersigned owner of this Series A 6% Convertible
Preferred Stock (the "Series A Preferred Stock") issued by
DynamicWeb Enterprises, Inc. (the "Corporation") hereby
irrevocably exercises its option to convert shares of the
Series A Preferred Stock into _________ shares of the common
stock, $0.0001 par value, of the Corporation ("Common Stock"), in
accordance with the terms of the Certificate of Amendment. The
undersigned hereby instructs the Corporation to convert the
number of shares of the Series A Preferred Stock specified above
int Shares of Common Stock Issued at Conversion in accordance
with the provisions of Article 6 of the Certificate of Amendment.
The undersigned directs that the Common Stock issuable and
certificates therefor deliverable upon conversion, the Series A
Preferred Stock recertificated, if any, not being surrendered for
conversion hereby, together with any check in payment for
fractional Common Stock, be issued in the name of and delivered
to the undersigned unless a different name has been indicated
below. All capitalized terms used and not defined herein have
the respective meanings assigned to them in the Certificate of
Amendment.
Dated:________________________
______________________________
Signature
Fill in for registration of Series A Preferred Stock:
Please print name and address (including zip code number):
_________________________________________________________________
_________________________________________________________________
<PAGE 20>
EXHIBIT 5.1
November 16, 1998
Board of Directors
DynamicWeb Enterprises, Inc.
71 Route 46 West
Building F, Suite 209
Fairfield, New Jersey 07004
Re: Registration Statement on Form S-2 (SEC File No. 333-35579)
Gentlemen:
In connection with the proposed offering by DynamicWeb
Enterprises, Inc. (the "Company") of up to 1,039,872 shares of
the Company's common stock, par value $.0001 per share (the
"Common Stock"), covered by the Company's Registration Statement
on Form S-2 (the "Registration Statement") which was filed on the
date of this letter, we, as counsel to the Company, have
reviewed:
1. the Articles of Incorporation of the Company;
2. the Bylaws of the Company;
3. the minute books of the Company;
4. a Corporate Good Standing Certificate, dated
November 13, 1998, issued by the Secretary of the State
of New Jersey, with respect to the Company; and
5. the Registration Statement.
Based upon our review of such documents, it is our opinion
that:
1. The Company has been duly incorporated under the laws
for the State of New Jersey and is validly existing and
in good standing under the laws of such State.
2. The 1,039,872 shares of Common Stock covered by the
Registration Statement have been duly authorized and,
when issued and sold for cash pursuant to the terms
described in the Registration Statement, will be
legally issued by the Company and fully paid and
nonassessable.
We consent to the filing of this opinion as an exhibit to
the Registration Statement, and to the reference to us under the
heading "Legal Matters" in the Related Prospectus. In giving
this consent, we do not thereby admit that we come within the
category of persons whose consent is required under Section 7 of
<PAGE 1> the Securities Act of 1933, as amended, or the Rules and
Regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
STEVENS & LEE
/s/ Stephen F. Ritner
Stephen F. Ritner <PAGE 2>
