As filed with the Securities and Exchange Commission on
May 20, 1999
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) 276-3100
(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) 276-3100
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Stephen F. Ritner, Esquire Ira R. Halperin, Esquire
Scott H. Spencer, Esquire Weil, Gotshal & Manges LLP
Stevens & Lee 767 Fifth Avenue
One Glenhardie Corporate Center New York, New York 10153
1275 Drummers Lane (212) 310-8383
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.
<PAGE 1>
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(2) 238,295 $7.16 $ 1,706,192 $ 503.32
_________________________________________________________________
Common Stock 1,519,230 $7.16 $10,877,687 $3,208.91
issuable upon
conversion of
convertible
preferred stock(3)
_________________________________________________________________
Common Stock 162,500 $6.00 $ 975,000 $ 287.62
issuable upon
exercise of
warrants(4)
_________________________________________________________________
<PAGE 2>
Common Stock 135,000 $8.93 $1,205,550 $ 355.64
issuable upon
exercise of
warrants(5)
_________________________________________________________________
Common Stock 45,000 $5.50 $ 247,500 $ 73.01
issuable upon
exercise of
options of
Perry & Co.(6)
_________________________________________________________________
Common Stock 45,000 $5.50 $247,500 $ 73.01
issuable upon
exercise of
options of
Joel Arberman(6)
=================================================================
(1) Estimated pursuant to Rule 457(a) solely for purposes of
calculating the Registration Fee.
(2) Calculated pursuant to Rule 457(c), using the average of the
bid and asked prices on May 17, 1999, solely for the purpose
of calculating the Registration Fee.
(3) Calculated pursuant to Rule 457(g)(3), using the average of
the bid and asked prices on May 17, 1999, solely for the
purpose of calculating the Registration Fee.
(4) Calculated pursuant to Rule 457(g)(1) using a fixed exercise
price of $6.00 per share for the Common Stock, solely for
the purpose of calculating the Registration Fee.
(5) Calculated pursuant to Rule 457(g)(1) using a fixed exercise
price of $8.93 per share for the Common Stock, solely for
the purpose of calculating the Registration Fee.
(6) Calculated pursuant to Rule 457(g)(1) using a fixed exercise
price of $5.50 per share for the Common Stock, solely for
the purposes of calculating the Registration Fee.
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall become
effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
=================================================================
PAGE 3
<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 Where You Can Find More
Information About
DynamicWeb Enterprises,
Inc.
3 Summary Information and Risk 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 Shareholders
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 Where You Can Find More
Registrant Information About
DynamicWeb Enterprises,
Inc.
12 Incorporation of Certain Where You Can Find More
Information by Reference Information About
DynamicWeb Enterprises,
Inc.
13 Disclosure of Commission Disclosure of Commission
Position on Indemnification Position on
for Securities Act Indemnification for
Liabilities Securities Act
Liabilities
<PAGE>
Prospectus
2,145,025 shares of
DynamicWeb Enterprises, Inc.
common stock
Offering Price: The shares will be offered for sale at market
prices from time to time.
Selling Shareholders: The shares are being offered by several
shareholders of DynamicWeb who are named on page 7, not by
DynamicWeb itself. The several selling shareholders are acting
individually, not as a group.
Trading Market: DynamicWeb's common stock is traded on the
National Association of Securities Dealers, Inc. Over-the-Counter
Bulletin Board under the symbol "DWEB."
Proceeds: DynamicWeb will not receive any of the proceeds from
sales made by the selling shareholders.
There are risks associated with the purchase of these
shares. An investor should carefully read the Risk Factors
section of this prospectus located at Page 1.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of the
prospectus. Any representation to the contrary is a criminal
offense.
The date of this prospectus is May __, 1999.
<PAGE>
TABLE OF CONTENTS
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . .1
Selling Shareholders . . . . . . . . . . . . . . . . . . . . . .7
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . 13
Description of Securities to be Registered . . . . . . . . . . 14
Where You Can Find More Information
About DynamicWeb Enterprises, Inc. . . . . . . . . . . . 15
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . 17
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Disclosure of Commission Position on
Indemnification for Securities Act Liabilities . . . . 18
Financial Statements . . . . . . . . . . . . . . . . . . . . .F-1
<PAGE>
Risk Factors
The purchase of our common stock is very risky. You
should not invest any money you cannot afford to lose. Before
you buy our stock, you should carefully read this entire
prospectus. We have highlighted for you what we think are the
major risks which could most affect our business. There are
certainly other risks that could affect our business.
We Anticipate We Will Incur Continued Losses For The
Foreseeable Future
To date, we have not been profitable. We expect to
lose substantial amounts of money in the near future. We have
intentionally increased our expenses substantially, and will
continue to do so, by hiring more employees and spending more
money to develop and market our products. Presently we have cash
flow deficiencies of approximately $200,000 per month. We cannot
give any assurances that our increased expenditures will result
in sufficient increases in sales to make us profitable.
If We Do Not Raise Additional Capital We May Go Out Of
Business
Because we are losing money in our operations, unless
we raise a significant amount of new capital we will run out of
money. We anticipate that our resources on hand will last until
approximately November 1999. We expect that we will need to
raise substantial additional capital in order to continue
operations after that date.
There is no assurance that we will be able to raise new
capital. If we are not able to raise additional funding in a
timely manner, we may have to scale back our operations or
possibly cease operations. If we sell more common stock, the
interests of existing investors in DynamicWeb may be diluted,
meaning that their percentage ownership will be reduced.
Our Auditors Have Questioned Our Viability But Our Financial
Statements Have Not Been Adjusted To Reflect That Concern
Our auditors' opinion on our financial statements as of
September 30, 1998, calls attention to substantial doubts as to
the ability of DynamicWeb to continue as a going concern. This
means that they question whether we can continue in business. If
we cannot continue in business, our common stockholders would
likely lose their entire investment. Our financial statements
are prepared on the assumption that we will continue in business.
They do not contain any adjustments to reflect the uncertainty
over our continuing in business.
Our Products Are So New That We Cannot Be Sure That Customers
Will Want Them <PAGE 1>
In general, electronic commerce products and services
are new. DynamicWeb's particular products and services are very
new. These products and services may never gain enough
acceptance for us to make a profit selling them.
At this time, there is limited use of electronic
commerce products. As with any new product, its acceptance by
customers is unpredictable. Companies have used other
traditional means of doing business for many years. It is
difficult to convince companies to adopt new technology. We need
to convince a large number of industries that using electronic
commerce means is the best way for them to conduct business. We
may not be successful in doing so.
Concerns About The Security And Reliability Of The Internet
May Negatively Affect Our Business
We have based our particular business strategy on the
development of the Internet. The Internet has a number of
specific problems that are of concern to our business. The main
ones are the security of information, access to and the
reliability of connections, and the speed of information
transmission. If these problems are not overcome, fewer people
will be attracted to our services.
Our Market Is Characterized By Rapid Technological Change
Which We May Not Be Able To Keep Up With
Technological changes in the computer software industry
happen rapidly. If we do not respond to those changes quickly
and efficiently, we will not be a competitive company in the
industry. We face a significant danger because we presently only
have four groups of products to sell and they all provide
essentially one service.
Our Stock Has Been A Penny Stock Which Is More Difficult To
Sell
Our common stock recently has been a "penny stock." It
is relatively difficult for an investor to sell shares of a penny
stock.
Any stock which falls below $5.00 per share selling
price in the public market is called a penny stock. Our common
stock traded below $5.00 per share throughout the last six months
of 1998, and near or under $5,00 during much of 1999. It is much
more difficult to sell a penny stock than other shares that trade
on a national market or stock exchange because of the extra steps
the broker\dealer must take before selling the stock. A sale of
penny stock does not usually take place as quickly as a sale of
shares that trade on a national market or stock exchange.
Because of the difficulty in dealing in penny stocks, many
broker\dealers are unwilling to participate in buying and selling
our shares. <PAGE 2>
A penny stock is subject to special rules issued by the
Securities and Exchange Commission that regulate how an investor
can purchase the shares. These rules are designed to protect
investors from gambling on cheap stocks in hopes of picking the
occasional big winner. Although there are exceptions to the
rules for certain institutional or high net worth individuals,
usually, the broker\dealer must take the following steps:
- determine the suitability of the purchase for the
particular investor;
- provide a first time investor in penny stock with a
document disclosing the risks of investing in this type of stock;
and
- have the purchase approved by a compliance officer of
the brokerage firm.
Because of the time required to comply with these
requirements it could become difficult for you to sell an
investment in DynamicWeb if our stock is subject to the penny
stock rules. You may want to sell your shares of DynamicWeb at a
time when you can show a profit, however by the time a sale of
your shares is approved, the stock price may have declined to the
point where you will have a loss on your investment.
There Is A Small Market For Our Common Stock Which Makes It
More Difficult To Sell
It may be difficult for an investor to sell shares of
our common stock, since there is only a small market for our
common stock.
Our common stock has not been traded actively. The
investment community has not shown a great deal of interest in
our shares. Simply, there have been relatively few buyers and
sellers of our stock.
Although we have recently agreed to have our shares
marketed over the Internet, this has not resulted in a
significant change in the number of shares being traded.
Because we are not traded on a national exchange, the
quotation for the price of our stock is difficult for an investor
to obtain without professional help. Out stock quote is
generally not found in daily newspaper quotations.
One Of Our Investors Can Acquire Substantial Amounts Of Our
Stock At Below Market Prices Which Negatively Affects Our Other
Shareholders
The Shaar Fund possesses warrants and conversion rights
to acquire a substantial amount of our common stock at below
market prices. Its exercise of its warrants and rights may
<PAGE 3> further dilute the net tangible book value of your
investment in DynamicWeb, or have a negative effect on the market
price of our common stock. Its conversion rights under
DynamicWeb's convertible preferred stock are determined under a
formula. As the market price of our common stock goes down, the
Shaar Fund can acquire a greater number of shares of common
stock. Also, the discount from the market price becomes greater
over time. The number of shares of common stock and the purchase
prices are described below under the caption "Selling
Shareholders -- The Shaar Fund."
We May Not Successfully Compete With The Many Significant
Competitors In Our Business
The electronic commerce industry is intensely
competitive and changes rapidly. There are many larger, more
established companies such as Microsoft and IBM that sell
electronic commerce packages. We are faced with significant
competition from those companies that are already established in
the industry. They have significantly more resources than we do.
We expect competition to intensify in the industry.
We Could Lose Our Access To Valuable Software Which We License
From Others
We use software that is licensed from other companies
with our software products. The licensed software is an
essential part of our products. We do not have exclusive rights
to any of the essential software; it can be licensed to anyone,
including our competitors. Any of the essential software could
become unavailable or too expensive for us to use with our
products. If any of the essential software licenses becomes
unavailable, our products would have to be redesigned or new
software obtained. There can be no assurance that is possible.
Our Core Computer Language Could Become Obsolete And Force Us
To Write New Computer Code
DynamicWeb's software is written using a computer
language called Practical Extraction and Reporting Language.
This language is presently used to write software for use on the
Internet. Because the Internet design and standards for use are
not controlled by any certain organization or individual, the
continued use of this language for Internet programs is not
guaranteed. If the programming language for the Internet were to
change, we could incur substantial expenses in an attempt to
continue to support and develop this language.
We May Not Be Successful In Building A Network Of Third Party
Sellers Of Our Services
We do not have a large number of sales and marketing
employees. Consequently, our distribution channels are limited.
This hinders our efforts to increase sales. We need to achieve
<PAGE 4> broad distribution of our products to generate sales.
We must maintain and develop relationships with leading companies
that market software products and electronic commerce services.
We may not be successful in doing this.
We May Not Be Able To Protect Our Proprietary Rights
We use software technology that we developed for use on
the Internet. Our proprietary name for that software is NetCat.
It is an important asset of DynamicWeb. We have a patent on the
software but it may not sufficiently protect our rights in the
technology. The patent would not provide protection outside of
the United States. It may be challenged and we may have to spend
a significant amount of money to defend the patent.
Patent infringement litigation is common in the
electronic commerce industry. If we are accused of violating
another company's intellectual property rights, even if
improperly accused, we may have to spend significant amounts of
money defending ourselves.
We Could Incur Substantial Uninsured Liability If We Do Not
Properly Execute Our Customers' Transactions
We are responsible for the electronic exchange of many
types of business documents using our products and systems.
These documents include the operational documents of our
customers such as orders, invoices, shipping and payment
documents. If for any reason we were unable to provide our
service, we could be liable to our customers for their loss of
business. There is no guarantee that the insurance that we carry
will be sufficient to cover all potential losses. We may,
therefore, have a substantial financial obligation to our
customers.
Our Success Depends Upon The Efforts Of A Few Key People
Our success will depend largely on retaining several of
our key senior management and technical personnel. This includes
our Chairman of the Board, Steven L. Vanechanos Jr., James D.
Conners, President of the Company and Kenneth R. Konikowski,
Executive Vice President of the Company. The departure of any of
these key personnel would cause DynamicWeb to lose valuable
knowledge and expertise.
We Could Not Be Able To Retain And Hire Enough Qualified
People To Run Our Business
We may not be able to attract enough qualified
personnel to run our business effectively or meet our customers'
demands. We are a very small, service-based technology company.
We feel our success in the future is highly dependent on
attracting additional highly skilled personnel, particularly
those who can operate in a technical environment. The market for
<PAGE 5> these types of professionals is highly competitive and
more established companies are able to provide higher salaries
and better benefits than we are.
Management Can Block A Takeover Of DynamicWeb Even If Many
Shareholders Favor The Offer
There are several provisions in our certificate of
incorporation and under New Jersey law that can operate to make
it more difficult for a third party to acquire DynamicWeb. These
could allow DynamicWeb's management to resist or prevent a
purchase of DynamicWeb, even at a premium price which the
shareholders would like to accept. Those are:
- The board of directors has the authority to
issue 5,000,000 shares of preferred stock without the approval of
the shareholders.
- Our system of election of the board of
directors in staggered classes.
- Provisions of New Jersey Law which prevent a
10% stockholder who has not received the prior approval of the
board of directors from engaging in a "business combination"
transaction with DynamicWeb for a period of five years after the
date on which the person became such a 10% stockholder.
Our Common Stock Price Is Very Volatile
Our stock price is particularly volatile, because of
its low price and because we are a technology company. Investors
may perceive volatility to be an undesirable characteristic for a
stock, and volatility also may increase the risk of subjecting us
to lawsuits.
Investors react to news of operating results,
innovations in the industry and changes in general economic
conditions. Stocks in the technology industry are particularly
volatile in their reaction to these types of factors.
When there is a fluctuation in market price, there is
the possibility that our shareholders will blame us for taking
some inappropriate action. In the past these types of situations
have resulted in shareholder litigation. If this type of
shareholder action were to happen, it would cost us significant
amounts of money to litigate.
Some Of Our Employees, Directors And Shareholders Hold Options
Which Could Dilute The Interest Of Other Shareholders
In addition to the Shaar Fund's warrants and conversion
rights, we have substantial other warrants and options
outstanding. The exercise of any or all of those options and
warrants may further dilute the net tangible book value of your
<PAGE 6> investment in DynamicWeb, or have a negative effect on
the market price of our common stock. Additionally, the holders
of the options and warrants may exercise them at a time when
DynamicWeb would have been able to sell the associated shares to
someone else at a higher price.
We have an Employee Stock Option Plan. We can issue
options to purchase a total of 334,764 shares of common stock to
our employees and officers under this plan. To date, we have
issued 331,176 options under this plan.
We also have a Stock Option Plan for Outside Directors
and we may issue a total of 78,254 options under this plan. We
have granted 31,296 options to outside directors to date.
We have granted warrants to existing shareholders to
purchase 125,000 shares of common stock at $6.00 a share in
return for a previous contribution of their common stock back to
the company.
Perry & Co. and its principal hold options to purchase
90,000 shares of common stock at $5.50 per share.
The Selling Shareholders
General
There are eight selling shareholders. The selling
shareholders are acting individually, not as a group. None of
the selling shareholders or their affiliates has held any
position, office or other material relationship, other than as a
shareholder, with DynamicWeb. The identity of the selling
shareholders and the maximum number of shares of common stock
offered under this prospectus by each of them are as follows:
The Shaar Fund, Ltd. 1,791,730 shares(1)
Keeway Investments, Ltd. 141,177 shares
Cranshire Capital, L.P. 94,118 shares
Perry & Co. 45,000 shares
Joel Arberman 45,000 shares
Zazoff Associates, L.L.C. 10,000 shares
The Malachi Group, Inc. 8,500 shares
Peter Baxter, Jr. 9,500 shares
___________________
(1) This number of shares is the initial number that the Shaar
Fund has the right to require DynamicWeb to register for it. The
actual number of shares that the Shaar Fund will acquire and then
sell under this prospectus is determined, in part, by a formula
described below under "The Shaar Fund," although the maximum
number of shares of common stock offered under this prospectus by
the Shaar Fund will not exceed 1,791,730. If the conversion
formula yields a greater number of shares, then DynamicWeb will
file a new registration statement covering those additional
shares. <PAGE 7>
The above numbers of shares for each selling
shareholder other than the Shaar Fund represents 100% of the
shares of common stock of DynamicWeb which each of those persons
owns or has a right to acquire. None of those persons would own
or have the right to acquire any other shares of common stock of
DynamicWeb after this offering is complete.
In the case of the Shaar Fund, it potentially could
acquire substantial additional shares of DynamicWeb's common
stock other than the shares offered under this prospectus if the
market price of our common stock falls below $2.50 per share.
Specifically:
- It may acquire more than 769,230 shares of
DynamicWeb common stock underlying the Series A preferred stock
if the actual conversion price for the conversion of the Series A
preferred stock held by the Shaar Fund is less than $1.95 per
share.
- It may acquire more than 750,000 shares of
DynamicWeb common stock underlying the Series B preferred stock
if the actual conversion price for the conversion of the Series B
preferred stock held by the Shaar Fund is less than $2.00 per
share.
The Shaar Fund
Shares Offered Under this Prospectus
The Shaar Fund is offering up to 1,791,730 shares of common
stock of DynamicWeb. It has acquired or has the right to acquire
those shares under the terms of 1,500 shares of Series A
preferred stock, 1,500 shares of Series B preferred stock, and
272,500 warrants of DynamicWeb that the Shaar Fund acquired
during 1998 and 1999.
The number of shares offered under this prospectus by the
Shaar Fund consists of the following three components:
- 272,500 shares of DynamicWeb common stock which the
Shaar Fund can acquire under warrants. 137,500 of those warrants
are exercisable at $6.00 per share; and the other 135,000 of
those warrants are exercisable at $8.93 per share.
- 769,230 shares of common stock into which the
Series A preferred stock is assumed to be convertible. Under
DynamicWeb's agreement with the Shaar Fund, DynamicWeb is
required initially to register this number of shares. This
number is determined based upon the assumption that the
conversion of the Series A preferred stock into common stock will
occur at a conversion price of $1.95 per share. Shaar Fund has
already converted 125 shares of Series A preferred stock into
95,420 shares of common stock.
<PAGE 8>
- 750,000 shares of common stock into which the
Series B preferred stock is assumed to be convertible. Under
DynamicWeb's agreement with the Shaar Fund, DynamicWeb is
required initially to register this number of shares. This
number is determined based upon the assumption that the
conversion of the Series B preferred stock into common stock will
occur at a conversion price of $2.00 per share.
Series A Preferred Stock
The Series A preferred stock has a conversion value of
$1,000 per share. That conversion value is credited towards the
purchase of shares of common stock at an agreed-upon purchase or
conversion price. The applicable conversion price is a discount
to the "market price" of the common stock at the time of
conversion. For these purposes, the "market price" is the
average of the lowest 3 days closing bid prices of the common
stock for the 20 trading days immediately preceding the
conversion.
Until November 8, 1999, the conversion price can never
exceed $2.75 per share. After that date, the conversion price
can never exceed $5.50 per share. The conversion price also may
be less than those ceilings, based upon the following:
Time of Conversion Conversion Price
0-179 days after purchase 85% of market price
180-359 days after purchase 80% of market price
360 days or more after purchase 78% of market price
Therefore, the higher the market price of DynamicWeb common
stock at the time of conversion, the fewer number of shares will
be acquired; and the lower the market price of DynamicWeb common
stock at the time of conversion, the greater number of shares
will be acquired. Except for the conversion price falling to one
cent per share, there is no ceiling on the maximum number of
shares that the Shaar Fund might acquire upon conversion of the
Series A preferred stock.
The Shaar Fund may elect when to convert the Series A
preferred stock; however, on August 7, 2000, the Shaar Fund must
elect either to convert all outstanding shares of Series A
preferred stock at the applicable conversion price or to have
DynamicWeb redeem all outstanding shares of Series A preferred
stock for $1,350 per share.
On December 3, 1998, it converted 125 shares of the Series A
preferred stock into 95,420 shares of common stock.
Series B Preferred Stock
<PAGE 9>
The Series B preferred stock has a conversion value of
$1,000 per share, which is credited towards the purchase of
shares of common stock at an agreed-upon conversion price. The
conversion price is a discount to the "market price" of the
common stock at the time of conversion. For these purposes, the
"market price" is the average of the closing bid prices of the
common stock for the lowest 7 days closing bid prices of the
common stock for the 20 trading days immediately preceding the
conversion.
The conversion price of the Series B preferred stock can
never exceed $9.74 per share, but may be less than that ceiling,
based upon the following:
Time of Conversion Conversion Price
0-179 days after purchase 85% of market value
180 days or more after purchase 80% of market value
Except for the conversion price falling to one cent per
share, there is no ceiling on the maximum number of shares that
the Shaar Fund might acquire upon conversion of the Series B
preferred stock.
The Shaar Fund may elect when to convert the Series B
preferred stock; however, on February 12, 2003, the Shaar Fund
must elect either to convert all outstanding shares of Series B
preferred stock at the applicable conversion price or to have
DynamicWeb redeem all outstanding shares of Series B preferred
stock for $1,350 per share.
All shares being offered by the Shaar Fund are being
registered under registration rights agreements between
DynamicWeb and the Shaar Fund.
Examples of the Effect of the Formula Conversion Price
The following tables give several examples of the number of
shares of common stock into which the remaining 1,375 shares of
Series A and 1,500 shares of Series B preferred stock could be
converted, depending on the market price of the common stock.
Since there are maximum conversion prices for both the
Series A and Series B preferred stock, the Shaar Fund will always
be able to acquire a substantial number of shares of common
stock, even if the market price of DynamicWeb's common stock is
high. That minimum number of shares will be greater until
November 8, 1999, because the maximum conversion price applicable
to the Series A preferred stock is only $2.75 per share until
that date, but increases to $5.50 per share after that date.
Up to November 8, 1999, the Shaar Fund will be able to
acquire at least 654,004 shares of common stock, even if the
<PAGE 10> market price exceeds $12.50 per share, because the
$2.75 maximum conversion price for the Series A preferred stock
and the $9.74 maximum conversion price for the Series B preferred
stock will apply.
After November 8, 1999, the Shaar Fund will be able to
acquire at least 404,004 shares of common stock, even if the
market price exceeds $12.50 per share, because the $5.50 maximum
conversion price for the Series A preferred stock and the $9.74
maximum conversion price for the Series B preferred stock will
apply.
Assuming all 1,375 remaining shares of the Series A
preferred stock are converted prior to November 8, 1999, at the
lower of 80% of Market Price or the $2.75 maximum conversion
price:
Number of
Market Price Conversion Price Common Shares
$ 0.50 $0.40 3,437,500
1.95 1.56 881,410
3.00 2.40 572,916
4.00* 2.75* 500,000
______________________
* At any Market Price greater than $3.43, the maximum
conversion price of $2.75 applies to the Series A preferred
stock.
Assuming all 1,500 shares of the Series B preferred stock
are converted at the lower of 85% of Market Price or the $9.74
maximum conversion price:
Number of
Market Price Conversion Price Common Shares
$ 0.50 $0.425 3,529,411
1.95 1.657 905,250
5.00 4.25 352,941
10.00 8.50 176,470
12.00* 9.74* 154,004
______________________
* At any Market Price greater than $11.46, the maximum
conversion price of $9.74 applies to the Series B preferred
stock.
The exact number of shares that the Shaar Fund will actually sell
pursuant to this prospectus may be less than the full 1,791,730
because the Shaar Fund has the discretion to determine when and
whether it will sell any shares under this prospectus, and also
because the actual number of shares which the Shaar Fund will
acquire by converting the Series A or Series B preferred stock is
not known. If the Shaar Fund acquires a greater number of shares
upon conversion of the Series A or Series B preferred stock, then
<PAGE 11> DynamicWeb will file a new registration statement
covering those additional shares. Also, DynamicWeb must file
another registration statement covering additional shares of
common stock underlying the Series B preferred stock if the
market price of DynamicWeb's common stock falls below $4.00 per
share on any day.
Keeway Investments, Ltd.
Keeway Investments, Ltd. is offering 141,177 shares of
common stock that it has acquired in a private placement.
Cranshire Capital, L.P.
Cranshire Capital, L.P. is offering 94,118 shares of common
stock that it has acquired in the same private placement
transaction as Keeway.
Perry & Co.
Perry & Co. is offering shares of common stock of DynamicWeb
that it has acquired or has the right to acquire under the terms
of options of DynamicWeb held by Perry & Co. Perry & Co. has an
option to purchase 45,000 shares of DynamicWeb common stock at an
exercise price of $5.50 per share. The options were received as
compensation for services rendered in 1998.
Joel Arberman
Mr. Arberman is offering shares of common stock of
DynamicWeb that he has acquired or has the right to acquire under
the terms of options of DynamicWeb held by Mr. Arberman. Mr.
Arberman has an option to purchase 45,000 shares of DynamicWeb
common stock at an exercise price of $5.50 per share. The
options were received as compensation for services rendered in
1998. Mr. Arberman is a principal of Perry & Co.
The Malachi Group, Inc.
The Malachi Group is offering shares of common stock of
DynamicWeb that it has acquired or has the right to acquire under
the terms of warrants of DynamicWeb held by Malachi. Malachi
holds warrants to purchase 8,500 shares of DynamicWeb common
stock at an exercise price of $6.00 per share. Those warrants
were received as compensation for services rendered in 1998.
Peter Baxter, Jr.
Mr. Baxter is offering shares of common stock of DynamicWeb
that he has acquired or has the right to acquire under the terms
of warrants held by Mr. Baxter. Mr. Baxter holds 1,000 shares of
common stock and warrants to purchase an additional 8,500 shares
of DynamicWeb common stock at an exercise price of $6.00 per
<PAGE 12> share. The shares and warrants were received as
compensation for services rendered in 1998. Mr. Baxter is a
principal of Malachi.
Zazoff Associates, L.L.C.
Zazoff Associates is offering shares of common stock of
DynamicWeb that it has acquired or has the right to acquire under
the terms of warrants held by Zazoff. Zazoff holds 2,000 shares
of common stock and warrants to purchase an additional 8,000
shares of DynamicWeb common stock at an exercise price of $6.00
per share. The shares and warrants were received as compensation
for services rendered in 1998.
Other
The shares being offered by the selling shareholders other
than the Shaar Fund are being registered under registration
rights provided for in various agreements between DynamicWeb and
those persons.
DynamicWeb is unable to determine the exact number of shares
that those persons will actually sell pursuant to this prospectus
because each of them has the discretion to determine when and
whether they will sell any shares under this prospectus.
The Plan of Distribution
The registration statement of which this prospectus forms a
part has been filed to satisfy registration rights held by the
selling shareholders under agreements between DynamicWeb and the
selling shareholders. To DynamicWeb's knowledge, as of this
date, none of the selling shareholders has entered into any
agreement, arrangement or understanding with any particular
broker or market maker with respect to the shares offered by
them, nor does DynamicWeb know the identity of the brokers or
market makers which might participate in such offering.
The shares being registered and offered may be sold from
time to time by the selling shareholders. The selling
shareholders will act independently of DynamicWeb in making
decisions with respect to the timing, manner, and size of each
sale. The sales may be made on the OTC Bulletin Board or
otherwise, at prices and on terms then prevailing or at prices
related to the market price, or in negotiated transactions.
The shares may be sold by one or more of the following
methods:
(1) A block trade in which the broker-dealer engaged by
a selling shareholder will attempt to sell shares as agent but
may position and resell a portion of the block as principal to
facilitate the transaction.
<PAGE 13>
(2) Purchases by the broker-dealer as principal and
resale by such broker or dealer for its account according to this
prospectus.
(3) Ordinary brokerage transactions and transactions in
which the broker solicits purchasers.
To the best of the DynamicWeb's knowledge, none of the
selling shareholders has, as of this date, 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 shareholder may
arrange for other broker-dealers to participate. Broker-dealers
may receive commissions or discounts from a selling shareholder
in amounts to be negotiated.
In offering the shares, the selling shareholders and any
broker-dealers who execute sales for the selling shareholders may
be deemed to be "underwriters" within the meaning of the
Securities Act of 1933 in connection with such sales, and any
profits realized by the selling shareholders and the compensation
of such broker-dealer may be deemed to be underwriting discounts
and commissions.
Regulation M under the Securities and Exchange Act of 1934
prohibits participants in a distribution and their affiliates
from bidding for or purchasing any of the securities that are the
subject of the distribution. It also 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 any selling shareholder will
sell any or all of the shares of common stock registered under
this registration statement.
Description of the Securities to be Registered
General
DynamicWeb'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 2,587,844 shares of common
stock issued and outstanding. As of December 31, 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 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
<PAGE 14> 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 DynamicWeb'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 for dividends, when, as
and if declared by the board of directors and are also entitled
to share ratably in all of the assets of DynamicWeb available for
distribution to holders of shares of common stock upon the
liquidation, dissolution or winding up of the affairs of
DynamicWeb. 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 here
will be, validly issued, fully paid and non-assessable.
Where You Can Find More Information About
DynamicWeb Enterprises, Inc.
This Registration Statement
DynamicWeb has filed with the Securities and Exchange
Commission a registration statement on Form S-2, including all
amendments and exhibits to that registration statement, under the
Securities Act of 1933 for the shares being offered. This
prospectus is only a part of the registration statement and does
not contain all of the information filed with the Securities and
Exchange Commission. While statements in this prospectus
concerning the provisions of contracts or other documents
describe the material terms of the provisions which are being
described, they do not discuss all of the terms of those
contracts or other documents. In each instance, the complete
details of each contract or document are contained in the
exhibits filed with the registration statement. Refer to the
exhibit of each contract or document to obtain additional
information. For additional information about DynamicWeb and the
shares being sold, refer to the registration statement and the
accompanying exhibits and schedules.
For a fee, a copy of the registration statement, with
exhibits, may be obtained from the SEC's office in Washington, DC
at 450 Fifth Street, NW, Washington, DC 20549 or is available for
you to read at their office without charge.
Other SEC Filings
DynamicWeb is required by the Securities Exchange Act of
1934 to file reports, proxy statements, and other information
with the Securities and Exchange Commission. Reports, proxy
statements and other information filed with the SEC can be
inspected and copied at the public reference facilities of the
Commission at 450 Fifth Street, NW, Washington, DC 20549. For a
<PAGE 15> fee, copies of this material can be obtained from the
Public Reference Section of the Commission at its principal
office at 450 Fifth Street, NW, Washington, DC 20549.
The Commission also maintains a World Wide Web site that
contains reports, proxy and information statements and other
information regarding issuers that file electronically with the
Commission. The address of the site is http://www.sec.gov.
DynamicWeb incorporates by reference the following documents
filed with the Securities and Exchange Commission.
1. DynamicWeb's annual report on Form 10-KSB for the
fiscal year ended September 30, 1998;
2. DynamicWeb's quarterly reports on Form 10-QSB for the
quarter ended December 31, 1998 and the quarter ended
March 31, 1999;
3. DynamicWeb's proxy statement filed June 25, 1998; and
4. All other reports filed pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 since
September 30, 1998.
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.
Copies of Documents
This prospectus includes a copy of the our latest Form 10-
KSB and Form 10-QSB. To each person who receives a prospectus,
we will provide upon request and without charge a copy of the
additional documents listed above, not including the exhibits to
those documents unless such exhibits are specifically
incorporated by reference into those documents. Requests for
those documents should be made to: DynamicWeb Enterprises, Inc.,
271 Route 46 West, Building F, Suite 209, Fairfield, New Jersey
07004. Telephone number (973) 276-3100.
Predictions and Other Forward-Looking Information
This prospectus and registration statement contain many
forward-looking statements and information that are based on the
beliefs and plans of DynamicWeb's management, on estimates and
assumptions made by DynamicWeb's management, or on information
currently available to DynamicWeb's management. Those forward-
looking statements and information are also contained in
DynamicWeb's other reports filed from time to time with the
<PAGE 16> Securities and Exchange Commission, including its Form
10-KSB for the fiscal year ended September 30, 1998.
When used in those SEC documents, words such as
"anticipate," "believe," "estimate," "expect," "future,"
"intend," "plan" and similar expressions, as they relate to
DynamicWeb and its management, identify forward-looking
statements. Such statements reflect the current views of
DynamicWeb and its management with respect to future events.
They are subject to many risks, uncertainties and assumptions
relating to the future.
Some of those risks, uncertainties and assumptions include
DynamicWeb's operations and results of operations, competitive
factors and pricing pressures, shifts in market demand, the
performance and needs of the customers served by us, and the
costs of pursuing our business plan. Other risks and
uncertainties are specifically discussed in "Risk Factors"
elsewhere in this prospectus.
Should one or more of these risks or uncertainties
materialize, or should the underlying estimates or assumptions
prove incorrect, actual results or outcomes may vary
significantly from those anticipated, believed, estimated,
expected, intended or planned.
Legal Matters
The law firm of Stevens & Lee, Wayne, Pennsylvania and
Lancaster, Pennsylvania, on behalf of DynamicWeb, has issued its
legal opinion that the common stock being sold in this offering
is validly issued, fully paid and non-assessable.
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 on
those financial statements also appearing elsewhere in this
prospectus and registration statement or incorporated by
reference. In the case of the financial statements of
DynamicWeb, their report contains an explanatory paragraph with
respect to substantial doubt as to the ability of DynamicWeb to
continue as a going concern. Such financial statements have been
incorporated into this prospectus and registration statement by
reference or included in this prospectus and registration
statement in reliance upon such reports given upon the authority
of Richard A. Eisner & Company, LLP as experts in accounting and
auditing.
Disclosure of Commission Position of Indemnification For
Securities Act Liabilities <PAGE 17>
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 18
<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
DynamicWeb'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>
Note E - Business Combination
<PAGE F-9>
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>
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....... $ 4,501.51
Printing and Engraving Expenses..................... 1,000.00
Accounting Fee and Expenses......................... 7,500.00
Legal Fees and Expenses............................. 50,000.00
Miscellaneous....................................... 500.00
Reimbursement of Legal Fees and Expenses to
Shaar Fund, Ltd................................... 5,000.00
Total.......................................... $68,501.51
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 May 12, 1999, as
filed with the State of New Jersey on May 18, 1999,
regarding the Series A 6% Cumulative Preferred Stock*
3.1.11 Amendment to the Certificate of Incorporation of
DynamicWeb Enterprises, Inc. dated May 12, 1999, as
filed with the State of New Jersey on May 13, 1999,
regarding the Series B 6% Cumulative Preferred Stock.*
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 DynamicWeb's Annual Report on Form 10-K for the year
ended December 31, 1992).
10.2 Agreement dated February 24, 1995 between DynamicWeb
and Jonathan B. Lassers as to the purchase of common
stock (incorporated by reference to Exhibit 10.1 to
DynamicWeb's Current Report on Form 8-K dated as of
May 8, 1995).
10.3 Amendment Agreement dated May 1, 1995 between
DynamicWeb and Jonathan B. Lassers as to the purchase
of common stock and common stock purchase warrants
(incorporated by reference to Exhibit 10.2 to
DynamicWeb's Current Report on Form 8-K dated as of
May 8, 1995).
<PAGE II-2>
10.4 Agreement dated February 29, 1996 between DynamicWeb
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
DynamicWeb'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 DynamicWeb, John C. Fitton and Seahawk Overseas
Exploration Corporation (incorporated by reference to
Exhibit 10.4 to DynamicWeb's Current Report on Form 8-K
dated as of May 8, 1995).
10.6 Stock Purchase Agreement dated March 5, 1996 among
DynamicWeb, DynamicWeb Transaction Systems, Inc.
("DWTS") and the shareholders of DWTS (incorporated by
reference to Exhibit 10.14 to DynamicWeb'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 DynamicWeb and DWTS (incorporated by
reference to Exhibit 10.14(A) to DynamicWeb'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 DynamicWeb and DWTS (incorporated by
reference to Exhibit 10.14(B) to DynamicWeb's Form 10-
QSB for the period ended March 31, 1996).
10.9 Stock Purchase Agreement dated September 30, 1996 among
DynamicWeb, Megascore, Inc. and the shareholders of
Megascore, Inc. (incorporated by reference to Exhibit 1
to the DynamicWeb's Current Report on Form 8-K dated
November 30, 1996).
10.10 Stock Purchase Agreement dated November 30, 1996 among
DynamicWeb, Software Associates, Inc. and Kenneth R.
Konikowski (incorporated by reference to Exhibit 2 to
DynamicWeb's Current Report on Form 8-K dated
November 30, 1996).
10.11 Amendment to Stock Purchase Agreement dated April 7,
1997 between DynamicWeb and Kenneth R. Konikowski
(incorporated by reference to Exhibit 10.11 filed with
DynamicWeb's Report on Form 10-KSB for the year ended
September 30, 1996).
10.12 Lock-Up Agreement dated November 30, 1996 among
DynamicWeb, Steve L. Vanechanos, Jr. and Kenneth R.
Konikowski (incorporated by reference to Exhibit 10.12
filed with DynamicWeb's Report on Form 10-KSB for the
year ended September 30, 1996). <PAGE II-3>
10.13 Employment Agreement dated December 1, 1996 between
DynamicWeb and Kenneth R. Konikowski (incorporated by
reference to Exhibit 10.13 filed with DynamicWeb's
Report on Form 10.KSB for the year ended September 30,
1996).
10.14 Employment Agreement dated May 1, 1998 between
DynamicWeb and Douglas Eadie.*
10.15 DynamicWeb Enterprises, Inc. 1997 Employee Stock Option
Plan (incorporated by reference to Annex B to
DynamicWeb'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 DynamicWeb'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 DynamicWeb'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 DynamicWeb'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 DynamicWeb's Form 8-K dated
September 9, 1997).
10.20 Employment Agreement dated August 26, 1997 between
DynamicWeb and James D. Conners (incorporated by
reference to Exhibit 1 to DynamicWeb's Form 8-K dated
September 9, 1997).
10.21 Form of financial Consulting Agreement between
DynamicWeb and H.J. Meyers & Co., Inc. (incorporated by
reference to Exhibit 10.20 to DynamicWeb's SB-2 filed
September 15, 1997).
10.22 Form of Mergers and Acquisition Agreement between
DynamicWeb and H.J. Meyers & Co., Inc. (incorporated by
reference to Exhibit 10.21 to DynamicWeb's SB-2 filed
September 15, 1997).
<PAGE II-4>
10.23 Letter of amendment dated November 20, 1997 amending
Stock Purchase Agreement dated April 7, 1997 between
DynamicWeb and Kenneth R. Konikowski (incorporated by
reference to Exhibit 10.22 to DynamicWeb'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
DynamicWeb and Kenneth R. Konikowski (incorporated by
reference to Exhibit 10.23 to DynamicWeb's SB-2 filed
September 15, 1997).
10.25 Form of Warrant and Warrant Agreement with certain
shareholders of DynamicWeb (incorporated by reference
to Exhibit 10.24 to DynamicWeb's SB-2 filed
September 15, 1997).
10.26 Securities Purchase Agreement dated August 7, 1998
between DynamicWeb Enterprises, Inc. and Shaar Fund
Ltd.*
10.27 Registration Rights Agreement dated August 7, 1998
between DynamicWeb Enterprises, Inc. and Shaar Fund
Ltd.*
10.28 Service Agreement and Option Grant with Perry & Co.
dated April 2, 1998.*
10.29 Letter Agreement dated December 3, 1998 between
DynamicWeb Enterprises, Inc. and Shaar Fund Ltd.*
10.30 Securities Purchase Agreement dated February 12, 1999
between DynamicWeb Enterprises, Inc. and the Shaar
Fund, Ltd. (incorporated by reference to DynamicWeb's
Current Report on Form 8-K/A dated February 23, 1999).
10.31 Registration Rights Agreement dated February 12, 1999
between DynamicWeb Enterprises, Inc. and the Shaar
Fund, Ltd. (incorporated by reference to DynamicWeb's
Current Report on Form 8-K/A dated February 23, 1999).
10.32 Securities Purchase Agreement dated April 26, 1999
between DynamicWeb Enterprises, Inc. Cranshire Capital,
L.P., and Keeway Investments, Ltd. (incorporated by
reference to DynamicWeb's Current Report on Form 8-K
dated April 26, 1999).
10.33 Registration Rights Agreement dated April 26, 1999
between DynamicWeb Enterprises, Inc. Cranshire Capital,
L.P., and Keeway Investments, Ltd. (incorporated by
reference to DynamicWeb's Current Report on Form 8-K
dated April 26, 1999).
<PAGE II-5>
10.34 Letter Agreement dated May 12, 1999 between DynamicWeb
Enterprises, Inc. and the Shaar Fund, Ltd.*
16.1 Letter on change in certifying account (R. Andrew
Gately & Co.) (incorporated by reference to
Exhibit 16.1 to DynamicWeb'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 DynamicWeb'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 DynamicWeb hereby undertakes:
(1) To file, during any period in which offers or
sales are being made, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by
section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of the
registration statement (or the most recent post-
effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the
information set forth in the registration statement.
(iii) To include any material information with
respect to the plan of distribution not previously
disclosed in the registration statement or any material
change to such information in the registration
statement.
(2) That the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the Offering
of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
<PAGE II-6>
(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
DynamicWeb pursuant to the foregoing provisions, or otherwise,
DynamicWeb 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 DynamicWeb of expenses
incurred or paid by a director, officer or controlling person of
DynamicWeb 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,
DynamicWeb 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-7
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of
1933, DynamicWeb Enterprises, Inc. 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
May 18, 1999.
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, 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 May 18, 1999
Steven L. Vanechanos, Jr. Officer and Director
/s/ STEVE VANECHANOS, SR. Treasurer, Chief May 18, 1999
Steve Vanechanos, Sr. Financial Officer,
and Chief Accounting
Officer, Director
/s/ DENIS CLARK Director May 18, 1999
Denis Clark
/s/ FRANK T. DiPALMA Director May 18, 1999
Frank T. DiPalma
/s/ ROBERT DROSTE Director May 18, 1999
Robert Droste
<PAGE II-8>
/s/ ROBERT W. GAILUS Director May 18, 1999
Robert W. Gailus
/s/ KENNETH R. KONIKOWSKI Director May 18, 1999
Kenneth R. Konikowski
PAGE II-9
<PAGE>
EXHIBIT INDEX
Exhibit
Number Title
3.1.10 Amendment to the Certificate of Incorporation of
DynamicWeb Enterprises, Inc. dated May 12, 1999, as
filed with the State of New Jersey on May 18, 1999,
regarding the Series A 6% Cumulative Preferred Stock*
3.1.11 Amendment to the Certificate of Incorporation of
DynamicWeb Enterprises, Inc. dated May 12, 1999, as
filed with the State of New Jersey on May 13, 1999,
regarding the Series B 6% Cumulative Preferred Stock.*
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 DynamicWeb's Annual Report on Form 10-K for the year
ended December 31, 1992).
10.2 Agreement dated February 24, 1995 between DynamicWeb
and Jonathan B. Lassers as to the purchase of common
stock (incorporated by reference to Exhibit 10.1 to
DynamicWeb's Current Report on Form 8-K dated as of
May 8, 1995).
10.3 Amendment Agreement dated May 1, 1995 between
DynamicWeb and Jonathan B. Lassers as to the purchase
of common stock and common stock purchase warrants
(incorporated by reference to Exhibit 10.2 to
DynamicWeb's Current Report on Form 8-K dated as of
May 8, 1995).
10.4 Agreement dated February 29, 1996 between DynamicWeb
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
DynamicWeb'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 DynamicWeb, John C. Fitton and Seahawk Overseas
Exploration Corporation (incorporated by reference to
Exhibit 10.4 to DynamicWeb's Current Report on Form 8-K
dated as of May 8, 1995).
10.6 Stock Purchase Agreement dated March 5, 1996 among
DynamicWeb, DynamicWeb Transaction Systems, Inc.
("DWTS") and the shareholders of DWTS (incorporated by
reference to Exhibit 10.14 to DynamicWeb's Annual
<PAGE II-10> Report on Form 10-KSB for the year ended
December 31, 1995).
10.7 Amendment to Stock Purchase Agreement dated May 14,
1996 between DynamicWeb and DWTS (incorporated by
reference to Exhibit 10.14(A) to DynamicWeb'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 DynamicWeb and DWTS (incorporated by
reference to Exhibit 10.14(B) to DynamicWeb's Form 10-
QSB for the period ended March 31, 1996).
10.9 Stock Purchase Agreement dated September 30, 1996 among
DynamicWeb, Megascore, Inc. and the shareholders of
Megascore, Inc. (incorporated by reference to Exhibit 1
to the DynamicWeb's Current Report on Form 8-K dated
November 30, 1996).
10.10 Stock Purchase Agreement dated November 30, 1996 among
DynamicWeb, Software Associates, Inc. and Kenneth R.
Konikowski (incorporated by reference to Exhibit 2 to
DynamicWeb's Current Report on Form 8-K dated
November 30, 1996).
10.11 Amendment to Stock Purchase Agreement dated April 7,
1997 between DynamicWeb and Kenneth R. Konikowski
(incorporated by reference to Exhibit 10.11 filed with
DynamicWeb's Report on Form 10-KSB for the year ended
September 30, 1996).
10.12 Lock-Up Agreement dated November 30, 1996 among
DynamicWeb, Steve L. Vanechanos, Jr. and Kenneth R.
Konikowski (incorporated by reference to Exhibit 10.12
filed with DynamicWeb's Report on Form 10-KSB for the
year ended September 30, 1996).
10.13 Employment Agreement dated December 1, 1996 between
DynamicWeb and Kenneth R. Konikowski (incorporated by
reference to Exhibit 10.13 filed with DynamicWeb's
Report on Form 10.KSB for the year ended September 30,
1996).
10.14 Employment Agreement dated May 1, 1998 between
DynamicWeb and Douglas Eadie.*
10.15 DynamicWeb Enterprises, Inc. 1997 Employee Stock Option
Plan (incorporated by reference to Annex B to
DynamicWeb's Information Statement filed May 15, 1997,
pursuant to Section 14(c) of the Securities Exchange
Act of 1934).
<PAGE II-11>
10.16 DynamicWeb Enterprises, Inc. 1997 Stock Option Plan for
Outside Directors (incorporated by reference to Annex C
to DynamicWeb'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 DynamicWeb'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 DynamicWeb'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 DynamicWeb's Form 8-K dated
September 9, 1997).
10.20 Employment Agreement dated August 26, 1997 between
DynamicWeb and James D. Conners (incorporated by
reference to Exhibit 1 to DynamicWeb's Form 8-K dated
September 9, 1997).
10.21 Form of financial Consulting Agreement between
DynamicWeb and H.J. Meyers & Co., Inc. (incorporated by
reference to Exhibit 10.20 to DynamicWeb's SB-2 filed
September 15, 1997).
10.22 Form of Mergers and Acquisition Agreement between
DynamicWeb and H.J. Meyers & Co., Inc. (incorporated by
reference to Exhibit 10.21 to DynamicWeb'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
DynamicWeb and Kenneth R. Konikowski (incorporated by
reference to Exhibit 10.22 to DynamicWeb'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
DynamicWeb and Kenneth R. Konikowski (incorporated by
reference to Exhibit 10.23 to DynamicWeb's SB-2 filed
September 15, 1997).
10.25 Form of Warrant and Warrant Agreement with certain
shareholders of DynamicWeb (incorporated by reference
to Exhibit 10.24 to DynamicWeb's SB-2 filed
September 15, 1997). <PAGE II-12>
10.26 Securities Purchase Agreement dated August 7, 1998
between DynamicWeb Enterprises, Inc. and Shaar Fund
Ltd.*
10.27 Registration Rights Agreement dated August 7, 1998
between DynamicWeb Enterprises, Inc. and Shaar Fund
Ltd.*
10.28 Service Agreement and Option Grant with Perry & Co.
dated April 2, 1998.*
10.29 Letter Agreement dated December 3, 1998 between
DynamicWeb Enterprises, Inc. and Shaar Fund Ltd.*
10.30 Securities Purchase Agreement dated February 12, 1999
between DynamicWeb Enterprises, Inc. and the Shaar
Fund, Ltd. (incorporated by reference to DynamicWeb's
Current Report on Form 8-K/A dated February 23, 1999).
10.31 Registration Rights Agreement dated February 12, 1999
between DynamicWeb Enterprises, Inc. and the Shaar
Fund, Ltd. (incorporated by reference to DynamicWeb's
Current Report on Form 8-K/A dated February 23, 1999).
10.32 Securities Purchase Agreement dated April 26, 1999
between DynamicWeb Enterprises, Inc. Cranshire Capital,
L.P., and Keeway Investments, Ltd. (incorporated by
reference to DynamicWeb's Current Report on Form 8-K
dated April 26, 1999).
10.33 Registration Rights Agreement dated April 26, 1999
between DynamicWeb Enterprises, Inc. Cranshire Capital,
L.P., and Keeway Investments, Ltd. (incorporated by
reference to DynamicWeb's Current Report on Form 8-K
dated April 26, 1999).
10.34 Letter Agreement dated May 12, 1999 between DynamicWeb
Enterprises, Inc. and the Shaar Fund, Ltd.*
16.1 Letter on change in certifying account (R. Andrew
Gately & Co.) (incorporated by reference to
Exhibit 16.1 to DynamicWeb'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 DynamicWeb'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*
<PAGE II-13>
* Filed herewith
<PAGE II-14>
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
<PAGE 1> not require services on the part of the Executive in the
operation of the affairs of the business in which such
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
<PAGE 2> business or entity doing business with or
considering doing business with the Company; or
(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
<PAGE 3> management employees of the Company, provided, however,
that the Company reserves the right to adopt, amend or
discontinue any such plans at any time.
(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.
<PAGE 4>
1/1/99 and thereafter Commissions on all revenues received by
the Company from all electronic commerce
consulting services as agreed
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
<PAGE 5> 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.
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
<PAGE 6> 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 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,
<PAGE 7> 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 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
<PAGE 8> 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 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:
I. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS
<PAGE 1>
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;
(v) the Registration Statement shall have
remained effective for at least thirty (30) consecutive
<PAGE 2> 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
For the Account of: Herrick, Feinstein LLP
Attorney Trust Account <PAGE 3>
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.
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
<PAGE 5> 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
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
<PAGE 6> 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
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
<PAGE 7> 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.
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. <PAGE 8>
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,
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. <PAGE 9>
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
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,
<PAGE 10> 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
been 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
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;
<PAGE 11>
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.
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
<PAGE 12> 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
<PAGE 14> review has been received by the Company from any
foreign, 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
<PAGE 15> clear of all liens, encumbrances and defects except
such as are described on Schedule III.V. hereto or such as do not
materially 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
<PAGE 16> 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 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.
<PAGE 17>
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
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
<PAGE 19> to Buyer for late issuance of Common Stock issuable in
lieu of 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
<PAGE 21> authority restraining, enjoining or otherwise
prohibiting any of the transactions contemplated by this
Agreement.
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).
<PAGE 22>
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.
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
<PAGE 24> 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 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
<PAGE 25> than one firm of legal counsel for the Indemnified
Party (together with appropriate local counsel). The
Indemnifying 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
<PAGE 26> 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 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.
<PAGE 2>
(viii) "Person" means any individual,
partnership, corporation, limited liability company, joint stock
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
<PAGE 3> (or any successor provision thereto) or is transferable
pursuant to paragraph (d) of Rule 144 under the Securities Act
(or any 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.
<PAGE 4> 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 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,
<PAGE 5> 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 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,
<PAGE 6> 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 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")
<PAGE 7> 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
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,
<PAGE 8> 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;
(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; <PAGE 9>
(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
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
<PAGE 10> 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 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);
<PAGE 11>
(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
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
<PAGE 12> 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
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.
<PAGE 13>
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
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
<PAGE 14> 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 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
<PAGE 15> 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
(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
<PAGE 16> 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
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
(b) file with the Commission in a timely manner
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
<PAGE 17> 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
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
<PAGE 18> deemed given when so delivered personally or by
overnight courier service, or, if mailed, three (3) days after
the date of deposit in the United States mails, as follows:
(1) if to the Company, to:
DYNAMICWEB ENTERPRISES, INC.
271 Route 46W, Building F, Suite 209
Fairfield, New Jersey 07004
Attention: Steven L. Vanechanos, Jr.
Telephone: (973) 276-3107
Facsimile: (973) 575-9830
With a copy to:
STEVENS & LEE
One Glenhardie Corporate Center,
Suite 202
Wayne, PA 19087-0234
Attention: Steve Ritner, Esq.
Telephone: (610) 964-1480
Facsimile: (610) 687-1384
(2) if to the 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.
<PAGE 19> 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
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
<PAGE 20> 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.
(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.
<PAGE 21>
By____________________________
Name:
Title:
PAGE 22
<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 23>
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,
<PAGE 1> the Internet Stock Review, while operating, at no
additional cost.
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.
<PAGE 2>
(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
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
<PAGE 3> 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 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 10.29
THE SHAAR FUND LTD.
c/o SHAAR ADVISORY SERVICES LTD.
62 King George Street, Apartment 4F
Jerusalem, Israel
December 2, 1998
VIA FEDERAL EXPRESS
DYNAMICWEB ENTERPRISES, INC.
Building F, Suite 209
271 Route 46 West
Fairfield, New Jersey 07001
Attention: Steven L. Vanechanos, Jr.
Re: $400,000 Investment by The Shaar Fund Ltd. in Series A
6% Convertible Preferred Shares and a Common Stock
Purchase Warrant of Dynamicweb Enterprises, Inc.
Gentlemen:
Reference is hereby made in this letter agreement (this
"Letter Agreement") to the following documents:
(i) the Securities Purchase Agreement dated as of
August 7, 1998 (the "Securities, Purchase Agreement")
between DYNAMICWEB ENTERPRISES, INC., a New Jersey
corporation with principal executive offices located at
271 Route 46 West, Fairfield, NJ 07004 (the "Company") and
THE SHAAR FUND, LTD. ("Buyer");
(ii) the Registration Rights Agreement dated as of
August 7, 1998 (the "Registration Rights Agreement") between
the Company and Buyer;
(iii) the Common Stock Purchase Warrant No. 1 dated as
of August 7, 1998 ("Warrant No. 1") issued by the Company to
Buyer to purchase 87,500 shares of the Company's common
stock, par value $0.0001 (the "Common Stock");
(iv) the Escrow Instructions dated as of August 7,
1998 (the "Escrow Instruction") among the Company, Buyer and
Herrick Feinstein LLP (the "Escrow Agent"; and
(v) all other documents and instruments executed and
delivered by the Company or Buyer on the Initial Funding
Date in order to consummate the transactions contemplated
pursuant to the Securities Purchase Agreement (collectively,
<PAGE 1> the "Ancillary Documents", and together with the
Securities Purchase Agreement, the Securities Purchase
Agreement, the Registration Rights Agreement, Warrant No. I
and the Escrow Instructions, collectively referred to as the
"Documents").
In order to consummate the acquisition by Buyer from
the Company of ___ shares of the Company's Series A 6%
Preferred Stock, par value $0.001 (collectively, the "New
Preferred Shares") and Common Stock Purchase Warrant No. 2
(the "New Warrant") to purchase ___ shares of the Company's
Common Stock (a copy of which is attached hereto as
Exhibit A) on the Second Funding Date, the parties hereto
hereby agree as follows:
1. Definitions. All capitalized terms that are used and
not defined herein shall have the respective meaning assigned to
them in the Securities Purchase Agreement.
2. Amendments to the Documents.
(a) The parties hereto covenant and agree that the
Documents are hereby deemed amended as follows:
(i) all references to Subsequently Issued
Preferred Shares in the Documents are amended to mean the
New Preferred Shares;
(ii) all references to Subsequently Issued
Warrants in the Documents are amended to mean the New
Warrant;
(iii) the reference to $675,000 as the amount of
the Second Purchase Price in Section 1.B. of the Securities
Purchase Agreement is hereby amended and changed to
$400,000;
(iv) the reference to the definition of the
Second Tranche in the Documents as being comprised of the
Subsequently Issued Preferred Shares and the Subsequently
Issued Warrants is amended and changed to reflect that the
Second Tranche is comprised of the New Preferred Shares and
the New Warrant.
(b) Without limiting the generality of the foregoing,
the following sections of the Documents are hereby amended as
follows:
(i) all references to 675 shares of Subsequently
Issued Preferred Shares and 67,500 Subsequently Issued
Warrants, respectively, in the first and second "WHEREAS"
clauses of the Securities Purchase Agreement are amended to
mean ___ shares of the New Preferred Shares and the New
<PAGE 2> Warrant to purchase ___ shares of Common Stock,
respectively;
(ii) the reference to the 675 shares of
Subsequently Issued Preferred Shares and 67,500 Subsequently
Issued Warrants in the first "WHEREAS" clause of the
Registration Rights Agreement is amended to mean ___ shares
of Common Stock; and
(iii) the reference to the 675 shares of
Subsequently Issued Preferred Shares and 67,500 Subsequently
Issued Warrants in the first paragraph of the Escrow
Instructions is amended to mean ___ shares of the New
Preferred Shares and the New Warrant to purchase shares of
Common Stock.
3. Closing Conditions. The Company represents, warrants
and covenants that all of the Second Funding Requirements set
forth at Section I.B. of the Securities Purchase Agreement have
been completed and satisfied in all respects.
4. Conditions to the Buyer's Obligations. The Company
understands that Buyer's obligation to purchase the New Preferred
Shares and the New Warrant pursuant to this Letter Agreement and
the Documents is conditioned upon:
(a) Delivery by the Company to the Escrow Agent on the
Second Funding Date of one or more certificates (I/N/O Buyer)
evidencing the New Preferred Shares and the New Warrant to be
purchased by Buyer pursuant to this Letter Agreement on the
Second Funding Date;
(b) The accuracy in all respects on the Second Funding
Date of the representations and warranties of the Company
contained in the Securities Purchase Agreement as if made on the
Second Funding Date (except for representations and warranties
which, by their express terms, speak as of and relate to a
specified date, in which case such accuracy shall be measured as
of such specified date) and the performance by the Company in all
respects on or before the Second Funding Date of all covenants
and agreements of the Company required to be performed, by it
pursuant to this Agreement on or before the Second Funding Date;
(c) Buyer having received an opinion of counsel for
the Company, dated as of the Second Funding Date, in form, scope
and substance satisfactory to the Buyer;
(d) There not having occurred (i) any general
suspension of trading in, or limitation on prices listed for, the
Common Stock on NASD/BBS, (ii) the declaration of a banking
moratorium or any suspension of payments in respect of banks in
the United States, (iii) the commencement of a war, armed
hostilities or other international or national calamity directly
or indirectly involving the United States or any of its <PAGE 3>
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 and the Securities
Purchase Agreement (including the fees and disbursements of
Buyer's legal counsel);
(g) There shall not be in effect any Law or order,
ruling, judgment or writ of any court or public or governmental
authority restraining, enjoining or otherwise prohibiting any of
the transactions contemplated by this Letter Agreement or the
Securities Purchase Agreement; and
(h) Solely with respect to the closing date occurring
on the Second Funding Date, the Company shall have satisfied or
performed all of the Second Funding Requirements and all other
conditions set forth in Section I.B. of the Securities Purchase
Agreement, or Buyer shall have waived the Company's compliance
with such requirements.
5. Conditions to the Company's Obligations. The Buyer
understands that the Company's obligation to sell the New
Preferred Shares and the New Warrant on the Second Funding Date
to Buyer pursuant to this Agreement and the Documents is
conditioned upon:
(a) Delivery by Buyer to the Escrow Agent of $400,000
on the Second Funding Date;
(b) The accuracy in all material respects on the
Second Funding Date of the representations and warranties of
Buyer contained in the Securities Purchase Agreement as if made
on the Second Funding Date (except for representations and
warranties which, by their express terms, speak as of and relate
to a specified date, in which case such accuracy shall be
measured as of such specified date) and the performance by Buyer
in all material respects on or before the Second Funding Date of
all covenants and agreements of Buyer required to be performed by
it pursuant to this Letter Agreement or the Securities Purchase
Agreement on or before the Second Funding Date; and
(c) There shall not be in effect any Law or order,
ruling, judgment or writ of any court or public or governmental
authority restraining, enjoining or otherwise prohibiting any of
<PAGE 4> the transactions contemplated by this Letter Agreement
or the Securities Purchase Agreement.
6. Deliveries Upon the Second Funding Date. Upon the
Second Funding Date, the Company shall deliver to Buyer the
following documents and instruments, all in the form, scope and
substance satisfactory to Buyer:
(a) one or more certificates (I/N/0 Buyer) evidencing
the New Preferred Shares;
(b) the New Warrant (I/N/0 Buyer) in the form
attached hereto as Exhibit A;
(c) the opinion of counsel for the Company dated as of
the Second Funding Date in similar form to the opinion delivered
on the Initial Funding Date;
(d) an Officers' Certificate of the Company in similar
form to the Officers' Certificate delivered on the Initial
Funding Date;
(e) a Certificate of Good Standing as of the Second
Funding Date; and
(f) the Minutes of the Special Meeting of the Board of
Directors of the Company approving the transaction contemplated
by this Letter Agreement and the Documents.
7. Closing. The issuance and sale of the Second Tranche
shall occur on the Second Funding Date at the offices of the
Escrow Agent (as defined in the Securities Purchase Agreement) in
accordance with the terms and provisions of the Securities
Purchase Agreement.
8. Governing Law; Miscellaneous. This Letter Agreement
shall be governed by and interpreted in accordance with the laws
of the State of New York, without regard to the conflicts of law
principles of such state. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any
part of the City of New York or the state courts of the State of
New York sitting in the City of New York in connection with any
dispute arising under this Letter Agreement and hereby waives, to
the maximum extent permitted by law, any objection, including any
objection based on forum non conveniens, to the bringing of any
such proceeding in such jurisdictions. A facsimile transmission
of this signed Letter Agreement shall be legal and binding on all
parties hereto. This Letter Agreement may be signed in one or
more counterparts, each of which shall be deemed an original.
The headings of this Letter Agreement are for convenience of
reference and shall not form part of, or affect the
interpretation of, this Letter Agreement. if any provision of
this Letter Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not
<PAGE 5> affect the validity or enforceability of the remainder
of this Letter Agreement or the validity or enforceability of
this Letter Agreement in any other jurisdiction. This Letter
Agreement may be amended only by an instrument in writing signed
by the party to be charged with enforcement. This Letter
Agreement supersedes all prior agreements and understandings
among the parties hereto with respect to the subject matter
hereof.
9. Notices. Except as may be otherwise provided herein,
any notice or other communication or delivery required or
permitted hereunder shall be in writing and shall be delivered
personally or sent by certified mail, postage prepaid, or by a
nationally recognized overnight courier service, and shall be
deemed given when so delivered personally or by overnight courier
service, or, if mailed, three (3) days after the date of deposit
in the United States mails, as follows:
(a) if to the Company, to:
DYNAMICWEB ENTERPRISES, INC.
271 Route 46 West
Building F, Suite 209
Fairfield, NJ 07001
Attention: Steven L. Vanechanos, Jr.
Telephone: (973) 276-3107
Facsimile: (973) 575-9830
With a copy to:
Stevens & Lee
One Glenhardie Corporate Center Suite 202
Wayne, PA 19087-0234
Attention: Steve Ritner, Esq.
Telephone: (610) 964-1480
Facsimile: (610) 687-1384
(b) if to the Buyer, to
THE SHAAR FUND LTD.,
c/o SHAAR ADVISORY SERVICES LTD.
62 King George Street, Apartment 4F
Jerusalem, Israel
Attention: Samuel Levinson
with a copy to:
Herrick, Feinstein LLP
2 Park Avenue
New York, New York 10016
Attention: Irwin A. Kishner, Esq.
Telephone: (212) 592-1435
Facsimile: (212) 889-7577
<PAGE 6>
The Company, the Buyer or the Escrow Agent may change the
foregoing address by notice given pursuant to this Section 9.
10. Confidentiality. Each of the Company and Buyer agrees
to keep confidential and not to disclose to or use for the
benefit of any third party the terms of this Letter Agreement or
any other information which at any time is communicated by the
other party as being confidential without the prior written
approval of the other party; provided, however, that this
provision shall not apply to information which, at the time of
disclosure, is already part of the public domain (except by
breach of this Letter Agreement) and information which is
required to be disclosed by law (including,without limitations
pursuant to Item 1O of Rule 601 of Regulation S-K under the
Securities Act and the Exchange Act).
11. Assignment. This Letter Agreement shall not be
assignable by either of the parties hereto without the prior
written consent of the other party, and any attempted assignment
contrary to the provisions hereby shall be null and void;
provided, however, that Buyer may assign its rights and
obligations hereunder, in whole or in part, to any affiliate of
Buyer who furnishes to the Company the representations and
warranties set forth in Section II of the Securities Purchase
Agreement and otherwise agrees to be bound by the terms of this
Letter Agreement and the Documents.
12. No Further Modification. Except as specifically
provided in this Letter Agreement, nothing herein contained shall
otherwise modify, reduce, amend or otherwise supplement the terms
and provisions of the Documents, each of which remain in full
force and effect.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
PAGE 7
<PAGE>
This letter is being delivered to you in duplicate. If it
accurately describes the agreement between us, kindly so indicate
by executing and returning one copy to the undersigned whereupon
it will constitute our agreement with respect to the matters set
forth above.
Sincerely,
THE SHAAR FUND, LTD.
By; INTERCARRIBBEAN SERVICES, INC.
By:________________________________
Name:
Title:
AGREED TO AND ACCEPTED this
2nd day of December 1998.
DYNAMICWEB ENTERPRISES, INC.
By:___________________________
Name: Steven L. Vanechanos, Jr.
Title:
PAGE 8
<PAGE>
EXHIBIT A
COMMON STOCK PURCHASE WARRANT NO. 2
PAGE 9
<PAGE>
THIS COMMON STOCK PURCHASE WARRANT AND THE SECURITIES
REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE TRANSFERRED IN VIOLATION OF SUCH ACT,
THE RULES AND REGULATIONS THEREUNDER OR THE PROVISIONS
OF THIS COMMON STOCK PURCHASE WARRANT.
Number of Shares of Common Stock: ______
Warrant No. 2
COMMON STOCK PURCHASE WARRANT
To Purchase Common Stock of
Dynamicweb Enterprises, Inc.
THIS IS TO CERTIFY THAT The Shaar Fund Ltd., or registered
assigns, is entitled, at any time from the Initial Funding Date
(as hereinafter defined) to the Expiration Date (as hereinafter
defined), to purchase from DYNAMICWEB ENTERPRISES, INC., a New
Jersey corporation (the "Company"), 67,500 shares of Common Stock
(as hereinafter defined and subject to adjustment as provided
herein), in whole or in part, including fractional parts, at a
purchase price equal to $________ per share, all on the terms and
pursuant to conditions and pursuant to the purchase price equal
to the provisions hereinafter set forth.
1. DEFINITIONS
As used in this Common Stock Purchase War-rant (this
"Warrant"), the following terms have the respective meanings set
forth below:
"Additional Shares of Common Stock" shall mean all
shares of Common Stock issued by the Company after the Initial
Funding Date, other than Warrant Stock.
"Book Value" shall mean, in respect of any share of
Common Stock on any date herein specified, the consolidated book
value of the Company as of the last day of any month immediately
preceding such date, divided by the number of Fully Diluted
Outstanding shares of Common Stock as determined in accordance
with GAAP (assuming the payment of tile exercise prices for such
shares) by Richard A. Eisner & Company, LLP or any other firm of
independent certified public accountants of recognized national
standing selected by the Company and reasonably acceptable to the
Holder.
"Business Day" shall mean any day that is not a
Saturday or Sunday or a day on which banks are required or
permitted to be closed in the State of New York. <PAGE 10>
"Commission" shall mean the Securities and Exchange
Commission or any other federal agency then administering the
Securities Act and other federal securities laws.
"Common Stock" shall mean (except where the context
otherwise indicates) the Common Stock, par value $0.0001, of the
Company as constituted on the Initial Funding Date, and any
capital stock into which such Common Stock may thereafter be
changed, and shall also include (i) capital stock of the Company
of any other class (regardless of how denominated) issued to the
holders of shares of Common Stock upon any reclassification
thereof which is also not preferred as to dividends or assets
over any other class of stock of the Company and which is not
subject to redemption and (ii) shares of common stock of any
successor or acquiring corporation received by or distributed to
the holders of Common Stock of the Company in the circumstances
contemplated by Section 4.4.
"Convertible Securities" shall mean evidences of
indebtedness, shares of stock or other securities which are
convertible into or exchangeable, with or without payment of
additional consideration in cash or property, for shares of
Common Stock, either immediately or upon the occurrence of a
specified date or a specified event.
"Current Warrant Price" shall mean, in respect of a
share of Common Stock at any date herein specified, the price at
which a share of Common Stock may be purchased pursuant to this
Warrant on such date.
"Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended, or any successor federal statute, and the
rules and regulations of the Commission thereunder, all as the
same shall be in effect from time to time.
"Exercise Period" shall mean the period during which
this Warrant is exercisable pursuant to Section 2.1.
"Expiration Date" shall mean December 1, 2001.
"Fully Diluted Outstanding" shall mean, when used with
reference to Common Stock, at any date as of which the number of
shares thereof is to be determined, all shares of Common Stock
Outstanding at such date and all shares of Common Stock issuable
in respect of this Warrant, outstanding on such date, and other
options or warrants to purchase, or securities convertible into,
shares of Common Stock outstanding on such date which would be
deemed outstanding in accordance with GAAP for purposes of
determining book value or net income per share.
"GAAP" shall mean generally accepted accounting
principles in the United States of America as from time to time
in effect.
<PAGE 11>
"Holder" shall mean the Person in whose name the
Warrant or Warrant Stock set forth herein is registered on the
books of the Company maintained for such purpose.
"Initial Funding Date" means the date and time of the
issuance and sale of the Initially Issued Preferred Shares (as
defined in the Securities Purchase Agreement) and the Initially
Issued Warrants (as defined in the Securities Purchase Agreement)
in the First Tranche (as defined in the Securities Purchase
Agreement).
"Market Price" per Common Share means the average of
the closing bid prices of the Common Shares as reported on the
National Association of Securities Dealers, Inc. ("NASD")
Over ("OTC") the Counter Bulletin Board System ("BBS", together
with NASD and OTC, the "NASD/BBS"), or, if such security bid is
not listed or admitted to trading on the Nasdaq, on the principal
national security exchange or quotation system on which such
security is quoted or listed or admitted to trading, or, if not
quoted or listed or admitted to trading on any national
securities exchange or quotation system the closing bid price of
such security on the over-the-counter market on the day in
question as reported by the National Quotation Bureau
Incorporated, or a similar generally accepted reporting service,
or if not so available, in such manner as furnished by any member
firm of the NASD selected from time to time by the Board of
Directors of the Company for that purpose, or a price determined
in good faith by the Board of Directors of the Company as being
equal to the fair market value thereof, as the case may be, for
the five (5) Trading Days immediately preceding the Initial
Funding Date.
"Other Property" shall have the meaning set forth in
Section 4.4.
"Outstanding" shall mean, when used with reference to
Common Stock, at any date as of which the number of shares
thereof is to be determined, all issued shares of Common Stock,
except shares then owned or held by or for the account of the
Company or any subsidiary thereof, and shall include all shares
issuable in respect of outstanding scrip or any certificates
representing fractional interests in shares of Common Stock.
"Person" shall mean any individual, sole
proprietorship, partnership, joint venture. trust, incorporated
organization, association, corporation, institution, public
benefit corporation, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without
limitation, any instrumentality, division, agency, body or
department thereof).
"Registration Rights Agreement" shall mean the
Registration Rights Agreement dated a date even herewith by and
<PAGE 12> between the Company and The Shaar Fund Ltd., as it may
be amended from time to time.
"Restricted Common Stock" shall mean shares of Common
Stock which are, or which upon their issuance or the exercise of
this Warrant would be, evidenced by a certificate bearing the
restrictive legend set forth in Section 9.1(a).
"Second Funding Date" means the date and time of the
issuance and sale of the New Preferred Shares (as defined in the
Securities Purchase Agreement) and the New Warrants (as defined
in the Securities Purchase Agreement) in the Second Tranche (as
defined in the Securities Purchase Agreement).
"Securities Act" shall mean the Securities Act of 1933,
as amended, or any successor federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall
be in effect at the time.
"Securities Purchase Agreement" shall mean the
Securities Purchase Agreement dated as of August 7, 1998 by and
between the Company and The Shaar Fund, Ltd. as it may be amended
from time to time.
"Transfer" shall mean any disposition of any Warrant or
Warrant Stock or of any interest in either thereof, which would
constitute a sale thereof within the meaning of the Securities
Act.
"Transfer Notice" shall have the meaning set forth in
Section 9.2.
"Warrants" shall mean this Warrant and all warrants
issued upon transfer, division or combination of, or in
substitution for, any thereof All Warrants shall at all times be
identical as to terms and conditions and date, except as to the
number of shares of Common Stock for which they may be exercised.
"Warrant Price" shall mean an amount equal to (i) the
number of shares of Common Stock being purchased upon exercise of
this Warrant pursuant to Section 2.1, multiplied by (ii) the
Current Warrant Price as of the date of such exercise.
"Warrant Stock" shall mean the shares of Common Stock
purchased by the holders of the Warrants upon the exercise
thereof.
2. EXERCISE OF WARRANT
2.1 Manner of Exercise. From and after the Second
Funding Date and until 5:00 P.M., New York time, on the
Expiration Date, Holder may exercise this Warrant, on any
Business Day, for all or any part of the number of shares of
Common Stock purchasable hereunder. <PAGE 13>
In order to exercise this Warrant, in whole or in
part, Holder shall deliver to the Company at its principal office
at 271 Route 46 West, Fairfield, New Jersey 07004, or at the
office or agency designated by the Company pursuant to
Section 12, (i) a written notice of Holder's of election to
exercise this Warrant, which notice shall specify the number of
shares of Common Stock to be purchased, (ii) payment of the
Warrant Price in Cash Or by wire transfer or cashier's check
drawn on a United States bank and (iii) this Warrant. Such
notice shall be substantially in the form of the subscription
form appearing at the end of this Warrant as Exhibit A, duly
executed by Holder or its agent or attorney. Upon receipt of the
items referred to in clauses (i), (ii) and (iii) above, the
Company shall, as promptly as practicable, and in any event
within five (5) Business Days thereafter, execute or cause to be
executed and deliver or cause to be delivered to Holder a
certificate or certificates representing the aggregate number of
full shares of Common Stock issuable upon such exercise, together
with cash in lieu of any fraction of a share, as hereinafter
provided. The stock certificate or certificates so delivered
shall be, to the extent possible, in such denomination or
denominations as Holder shall request in the notice and shall be
registered in the name of Holder or, subject to Section 9, such
other name as shall be designated in the notice. This Warrant
shall be deemed to have been exercised and such certificate or
certificates shall be deemed to have been issued, and Holder or
any other Person so designated to be named therein shall be
deemed to have become a holder of record of such shares for all
purposes, as of the date the notice, together with the cash or
check or checks and this Warrant, is received by the Company as
described above and all taxes required to be paid by Holder, if
any, pursuant to Section 2.2 prior to the issuance of such shares
have been paid. if this Warrant shall have been exercised in
part, the Company shall, at the time of delivery of the
certificate or certificates representing Warrant Stock, deliver
to Holder a new Warrant evidencing the rights of Holder to
purchase the unpurchased shares of Common Stock called for by
this Warrant, which new Warrant shall in all other respects be
identical with this Warrant, or, at the request of Holder,
appropriate notation may be made on this Warrant and the same
returned to Holder. Notwithstanding any provision herein to the
contrary, the Company shall not be required to register shares in
the name of any Person who acquired this Warrant (or pail hereof)
or any Warrant Stock otherwise than in accordance with this
Warrant.
2.2 Payment of Taxes and Charges. All shares of
Common Stock issuable upon the exercise of this Warrant pursuant
to the terms hereof shall be validly issued, fully paid and
nonassessable, freely tradeable and without any preemptive
rights. The Company shall pay all expenses in connection with,
and all taxes and other governmental charges that may be imposed
with respect to, the issue or delivery thereof, unless such tax
or charge is imposed by law upon Holder, in which case such taxes
<PAGE 14> or charges shall be paid by Holder. The Company shall
not be required, however, to pay any tax or other charge imposed
in connection with any transfer involved in the issue of any
certificate for shares of Common Stock issuable upon exercise of
this Warrant in any name other than that of Holder, and in such
case the Company shall not be required to issue or deliver any
stock certificate until such tax or other charge has been paid or
it has been established to the satisfaction of the Company that
no such tax or other charge is due.
2.3 Fractional Shares. The Company shall not be
required to issue a fractional share of Common Stock upon
exercise of any Warrant. As to any fraction of a share which
Holder would otherwise be entitled to purchase upon such
exercise, the Company shall pay a cash adjustment in respect of
such final fraction in an amount equal to the same fraction of
the Market Price per share of Common Stock as of the Initial
Funding Date.
2.4 Continued Validity. A holder of shares of Common
Stock issued upon the exercise, of this Warrant, in whole or in
part (other than a holder who acquires such shares after the same
have been publicly sold pursuant to a Registration Statement
under the Securities Act or sold pursuant to Rule 144
thereunder), shall continue to be entitled with respect to such
shares to all rights to which it would have been entitled as
Holder under Sections 9, 10 and 14 of this Warrant. The Company
will, at the time of exercise of this Warrant, in whole or in
part, upon the request of Holder, acknowledge in writing, in form
reasonably satisfactory to Holder, its continuing obligation to
afford Holder all such rights; provided, however, that if Holder
shall fail to make any such request, such failure shall not
affect the continuing obligation of the Company to afford to
Holder all such rights.
3. TRANSFER, DIVISION AND COMBINATION
3.1 Transfer. Subject to compliance with Section 9,
transfer of this Warrant and all rights hereunder, in whole or in
part, shall be registered on the books of the Company to be
maintained for such purpose, upon surrender of this Warrant at
the principal office of the Company referred to in Section 2.1 or
the office or agency designated by the Company pursuant to
Section 12, together with a written assignment of this Warrant
substantially in the form of Exhibit B hereto duly executed by
Holder or its agent or attorney and funds sufficient to pay any
transfer taxes payable upon the making of such transfer. Upon
such surrender and, if required, such payment, the Company shall,
subject to Section 9, execute and deliver a new Warrant or
Warrants in the name of the assignee or assignees and in the
denomination specified in such instrument of assignment, and
shall issue to the assignor a new Warrant evidencing the portion
of this Warrant not so assigned, and this Warrant shall promptly
be cancelled. A Warrant, if properly assigned in compliance with
<PAGE 15> Section 9, may be exercised by a new Holder for the
purchase of shares of Common Stock without having a new warrant
issued.
3.2 Division and Combination. Subject to Section 9,
this Warrant may be divided or combined with other Warrants upon
presentation hereof at the aforesaid office or agency of the
Company, together with a written notice specifying the names and
denominations in which new Warrants are to be issued, signed by
Holder or its agent or attorney. Subject to compliance with
Section 3.1 and with Section 9, as to any transfer which may be
involved in such division or combination, the Company shall
execute and deliver a new Warrant or Warrants in exchange for the
Warrant or Warrants to be divided or combined in accordance with
such notice.
3.3 Expenses. The Company shall prepare, issue and
deliver at its own expense (other than transfer taxes) the new
Warrant or Warrants under this Section 3.
3.4 Maintenance of Books. The Company agrees to
maintain, at its aforesaid office or agency, books for the
registration and the registration of transfer of the Warrants.
4. ADJUSTMENTS
The number of shares of Common Stock for which this
Warrant is exercisable, or the price at which such shares may be
purchased upon exercise of this Warrant, shall be subject to
adjustment from time to time as set forth in this Section 4. The
Company shall give Holder notice of any event described below
which requires an adjustment pursuant to this Section 4 at the
time of such event.
4.1 Stock Dividends, Subdivisions and Combinations.
If at any time the Company shall:
(a) take a record of the holders of its Common
Stock for the purpose of entitling them to receive a
dividend payable in, or other distribution of, Additional
Shares of Common Stock,
(b) subdivide its outstanding shares of Common
Stock into a larger number of shares of Common Stock, or
(c) combine its outstanding shares of Common
Stock into a smaller number of shares of Common Stock,
then (i) the number of shares of Common Stock for which this
Warrant is exercisable immediately after the occurrence of any
such event shall be adjusted to equal the number of shares of
Common Stock which a record holder of the same number of shares
of Common Stock for which this Warrant is exercisable immediately
prior to the occurrence of such event would own or be entitled to
<PAGE 16> receive after the happening of such event, and (ii) the
Current Warrant Price shall be adjusted to equal (A) the Current
Warrant Price multiplied by the number of shares of Common Stock
for which this Warrant is exercisable immediately prior to the
adjustment divided by (B) the number of shares for which this
Warrant is exercisable immediately after such adjustment.
4.2 Certain Other Distribution. If at any time the
Company shall take a record of the holders of its Common Stock
for the purpose of entitling them to receive any dividend or
other distribution of:
(a) cash,
(b) any evidences of its indebtedness, any shares
of its stock or any other securities or property of any
nature whatsoever (other than cash, Convertible Securities
or Additional Shares of Common Stock), or
(c) any warrants or other rights to subscribe for
or purchase any evidences of its indebtedness, any shares of
its stock or any other securities or property of any nature
whatsoever (other than cash, Convertible Securities or
Additional Shares of Common Stock),
then Holder shall be entitled to receive such dividend or
distribution as if Holder had exercised the Warrant. A
reclassification of the Common Stock (other than a change in par
value, or from par value to no par value or from no par value to
par value) into shares of Common Stock and shares of any other
class of stock shall be deemed a distribution by the Company to
the holders of its Common Stock of such shares of such other
class of stock within the meaning of this Section 4.2 and, if the
outstanding shares of Common Stock shall be changed into a larger
or smaller number of shares of Common Stock as a part of such
reclassification, such change shall be deemed a subdivision or
combination, as the case may be, of the outstanding shares of
Common Stock within the meaning of Section 4.1.
4.3 Other Provisions Applicable to Adjustments under
this Section. The following provisions shall be applicable to
the making of adjustments of the number of shares of Common Stock
for which this Warrant is exercisable and the Current Warrant
Price provided for in this Section 4:
(a) When Adjustments to Be Made. The adjustments
required by this Section 4 shall be made whenever and as
often as any specified event requiring an adjustment shall
occur. For the purpose of any adjustment, any specified
event shall be deemed to have occurred at the close of
business on the date of its occurrence.
(b) Fractional Interests. In computing
adjustments under this Section 4, fractional interests in
<PAGE 17> Common Stock shall be taken into account to the
nearest 1/10th of a share.
(c) When Adjustment Not Required. If the Company
shall take a record of the holders of its Common Stock for
the purpose of entitling them to receive a dividend or
distribution or subscription or purchase rights and shall,
thereafter and before the distribution to stockholders
thereof, legally abandon its plan to pay or deliver such
dividend, distribution, subscription or purchase rights,
then thereafter no adjustment shall be required by reason of
the taking of such record and any such adjustment previously
made in respect thereof shall be rescinded and annulled.
(d) Challenge to Good Faith Determination.
Whenever the Board of Directors of the Company shall be
required to make a determination in good faith of the fair
value of any item under this Section 4, such determination
may be challenged in good faith by the Holder, and any
dispute shall be resolved by an investment banking firm of
recognized national standing selected by the Company and
acceptable to the Holder.
4.4 Reorganization, Reclassification, Merger,
Consolidation or Disposition of Assets. In case the Company shall
reorganize its capital, reclassify its capital stock, consolidate
or merge with or into another corporation (where the Company is
not the surviving corporation or where there is a change in or
distribution with respect to the Common Stock of the Company), or
sell, transfer or otherwise dispose of all or substantially all
its property, assets or business to another corporation and,
pursuant to the terms of such reorganization, reclassification,
merger, consolidation or disposition of assets, shares of common
stock of the successor or acquiring corporation, or any cash,
shares of stock or other securities or property of any nature
whatsoever (including warrants or other subscription or purchase
rights) in addition to or in lieu of common stock of the
successor or acquiring corporation ("Other Property"), are to be
received by or distributed to the holders of Common Stock of the
Company, then Holder shall have the night thereafter to receive,
upon exercise of the Warrant, the number of shares of common
stock of the successor or acquiring corporation or of the
Company, if it is the surviving corporation, and Other Property
receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets
by a holder of the number of shares of Common Stock for which
this Warrant is exercisable immediately prior to such event. In
case of any such reorganization, reclassification, merger,
consolidation or disposition of assets, the successor or
acquiring corporation (if other than the Company) shall expressly
assume the due and punctual observance and performance of each
and every covenant and condition of this Warrant to be performed
and observed by the Company and all the obligations and
liabilities hereunder, subject to such modifications as may be
<PAGE 18> deemed appropriate (as determined by resolution of the
Board of Directors of the Company) in order to provide for
adjustments of shares of Common Stock for which this Warrant is
exercisable which shall be as nearly equivalent as practicable to
the adjustments provided for in this Section 4. For purposes of
this Section 4.4, "common stock of the successor or acquiring
corporation" shall include stock of such corporation of any class
which is not preferred as to dividends or assets over any other
class of stock of such corporation and which is not subject to
redemption and shall also include any evidences of indebtedness,
shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the
arrival of a specified date or the happening of a specified event
and any warrants or other rights to subscribe for or purchase any
such stock. The foregoing provisions of this Section 4.4 shall
similarly apply to successive reorganizations, reclassifications,
mergers, consolidations or disposition of assets.
4.5 Other Action Affecting Common Stock. In case at
any time or from time to time the Company shall take any action
in respect of its Common Stock, other than any action described
in this Section 4, which would have a materially adverse effect
upon the rights of the Holder, the number of shares of Common
Stock and/or the purchase price thereof shall be adjusted in such
manner as may be equitable in the circumstances, as determined in
good faith by the Board of Directors of the Company.
4.6 Certain Limitations. Notwithstanding anything
herein to the contrary, the Company agrees not to enter into any
transaction which, by reason of any adjustment hereunder, would
cause the Current Warrant Price to be less than the par value per
share of Common Stock.
5. NOTICES TO HOLDER
5.1 Notice of Adjustments. Whenever the number of
shares of Common Stock for which this Warrant is exercisable, or
whenever the price at which a share of such Common Stock may be
purchased upon exercise of the Warrants, shall be adjusted
pursuant to Section 4, the Company shall forthwith prepare a
certificate to be executed by the chief financial officer of the
Company setting forth, in reasonable detail, the event requiring
the adjustment and the method by which such adjustment was
calculated (including a description of the basis on which the
Board of Directors of the Company determined the fair value of
any evidences of indebtedness, shares of stock, other securities
or property or warrants or other subscription or purchase rights
referred to in Section 4.2), specifying the number of shares of
Common Stock for which this Warrant is exercisable and (if such
adjustment was made pursuant to Section 4.4 or 4.5) describing
the number and kind of any other shares of stock or Other
Property for which this warrant is exercisable, and any change in
the purchase price or prices thereof, after giving effect to such
adjustment or change. The Company shall promptly cause a signed
<PAGE 19> copy of such certificate to be delivered to the Holder
in accordance with Section 14.2. The Company shall keep at its
office or agency designated pursuant to Section 12 copies of all
such certificates and cause the same to be available for
inspection at said office during normal business hours by the
Holder or any prospective purchaser of a Warrant designated by
the Holder.
5.2 Notice of Corporate Action. If at any time
(a) the Company shall take a record of the
holders of its Common Stock for the purpose of entitling
them to receive a dividend or other distribution, or any
right to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other
securities or property, or to receive any other right, or
(b) there shall be any capital reorganization of
the Company, any reclassification or recapitalization of the
capital stock of the Company or any consolidation or merger
of the Company with, or any sale, transfer or other
disposition of all or substantially all the property, assets
or business of the Company to, another corporation, or
(c) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to
Holder (i) at least 30 days' prior written notice of the date on
which a record date shall be selected for such dividend,
distribution or right or for determining rights to vote in
respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution,
liquidation or winding up, and (ii) in the case of any such
reorganization, reclassification, merger, consolidation, sale,
transfer, disposition, dissolution, liquidation or winding up, at
least 30 days' prior written notice of the date when the same
shall take place. Such notice in accordance with the foregoing
clause also shall specify (i) the date on which any such record
is to be taken for the purpose of such dividend, distribution or
right, the date on which the holders of Common Stock shall be
entitled to any such dividend, distribution or right, and the
amount and character thereof, and (ii) the date on which any such
reorganization, reclassification, merger, consolidation, sale,
transfer, disposition, dissolution, liquidation or winding up is
to take place and the time, if any such time is to be fixed, as
of which the holders of Common Stock shall be entitled to
exchange their shares of Common Stock for securities or other
property deliverable upon such reorganization, reclassification,
merger, consolidation, sale, transfer, disposition, dissolution,
liquidation or winding up. Each such written notice shall be
sufficiently given if addressed to Holder at the last address of
Holder appearing on the books of the Company and delivered in
accordance with Section 14.2. <PAGE 20>
6. NO IMPAIRMENT
The Company shall not by any action including, without
limitation, amending its certificate of incorporation or through
any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of
any of the terms of this Warrant, but will at all times in good
faith assist in) the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to
protect the rights of Holder against impairment. Without
limiting the generality of the foregoing, the Company will
(a) not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the amount
payable therefor upon such exercise immediately Prior to such
increase in par value, (b) take all such action as may be
necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable shares of Common
Stock upon the exercise of this warrant, and (c) use its best
efforts to obtain all such authorizations, exemptions or consents
from any public regulatory body having jurisdiction thereof as
may be necessary to enable the Company to perform its obligations
under this Warrant.
Upon the request of Holder, the Company will at any
time during the period this Warrant is outstanding acknowledge in
writing, in form satisfactory to Holder, the continuing validity
of this Warrant and the obligations of the Company hereunder.
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK
From and after the Initial Funding Date, the Company
shall at all times reserve and keep available for issue upon the
exercise of Warrants such number of its authorized but unissued
shares of Common Stock as will be sufficient to permit the
exercise in full of all outstanding Warrants. All shares of
Common Stock which shall be so issuable, when issued upon
exercise of any Warrant and payment therefor in accordance with
the terms of such Warrant, shall be duly and validly issued and
fully paid and nonassessable, and not subject to preemptive
rights.
Before taking any action which would cause an
adjustment reducing the Current Warrant Price below the then par
value, if any, of the shares of Common Stock issuable upon
exercise of the Warrants, the Company shall take any corporate
action which may be necessary in order that the Company may
validly and legally issue fully paid and non-assessable shares of
such Common Stock at such adjusted Current Warrant Price.
Before taking any action which would result in an
adjustment in the number of shares of Common Stock for which this
Warrant is exercisable or in the Current Warrant Price, the
Company shall obtain all such authorizations or exemptions
<PAGE 21> thereof, or consents thereto, as may be necessary from
any public regulatory body or bodies having jurisdiction thereof.
8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by
the Company to the holders of its Common Stock with respect to
which any provision of Section 4 refers to the taking of a record
of such holders, the Company will in each such case take such a
record and will take such record as of the close of business on a
Business Day. The Company will not at any time, except upon
dissolution, liquidation or winding up of the Company, close its
stock transfer books or Warrant transfer books so as to result in
preventing or delaying the exercise or transfer of any Warrant.
9. RESTRICTIONS ON TRANSFERABILITY
The Warrants and the Warrant Stock shall not be
transferred, hypothecated or assigned before satisfaction of the
conditions specified in this Section 9, which conditions are
intended to ensure compliance with the provisions of the
Securities Act with respect to the Transfer of any Warrant or any
Warrant Stock. Holder, by acceptance of this Warrant, agrees to
be bound by the provisions of this Section 9.
9.1 Restrictive Legend.
(a) The Holder by accepting this Warrant and any
Warrant Stock agrees that this Warrant and the Warrant Stock
issuable upon exercise hereof may not be assigned or
otherwise transferred unless and until (i) the Company has
received an opinion of counsel for the Holder that such
securities may be sold pursuant to an exemption from
registration under the Securities Act of 1933, as amended
(the "Securities Act") or (ii) a registration statement
relating to such securities has been filed by the Company
and declared effective by the Commission.
Each certificate for Warrant Stock issuable
hereunder shall bear a legend as follows unless such
securities have been sold pursuant to an effective
registration statement under the Securities Act:
"These securities have not been registered under
the Securities Act of 1933, as amended (the "Securities
Act"), or the securities laws of any state, and are
being offered and sold pursuant to an exemption from
the registration requirements of the Securities Act and
such laws. These securities may not be sold or
transferred except pursuant to an effective
registration statement under the Securities Act or
pursuant to an available exemption from the <PAGE 22>
registration requirements of the Securities Act or such
other laws."
(b) Except as otherwise provided in this
Section 9, the Warrant shall be stamped or otherwise
imprinted with a legend in substantially the following form:
"This Warrant and the securities represented
hereby have not been registered under the Securities
Act of 1933, as amended, and may not be transferred in
violation of such Act, the rules and regulations
thereunder or the provisions of this Warrant."
9.2 Notice of Proposed Transfers. Prior to any
Transfer or attempted Transfer of any Warrants or any shares of
Restricted Common Stock, the Holder shall give ten days, prior
written notice (a "Transfer Notice") to the Company of Holder's
intention to effect such Transfer, describing the manner and
circumstances of the proposed Transfer, and obtain from counsel
to Holder who shall be reasonably satisfactory to the Company, an
opinion that the proposed Transfer of such Warrants or such
Restricted Common Stock may be effected without registration
under the Securities Act. After receipt of the Transfer Notice
and opinion, the Company shall, within five days thereof, notify
the Holder as to whether such opinion is reasonably satisfactory
and, if so, such holder shall thereupon be entitled to Transfer
such Warrants or such Restricted Common Stock, in accordance with
the terms of the Transfer Notice. Each certificate, if any,
evidencing such shares of Restricted Common Stock issued upon
such Transfer shall bear the restrictive legend set forth in
Section 9.1(a), and the Warrant issued upon such Transfer shall
bear the restrictive legend set forth in Section 9.1(b), unless
in the opinion of such counsel such legend is not required in
order to ensure compliance with the Securities Act. The Holder
shall not be entitled to Transfer such Warrants or such
Restricted Common Stock until receipt of notice from the Company
under this Section 9.2(a) that such opinion is reasonably
satisfactory.
9.3 Required Registration. Pursuant to the terms and
conditions set forth in the Registration Rights Agreement, the
Company shall prepare and file with the Commission not later than
the sixtieth (60th) day after the Initial Funding Date, a
Registration Statement relating to the offer and sale of the
Common Stock issuable upon exercise of the Warrants and shall use
its best efforts to cause the Commission to declare such
Registration Statement effective under the Securities Act as
promptly as practicable but no later than one hundred and twenty
(120) days after the Initial Funding Date.
9.4 Termination of Restrictions. Notwithstanding the
foregoing provisions of Section 9, the restrictions imposed by
this Section upon the transferability of the Warrants, the
Warrant Stock and the Restricted Common Stock (or Common Stock
<PAGE 23> issuable upon the exercise of the Warrants) and the
legend requirements of Section 9.1 shall terminate as to any
particular Warrant or share of Warrant Stock or Restricted Common
Stock (or Common Stock issuable upon the exercise of the
warrants) (1) when and so long as such security shall have been
effectively registered under the Securities Act and disposed of
pursuant thereto or (ii) when the Company shall have received an
opinion of counsel reasonably satisfactory to it that such shares
may be transferred without registration thereof under the
Securities Act. Whenever the restrictions imposed by Section 9
shall terminate as to this Warrant, as hereinabove provided, the
Holder hereof shall be entitled to receive from the Company upon
written request of the Holder, at the expense of the Company, a
new Warrant bearing the following legend in place of the
restrictive legend set forth hereon:
"THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN
WARRANT CONTAINED IN SECTION 9 HEREOF TERMINATED ON
____________, 19_, AND ARE OF NO FURTHER FORCE AND
EFFECT."
All Warrants issued upon registration of transfer, division or
combination of, or in substitution for, any Warrant or Warrants
entitled to bear such legend shall have a similar legend endorsed
thereon. Whenever the restrictions imposed by this Section shall
terminate as to any share of Restricted Common Stock, as
hereinabove provided, the holder thereof shall be entitled to
receive from the Company, at the Company's expense, a new
certificate representing such Common Stock not bearing the
restrictive legend set forth in Section 9.1(a).
9.5 Listing on Securities Exchange. If the Company
shall list any shares of Common Stock on any securities exchange,
it will, at its expense, list thereon, maintain and, when
necessary, increase such listing of, all shares of Common Stock
issued or, to the extent permissible under the applicable
securities exchange rules, issuable upon the exercise of this
Warrant so long as any shares of Common Stock shall be so listed
during any such Exercise Period.
10. SUPPLYING INFORMATION
The Company shall cooperate with Holder in supplying
such information as may be reasonably necessary for Holder to
complete and file any information reporting forms presently or
hereafter required by the Commission as a condition to the
availability of an exemption from the Securities Act for the sale
of any Warrant or Restricted Common Stock.
11. LOSS OR MUTILATION
Upon receipt by the Company from Holder of evidence
reasonably satisfactory to it of the ownership of and the loss,
theft, destruction or mutilation of a Warrant and indemnity
<PAGE 24> reasonably satisfactory to it (it being understood that
the written agreement of the Holder shall be sufficient
indemnity), and in case of mutilation upon surrender and
cancellation hereof, the Company will execute and deliver in lieu
hereof a new Warrant of like tenor to Holder; provided, in the
case of mutilation, no indemnity shall be required if this
Warrant in identifiable form is surrendered to the Company for
cancellation.
12. OFFICE OF THE COMPANY
As long as any of the Warrants remain outstanding, the
Company shall maintain an office or agency (which may be the
principal executive offices of the Company) where the Warrants
may be presented for exercise, registration of transfer, division
or combination as provided in this Warrant.
13. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative
action by Holder to purchase shares of Common Stock, and no
enumeration herein of the rights or privileges of Holder hereof,
shall give rise to any liability of Holder for the purchase price
of any Common Stock or as a stockholder of the Company, whether
such liability is asserted by the Company or by creditors of the
Company.
14. MISCELLANEOUS
14.1 Nonwaiver and Expenses. No course of dealing or
any delay or failure to exercise any right hereunder on the part
of Holder shall operate as a waiver of such right or otherwise
prejudice Holder's rights, powers or remedies. If the Company
fails to make, when due, any payments provided for hereunder, or
fails to comply with any other provision of this Warrant, the
Company shall pay to Holder such amounts as shall be sufficient
to cover any costs and expenses including, but not limited to,
reasonable attorneys' fees, including those of appellate
proceedings, incurred by Holder in collecting any amounts due
pursuant hereto or in otherwise enforcing any of its rights,
powers or remedies hereunder.
14.2 Notice Generally. Except as may be otherwise
provided herein, any notice or other communication or delivery
required or permitted hereunder shall be in writing and shall be
delivered personally or sent by certified mail, postage prepaid,
or by a nationally recognized overnight courier service, and
shall be deemed given when so delivered personally or by
overnight courier service, or, if mailed, three (3) days after
the date of deposit in the United States mails, as follows:
(1) if to the Company, to:
DYNAMICWEB ENTERPRISES, INC. <PAGE 25>
271 Route 46W, Building F, Suite 209
Fairfield, New Jersey 07004
Attention: Steven L. Vanechanos, Jr.
Telephone: (973) 276-3107
Facsimile: (973) 575-9830
With a copy to:
STEVENS & LEE
One Glenhardie Corporate Center, Suite 202
Wayne, PA 19087-0234
Attention: Steve Ritner, Esq.
Telephone: (610) 964-1480
Facsimile: (610) 687-1384
(2) if to the Holder, to:
THE SHAAR FUND LTD., c/o SHAAR ADVISORY
SERVICES LTD. 62 King George Street,
Apartment 4F Jerusalem, Israel
Attention: Samuel Levinson
With a copy to:
HERRICK, FEINSTEIN LLP
2 Park Avenue
New York, New York 10016
Attention: Irwin A. Kishner, Esq.
Telephone: (212) 592-1435
Facsimile: (212) 889-7577
The Company or the Holder may change the foregoing address by
notice given pursuant to this Section 14.2.
14.3 Indemnification. The Company agrees to indemnify
and hold harmless Holder from and against any liabilities,
obligations, losses, damages, penalties, actions, judgments,
suits, claims, costs, attorneys' fees, expenses and disbursements
of any kind which may be imposed upon, incurred by or asserted
against Holder in any manner relating to or arising out of any
failure by the Company to perform or observe in any material
respect any of its covenants, agreements, undertakings or
obligations set forth in this Warrant; provided, however, that
the Company will not be liable hereunder to the extent that any
liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, attorneys' fees, expenses or
disbursements are found in a final non-appealable judgment by a
court to have resulted from Holder's gross negligence, bad faith
or willful misconduct in its capacity as a stockholder or
warrantholder of the Company.
14.4 Remedies. Holder in addition to being entitled to
exercise all rights granted by law, including recovery of
damages, will be entitled to specific performance of its rights
<PAGE 26> under Section 9 of this Warrant. The Company agrees
that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by it of the provisions of
Section 9 of this Warrant and hereby agrees to waive the defense
in any action for specific performance that a remedy at law would
be adequate.
14.5 Successors and Assigns. Subject to the provisions
of Sections 3.1 and 9, this Warrant and the rights evidenced
hereby shall inure to the benefit of and be binding upon the
successors of the Company and the successors and assigns of
Holder. The provisions of this Warrant are intended to be for
the benefit of all Holders from time to time of this Warrant and,
with respect to Section 9 hereof, holders of Warrant Stock, and
shall be enforceable by any such Holder or holder of Warrant
Stock.
14.6 Amendment. This Warrant and all other Warrants may
be modified or amended or the provisions hereof waived with the
written consent of the Company and the Holder.
14.7 Severability. Wherever possible, each provision
of this Warrant shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of
this Warrant shall be prohibited by or invalid under applicable
law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Warrant.
14.8 Headings. The headings used in this Warrant are
for the convenience of reference only reference only and shall
not, for any purpose, be deemed a part of this Warrant.
14.9 Governing Law. This Warrant shall be governed by
the laws of the State of New York, without regard to the
provisions thereof relating to conflict of laws.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
PAGE 27
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant
to be duly executed and its corporate sea.1 to be impressed
hereon and attested by its Secretary or an Assistant Secretary.
Dated: December 2. 1998
DYNAMICWEB ENTERPRISES, INC.
By:________________________________
Name: Steven L. Vanechanos, Jr.
Title: Chief Executive Officer
Attest:
By: _______________________
Name:
Title:
[SEAL]
PAGE 28
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably
exercises this warrant for the purchase of Shares of Common Stock
of Dynamicweb Enterprises, Inc. and herewith makes payment
therefor, all at the price and on the terms and conditions
specified in this Warrant and requests that certificates for the
shares of Common Stock hereby purchased (and any securities or
other property issuable upon such exercise) be issued in the
name of and delivered to whose address is and, if such shares of
Common Stock shall not include all of the shares of Common Stock
issuable as provided in this Warrant, that a new Warrant of like
tenor and date for the balance of the shares of Common Stock
issuable hereunder be delivered to the undersigned.
(Name of Registered owner)
(Signature of Registered Owner)
Street Address)
(city) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with
the name as written upon the face of the within Warrant
in every particular, without alteration or enlargement
or any change whatsoever.
PAGE 29
<PAGE>
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this
Warrant hereby sells, assigns and transfers unto the Assignee
named below all of the rights of the undersigned under this
Warrant, with respect to the number of shares of Common Stock set
forth below:
No. of Shares of
Name and Address of Assignee Common Stock
and does hereby irrevocably constitute and appoint attorney-in-
fact to register such transfer on the books of maintained for the
purpose, with full power of substitution in the premises.
Dated: Print Name:
Signature:
Witness:
NOTICE: The signature on this assignment must correspond with
the name as written upon the face of the within Warrant
in every particular, without alteration or enlargement
or any change whatsoever.
<PAGE 30>
Exhibit 10.34
VIA FEDERAL EXPRESS
THE SHAAR FUND LTD.
c/o Levinson Capital Management, L.L.C.
2 World Trade Center, Suite 1820
New York, NY 10048
Attn: Mr. Samuel Levinson
Re: $1,000,000 Investment by The Shaar Fund Ltd. in
Series B 6% Convertible Preferred Shares and a
Common Stock Purchase Warrant of DynamicWeb
Enterprises, Inc.
Dear Mr. Levinson:
Reference is hereby made in this letter agreement (the
"1999 Letter Agreement") to the following documents:
(i) the Securities Purchase Agreement dated as of
August 7, 1998 (the "1998 Securities Purchase Agreement") between
DYNAMICWEB ENTERPRISES, INC., a New Jersey corporation with
principal executive offices located at 271 Route 46 West,
Fairfield, NJ 07004 (the "Company") and THE SHAAR FUND, LTD.
("Buyer");
(ii) the Registration Rights Agreement dated as of
August 7, 1998, (the "1998 Registration Rights Agreement")
between the Company and Buyer;
(iii) the Letter Agreement dated as of December 3,
1998 (the "1998 Letter Agreement") between DYNAMICWEB
ENTERPRISES, INC., a New Jersey corporation with principal
executive offices located at 271 Route 46 West, Fairfield, NJ
07004 (the "Company") and THE SHAAR FUND, LTD. ("Buyer");
(iv) the Securities Purchase Agreement dated as of
February 12, 1999 (the "1999 Securities Purchase Agreement")
between DYNAMICWEB ENTERPRISES, INC., a New Jersey corporation
with principal executive offices located at 271 Route 46 West,
Fairfield, NJ 07004 (the "Company") and THE SHAAR FUND, LTD.
("Buyer");
(v) the Registration Rights Agreement dated as of
February 12, 1999, (the "1999 Registration Rights Agreement")
between the Company and Buyer;
(vi) the Common Stock Purchase Warrant No. 2 dated as
of May 12, 1999 ("Warrant No. 2") issued by the Company to Buyer
<PAGE 1> to purchase 90,000 shares of the Company's common
stock, par value $0.0001 (the "Common Stock");
(vii) the Escrow Instructions dated as of
May 12, 1999 (the "Escrow Instructions") among the Company, Buyer
and Weil, Gotshall & Manges, L.L.P. (the "Escrow Agent"); and
(viii) all other documents and instruments executed
and delivered by the Company or Buyer on the Initial Funding Date
in order to consummate the transactions contemplated pursuant to
the 1999 Securities Purchase Agreement (collectively, the
"Ancillary Documents"), and together with the 1999 Securities
Purchase Agreement, the 1999 Registration Rights Agreement,
Warrant No. 2 and the Escrow Instructions, collectively referred
to as the "Documents").
In order to consummate the acquisition by Buyer from
the Company of 1000 shares of the Company's Series B 6% Preferred
Stock, par value $0.001 (collectively, the "Preferred Shares")
and Common Stock Purchase Warrant (a copy of which is attached
hereto as Exhibit A) on the Second Funding Date, the parties
hereto hereby agree as follows:
1. Definitions All capitalized terms that are used and not
defined herein shall have the respective meaning assigned to them
in the 1999 Securities Purchase Agreement.
2. Amendments to the Documents.
(a) Without limiting the generality of the foregoing, the
following sections of the Documents are hereby amended as
follows:
(i) the reference in Section 2(b)(iv) of the 1998
Letter Agreement and the reference in Section 2(b) of the 1999
Registration Rights Agreement is amended and changed so that the
Company shall file such Registration Statement as required by the
1998 Letter Agreement and 1999 Registration Rights Agreements
within 7 business days of the closing of the Second Tranche
pursuant to the 1999 Securities Purchase Agreement and shall
cause the Securities and Exchange Commission to declare such
Registration Statement effective on or prior to July 9, 1999.
3. No Further Obligations. The parties hereto acknowledge and
agree that Buyer shall have no further obligation to purchase any
additional securities of the Company of any type under this
Letter Agreement or any of the Documents.
<PAGE 2>
4. Closing Conditions. The Company represents, warrants and
covenants that all of the Second Funding Requirements set forth
at Section I.B. of the 1999 Securities Purchase Agreement have
been completed and satisfied in all respects.
5. Conditions to the Buyer's Obligations. The Company
understands that Buyer's obligation to purchase the Preferred
Shares and the Warrant pursuant to this 1999 Letter Agreement and
the Documents is conditioned upon:
(a) The Company's offer and the Buyer's acceptance of the
payment of One Hundred Twenty Five Thousand Dollars ($125,000) as
payment in full of any liquidated damages due from the Company to
the Buyer actionable under the 1998 Letter Agreement, the 1998
Registration Rights Agreement, and the 1999 Registration Rights
Agreement for all periods through July 9, 1999.
(b) Delivery by the Company to the Escrow Agent on the
Second Funding Date of: (i) one or more certificates (I/N/O
Buyer) evidencing the Series B Preferred Shares; (ii)the Warrant
No. 2 to be purchased by Buyer pursuant to the 1999 Securities
Purchase Agreement on the Second Funding Date; and the
disbursement of monies as directed in the Release Notice;
(c) The accuracy in all respects on the Second Funding Date
of the representations and warranties of the Company contained in
the 1999 Securities Purchase Agreement as if made on the Second
Funding Date (except for representations and warranties which, by
their express terms, speak as of and relate to a specified date)
and the performance by the Company in all respects on or before
the Second Funding Date of all covenants and agreements of the
Company required to be performed by it pursuant to this Agreement
on or before the Second Funding Date;
(d) Buyer having received an opinion of counsel for the
Company, dated as of the Second Funding Date, in form, scope and
substance satisfactory to the Buyer;
(e) 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 1999 Letter Agreement, a
material acceleration or worsening thereof; <PAGE 3>
(f) 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;
(g) 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 1999 Letter Agreement and the
1999 Securities Purchase Agreement (including the fees and
disbursements of Buyer's legal counsel);
(h) 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 1999 Letter Agreement or the
1999 Securities Purchase Agreement; and
(i) Solely with respect to the closing date occurring on
the Second Funding Date, the Company shall have satisfied or
performed all of the Second Funding Requirements and all other
conditions set forth in Section I.B. of the 1999 Securities
Purchase Agreement, or Buyer shall have waived the Company's
compliance with such requirements.
6. Conditions to the Company's Obligations. The Buyer
understands that the Company's obligation to sell the Preferred
Shares and Warrant No. 2 on the Second Funding Date to Buyer
pursuant to this 1999 Letter Agreement and the Documents is
conditioned upon:
(a) The Company's offer and the Buyer's acceptance of the
payment of One Hundred Twenty Five Thousand Dollars ($125,000) as
payment in full of any liquidated damages due from the Company to
the Buyer actionable under the 1998 Letter Agreement, the 1998
Registration Rights Agreement and 1999 Registration Rights
Agreement for all periods through July 9, 1999;
(b) Delivery by Buyer to the Escrow Agent of $1,000,000 on
the Second Funding Date subject to the disbursement of monies as
directed in the Release Notice;
(c) The accuracy in all material respects on the Second
Funding Date of the representations and warranties of Buyer
contained in the 1999 Securities Purchase Agreement as if made on
the Second Funding Date (except for representations and
warranties which, by their express terms, speak as of and relate
to a specified date, in which case such accuracy shall be
measured as of such specified date) and the performance by Buyer
<PAGE 4> in all material respects on or before the Second
Funding Date of all covenants and agreements of Buyer required to
be performed by it pursuant to the 1999 Letter Agreement or the
1999 Securities Purchase Agreement on or before the Second
Funding Date; and
(d) There shall not be in effect any Law or order, ruling,
judgment or writ of any public or governmental authority
restraining, enjoining or otherwise prohibiting any of the
transactions contemplated by the 1999 Letter Agreement or the
1999 Securities Purchase Agreement.
7. Deliveries Upon the Second Funding Date. Upon the Second
Funding Date, the Company shall deliver to Buyer the following
documents and instruments, all in the form, scope and substance
satisfactory to Buyer:
(a) one or more certificates (I/N/O Buyer) evidencing the
Series B Preferred Shares;
(b) Warrant No. 2 (I/N/O Buyer)in the form attached hereto
as Exhibit A;
(c) one or more Amendments to the Company's Certificate of
Incorporation filed with the Secretary of State of New Jersey;
(d) the opinion of counsel for the Company dated as of the
Second Funding Date in similar form to the opinion delivered on
the Initial Funding Date;
(e) an Officers' Certificate of the Company in similar form
to the Officers' Certificate delivered on the Initial Funding
Date;
(f) a Certificate of Good Standing as of the Second Funding
Date; and
(g) the Minutes of the Special Meeting of the Board of
Directors of the Company approving the transaction contemplated
by this 1999 Letter Agreement and the Documents.
8. Closing. The issuance and sale of the Second Tranche shall
occur on the Second Funding Date at the offices of the Escrow
Agent (as defined in the Securities Purchase Agreement) in
accordance with the terms and provisions of the 1999 Securities
Purchase Agreement.
<PAGE 5>
9. Governing Law; Miscellaneous. This 1999 Letter Agreement
shall be governed by and interpreted in accordance with the laws
of the State of New York, without regard to the conflicts of law
principles of such state. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any
part of the City of New York or the state courts of the State of
New York sitting in the City of New York in connection with any
dispute arising under this 1999 Letter Agreement and hereby
waives, to the maximum extent permitted by law, any objection,
including any objection based on forum non conveniens, to the
bringing of any such proceeding in such jurisdictions. A
facsimile transmission of this signed 1999 Letter Agreement shall
be legal and binding on all parties hereto. This 1999 Letter
Agreement may be signed in one or more counterparts, each of
which shall be deemed an original. The headings of this 1999
Letter Agreement are for convenience of reference and shall not
form part of, or affect the interpretation of, this 1999 Letter
Agreement. If any provision of this 1999 Letter Agreement shall
be invalid or unenforceable in any jurisdiction, such invalidity
or unenforceability shall not affect the validity or
enforceability of the remainder of this 1999 Letter Agreement in
any other jurisdiction. This 1999 Letter Agreement may be
amended only by an instrument in writing signed by the party to
be charged with enforcement. This 1999 Letter Agreement
supersedes all prior agreements and understandings among the
parties hereto with respect to the subject matter hereof.
10. Notices. Except as may be otherwise provided herein, any
notice or other communication or delivery required or permitted
hereunder shall be in writing and shall be delivered personally
or sent by certified mail, postage prepaid, or by a nationally
recognized overnight courier service, and shall be deemed given
when so delivered personally or by overnight courier service, or,
if mailed, three (3) days after the date of deposit in the United
States mails, as follows:
(a) if to the Company, to:
DYNAMICWEB ENTERPRISES, INC.
271 Route 46 West
Building F, Suite 209
Fairfield, NJ 07001
Attention: Steven L. Vanechanos, Jr.
Telephone: (973)276-3107
Facsimile: (973)575-9830
With a copy to:
<PAGE 6>
Stevens & Lee
One Glenhardie Corporate Center
Suite 202
Wayne, PA 19087-0234
Attention: Steve Ritner, Esq.
Facsimile: (610)687-1384
(b) if to the Buyer, to:
THE SHAAR FUND LTD.
c/o Levinson Capital Management, L.L.C.
2 World Trade Center, Suite 1820
New York, NY 10048
Attn: Samuel Levinson
with a copy to:
Weil, Gotshal & Manges LLP
Attention: Ira Halperin, Esq.
767 Fifth Avenue
New York, NY 10153-0119
Telephone: 212-310-8163
Facsimile: 212-310-8007
The Company, the Buyer or the Escrow Agent may change the
foregoing address by notice given pursuant to this Section 11.
11. Confidentiality. Each of the Company and Buyer agrees to
keep confidential and not to disclose to or use for the benefit
of any third party the terms of this Letter Agreement or nay
other information which at any time is communicated by the other
party as being confidential without the prior written approval of
the other party; provided, however, that this provision shall
not apply to information which, at the time of disclosure, is
already part of the public domain (except by breach of this
Letter Agreement) and information which is required to be
disclosed by law (including, without limitation, pursuant to Item
10 of Rule 601 of Regulation S-K under the Securities Act and the
Exchange Act).
12. No Further Modification. Except as specifically provided in
this Letter Agreement, nothing herein contained shall otherwise
modify, reduce, amend or otherwise supplement the terms and
provisions of the Documents, each of which remain in force and
effect.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
PAGE 7
<PAGE>
This letter is being delivered to you in duplicate. If
it accurately describes the agreement between us, kindly so
indicate by signing and returning one copy to the undersigned
whereupon it will constitute our agreement with respect to the
matter set forth above.
Sincerely,
DYNAMICWEB ENTERPRISES, INC.
By:________________________________
Name
Title
AGREED TO AND ACCEPTED
this __ day of _____, 1999
THE SHAAR FUND, LTD.
By:________________________________
Name:
Title:
<PAGE 8>
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 and related prospectus of DynamicWeb
Enterprises, Inc. for the registration of 2,145,025 shares of its
common stock and to the incorporation by reference therein of our
report dated November 30, 1998 (December 3, 1998 with respect to
the last paragraph of Note H[7]) 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, 1998, filed with the Securities and
Exchange Commission.
Richard A. Eisner & Company, LLP
New York, New York
May 18, 1999
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 May 12, 1999.
(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 12 day of May,
1999.
DYNAMICWEB ENTERPRISES, INC.
By:________________________________
Steve Vanechanos, Jr.
Chairman and Chief Executive
Officer
<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) "Applicable Percentage" means 85% of the Market
Price for shares converted from one (1) to one-hundred seventy
nine (179) days after the Closing Date of the Initially Issued
Preferred Shares or New Preferred Shares, as applicable, and 80%
of the Market Price for shares converted from one-hundred eighty
days (180) to three-hundred fifty nine (359) days after the
Closing Date of the Initially Issued Preferred Shares or New
Preferred Shares, as applicable, and 78% of Market Price for
shares converted after three-hundred sixty (360) days after the
Closing Date of the Initially Issued Preferred Shares or New
Preferred Shares, as applicable.
(d) "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.
<PAGE 1>
(e) "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.
(f) "Closing Date" means August 7, 1998.
(g) "Common Shares" or "Common Stock" means shares of
common stock, $0.0001 par value, of the Corporation.
(h) "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.
(i) "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.
(j) "Conversion Notice" has the meaning set forth in
Section 6.2.
(k) "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.
(l) "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.
(m) "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.
(n) "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").
(o) "Default Dividend Rate" shall be equal to the
Preferred Stock Dividend Rate plus an additional 6% per annum.
<PAGE 2>
(p) "Extended Conversion Period" means the one-
hundred eighty (180) day period after the Closing Date of the New
Preferred Shares.
(q) "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.
(r) "Market Disruption Event" means any event that
results in a material suspension or limitation of trading of
Common Shares on the NASD/BBS.
(s) "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.
(t) "New Preferred Shares" as defined in the Letter
Agreement, dated December 3, 1998 between the Holder and the
Corporation.
(u) "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.
(v) "Period" means the twenty (20) Trading Day period
immediately preceding February 1, 1999.
(w) "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.
(x) "Registration Rights Agreement" means that certain
Registration Rights Agreement dated August 7, 1998 between the
Corporation and The Shaar Fund Ltd., as modified by the 1999
Letter Agreement.
(y) "SEC" means the United States Securities and
Exchange Commission.
(z) "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. <PAGE 3>
(aa) "Securities Purchase Agreement" means that certain
Securities Purchase Agreement dated August 7, 1998 between the
Corporation and The Shaar Fund Ltd.
(ab) "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.
(ac) "Stated Value" has the meaning set forth in
Article 2.
(ad) "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.
(ae) "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.
(af) "Valuation Event" has the meaning set forth in
Section 6.1.
(ag) "Valuation Period" means the twenty (20) Trading
Day period immediately preceding the Conversion Date.
(ah) "1999 Letter Agreement" means the letter agreement
dated May 12, 1999 between the Holder and the Corporation.
All references to "cash" or "$" herein means currency of the
United States of America.
ARTICLE 2
DESIGNATION AND AMOUNT
SECTION 2.1
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
RANK
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
<PAGE 4> 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"),
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
<PAGE 5> 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.
(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
<PAGE 6> 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 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
<PAGE 7> 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 during the Extended Conversion Period the Initially
Issued Preferred Shares (as defined in the Securities Purchase
Agreement) may be converted at a Conversion Price per share of
Common Stock equal to the lessor of: (i) $5.50, or (ii) the
Applicable Percentage of the Market Price for the Period or (iii)
the Applicable Percentage of the Market Price.
During the Extended Conversion Period, the New Preferred
Shares may be converted at a Conversion Price per share of Common
Stock equal to the lessor of: (i) the Applicable Percentage of
the Market Price or (ii) the Applicable Percentage of the Market
Price for the Period.
Upon expiration of the Extended Conversion Period all
remaining shares of Series A Preferred Stock may be converted at
the lessor of (i) $5.50 or (ii) the Applicable Percentage 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,
<PAGE 8> 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.
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.
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
<PAGE 9> 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
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
<PAGE 10> 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 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
<PAGE 11> 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
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 than 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.
<PAGE 12>
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 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
<PAGE 13> 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. 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
<PAGE 14> 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
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
<PAGE 15> 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.
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,
<PAGE 16> 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
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
Preferred 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.
IN WITNESS WHEREOF, the Corporation has caused this
Certificate of Amendment to be signed by its duly authorized
officers on this _____ day of May, 1999.
DYNAMICWEB ENTERPRISES, INC.
By:________________________________
Steven L. Vanechanos, Jr.
Chairman and Chief Executive
Officer
<PAGE 17>
Exhibit 3.1.11
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
DYNAMICWEB ENTERPRISES, INC.
_______________
Pursuant to 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 B 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 May ___,
1999.
(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 _____ day of
May, 1999.
DYNAMICWEB ENTERPRISES, INC.
By:________________________________
Steven L. Vanechanos, Jr.
Chairman and Chief Executive
Officer
PAGE 1
<PAGE>
Exhibit A
TERMS OF
Series B 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 (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 B 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 B 6% Convertible Preferred Stock
then outstanding):
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 the date of issuance of the
Series B Preferred Stock to Holder (which shall be February 12,
1999 for the Initially Issued Series B Preferred Stock and May
12, 1999 for the Subsequently Issued Preferred Stock).
(f) "Common Shares" or "Common Stock" means shares of
common stock, $.0001 par value, of the Corporation.
<PAGE 1>
(g) "Common Stock Issued at Conversion" when used with
reference to the securities issuable upon conversion of the
Series B Preferred Stock, means all Common Shares now or
hereafter Outstanding and securities of any other class or series
into which the Series B 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 B 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 B Preferred Stock into Common Shares on such day as set
forth in Section 6.1.
(k) "Conversion Ratio" on any date means of
determination the applicable percentage of the Market Price for
conversion of shares of Series B 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" on any date of
determination means the closing bid price of a Common Share on
such day as reported on the National Association of Securities
Dealers, Inc. Over the Counter Bulletins Bound System (the
"NASD/BBS").
(n) "Default Dividend Rate" shall be equal to the
Preferred Stock Dividend Rate plus an additional 4% per annum.
(o) "Holder" means The Shaar Fund Ltd., any successor
thereto, or any Person to whom the Series B Preferred Stock is
subsequently transferred in accordance with the provisions
hereof.
(p) "Initially Issued Series B Preferred Stock" means
the 500 shares of the Series B Preferred Stock.
(q) "Market Disruption Event" means any event that
results in a material suspension or limitation of trading of
Common Shares on the NASD/BBS.
(r) "Market Price" per Common Share means the average
of the closing bid prices of the Common Shares for the lowest
seven (7) Trading Days in any Valuation Period. <PAGE 2>
(s) "Maximum Rate" has the meaning set forth in
Section 7.3(b).
(t) "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.
(u) "Person" means an individual, a corporation, a
partnership, an association, a limited liability company, a
unincorporated business organization, a trust or other entity or
organization, and any government or political subdivision or any
agency or instrumentality thereof.
(v) "Registration Rights Agreement" means that certain
Registration Rights Agreement dated a date even herewith between
the Corporation and The Shaar Fund Ltd., as modified by the 1999
Letter Agreement.
(w) "SEC" means the United States Securities and
Exchange Commission.
(x) "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.
(y) "Securities Purchase Agreement" means that certain
Securities Purchase Agreement dated a date even herewith between
the Corporation and The Shaar Fund Ltd.
(z) "Series B Preferred Stock" means the Series B 6%
Convertible Preferred Stock of the Corporation or such other
convertible Preferred Stock exchanged therefor as provided in
Section 2.1.
(aa) "Stated Value" has the meaning set forth in
Article 2.
(bb) "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.
(cc) "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.
<PAGE 3>
(dd) "Valuation Event" has the meaning set forth in
Section 6.1.
(ee) "Valuation Period" means the twenty (20) Trading
Day period immediately preceding the Conversion Date.
All references to "cash" or "$" herein means currency
of the United States of America.
ARTICLE 2
DESIGNATION AND AMOUNT
Section 2.1
The designation of this series, which consists of 1,500
shares of Preferred Stock, is Series B 6% Convertible Preferred
Stock (the "Series B Preferred Stock") and the stated value shall
be One Thousand Dollars ($1,000) per share (the "Stated Value").
ARTICLE 3
RANK
Section 3.1
The Series B 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 B Preferred Stock ("Pari Passu
Securities").
ARTICLE 4
DIVIDENDS
Section 4.1
(a) (i) The Holder shall be entitled to receive,
when, as and if declared by the Board of Directors, out of funds
legally available for the payment of dividends, dividends
(subject to Sections 4.1(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 B 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 B 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.
<PAGE 4>
(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"),
commencing June 30, 1999, to the holders of record of shares of
the Series B 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 non-assessable, 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 to be filed
by the Corporation to register the Common Stock issuable upon
conversion of the shares of Series B Preferred Stock and exercise
of the Warrants as set forth in the Registration Rights
Agreement. Notwithstanding the foregoing, until such
Registration Statement has been declared effective under the
Securities Act by the SEC, payment of dividends on the Series B
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 B 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 B Preferred Stock that may be in arrears.
(c) So long as any shares of the Series B 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 B 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 B
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
<PAGE 5> unpaid on the Series B Preferred Stock and accumulated
and unpaid on such Pari Passu Securities.
(d) So long as any shares of the Series B 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 B 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 B 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 B
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
<PAGE 6> to the holders of any shares of capital stock of the
Corporation upon liquidation, dissolution or winding up unless
prior thereto, the holders of shares of Series B 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 B 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 B 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 120% of the Liquidation
Preference with respect to each outstanding sharer of Series B
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 B Preferred Stock
shall be deemed to elect the option set forth in cause (i) hereof
if at least a majority in interest of such holders elect such
option. "Person" shall mean any individual, corporation, limited
liability company, partnership, association, trust or other
entity or organization.
(c) For purposes hereof, the "Liquidation Preference"
with respect to a share of the Series B 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 B Preferred Stock until the
most recent Dividend Payment 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
<PAGE 7>
Section 6.1 Conversion; Conversion Price. At the option of
the Holder, the shares of Series B Preferred Stock may be
converted, either in whole or in part, into Common Shares
(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 B Preferred Stock (the "Issue Date") at
a Conversion Price equal to the lesser of (i) 120% of the closing
bid price of Common Stock on the Closing Date or (ii)(A) during
the 180 day period immediately following the Closing Date, 85% of
the Market Price, (B) following the 181st day immediately
following the Closing Date, 80% of the Market Price; provided,
however, that the Holder shall not have the right to convert any
portion of the Series B 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.
The number of shares of Common Stock due upon
conversion of Series B Preferred Stock shall be (i) the number of
shares of Series B 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: <PAGE 8>
(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
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 B 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
<PAGE 9> 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 B
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 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 $1.50 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 B Preferred Stock for
cash at a redemption price equal to one hundred thirty-five
<PAGE 10> percent (135%) 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 B Preferred Stock. Instead
of any fractional Common Shares which otherwise would be issuable
upon conversion of the Series B 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
$1.50 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 B
Preferred Stock remains outstanding and any shares thereof has
not been converted, in case of any reclassification or change of
Outstanding Common Shares issuable upon conversion of the
Series B 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 B Preferred Stock) or in case of any consolidation,
merger or mandatory share exchange of the Corporation with or
into another corporation (other than 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 B 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 B Preferred Stock providing that
the Holder shall have the right to convert such new Series B
Preferred Stock (upon terms and conditions not less favorable to
the Holder than those in effect pursuant to the Series B
Preferred Stock) and to receive upon such exercise, in lieu of
each Common Share theretofore issuable upon conversion of the
Series B 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 B Preferred Stock had the
Series B Preferred Stock been converted immediately prior to such
reclassification, change, consolidation, merger, mandatory share
<PAGE 11> 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 B 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 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 B Preferred Stock, the Corporation, upon notice delivered
to the Holder as provided in Section 6.7, may redeem the
outstanding Series B 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 thirty percent (130%) 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"); provided, however, that the Corporation may
only redeem the Series B Preferred Stock under this Section 6.6
if the Current Market Price is less than the Current Market Price
on the Closing Date. Except as set forth in this Section 6.6,
the Corporation shall not have the right to prepay or redeem the
Series B Preferred Stock.
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.
<PAGE 12>
Section 6.8 Surrender of Preferred Stock. Upon any
redemption of the Series B Preferred Stock pursuant to
Sections 6.6 or 6.7, the Holder shall either deliver the Series B
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 B
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 B Preferred Stock as
provided in Article 6 hereof.
Section 6.9 Mandatory Conversion/Redemption. At the
option of the Holder, on the third anniversary of the date of
this Agreement, the Corporation shall either (A) convert all
Series B Preferred Stock outstanding at the Conversion Price or
(B) redeem all remaining outstanding Series B 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 B Preferred Stock have no
voting power, except as otherwise provided by the Business
Corporation Act of the State of New Jersey ("BCA"), in this
Article 7, and in Article 8 below.
Notwithstanding the above, the Corporation shall
provide each holder of Series B 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 actin 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.
<PAGE 13>
To the extent that under the BCA the vote of the
holders of the Series B 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 B
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 B Preferred Stock (except as otherwise may be
required under the BCA) shall constitute the approval of such
action by the class. To the extent that under the BCA holders of
the Series B Preferred Stock are entitled to vote on a matter
with holders of Common Stock, voting together as one class, each
share of Series B 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
Price is calculated. Holders of the Series B Preferred Stock
shall be entitled to notice of all shareholder meetings or
written consents (and copies of proxy materials and other
infirmation sent to shareholders) with respect to which they
would be entitled tonight, which notice would be provided
pursuant to the Corporation's bylaws and the BCA.
ARTICLE 8
PROTECTIVE PROVISIONS
So long as shares of Series B Preferred Stock are
outstanding, the Corporation shall not, without first obtaining
the approval (by vote or written consent, as provided by the BCA)
of the holders of at least a majority of the then outstanding
shares of Series B Preferred Stock:
(a) alter or change the rights, preferences or
privileges of the Series B Preferred Stock;
(b) create any new class or series of capital
stock having a preference over the Series B 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 B Preferred Stock;
(c) increase the authorized number of shares of
Series B 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 B 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 B Preferred Stock agree to allow the
Corporation to alter or change the rights, preferences or
<PAGE 14> privileges of the shares of Series B Preferred Stock,
pursuant to subsection (a) above, so as to affect the Series B
Preferred Stock, then the Corporation will deliver notice of such
approved change to the holders of the Series B 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 B
Preferred Stock.
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 B
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 B
Preferred Stock, the Corporation shall make, issue and deliver,
in lieu of such lost, stolen, destroyed or mutilated shares of
Series B Preferred Stock, new shares of Series B Preferred Stock
of like tenor. The Series B Preferred Stock shall be held and
owned upon the express condition that the provisions of this
Section 10.1 are exclusive with respect to the replacement of
mutilated, destroyed, lost or stolen shares of Series B 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 B 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 B
Preferred Stock for the purpose of receiving payment of dividends
on the Series B Preferred Stock, for the conversion of the
Series B 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 B 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 B 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
<PAGE 15> 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 B
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 B Preferred
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 B Preferred Stock.
Upon any transfer of the Series B Preferred Stock in accordance
with the provisions hereof, the Corporation shall register such
transfer on the Series B Preferred Stock register.
The Corporation may deem the person in whose name the
Series B 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 B Preferred Stock for the purpose of
receiving payment of dividends on the Series B Preferred Stock,
for the conversion of the Series B 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 B 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 B
Preferred 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.
IN WITNESS WHEREOF, the Corporation has caused this
Certificate of Amendment to be signed by its duly authorized
officers on this _____ day of May, 1999.
DYNAMICWEB ENTERPRISES, INC.
By:________________________________
Steven L. Vanechanos, Jr.
<PAGE 16>
Chairman and Chief Executive
Officer
<PAGE 17>
EXHIBIT 5.1
May 19, 1999
Board of Directors
DynamicWeb Enterprises, Inc.
271 Route 46 West
Building F, Suite 209
Fairfield, New Jersey 07004
Re: Registration Statement on Form S-2
Gentlemen:
In connection with the proposed offering by DynamicWeb
Enterprises, Inc. (the "Company") of up to 2,145,025 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"), 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 issued by the
Secretary of the State of New Jersey, dated May 10,
1999 with respect to the Company;
5. the Registration Statement; and
Based upon our review of such documents, it is our opinion
that:
1. The Company has been duly incorporated under the laws
of the State of New Jersey and is validly existing and
in good standing under the laws of such State.
2. The 2,145,025 shares of Common Stock covered by the
Registration Statement have been duly authorized and,
when issued and sold for cash pursuant to the terms
described in the Registration Statement, will be
legally issued by the Company and fully paid and
nonassessable.
We consent to the filing of this opinion as an exhibit to
the Registration Statement, and to the reference to us under the
heading "Legal Matters" in the related Prospectus. In giving
this consent, we do not thereby admit that we come within the
category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the Rules and
Regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
STEVENS & LEE
