_________________________________________________________________
_________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 18,
1999
DYNAMICWEB ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
New Jersey 0-10039 22-2267658
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Ident. No.)
271 Route 46 West, Building F, Suite 209,
Fairfield, New Jersey 19610 07004
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 973-244-1000
N/A
(Former name or former address, if changed since last report.)
_________________________________________________________________
_________________________________________________________________
PAGE 1
<PAGE>
Item 5: Other Events
Item 7. Exhibits
On February 18, 1999, DynamicWeb Enterprises, Inc. filed a
report on Form 8-K, reporting on the completion of a private
placement transaction with the Shaar Fund, Ltd. The following
exhibits relating to that transaction are filed herewith:
3.1 Amendment to the Certificate of Incorporation of
DynamicWeb Enterprises, Inc. dated February 12, 1999,
as filed with the State of New Jersey on February 17,
1999.
4.1 Form of Warrant for Series B 6% Preferred Stock.
4.2 Securities Purchase Agreement dated February 12, 1999
between DynamicWeb Enterprises, Inc. and Shaar Fund
Ltd.
4.3 Registration Rights Agreement dated February 12, 1999
between DynamicWeb Enterprises, Inc. and Shaar Fund
Ltd.
PAGE 2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
DYNAMICWEB ENTERPRISES, INC.
Dated: February 23, 1999
By /s/ Steven L. Vanechanos, Jr.
Steven L. Vanechanos, Jr.
President
PAGE 3
<PAGE>
EXHIBIT INDEX
Exhibit Number
3.1 Amendment to the Certificate of Incorporation of
DynamicWeb Enterprises, Inc. dated February 12, 1999,
as filed with the State of New Jersey on February 17,
1999.
4.1 Form of Warrant for Series B 6% Convertible Preferred
Stock.
4.2 Securities Purchase Agreement dated February 12, 1999
between DynamicWeb Enterprises, Inc. and Shaar Fund
Ltd.
4.3 Registration Rights Agreement dated February 12, 1999
between DynamicWeb Enterprises, Inc. and Shaar Fund
Ltd. <PAGE 4>
EXHIBIT 3.1
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
February 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 12th day of
February, 1999.
DYNAMICWEB ENTERPRISES, INC.
By:/s/ Steven L. Vanechanos, Jr.
Steven L. Vanechanos, Jr.
Chairman and Chief
Executive Officer
<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).
(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.
(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.
<PAGE 7>
ARTICLE 6
CONVERSION OF PREFERRED STOCK
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. Notwithstanding the previous
sentence, in no event shall the Holder have the right to convert
that portion of the Series B Preferred Stock to the extent that
the issuance of Common Shares upon the conversion of such
Series B Preferred Stock, when combined with shares of Common
Stock received upon other conversions of Series B Preferred Stock
by such Holder and any other holders of Series B Preferred Stock,
would exceed 19.99% of the Common Stock outstanding on the
Closing Date. Within ten (10) Business Days after the receipt of
the Conversion Notice which upon conversion would, when combined
with shares of Common Stock received upon other conversions of
Series B Preferred Stock by such Holder and any other holders of
Series B Preferred Stock and Warrants, exceed 19.99% of the
Common Stock outstanding on the Closing Date, the Corporation
shall redeem all remaining outstanding shares of Series B
Preferred Stock at one hundred twenty-five percent (125%) of the
Stated Value thereof, together with all accrued and unpaid
dividends thereon, in cash, to the date of redemption.
The 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
<PAGE 8> Valuation Event occurs during any Valuation Period, a
new Valuation Period shall begin on the Trading Day immediately
following the occurrence of such Valuation Event and end on the
Conversion Date; provided that, if a Valuation Event occurs on
the fifth day of any Valuation Period, then the Conversion Price
shall be the Current Market Price of the Common Shares on such
day; and provided, further, that the Holder may, in its
discretion, postpone such Conversion Date to a Trading Day which
is no more than five (5) Trading Days after the occurrence of the
latest Valuation Event by delivering a notification to the
Corporation within two (2) Business Days of the receipt of the
Valuation Event Notice.. In the event that the Holder deems the
Valuation Period to be other than the five (5) Trading Days
immediately prior to the Conversion Date, the Holder shall give
written notice of such fact to the Corporation in the related
Conversion Notice at the time of conversion.
For purposes of this Section 6.1, a "Valuation Event" shall mean
an event in which the Corporation at any time during a Valuation
Period takes any of the following actions:
(a) subdivides or combines its Capital Shares;
(b) makes any distribution of its Capital Shares;
(c) issues any additional Capital Shares (the
"Additional Capital Shares"), otherwise than as provided in the
foregoing Sections 6.1(a) and 6.1(b) above, at a price per share
less, or for other consideration lower, than the Current Market
Price in effect immediately prior to such issuances, or without
consideration, except for issuances under employee benefit plans
consistent with those presently in effect and issuances under
presently outstanding warrants, options or convertible
securities;
(d) issues any warrants, options or other rights to
subscribe for or purchase any Additional Capital Shares and the
price per share for which Additional Capital Shares may at any
time thereafter be issuable pursuant to such warrants, options or
other rights shall be less than the Current Market Price in
effect immediately prior to such issuance;
(e) issues any securities convertible into or
exchangeable or exercisable for Capital Shares and the
consideration per share for which Additional Capital Shares may
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
<PAGE 9> 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
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
<PAGE 10> 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
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
<PAGE 11> 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 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.
<PAGE 12>
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.
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. Notwithstanding the previous
sentence, in no event shall the Corporation convert that portion
of the Series B Preferred Stock to the extent that the issuance
of Common Shares upon the conversion of such Series B Preferred
Stock, when combined with shares of Common Stock received upon
other conversions of Series B Preferred Stock by such Holder and
<PAGE 13> any other holders of Series B Preferred Stock and
Warrants, would exceed 19.99% of the Common Stock outstanding on
the Closing Date.
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.
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
<PAGE 14> 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
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
<PAGE 15> 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
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
<PAGE 16> 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 12th day of February, 1999.
DYNAMICWEB ENTERPRISES, INC.
By:/s/ Steven L. Vanechanos, Jr.
Name: Steven L. Vanechanos, Jr.
Title: Chairman and Chief
Executive Officer
By:________________________________
Name:
Title:
INITIAL HOLDER
THE SHAAR FUND LTD.
By:_________________________
Name:
Title:
PAGE 17
<PAGE>
[FORM OF CONVERSION NOTICE]
TO: __________________________
__________________________
__________________________
The undersigned owner of this Series B 6% Convertible
Preferred Stock (the "Series B Preferred Stock") issued by
DynamicWeb Enterprises, Inc. (the "Corporation") hereby
irrevocably exercises its option to convert __________ shares of
the Series B Preferred Stock into shares of the common stock,
$.0001 par value, of the Corporation ("Common Stock"), in
accordance with the terms of the Certificate of Amendment. The
undersigned hereby instructs the Corporation to convert the
number of shares of the Series B Preferred Stock specified above
into Shares of Common Stock Issued at Conversion in accordance
with the provisions of Article 6 of the Certificate of Amendment
to the Certificate of Incorporation. The undersigned directs
that the Common Stock issuable and certificates therefor
deliverable upon conversion, the Series B Preferred Stock
recertificated, if any, not being surrendered for conversion
hereby, together with any check in payment for fractional Common
Stock, be issued in the name of and delivered to the undersigned
unless a different name has been indicated below. All
capitalized terms used and not defined herein have the respective
meanings assigned to them in the Certificate of Amendment to the
Certificate of Incorporation.
Dated: _______________
______________________________
Signature
Fill in for registration of Series B Preferred Stock:
Please print name and address
(including zip code number) :
<PAGE 18>
EXHIBIT 4.1
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.
No. of Shares of Common Stock: 45,000
Warrant No. 1
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 Closing
Date (as hereinafter defined) to the Expiration Date (as
hereinafter defined), to purchase from DynamicWeb Enterprises,
Inc., a New Jersey corporation (the "Company"), 45,000 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 per share equal to $8.93, all on the
terms and conditions and pursuant to the provisions hereinafter
set forth.
1. DEFINITIONS
As used in 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 Closing
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 the exercise prices for such
shares) by Richard A. Eisner & Company, LLP 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.
"Closing Date" shall mean February 12, 1999. <PAGE 1>
"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, $.0001 par value, of the
Company as constituted on the Closing 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 Market Price" on any date of determination
means the closing bid price of a Common Stock on such day as
reported on the NASD/BBS.
"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 a date five (5) years from
the date hereof.
"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. <PAGE 2>
"GAAP" shall mean generally accepted accounting
principles in the United States of America as from time to time
in effect.
"Holder" shall mean the Person in whose name the
Warrant or Warrant Stock set forth herein is registered on the
books of the Company maintained for such purpose.
"Market Price" per Common Stock means the average of
the closing prices of the Common Stock as reported on the
NASD/BBS, 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 Nasdaq member firm of the National
Association of Securities Dealers, Inc. 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 Closing Date.
"NASD/BBS" shall mean the National Association of
Securities Dealers, Inc. Over the Counter Bulletin Board System.
"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 proprietor-
ship, partnership, joint venture, trust, incorporated
organization, association, corporation, institution, public
benefit corporation, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without
limitation, any instrumentality, division, agency, body or
department thereof).
"Registration Rights Agreement" shall mean the
Registration Rights Agreement dated a date even herewith by and
between the Company and The Shaar Fund Ltd., as it may be amended
from time to time.
<PAGE 3>
"Restricted Common Stock" shall mean shares of Common
Stock which are, or which upon their issuance on the exercise of
this Warrant would be, evidenced by a certificate bearing the
restrictive legend set forth in Section 9.1(a).
"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 a date even herewith 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 Closing
Date and until 5:00 P.M., New York time, on the Expiration Date,
Holder may exercise this Warrant, on any Business Day, for all or
any part of the number of shares of Common Stock purchasable
hereunder.
In order to exercise this Warrant, in whole or in part,
Holder shall deliver to the Company at its principal office at
Fairfield Commons, 271 Route 46 West, Building F, Suite 209,
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 election to exercise this Warrant, which notice shall
specify the number of shares of Common Stock to be purchased,
<PAGE 4> (ii) to the extent such exercise is not being effected
through a Cashless Exercise, by 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 part hereof) or any Warrant
Stock otherwise than in accordance with this Warrant.
Simultaneously with the exercise of this Warrant,
payment in full of the Warrant Price may be made, at the option
of the holder, (i) by payment of the Warrant Price in cash or by
wire transfer or cashier's check drawn on a United States bank,
(ii) by the surrender (which surrender shall be evidenced by
cancellation of the number of Warrants represented by any
certificate(s) evidencing the Warrants (the "Warrant
Certificate") presented in connection with a Cashless Exercise of
a Warrant or Warrants (represented by one or more Warrant
Certificates), and without payment of the Warrant Price in cash,
for such number of shares equal to the product of (1) the number
of shares for which such Warrant is exercisable with payment in
cash of the Warrant Price as of the date of exercise and (2) the
Cashless Exercise Ratio or (iii) by any combination of (i) and
<PAGE 5> (ii). For purposes of this Agreement, the "Cashless
Exercise Ratio" shall equal a fraction, the numerator of which is
the excess of the Current Market Price per share of the Common
Stock on the date of exercise over the Warrant Price per share as
of the date of exercise and the denominator of which is the
Current Market Price per share of the Common Stock on the date of
exercise. An exercise of a Warrant in accordance with the
immediately preceding sentences is herein called a "Cashless
Exercise". Upon surrender of a Warrant Certificate representing
more than one Warrant in connection with the holder's option to
elect a Cashless Exercise, the number of shares deliverable upon
a Cashless Exercise shall be equal to the Cashless Exercise Ratio
multiplied by the product of (a) the number of Warrants that the
holder specifies is to be exercised pursuant to a Cashless
Exercise and (b) the number of shares for which such Warrant is
then exercisable (without giving effect to the Cashless Exercise
option). All provisions of this Agreement shall be applicable
with respect to an exercise of a Warrant Certificate pursuant to
a Cashless Exercise for less than the full number of Warrants
represented thereby.
2.2. Payment of Taxes and Charges. All shares of
Common Stock issuable upon the exercise of this Warrant pursuant
to the terms hereof shall be validly issued, fully paid and
nonassessable, freely tradeable and without any preemptive
rights. The Company shall pay all expenses in connection with,
and all taxes and other governmental charges that may be imposed
with respect to, the issue or delivery thereof, unless such tax
or charge is imposed by law upon Holder, in which case such taxes
or charges shall be paid by Holder. The Company shall not be
required, however, to pay any tax or other charge imposed in
connection with any transfer involved in the issue of any
certificate for shares of Common Stock issuable upon exercise of
this Warrant in any name other than that of Holder, and in such
case the Company shall not be required to issue or deliver any
stock certificate until such tax or other charge has been paid or
it has been established to the satisfaction of the Company that
no such tax or other charge is due.
2.3. Fractional Shares. The Company shall not be
required to issue a fractional share of Common Stock upon
exercise of any Warrant. As to any fraction of a share which
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.
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
<PAGE 6> Holder under Sections 9, 10 and 14 of this Warrant. The
Company will, at the time of exercise of this Warrant, in whole
or in part, upon the request of Holder, acknowledge in writing,
in form reasonably satisfactory to Holder, its continuing
obligation to afford Holder all such rights; provided, however,
that if Holder shall fail to make any such request, such failure
shall not affect the continuing obligation of the Company to
afford to Holder all such rights.
3. TRANSFER, DIVISION AND COMBINATION
3.1. Transfer. Subject to compliance with Section 9,
transfer of this Warrant and all rights hereunder, in whole or in
part, shall be registered on the books of the Company to be
maintained for such purpose, upon surrender of this Warrant at
the principal office of the Company referred to in Section 2.1 or
the office or agency designated by the Company pursuant to
Section 12, together with a written assignment of this Warrant
substantially in the form of Exhibit B hereto duly executed by
Holder or its agent or attorney and funds sufficient to pay any
transfer taxes payable upon the making of such transfer. Upon
such surrender and, if required, such payment, the Company shall,
subject to Section 9, execute and deliver a new Warrant or
Warrants in the name of the assignee or assignees and in the
denomination specified in such instrument of assignment, and
shall issue to the assignor a new Warrant evidencing the portion
of this Warrant not so assigned, and this Warrant shall promptly
be cancelled. A Warrant, if properly assigned in compliance with
Section 9, may be exercised by a new Holder for the purchase of
shares of Common Stock without having a new Warrant issued.
3.2. Division and Combination. Subject to Section 9,
this Warrant may be divided or combined with other Warrants upon
presentation hereof at the aforesaid office or agency of the
Company, together with a written notice specifying the names and
denominations in which new Warrants are to be issued, signed by
Holder or its agent or attorney. Subject to compliance with
Section 3.1 and with Section 9, as to any transfer which may be
involved in such division or combination, the Company shall
execute and deliver a new Warrant or Warrants in exchange for the
Warrant or Warrants to be divided or combined in accordance with
such notice.
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.
<PAGE 7>
4. ADJUSTMENTS
The number of shares of Common Stock for which this
Warrant is exercisable, or the price at which such shares may be
purchased upon exercise of this Warrant, shall be subject to
adjustment from time to time as set forth in this Section 4. The
Company shall give Holder notice of any event described below
which requires an adjustment pursuant to this Section 4 at the
time of such event.
4.1. Stock Dividends, Subdivisions and Combinations.
If at any time the Company shall:
(a) take a record of the holders of its Common Stock
for the purpose of entitling them to receive a dividend
payable in, or other distribution of, Additional Shares of
Common Stock,
(b) subdivide its outstanding shares of Common Stock
into a larger number of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock
into a smaller number of shares of Common Stock,
then (i) the number of shares of Common Stock for which this
Warrant is exercisable immediately after the occurrence of any
such event shall be adjusted to equal the number of shares of
Common Stock which a record holder of the same number of shares
of Common Stock for which this Warrant is exercisable immediately
prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (ii) the Current
Warrant Price shall be adjusted to equal (A) the Current Warrant
Price multiplied by the number of shares of Common Stock for
which this Warrant is exercisable immediately prior to the
adjustment divided by (B) the number of shares for which this
Warrant is exercisable immediately after such adjustment.
4.2. Certain Other Distributions. 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), <PAGE 8>
then Holder shall be entitled to receive such dividend or
distribution as if Holder had exercised the Warrant. A reclassi-
fication of the Common Stock (other than a change in par value,
or from par value to no par value or from no par value to par
value) into shares of Common Stock and shares of any other class
of stock shall be deemed a distribution by the Company to the
holders of its Common Stock of such shares of such other class of
stock within the meaning of this Section 4.2 and, if the
outstanding shares of Common Stock shall be changed into a larger
or smaller number of shares of Common Stock as a part of such
reclassification, such change shall be deemed a subdivision or
combination, as the case may be, of the outstanding shares of
Common Stock within the meaning of Section 4.1.
4.3. Other Provisions Applicable to Adjustments under
this Section. The following provisions shall be applicable to
the making of adjustments of the number of shares of Common Stock
for which this Warrant is exercisable and the Current Warrant
Price provided for in this Section 4:
(a) When Adjustments to Be Made. The adjustments
required by this Section 4 shall be made whenever and as
often as any specified event requiring an adjustment shall
occur. For the purpose of any adjustment, any specified
event shall be deemed to have occurred at the close of
business on the date of its occurrence.
(b) Fractional Interests. In computing adjustments
under this Section 4, fractional interests in Common Stock
shall be taken into account to the nearest 1/10th of a
share.
(c) When Adjustment Not Required. If the Company
shall take a record of the holders of its Common Stock for
the purpose of entitling them to receive a dividend or
distribution or subscription or purchase rights and shall,
thereafter and before the distribution to stockholders
thereof, legally abandon its plan to pay or deliver such
dividend, distribution, subscription or purchase rights,
then thereafter no adjustment shall be required by reason of
the taking of such record and any such adjustment previously
made in respect thereof shall be rescinded and annulled.
(d) Challenge to Good Faith Determination. Whenever
the Board of Directors of the Company shall be required to
make a determination in good faith of the fair value of any
item under this Section 4, such determination may be
challenged in good faith by the Holder, and any dispute
shall be resolved by an investment banking firm of
recognized national standing selected by the Company and
acceptable to the Holder.
4.4. Reorganization, Reclassification, Merger,
Consolidation or Disposition of Assets. In case the Company
<PAGE 9> 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 right 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 reorganiza-
tion, reclassification, merger, consolidation or disposition of
assets, the successor or acquiring corporation (if other than the
Company) shall expressly assume the due and punctual observance
and performance of each and every covenant and condition of this
Warrant to be performed and observed by the Company and all the
obligations and liabilities hereunder, subject to such
modifications as may be deemed appropriate (as determined by
resolution of the Board of Directors of the Company) in order to
provide for adjustments of shares of Common Stock for which this
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 dispositions 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
<PAGE 10> 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 Prop-
erty for which this Warrant is exercisable, and any change in the
purchase price or prices thereof, after giving effect to such
adjustment or change. The Company shall promptly cause a signed
copy of such certificate to be delivered to the Holder in
accordance with Section 15.2. 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
<PAGE 11>
(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 15.2.
6. NO IMPAIRMENT
The Company shall not by any action, including, without
limitation, amending its certificate of incorporation or through
any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of
any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to
protect the rights of Holder against impairment. Without
limiting the generality of the foregoing, the Company will
(a) not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the amount
payable therefor upon such exercise immediately prior to such
increase in par value, (b) take all such action as may be
necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable shares of Common
Stock upon the exercise of this Warrant, and (c) use its best
efforts to obtain all such authorizations, exemptions or consents
<PAGE 12> 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 Closing Date, the Company shall at
all times reserve and keep available for issue upon the exercise
of Warrants such number of its authorized but unissued shares of
Common Stock as will be sufficient to permit the exercise in full
of all outstanding Warrants. All shares of Common Stock which
shall be so issuable, when issued upon exercise of any Warrant
and payment therefor in accordance with the terms of such
Warrant, shall be duly and validly issued and fully paid and
nonassessable, and not subject to preemptive rights.
Before taking any action which would cause an
adjustment reducing the Current Warrant Price below the then par
value, if any, of the shares of Common Stock issuable upon
exercise of the Warrants, the Company shall take any corporate
action which may be necessary in order that the Company may
validly and legally issue fully paid and non-assessable shares of
such Common Stock at such adjusted Current Warrant Price.
Before taking any action which would result in an
adjustment in the number of shares of Common Stock for which this
Warrant is exercisable or in the Current Warrant Price, the
Company shall obtain all such authorizations or exemptions
thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by
the Company to the holders of its Common Stock with respect to
which any provision of Section 4 refers to the taking of a record
of such holders, the Company will in each such case take such a
record and will take such record as of the close of business on a
Business Day. The Company will not at any time, except upon
dissolution, liquidation or winding up of the Company, close its
stock transfer books or Warrant transfer books so as to result in
preventing or delaying the exercise or transfer of any Warrant.
9. RESTRICTIONS ON TRANSFERABILITY
The Warrants and the Warrant Stock shall not be
transferred, hypothecated or assigned before satisfaction of the
conditions specified in this Section 9, which conditions are
intended to ensure compliance with the provisions of the
<PAGE 13> 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:
"The securities represented by this certificate
have not been registered under the Securities Act of
1933, as amended (the "Act"). The securities may not
be offered for sale, sold or otherwise transferred
except (i) pursuant to an effective registration
statement under the Act or (ii) pursuant to an
exemption from registration under the Act in respect of
which the Company has received an opinion of counsel
satisfactory to the Company to such effect. Copies of
the agreement covering both the purchase of the
securities and restricting their transfer may be
obtained at no cost by written request made by the
holder of record of this certificate to the Secretary
of the Company at the principal executive offices of
the Company."
(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
<PAGE 14> 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 45th day after the Closing 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 120 days after the Closing Date.
9.4. Termination of Restrictions. Notwithstanding the
foregoing provisions of Section 9, the restrictions imposed by
this Section upon the transferability of the Warrants, the
Warrant Stock and the Restricted Common Stock (or Common Stock
issuable upon the exercise of the Warrants) and the legend
requirements of Section 9.1 shall terminate as to any particular
Warrant or share of Warrant Stock or Restricted Common Stock (or
Common Stock issuable upon the exercise of the Warrants) (i) 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."
<PAGE 15>
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 this Warrant and indemnity
reasonably satisfactory to it (it being understood that the
written agreement of the Holder shall be sufficient indemnity),
and in case of mutilation upon surrender and cancellation hereof,
the Company will execute and deliver in lieu hereof a new Warrant
of like tenor to Holder; provided, in the case of mutilation, no
indemnity shall be required if this Warrant in identifiable form
is surrendered to the Company for cancellation.
12. OFFICE OF THE COMPANY
As long as any of the Warrants remain outstanding, the
Company shall maintain an office or agency (which may be the
principal executive offices of the Company) where the Warrants
may be presented for exercise, registration of transfer, division
or combination as provided in this Warrant.
13. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative
action by Holder to purchase shares of Common Stock, and no
enumeration herein of the rights or privileges of Holder hereof,
<PAGE 16> 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.
Fairfield Commons
271 Route 46 West
Building F, Suite 209
Fairfield, New Jersey 07004
Attention: Steven L. Vanechanos, Jr.
Chief Executive Officer
with a copy to:
Stevens & Lee
1275 Drummers Lane
P.O. Box 236
Wayne, PA 19087
Attention: Stephen F. Ritner, Esq.
(2) if to the Holder, to:
THE SHAAR FUND LTD.
c/o LEVINSON CAPITAL MANAGEMENT, LLC
2 World Trade Center, Suite 1820
New York, NY 10048
Attention: Samuel Levinson <PAGE 17>
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Gerald S. Backman, Esq.
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
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
<PAGE 18> 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 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.
IN WITNESS WHEREOF, the Company has caused this Warrant
to be duly executed and its corporate seal to be impressed hereon
and attested by its Secretary or an Assistant Secretary.
Dated: February 12, 1999
DYNAMICWEB ENTERPRISES, INC.
By:/S/ Steven L. Vanechanos, Jr.
Name: Steven L. Vanechanos, Jr.
Title: Chief Executive Officer
Attest:
By:______________________
Name:
Title:
PAGE 19
<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 20
<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:
Name and Address of Assignee No. of Shares of
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 21>
EXHIBIT 4.2
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT dated as of February 12,
1999, between DynamicWeb Enterprises, Inc., a New Jersey
corporation with principal executive offices located at Fairfield
Commons, 271 Route 46 West, Building F, Suite 209, Fairfield, New
Jersey 07004 (the "Company"), and the undersigned ("Buyer").
W I T N E S S E T H:
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) 500
shares of the Company's Series B 6% Convertible Preferred Stock,
$.001 par value (the "Initially Issued Preferred Stock"), having
the rights, preferences and privileges set forth in the
Certificate of Amendment to the Certificate of Incorporation of
DynamicWeb Enterprises, Inc. (the "Certificate of
Designations") in the form attached hereto as Annex I and 45,000
warrants (the "Initially Issued Warrants") in the form attached
hereto as Annex II on the Initial Funding Date (as defined
herein) (the Initially Issued Preferred Stock and Initially
Issued Warrants are hereinafter defined as the "First Tranche");
and (ii) 1,000 shares of the Company's Series B 6% Convertible
Preferred Stock, par value $0.001 (the "Subsequently Issued
Preferred Stock" and together with the Initially Issued Preferred
Stock, collectively referred to as the "Preferred Stock") and
90,000 Warrants (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 Subsequently Issued Preferred Stock and Subsequently Issued
Warrants are hereinafter defined as the "Second Tranche");
WHEREAS, upon the terms and subject to the conditions
set forth in the Certificate of Designations, the Preferred Stock
is convertible into shares of the Company's common stock, $.0001
par value ("Common Stock");
WHEREAS, the Initially Issued Warrants, upon the terms
and subject to the conditions therein, will for a period of five
(5) years from the Initial Funding Date be exercisable to
purchase 45,000 shares of Common Stock, and the Subsequently
Issued Warrants, upon the terms and subject to the conditions
therein, will for a period of five (5) years from the Second
Funding Date be exercisable to purchase 90,000 shares of Common
Stock;
NOW THEREFORE, in consideration of the premises and the
mutual covenants contained herein, the parties hereto, intending
to be legally bound, hereby agree as follows:
<PAGE 1>
I. PURCHASE AND SALE OF PREFERRED SHARES
A. Transaction. Buyer hereby agrees to purchase
(subject to the provisions of Section I(B)) 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 Stock
(collectively, together with any Common Stock issued as a
dividend thereon or otherwise with respect thereto in accordance
with the terms thereof, the "Preferred Shares") and the Warrants.
B. Purchase Price; Form of Payment. The purchase
price for the Initially Issued Preferred Stock and the Initially
Issued Warrants to be purchased by Buyer hereunder shall be equal
to $500,000 (the "Initial Purchase Price"). If the Second
Funding Requirements (as defined herein) have been satisfied or
performed in full, as determined by Buyer, as the case may be,
then within fifteen (15) business days thereafter, the Company
shall sell and issue to Buyer and Buyer shall purchase the Second
Tranche from the Company on the same terms and pursuant to the
same conditions contained herein and in Certificate of
Designations, the Initially Issued Warrants and the Registration
Rights Agreement of even date herewith between the Company and
Buyer, a copy of which is annexed hereto as Annex III (the
"Registration Rights Agreement") (the date of the closing of such
purchase, issuance and sale of the Subsequently Issued Preferred
Stock and Subsequently Issued Warrants is referred to herein as
the "Second Funding Date"). The purchase price for the
Subsequently Issued Preferred Stock and the Subsequently Issued
Warrants to be purchased in the Second Tranche on the Second
Funding Date by the Buyer hereunder shall be $1,000,000 (the
"Second Purchase Price"). The Initially Issued Warrants and the
Subsequently Issued Warrants shall be exercisable at a purchase
price per share equal to $8.93.
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 in this Agreement and
the Other Documents (for purposes of this Agreement, the
term "Other Documents" means, the Certificate of
Designations, the Warrants, the Escrow Instructions (as
defined herein) and the Registration Rights Agreement) 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;
<PAGE 2>
(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);
(vi) a registration statement (the "Series A
Registration Statement") in connection with the Company's
Series A 6% Convertible Preferred Stock, $.001 par value
shall have been declared effective by the Commission within
60 days from the Initial Funding Date;
(v) on each Trading day during the 30 day period
immediately following the Effective Date (the "30 Day
Period"), the closing bid price of Common Stock, as reported
on the National Association of Securities Dealers, Inc. Over
the Counter Bulletin Board Service (the "NASD/BBS"), shall
have been at least equal to $6.00 per share (as adjusted for
any stock splits or stock dividends and like events);
(vi) during the 30 Day Period, the Common Stock 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 of at least 50,000 shares per
trading day.
Buyer shall pay the Initial Purchase Price or the
Second Purchase Price, as the case may be, 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 Annex IV
(the "Escrow Instructions"). Simultaneously against receipt by
the Escrow Agent of the Initial Purchase Price or the Second
Purchase Price, as the case may be, 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 number of Preferred Stock and
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. Buyer's Option. Notwithstanding the above, until
a date ninety (90) days following the date that the Series A
Registration Statement is declared effective by the Commission,
should the Company be unable to satisfy the Second Funding
Requirements, the Buyer the option to purchase, and the Buyer
shall have the right, but not the obligation to purchase, the
Second Tranche on the same terms and pursuant to the same
conditions contained in this Agreement and the Other Documents.
The purchase price for the Second Tranche shall be $1,000,000.
<PAGE 3>
D. Method of Payment. Payment into escrow of the
Purchase Price shall be made by wire transfer of immediately
available funds to:
J.P. Morgan Services, Inc.
500 Stanton Christiana
Newark, Delaware 19713-2107
ABA# 021000238
SWIFT# MGTCUS33
For the Account of: Weil, Gotshal & Manges LLP
Special Account
Account# 158-37-474
Reference# 73615.0018
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 Stock 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 Preferred Stock, the
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 Stock (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
<PAGE 4> 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 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.
E. 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.
F. 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.
G. Neither Buyer nor its affiliates nor any person
acting on its or their behalf has the intention of entering, or
will enter into, prior to the closing, 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 50,000,000 shares of Common Stock, of which 2,351,737
shares are outstanding on the date hereof and 5,000,000 shares of
preferred stock, of which 1500 shares of Series A 6% Convertible
Preferred Stock, par value $0.001 per share (the "Series A
Preferred Shares") are 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
<PAGE 5> stock options and warrants to purchase 533,276 shares of
Common Stock. The Conversion Shares and the 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 Stock, or 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 the
Warrant Shares) that have been issued or granted to any person,
except as previously disclosed in writing to Buyer.
2. Except as disclosed in this paragraph, 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. The Company does not have any
subsidiaries.
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 Section 12 of the Exchange Act and has timely 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 NADS/BBS under the
symbol "DWEB" 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 1,500 shares of
Preferred Stock (assuming for purposes of this Section III(C) a
Conversion Price (as defined in the Certificate of
Designations) of $2.00) and the exercise of 135,000 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 Stock
and exercise of the Warrants, respectively. The Company further
acknowledges that its obligation to issue Conversion Shares upon
<PAGE 6> conversion of the Preferred Stock and Warrant Shares
upon exercise of the Warrants in accordance with this Agreement,
the Certificate of Designations 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 Designations
and to enter into this Agreement, the Registration Rights
Agreement, the Warrants and the Escrow Instructions 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 this Agreement, the Escrow Instructions, the Warrants
and the Registration Rights Agreement, and the consummation by
the Company of the transactions contemplated hereby and thereby
(including without limitation the filing of the Certificate of
Designations, 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
this Agreement, the Escrow Instructions, the Warrants and the
Registration Rights Agreement has been duly validly executed and
delivered by the Company and the Certificate of Designations has
been duly filed 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.
E. Authorization of the Securities. The
authorization, issuance, sale and deliver of the Preferred Stock
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 Stock and the Initially
Issued Warrants, and the Conversion Shares and the Warrant Shares
upon their issuance in accordance with the Certificate of
Designations 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. The Subsequently
Issued Preferred Stock and the Subsequently Issued Warrants, and
the Conversion Shares and the Warrant Shares upon their issuance
in accordance with the Certificate of Designation and the
Initially Issued Warrants, respectively, will be validly issued
<PAGE 7> 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 this Agreement, the Registration Rights Agreement,
the Warrants and the Escrow Instructions, 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 Designations 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 Stock and the Warrants (and the Conversion Shares and
the 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(L)), there has not occurred
any change, event or development in the business, financial
condition, prospects or results of operations of the Company, and
there has not existed any condition having or reasonably likely
to have, a Material Adverse Effect.
J. Full Disclosure. There is no fact known to the
Company (other than general economic or industry conditions known
to the public generally) that has not been fully disclosed in
writing to the Buyer that (i) reasonably could be expected to
have a Material Adverse Effect or (ii) reasonably could be
expected to materially and adversely affect the ability of the
Company to perform its obligations pursuant to this Agreement,
<PAGE 8> the Warrants, the Registration Rights Agreement, the
Escrow Instructions or the Certificate of Designations.
K. Absence of Litigation. Except as disclosed on
Schedule III.J., 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 or any of
its subsidiaries, 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 or any of its subsidiaries 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, 1998 and the
related audited statements of operations and cash flows for the
fiscal years ended September 30, 1998 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 30, 1998 is hereinafter referred to as
the "Balance Sheet" and September 30, 1998 is hereinafter
referred to as the "Balance Sheet Date". Neither the Company nor
any of its subsidiaries has any 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.
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 non-compliance which
<PAGE 9> 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
in the Company's Commission Filings, 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 in the Company's
Commission Filings, 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 or any of its subsidiaries, (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 property and
casualty, general liability, workers' compensation, environmental
hazard, personal injury and other similar types of insurance with
financially sound and reputable insurers that is adequate,
consistent with industry standards and the Company's historical
claims experience. 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 III
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 Stock or any shares of
Common Stock (including for this purpose any securities of the
same or a similar class as the Preferred Stock or Common Stock,
or any securities convertible into or exchangeable or exercisable
for the Preferred Stock or Common Stock or any such other
securities) within the six-month period next preceding the date
<PAGE 10> hereof, except as disclosed on Schedule III.P. hereto
or otherwise previously disclosed in writing to Buyer, and the
Company shall not directly or indirectly take, and shall not
permit 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
Stock 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 Stock (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 material
compliance with all applicable Environmental Laws and all permits
issued pursuant to Environmental Laws or otherwise;
2. to its knowledge, the Company has obtained or
applied for all material 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 the
Balance Sheet Date, 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 has no 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. 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;
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, <PAGE 11>
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(Q):
"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
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
<PAGE 12> 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(S):
"ERISA" means the Employee Retirement Income Security
Act of 1974, or any successor statute, together with the
regulations promulgated 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
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.
<PAGE 13>
"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 (m) or (o) of Section 414 of the Internal
Revenue Code.
"Withdrawal Liability" means liability to a
Multiemployer Plan as a result of a complete or partial
withdrawal from such Multiemployer Plan, as such terms are
defined in Part I of Subtitle E of Title IV of ERISA.
U. Tax Matters.
1. The Company has filed all Tax Returns which it
is required to file under applicable Laws, except for such Tax
Returns in respect of which the failure to so file does not and
could not have a Material Adverse Effect; all such Tax Returns
are true and accurate in all material respects and have been
prepared in compliance with all applicable Laws; the Company has
paid all Taxes due and owing by it (whether or not such Taxes are
required to be shown on a Tax Return) and have withheld and paid
over to the appropriate taxing authorities all Taxes which it is
required to withhold from amounts paid or owing to any employee,
stockholder, creditor or other third parties; and since the
Balance Sheet Date, the charges, accruals and reserves for Taxes
with respect to the Company (including any provisions for
deferred income taxes) reflected on the books of the Company are
adequate to cover any Tax liabilities of the Company if its
current tax year were treated as ending on the date hereof.
2. No claim has been made by a taxing authority
in a jurisdiction where the Company does not file tax returns
that such corporation is or may be subject to taxation by that
jurisdiction. There are no foreign, federal, state or local tax
audits or administrative or judicial proceedings pending or being
conducted with respect to the Company; no information related to
Tax matters has been requested by any foreign, federal, state or
local taxing authority; and, except as disclosed above, no
written notice indicating an intent to open an audit or other
review has been received by the Company from any foreign,
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
<PAGE 14> 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 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(T):
"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 does not own any real
property. The Company has good and marketable title to all
personal property owned by it, free and clear of all liens,
encumbrances and defects except such as do not materially affect
the value of such property and do not materially 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
<PAGE 15> 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.V. hereto. To the best of
the Company's knowledge, the Company is not infringing upon or in
conflict with any right of any other person with respect to any
Intangibles. No claims have been asserted by any person to the
ownership or use of any Intangibles and the Company has no
knowledge of any basis for such claim.
X. Internal Controls and Procedures. The Company
maintains accurate books and records and internal accounting
controls which provide reasonable assurance that (i) all
transactions to which the Company is a party or by which its
properties are bound are executed with management's
authorization; (ii) the reported accountability of the Company's
assets is compared with existing assets at regular intervals;
(iii) access to the Company's assets is permitted only in
accordance with management's authorization; and (iv) all
transactions to which the Company is a party or by which its
properties are bound are recorded as necessary to permit
preparation of the financial statements of the Company in
accordance with U.S. generally accepted accounting principles.
Y. Payments and Contributions. Neither the Company
nor any of its directors, officers or, to its knowledge, other
employees has (i) used any Company funds for any unlawful
contribution, endorsement, gift, entertainment or other unlawful
expense relating to political activity; (ii) made any direct or
indirect unlawful payment of Company funds to any foreign or
domestic government official or employee; (iii) violated or is in
violation of any provision of the Foreign Corrupt Practices Act
of 1977, as amended; or (iv) made any bribe, rebate, payoff,
influence payment, kickback or other similar payment to any
person with respect to Company matters.
Z. No Misrepresentation. No representation or
warranty of the Company contained in this Agreement, any
schedule, annex or exhibit hereto or any agreement, instrument or
certificate furnished by the Company to Buyer pursuant to this
Agreement, contains any untrue statement of a material fact or
omits to state a material fact required to be stated therein or
necessary to make the statements therein, not misleading.
<PAGE 16>
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 Stock or the 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 Stock and the Conversion Shares:
"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 SEC
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 use
its best efforts to 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
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 Nasdaq
National Market, the Nasdaq Small Cap Market or The American
Stock Exchange, the Company shall use its best efforts to
maintain its listing of the Common Stock on the NASD/BBS.
F. Reserved Conversion Shares. The Company at all
times from and after the date hereof shall have a sufficient
number of shares of Common Stock duly and validly authorized and
reserved for issuance to satisfy the conversion (pursuant to the
Certificate of Designations), in full, of the 1,500 shares of
Preferred Stock (assuming for purposes of this Section IV(G), a
Conversion Price (as defined in the Certificate of
Designations) of $2.00) and upon the exercise of the 135,000
<PAGE 17> Warrants. In the event the Current Market Price (as
defined in the Certificate of Designations) declines to $4.00,
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 Stock, assuming for purposes of this
Section IV(F) a Conversion Price (as defined in the Certificate
of Designations) of $.50 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 Certificate of Designations), 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 one
year after the Second Funding 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 Right 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) deliver to Buyer a copy of any Proposal
that arises 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 to any
other Person (as defined in the Certificate of Designations).
Notwithstanding the foregoing, the Buyer shall have no rights
under this Section IV(H) 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.
H. Lock-Up. until a date one year from the Second
Funding Date, the Company shall not, without the prior written
consent of Buyer, issue, sell, offer or agree to sell, or
otherwise dispose of (a "Sale"), directly or indirectly, any
shares of its capital stock, or any securities convertible into,
exercisable for or exchangeable for shares of its capital stocks,
unless during the one year period following the Sale of such
securities, such securities may not be directly or indirectly,
<PAGE 18> converted, sold, offered or agreed to be sold, or
otherwise disposed of.
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 Stock 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 Stock 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 shares of Preferred Stock (together with certificates
evidencing any shares of Preferred Stock not being so
converted) to Buyer via express courier, by electronic transfer
or otherwise, within seven (7) 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 shares of
Preferred Stock 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 Stock, upon the conversion of the
Preferred Stock or exercise of the Warrants beyond the applicable
<PAGE 19> Dividend Payment Due Date (as defined in the
Certificate of Designations), Delivery Date or Warrant Delivery
Date could result in economic loss to Buyer. As compensation to
Buyer for such loss (and not as a penalty), the Company agrees to
pay to Buyer for late issuance of Common Stock issuable in lieu
of cash dividends on the Preferred Stock, upon conversion of the
Preferred Stock or exercise of the Warrants in accordance with
the following schedule (where "No. Business Days" is defined as
the number of business days beyond five (5) days from the
Dividend Payment Due Date or the Delivery Date, as applicable):
Compensation For Each
10 Shares of Preferred
Stock Not Converted
Timely or 1000 Shares of
Common Stock Issuable In
Lieu of Cash Dividends or
Shares of Common Stock
Issuable Upon Exercise of
Each 1,500 Warrants
No. Business Days 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.
VII. FUNDING DATES.
The date and time of the issuance and sale of the
Initially Issued Preferred Stock and the Initially Issued
Warrants (the "Initial Funding Date", and together with the
Second Funding Date, each a "Closing Date", and together 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
Subsequently Issued Preferred Stock and the Subsequently Issued
Warrants 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 Stock and the Initially Issued Warrants and the
Subsequently Issued Preferred Stock and the Subsequently Issued
Warrants, 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;
B. The accuracy in all material respects on the
Closing Dates of the representations and warranties of Buyer
contained in this Agreement as if made on the Closing Dates
(except for representations and warranties which, by their
express terms, speak as of and relate to a specified date, in
which case such accuracy shall be measured as of such specified
date) and the performance by Buyer in all material respects on or
before the Closing Dates of all covenants and agreements of Buyer
required to be performed by it pursuant to this Agreement on or
before the Closing Dates;
C. There shall not be in effect any Law or order,
ruling, judgment or writ of any court or public or governmental
authority restraining, enjoining or otherwise prohibiting any of
the transactions contemplated by this Agreement.
<PAGE 21>
IX. CONDITIONS TO BUYER'S OBLIGATIONS.
The Company understands that Buyer's obligation to
purchase the Securities on each of the Closing Dates pursuant to
this Agreement is conditioned upon:
A. Delivery by the Company to the Escrow Agent of one
or more certificates (I/N/O Buyer) evidencing the Securities to
be purchased by Buyer pursuant to this Agreement;
B. The accuracy in all material respects on the
Closing Date of the representations and warranties of the Company
contained in this Agreement as if made on the Closing 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 material respects
on or before the Closing Date of all covenants and agreements of
the Company required to be performed by it pursuant to this
Agreement on or before the Closing Date;
C. Buyer having received an opinion of counsel for
the Company, dated the Closing Date, in form, scope and substance
reasonably 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 the 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 forseeably could have a Material Adverse
Effect.
F. The Company shall have delivered to Buyer (as
provided in the Escrow Instructions) reimbursement of Buyer's
costs and expenses, whether or not incurred, in the amount of
$50,000 in connection with the transactions contemplated by this
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 Agreement.
<PAGE 22>
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 applicable Closing Date, 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 February 19, 1999; 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,
if (i) the Company shall have failed to comply in any material
respect 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 forseeably 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 Initial Funding
Date (i) Buyer shall have failed to comply in any material
respect 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.
E. Fees and Expenses of Termination. If this
Agreement is terminated for any reason other than if terminated
by the Company pursuant to X(D), the Company shall reimburse
Buyer for all of Buyer's out-of-pocket costs and expenses
incurred in connection with the transactions contemplated by this
Agreement (including, but not limited to, the fees and
disbursements of Buyer's legal counsel) .
<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 each of 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 each of 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, the annexes, schedules or
exhibits hereto or any instrument, agreement or certificate
entered into or delivered by the Company pursuant to this
Agreement; or
2. any failure by the Company to perform in any
material respect any of its covenants, agreements,
undertakings or obligations set forth in this Agreement, the
annexes, schedules or exhibits hereto or any instrument,
agreement or certificate entered into or delivered by the
Company pursuant to this Agreement.
C. Buyer hereby agrees to indemnify and hold harmless
the Company, its Affiliates and their respective officers,
directors, partners and members (collectively, the "Company
Indemnitees"), from and against any and all Losses, and agrees to
reimburse the Company Indemnitees for all out-of-pocket expenses
(including the fees and expenses of legal counsel), in each case
promptly as incurred by the Company Indemnitees and to the extent
arising out of or in connection with:
1. any misrepresentation, omission of fact, or
breach of any of Buyer's representations or warranties
contained in this Agreement, the annexes, schedules or
exhibits hereto or any instrument, agreement or certificate
<PAGE 24> entered into or delivered by Buyer pursuant to
this Agreement; 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
any instrument, certificate or agreement entered into or
delivered by Buyer pursuant to this Agreement.
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 Party and
the Indemnifying Party by the same legal counsel would not be
appropriate due to actual or, as reasonably determined by legal
counsel to the Indemnified Party, potentially differing interests
between such parties in the conduct of the defense of such Claim,
or if there may be legal defenses available to the Indemnified
Party that are in addition to or disparate from those available
to the Indemnifying Party, or (z) the Indemnifying Party shall
have failed to employ legal counsel reasonably satisfactory to
the Indemnified Party within a reasonable period of time after
notice of the commencement of such Claim. If the Indemnified
Party employs separate legal counsel in circumstances other than
as described in clauses (x), (y) or (z) above, the fees, costs
and expenses of such legal counsel shall be borne exclusively by
the Indemnified Party. Except as provided above, the
Indemnifying Party shall not, in connection with any Claim in the
same jurisdiction, be liable for the fees and expenses of more
than one firm of legal counsel for the Indemnified Party
(together with appropriate local counsel). The Indemnifying
Party shall not, without the prior written consent of the
Indemnified Party (which consent shall not unreasonably be
<PAGE 25> withheld), settle or compromise any Claim or consent to
the entry of any judgment that does not include an unconditional
release of the Indemnified Party from all liabilities with
respect to such Claim or judgment.
E. In the event one party hereunder should have a
claim for indemnification that does not involve a claim or demand
being asserted by a third party, the Indemnified Party promptly
shall deliver notice of such claim to the Indemnifying Party. If
the Indemnified Party disputes the claim, such dispute shall be
resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in
accordance with the procedures and rules of the American
Arbitration Association. Judgment upon any award rendered by any
arbitrators may be entered in any court having competent
jurisdiction thereof.
XII. GOVERNING LAW: MISCELLANEOUS.
This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York, without regard
to the conflicts of law principles of such state. Each of the
parties consents to the jurisdiction of the federal courts whose
districts encompass any part of the City of New York or the state
courts of the State of New York sitting in the City of New York
in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any
objection, including any objection based on forum non conveniens,
to the bringing of any such proceeding in such jurisdictions. A
facsimile transmission of this signed Agreement shall be legal
and binding on all parties hereto. This Agreement may be signed
in one or more counterparts, each of which shall be deemed an
original. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the
interpretation of, this Agreement. If any provision of this
Agreement shall be invalid or unenforceable in any jurisdiction,
such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other
jurisdiction. This Agreement may be amended only by an instrument
in writing signed by the party to be charged with enforcement.
This Agreement supersedes all prior agreements and understandings
among the parties hereto with respect to the subject matter
hereof.
XIII. NOTICES. Except as may be otherwise provided
herein, any notice or other communication or delivery required or
permitted hereunder shall be in writing and shall be delivered
personally or sent by certified mail, postage prepaid, or by a
nationally recognized overnight courier service, and shall be
deemed given when so delivered personally or by overnight courier
service, or, if mailed, three (3) days after the date of deposit
in the United States mails, as follows:
<PAGE 26>
(1) if to the Company, to:
DynamicWeb Enterprises, Inc.
Fairfield Commons
271 Route 46 West
Building F, Suite 209
Fairfield, New Jersey 07004
with a copy to:
Stevens & Lee
1275 Drummers Lane
P.O. Box 236
Wayne, PA 19087-0236
Attention: Stephen F. Ritner, Esq.
(2) if to the Buyer, to
THE SHAAR FUND LTD.
c/o LEVINSON CAPITAL MANAGEMENT, LLC
2 World Trade Center, Suite 1820
New York, NY 10048
Attention: Samuel Levinson
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Gerald S. Backman, Esq.
(3) if to the Escrow Agent, to:
WEIL, GOTSHAL & MANGES LLP
767 Fifth Avenue
New York, New York 10153
Attention: Gerald S. Backman, Esq.
The Company, the Buyer or the Escrow Agent may change the
foregoing address by notice given pursuant to this Section XIII.
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).
<PAGE 27>
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.
[Remainder of page intentionally left blank]
PAGE 28
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly
executed and delivered this Agreement on 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: _______________________________
Name:
Title:
<PAGE 29>
EXHIBIT 4.3
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT dated as of this 12th day
of February, 1999 (this "Agreement"), between DynamicWeb
Enterprises, Inc., a New Jersey Corporation, with principal
offices located at Fairfield Commons, 271 Route 46 West, Building
F, Suite 209, Fairfield, New Jersey 07004 (the "Company"), and the
undersigned (the "Initial Investor").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of
the Securities Purchase Agreement dated as of February 12, 1999,
between the Initial Investor and the Company (the "Securities
Purchase Agreement"), the Company has agreed to issue and sell to
the Initial Investor (i) 1,500 shares of Series B 6% Convertible
Preferred Stock, $.001 par value (the "Preferred Stock") which,
upon the terms and subject to the conditions thereof, are
convertible into shares of the common stock, $.0001 par value, of
the Company (the "Common Stock") and (ii) warrants ("Warrants") to
purchase 135,000 shares of Common Stock in two tranches, the First
Tranche and the Second Tranche; and
; 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 Stock, upon
conversion of the Preferred Stock 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 meanings:
(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
<PAGE 1> 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 price of a Common Share on
such day as reported on the National Association of
Securities Dealers, Inc. Over the Counter Bulletin Board
System (the "NASD/BBS"), 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 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 Nasdaq 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.
(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) "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.
(vi) "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.
(vii) "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
<PAGE 2> Company under the Exchange Act and incorporated by
reference therein.
(viii) "Registrable Securities" means the Common
Stock issued or issuable (i) in lieu of cash dividend
payments on the Preferred Stock, (ii) upon conversion of the
Preferred Stock or (iii) upon exercise of the Warrants;
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.
(ix) "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.
(x) "Restricted Security" means any share of
Common Stock issued or issuable in lieu of cash dividend
payments on the Preferred Stock, upon conversion of the
Preferred Stock or exercise of the Warrants except any such
share that (i) has been registered pursuant to an effective
registration statement under the Securities Act and sold in a
manner contemplated by the Prospectus included in the
Registration Statement, (ii) has been transferred in
compliance with the resale provisions of Rule 144 under the
Securities Act (or any successor provision thereto) or is
transferable pursuant to paragraph (k) of Rule 144 under the
Securities Act (or any successor provision thereto), or (iii)
otherwise 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.
(xi) "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 the 45th day after the Initial Funding Date, a Registration
Statement relating to the offer and sale of the Registrable
Securities and shall use its best efforts to cause the Commission
<PAGE 3> to declare such Registration Statement effective under
the Securities Act as promptly as practicable but not later than
120 days after the Initial Funding Date (as defined in the
Securities Purchase Agreement), assuming for purposes hereof a
Conversion Price under the Preferred Stock of $2.00 per share.
The Company shall not include any other securities in the
Registration Statement relating to the offer and sale of the
Registrable Securities. 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 required to be filed
by the Company pursuant to Section 2(a) hereof is not (i) filed
with the Commission by the 45th day after the Initial Funding Date
or (ii) declared effective by the Commission within 120 days after
the Initial Funding Date (either of which, without duplication, an
"Initial Date"), then the Company shall make the payments to the
Initial Investor as provided in the next sentence as liquidated
damages and not as a penalty. The amount to be paid by the
Company to the Initial Investor shall be determined as of each
Computation Date, and such amount shall be equal to 2% (the
"Liquidated Damage Rate") of the Purchase Price per share of
Preferred Stock (as 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 $30,000
and; further provided, that if the Registration Statement covering
the Registrable Securities required to be filed by the Company
pursuant to Section 2(a) hereof is not declared effective by the
Commission within 150 days after the Initial Funding Date, then
the Liquidated Damage Rate shall be increase to 3% and; further
provided, however, that the Liquidated Damage Rate shall increase
by 1% for each 30 day period after the 180th day after the Initial
Funding Date that the Registration Statement covering the
Registrable Securities required to be filed by the Company
pursuant to Section 2(a) hereof is not declared effective by the
Commission. 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 30 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.
<PAGE 4>
Notwithstanding the above, the Company and Initial
Investor recognize that recent changes in the rules and
regulations for filing a Registration Statement have made it
difficult to determine the time within which the Commission will
declare a Registration Statement effective. The parties believe
that, under normal circumstances, 120 days from the Initial
Funding Date is a reasonable time within which to cause a
Registration Statement to become effective and to impose
liquidated damages against the Company if it fails to meet such a
reasonable requirement. Notwithstanding the foregoing, the
Company will not be liable for liquidated damages if the
Registration Statement is not declared effective by the Commission
within 120 days from the Initial Funding Date; provided, that,
(i) the Company has filed a Registration Statement
within 45 days of the date of the Initial Funding
Date;
(ii) the Company has made a good faith effort to comply
with all Commission rules and regulations with
respect to the filing, including without
limitation, all "plain english" rules;
(iii) the Company has responded to any and all comments
received from the Commission with respect to the
filing of the Registration Statement or any
Amendment thereto within a reasonable time and in
no event longer than 10 days from the date of
receipt of the comments;
(iv) the Company has otherwise acted in good faith in
its attempt to cause the Registration Statement to
be declared effective in a timely manner; and
(v) the Registration Statement is declared effective
by the Commission within 150 days of the Initial
Funding Date.
Provided further, however, that if the Registration Statement is
not declared effective by the Commission within such 150 day
period, the Company shall be liable for liquidated damages from
the 120th day after the Initial Funding Date pursuant to the first
paragraph of this Section 2(b).
Notwithstanding the above, if the Registration Statement
covering the Registrable Securities required to be filed by the
Company pursuant to Section 2(a) hereof is not filed with the
Commission by the 45th day after the Initial Funding Date or if
the Registration Statement covering the Additional Registrable
Securities (as defined in Section 2(d) hereof) required to be
filed by the Company pursuant to Section 2(d) hereof is not filed
with the Commission within 45 days after the Current Market Price
declines to $4.00 or less to the extent required by the Securities
Act (because the additional shares were not covered by the
<PAGE 5> Registration Statements filed pursuant to Sections 2(a)),
the Company shall be in default of this Registration Rights
Agreement.
(c) Eligibility for Use of Form S-2. 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.
(d) Additional Registration Statement. In the event
the Current Market Price declines to $4.00 or less (the "Decline
Date"), the Company shall, to the extent required by the
Securities Act (because the additional shares were not covered by
the Registration Statement filed pursuant to Section 2(a)), as
reasonably determined by the Initial Investor, file an additional
Registration Statement with the Commission for such additional
number of Registrable Securities as would be issuable upon
conversion of the Preferred Stock (the "Additional Registrable
Securities"), in addition to those previously registered, assuming
a Conversion Price of $.50 per share. 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, prepare and file with the Commission not later than the
30th day after the Decline Date, a registration statement relating
to the offer and sale of such Additional Registrable Securities
(the "Additional Registration Statement") and shall use its best
efforts to cause the Commission to declare such Additional
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.
If the Additional Registration Statement is not
(i) filed with the Commission by the 30th day after the Decline
Date or (ii) declared effective by the Commission within 120 days
after the Decline Date (either of which, without duplication, an
"Additional Registration Date"), then the Company shall make
payments to the Initial Investor at the Liquidated Damage Rate
from the Additional Registration Date to the first Additional
Computation Date and for each Computation Date thereafter,
calculated on a pro rata basis to the date on which the Additional
Registration Statement is filed with or declared effective by the
Commission (the "Additional Periodic Amount"); provided, however,
that in no event shall the liquidated damages be less than $30,000
and; further provided, that if the Additional Registration
Statement is not declared effective by the Commission within 120
days after the Additional Registration Date set forth in clause
(ii) above, then the Liquidated Damage Rate shall be increased to
3% and; further provided, however, that the Liquidated Damage Rate
shall increase by 1% for each 30 day period after the 150th day
<PAGE 6> after the Additional Registration Date set forth in
clause (ii) above that the Additional Registration Statement is
not declared effective by the Commission. The full Additional
Periodic Amount shall be paid by the Company to the Initial
Investor by wire transfer of immediately available funds within
three days after each Additional Computation Date.
As used in this Section 2(d), "Additional Computation
Date" means the date which is 30 days after the Additional
Registration Date and, if the Additional Registration Statement
required to be filed by the Company pursuant to this Section 2(d)
has not theretofore been declared effective by the Commission,
each date which is 30 days after the previous Additional
Computation Date until such Additional Registration Statement is
so declared effective.
(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 Shares 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' rights under this Section 3(e) and
shall offer the Initial Investor the opportunity to include in
such registration statement such number of Registrable Shares as
the Initial Investor may request. Upon the written request of an
Initial Investor made within ten (10) days after the receipt of
notice from the Company (which request shall specify the number of
Registrable Shares intended to be disposed of by such Initial
Investor), the Company will use its best efforts to effect the
registration under the Securities Laws of all Registrable Shares
that the Company has been so requested to register by the Initial
Investor, to the extent requisite to permit the disposition of the
Registrable Shares so to be registered; provided, however, that
(A) if such registration involves a Public Offering, the Initial
Investor must sell their Registrable Shares to the underwriters
selected as provided in Section 3(b) hereof on the same terms and
conditions as apply to the Company and (B) if, at any time after
giving written notice of its intention to register any Registrable
Shares pursuant to this Section 3 and prior to the effective date
of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to
register such Registrable Shares, the Company shall give written
notice to the Initial Investor and, thereupon, shall be relieved
of its obligation to register any Registrable Shares in connection
with such registration. The Company's obligations under this
<PAGE 7> Section 2(c) 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") 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
<PAGE 8> delivery of new securities not subject to transfer
restrictions under the Securities Act (the "Registration Period")
and (ii) take all lawful action such that each of (A) the
Registration Statement and any amendment thereto does not, when it
becomes effective, contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein, not misleading and (B)
the Prospectus forming part of the Registration Statement, and any
amendment or supplement thereto, does not at any time during the
Registration Period include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Notwithstanding the foregoing provisions of this Section 3(a), the
Company may, during the Registration Period, suspend the use of
the Prospectus for a period not to exceed 60 days (whether or not
consecutive) in any 12-month period if the Board of Directors of
the Company determines in good faith that because of valid
business reasons, including pending mergers or other business
combination transactions, the planned acquisition or divestiture
of assets, pending material corporate developments and similar
events, it is in the best interests of the Company to suspend such
use, and prior to or contemporaneously with suspending such use
the Company provides the Investors with written notice of such
suspension, which notice need not specify the nature of the event
giving rise to such suspension. At the end of any such suspension
period, the Company shall provide the Investors with written
notice of the termination of such suspension.
(b) During the Registration Period, comply with the
provisions of the Securities Act with respect to the Registrable
Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been
disposed of in accordance with the intended methods of disposition
by the Investors as set forth in the Prospectus forming part of
the Registration Statement;
(c) (i) Prior to the filing with the Commission of any
Registration Statement (including any amendments thereto) and the
distribution or delivery of any Prospectus (including any
supplements thereto), provide draft copies thereof to the
Investors and reflect in such documents all such comments as the
Investors (and their counsel) reasonably may propose and (ii)
furnish to each Investor whose Registrable Securities are included
in the Registration Statement and its legal counsel identified to
the Company, (A) promptly after the same is prepared and publicly
distributed, filed with the Commission, or received by the
Company, one copy of the Registration Statement, each Prospectus,
and each amendment or supplement thereto, and (B) such number of
copies of the Prospectus and all amendments and supplements
thereto and such other documents, as such Investor may reasonably
request in order to facilitate the disposition of the Registrable
Securities owned by such Investor;
<PAGE 9>
(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 (A) qualify to do business in any jurisdiction where it
would not otherwise be required to qualify but for this Section
3(d), (B) subject itself to general taxation in any such
jurisdiction or (C) file a general consent to service of process
in any such jurisdiction;
(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) (i) Cause all the Registrable Securities covered
by the Registration Statement to be listed on the principal
national securities exchange, and included in an inter-dealer
quotation system of a registered national securities association,
on or in which securities of the same class or series issued by
the Company are then listed or included;
(h) Maintain a transfer agent and registrar, which may
be a single entity, for the Registrable Securities not later than
the effective date of the Registration Statement;
<PAGE 10>
(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 18 months
after (i) the effective date (as defined in Rule 158(c) under the
Securities Act) of the Registration Statement, and (ii) the
effective date of each post-effective amendment to the
Registration Statement, as the case may be, an earnings statement
of the Company and its subsidiaries complying with Section 11(a)
of the Securities Act and the rules and regulations of the
Commission thereunder (including, at the option of the Company,
Rule 158);
(l) In the event of an underwritten offering, promptly
include or incorporate in a Prospectus supplement or post-
effective amendment to the Registration Statement such information
as the managers reasonably agree should be included therein and to
which the Company does not reasonably object and make all required
filings of such Prospectus supplement or post-effective amendment
as soon as practicable after it is notified of the matters to be
included or incorporated in such Prospectus supplement or post-
effective amendment;
(m) (i) Make reasonably available for inspection by
Investors, any underwriter participating in any disposition
pursuant to the Registration Statement, and any attorney,
accountant or other agent retained by such Investors or any such
underwriter all relevant financial and other records, pertinent
corporate documents and properties of the Company and its
subsidiaries, and (ii) cause the Company's officers, directors and
employees to supply all information reasonably requested by such
Investors or any such underwriter, attorney, accountant or agent
in connection with the Registration Statement, in each case, as is
customary for similar due diligence examinations; provided,
<PAGE 11> 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 non-public
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; and provided further that, if the foregoing
inspection and information gathering would otherwise disrupt the
Company's conduct of its business, such inspection and information
gathering shall, to the maximum extent possible, be coordinated on
behalf of the Investors and the other parties entitled thereto by
one firm of counsel designed by and on behalf of the majority in
interest of Investors and other parties;
(n) In connection with any underwritten offering, make
such representations and warranties to the Investors participating
in such underwritten offering and to the managers, in form,
substance and scope as are customarily made by the Company to
underwriters in secondary underwritten offerings;
(o) In connection with any underwritten offering,
obtain opinions of counsel to the Company (which counsel and
opinions (in form, scope and substance) shall be reasonably
satisfactory to the managers) addressed to the underwriters,
covering such matters as are customarily covered in opinions
requested in secondary underwritten offerings (it being agreed
that the matters to be covered by such opinions shall include,
without limitation, as of the date of the opinion and as of the
Effective Time of the Registration Statement or most recent post-
effective amendment thereto, as the case may be, the absence from
the Registration Statement and the Prospectus, including any
documents incorporated by reference therein, of an untrue
statement of a material fact or the omission of a material fact
required to be stated therein or necessary to make the statements
therein (in the case of the Prospectus, in light of the
circumstances under which they were made) not misleading, subject
to customary limitations);
(p) In connection with any underwritten offering,
obtain "cold comfort" letters and updates thereof from the
independent public accountants of the Company (and, if necessary,
from the independent public accountants of any subsidiary of the
Company or of any business acquired by the Company, in each case
for which financial statements and financial data are, or are
required to be, included in the Registration Statement), addressed
to each underwriter participating in such underwritten offering
(if such underwriter has provided such letter, representations or
<PAGE 12> 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 5 hereof, and
(C) providing such information to such broker-dealer as may be
required in order for such broker-dealer to comply with the
requirements of the NASD Rules.
4. Obligations of the Investors. In connection with
the registration of the Registrable Securities, the Investors
shall have the following obligations:
(a) It shall be a condition precedent to the
obligations of the Company to complete the registration pursuant
to this Agreement with respect to the Registrable Securities of a
particular Investor that such Investor shall furnish to the
Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of
the Registrable Securities held by it as shall be reasonably
required to effect the registration of such Registrable Securities
and shall execute such documents in connection with such
registration as the Company may reasonably request. As least
seven days prior to the first anticipated filing date of the
Registration Statement, the Company shall notify each Investor of
the information the Company requires from each such Investor (the
"Requested Information") if such Investor elects to have any of
<PAGE 13> its Registrable Securities included in the Registration
Statement. If at least two business days prior to the anticipated
filing date the Company has not received the Requested Information
from an Investor (a "Non-Responsive Investor"), then the Company
may file the Registration Statement without including Registrable
Securities of such Non-Responsive Investor and have no further
obligations to the Non-Responsive Investor;
(b) Each Investor by its acceptance of the Registrable
Securities agrees to cooperate with the Company in connection with
the preparation and filing of the Registration Statement
hereunder, unless such Investor has notified the Company in
writing of its election to exclude all of its Registrable
Securities from the Registration Statement; and
(c) Each Investor agrees that, upon receipt of any
notice from the Company of the occurrence of any event of the kind
described in Section 3(e) or 3(f), it shall immediately
discontinue its disposition of Registrable Securities pursuant to
the Registration Statement covering such Registrable Securities
until such Investor's receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 3(e) and, if so
directed by the Company, such Investor shall deliver to the
Company (at the expense of the Company) or destroy (and deliver to
the Company a certificate of destruction) all copies in such
Investor's possession, of the Prospectus covering such Registrable
Securities current at the time of receipt of such notice.
5. Expenses of Registration. All expenses, other than
underwriting discounts and commissions, incurred in connection
with registrations, filings or qualifications pursuant to Section
3, but including, without limitation, all registration, listing,
and qualifications fees, printing and engraving fees, accounting
fees, and the fees and disbursements of counsel for the Company,
and the reasonable fees of one firm of counsel to the holders of a
majority in interest of the Registrable Securities shall be borne
by the Company.
6. Indemnification and Contribution.
(a) The Company shall indemnify and hold harmless each
Investor and each underwriter, if any, which facilitates the
disposition of Registrable Securities, and each of their
respective officers and directors and each person who controls
such Investor or underwriter within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act (each such
person being sometimes hereinafter referred to as an "Indemnified
Person") from and against any losses, claims, damages or
liabilities, joint or several, to which such Indemnified Person
may become subject under the Securities Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in
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
<PAGE 14> to state therein a material fact required to be stated
therein or necessary to make the statements therein, not
misleading, or arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in any
Prospectus or an omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under
which they were made, not misleading; and the Company hereby
agrees to reimburse such Indemnified Person for all reasonable
legal and other expenses incurred by them in connection with
investigating or defending any such action or claim as and when
such expenses are incurred; provided, however, that the Company
shall not be liable to any such Indemnified Person in any such
case to the extent that any such loss, claim, damage or liability
arises out of or is based upon (i) an untrue statement or alleged
untrue statement made in, or an omission or alleged omission from,
such Registration Statement or Prospectus in reliance upon and in
conformity with written information furnished to the Company by
such Indemnified Person expressly for use therein or (ii) in the
case of the occurrence of an event of the type specified in
Section 3(e), the use by the Indemnified Person of an outdated or
defective Prospectus after the Company has provided to such
Indemnified Person an updated Prospectus correcting the untrue
statement or alleged untrue statement or omission or alleged
omission giving rise to such loss, claim, damage or liability.
(b) Indemnification by the Investors and Underwriters.
Each Investor agrees, as a consequence of the inclusion of any of
its Registrable Securities in a Registration Statement, and each
underwriter, if any, which facilitates the disposition of
Registrable Securities shall agree, as a consequence of
facilitating such disposition of Registrable Securities, severally
and not jointly, to (i) indemnify and hold harmless the Company,
its directors (including any person who, with his or her consent,
is named in the Registration Statement as a director nominee of
the Company), its officers who sign any Registration Statement and
each person, if any, who controls the Company within the meaning
of either Section 15 of the Securities Act or Section 20 of the
Exchange Act, against any losses, claims, damages or liabilities
to which the Company or such other persons may become subject,
under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in such Registration
Statement or Prospectus or arise out of or are based upon the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein (in light of the circumstances under which they were made,
in the case of the Prospectus), not misleading, in each case to
the extent, but only to the extent, that such untrue statement or
alleged untrue 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, and (ii) reimburse the Company for any legal or
<PAGE 15> other expenses incurred by the Company in connection
with investigating or defending any such action or claim as such
expenses are incurred.
(c) Notice of Claims, etc. Promptly after receipt by a
party seeking indemnification pursuant to this Section 6 (an
"Indemnified Party") of written notice of any investigation,
claim, proceeding or other action in respect of which
indemnification is being sought (each, a "Claim"), the Indemnified
Party promptly shall notify the party against whom indemnification
pursuant to this Section 6 is being sought (the "Indemnifying
Party") of the commencement thereof; but the omission to so notify
the Indemnifying Party shall not relieve it from any liability
that it otherwise may have to the Indemnified Party, except to the
extent that the Indemnifying Party is materially prejudiced and
forfeits substantive rights and defenses by reason of such
failure. In connection with any Claim as to which both the
Indemnifying Party and the Indemnified Party are parties, the
Indemnifying Party shall be entitled to assume the defense
thereof. Notwithstanding the assumption of the defense of any
Claim by the Indemnifying Party, the Indemnified Party shall have
the right to employ separate legal counsel and to participate in
the defense of such Claim, and the Indemnifying Party shall bear
the reasonable fees, out-of-pocket costs and expenses of such
separate legal counsel to the Indemnified Party if (and only if):
(x) the Indemnifying Party shall have agreed to pay such fees,
costs and expenses, (y) the Indemnified Party and the Indemnifying
Party shall reasonably have concluded that representation of the
Indemnified Party by the Indemnifying Party by the same legal
counsel would not be appropriate due to actual or, as reasonably
determined by legal counsel to the Indemnified Party, potentially
differing interests between such parties in the conduct of the
defense of such Claim, or if there may be legal defenses available
to the Indemnified Party that are in addition to or disparate from
those available to the Indemnifying Party, or (z) the Indemnifying
Party shall have failed to employ legal counsel reasonably
satisfactory to the Indemnified Party within a reasonable period
of time after notice of the commencement of such Claim. If the
Indemnified Party employs separate legal counsel in circumstances
other than as described in clauses (x), (y) or (z) above, the
fees, costs and expenses of such legal counsel shall be borne
exclusively by the Indemnified Party. Except as provided above,
the Indemnifying Party shall not, in connection with any Claim in
the same jurisdiction, be liable for the fees and expenses of more
than one firm of counsel for the Indemnified Party (together with
appropriate local counsel). The Indemnifying Party shall not,
without the prior written consent of the Indemnifying Party (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
<PAGE 16> harmless an Indemnified Person under subsection (a) or
(b) above in respect of any losses, claims, damages or liabilities
(or actions in respect thereof) referred to therein, then each
Indemnifying Party shall contribute to the amount paid or payable
by such Indemnified Party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect the relative fault of the
Indemnifying Party and the Indemnified Party in connection with
the statements or omissions which resulted in such losses, claims,
damages or liabilities (or actions in respect thereof), as well as
any other relevant equitable considerations. The relative fault
of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information
supplied by such Indemnified Party or by such Indemnified Party,
and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The parties hereto agree that it would not be just and equitable
if contribution pursuant to this Section 6(d) were determined by
pro rata allocation (even if the Investors or any underwriters
were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable
considerations referred to in this Section 6(d). The amount paid
or payable by an Indemnified Party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof)
referred to above shall be deemed to include any legal or other
fees or expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or
claim. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The obligations of the
Investors and any underwriters in this Section 6(d) to contribute
shall be several in proportion to the percentage of Registrable
Securities registered or underwritten, as the case may be, by them
and not joint.
(e) Notwithstanding any other provision of this Section
6, in no event shall any (i) Investor be required to undertake
liability to any person under this Section 6 for any amounts in
excess of the dollar amount of the proceeds to be received by such
Investor from the sale of such Investor's Registrable Securities
(after deducting any fees, discounts and commissions applicable
thereto) pursuant to any Registration Statement under which such
Registrable Securities are to be 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.
<PAGE 17>
(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
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 Stock 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
<PAGE 18> the Company and Investors who hold a majority-in-
interest of the Registrable Securities. Any amendment or waiver
effected in accordance with this Section 9 shall be binding upon
each Investor and the Company.
10. Miscellaneous.
(a) A person or entity shall be deemed to be a holder
of Registrable Securities whenever such person or entity owns of
record such Registrable Securities. If the Company receives
conflicting instructions, notices or elections from two or more
persons or entities with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such
Registrable Securities.
(b) If, after the date hereof and prior to the
Commission declaring the Registration Statement to be filed
pursuant to Section 2(a) effective under the Securities Act, the
Company grants to any Person any registration rights with respect
to any Company securities which are more favorable to such other
Person than those provided in this Agreement, then the Company
forthwith shall grant (by means of an amendment to this Agreement
or otherwise) identical registration rights to all Investors
hereunder.
(c) Except as may be otherwise provided herein, any
notice or other communication or delivery required or permitted
hereunder shall be in writing and shall be delivered personally or
sent by certified mail, postage prepaid, or by a nationally
recognized overnight courier service, and shall be deemed given
when so delivered personally or by overnight courier service, or,
if mailed, three (3) days after the date of deposit in the United
States mails, as follows:
(1) if to the Company, to:
DynamicWeb Enterprises, Inc.
Fairfield Commons
271 Route 46 West
Building F, Suite 209
Fairfield, New Jersey 07004
Attention: Steven L. Vanechanos, Jr.
Chief Executive Officer
(2) if to the Initial Investor, to:
THE SHAAR FUND LTD.
c/o LEVINSON CAPITAL MANAGEMENT, LLC
2 World Trade Center, Suite 1820
New York, NY 10048
Attention: Samuel Levinson
<PAGE 19>
(3) if to any other Investor, at such address as such
Investor shall have provided in writing to the
Company.
The Company, the Initial Investor or any Investor may change the
foregoing address by notice given pursuant to this Section 10(c).
(d) Failure of any party to exercise any right or
remedy under this Agreement or otherwise, or delay by a party in
exercising such right or remedy, shall not operate as a waiver
thereof.
(e) This Agreement shall be governed by and interpreted
in accordance with the laws of the State of New York. Each of the
parties consents to the jurisdiction of the federal courts whose
districts encompass any part of the City of New York or the state
courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any
objection including any objection based on forum non conveniens,
to the bringing of any such proceeding in such jurisdictions.
(f) The remedies provided in this Agreement are
cumulative and not exclusive of any remedies provided by law. If
any term, provision, covenant or restriction of this Agreement is
held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provision,
covenants and restrictions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or
invalidated, and the parties hereto shall use their best efforts
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. 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
<PAGE 20> respect to the prior rights of the holders of
Registrable Securities set forth herein, and are not otherwise in
conflict or inconsistent with the provisions of this Agreement.
The restrictions on the Company's rights to grant registration
rights under this paragraph shall terminate on the date the
Registration Statement to be filed pursuant to Section 2(a) is
declared effective by the Commission.
(h) This Agreement, the Securities Purchase Agreement,
the Escrow Instructions, dated as of the date hereof (the "Escrow
Instructions"), between the Company, the Initial Investor and
Weil, Gotshal & Manges LLP, the Certificate of Amendment to the
Certificate of Incorporation, dated as of the date hereof (the
"Certificate of Designations"), between the Company and the
Initial Holder 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 Designations 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.
PAGE 21
<PAGE>
IN WITNESS WHEREOF, the parties have caused this
Agreement to be duly executed and delivered as of the date first
above written.
DYNAMICWEB ENTERPRISES, INC.
By:/s/ Steven L. Vanechanos, Jr.
Name: Steven L. Vanechanos, Jr.
Title:Chief Executive Officer
THE SHAAR FUND LTD.
By:____________________________
Name:
Title:
<PAGE 22>
