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Registration Statement No. 333-______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------------------
DYNAMICWEB ENTERPRISES, INC.
(Exact Name of Registrant as Specified in Its Charter)
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New Jersey 7372 22-2267658
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
Incorporation) Classification Code Number) Number)
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DynamicWeb Enterprises, Inc.
271 Route 46 West
Building F, Suite 209
Fairfield, New Jersey 07004
(973) 276-3100
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
Steven L. Vanechanos, Jr.
Chief Executive Officer
DynamicWeb Enterprises, Inc.
271 Route 46 West
Building F, Suite 209
Fairfield, New Jersey 07004
(973) 276-3100
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
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Sarah Hewitt, Esquire John J. Hughes, Jr., Esquire
Brown Raysman Millstein Felder & Steiner LLP Moskowitz Altman & Hughes LLP
120 West 45th Street 11 East 44th Street
New York, New York 10036 New York, New York 10017
(212) 944-1515 (212) 953-1121
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement is effective and all other
conditions under the agreement and plan of merger (described in the proxy
statement/prospectus herein) are satisfied or waived.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [___]
<PAGE>
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earliest effective
registration statement for the same offering. [__]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [___]
CALCULATION OF REGISTRATION FEE
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==============================================================================================
Proposed Proposed
Title of Each Class Maximum Maximum
of Securities to be Amount to be Offering Price Aggregate Amount of
Registered Registered Per Unit Offering Price(2) Registration Fee
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Common Stock, 38,965,450(1) N/A $84,555,027 $22,323
par value $0.0001
per share
- ----------------------------------------------------------------------------------------------
==============================================================================================
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(1) Based upon the product of (i) 14,333,965, the sum of (a) 2,792,909, the
outstanding number of shares of common stock of eB2B Commerce, Inc.
("eB2B"), (b) 150,000, the number of shares of common stock of eB2B
issuable upon conversion of all the outstanding shares of eB2B Series A
Preferred Stock, (c) 5,999,999, the number of shares of common stock of
eB2B issuable upon conversion of all of the outstanding shares of eB2B
Series B Preferred Stock, (d) 4,276,057, the number of shares of common
stock of eB2B issuable upon exercise of all of the outstanding warrants of
eB2B, (e) 1,115,000, the number of shares of common stock of eB2B issuable
upon conversion of all of the outstanding options of eB2B; and (ii) 2.72,
the Exchange Ratio.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f) of the Securities Act of 1933, as amended, and
$2.17 represents the book value per share of the equity interests in eB2B,
as of December 31, 1999, for which there is no active trading market.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
files a further amendment which specifically states that this Registration
Statement will become effective on such date as the Securities and Exchange
Commission, acting pursuant to said Section 8(a), may determine.
================================================================================
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LOGO
DYNAMICWEB ENTERPRISES, INC.
MERGER - YOUR VOTE IS VERY IMPORTANT
The Boards of Directors of DynamicWeb Enterprises, Inc. (the "Company") and
eB2B Commerce, Inc. ("eB2B") have approved a merger agreement that will result
in the merger of eB2B into the Company. Immediately prior to the merger, the
Company will change its state of incorporation from New Jersey to Delaware, by
merging into a newly-formed, wholly-owned subsidiary of the Company which will
be incorporated in Delaware ("Reincorporation"). In the proxy statement/
prospectus delivered in connection with the merger, all references to the
Company, unless otherwise stated, refer to the Company as if the Reincorporation
has been effected.
If the merger is completed:
Company stockholders will continue to own their existing shares.
Each share of eB2B common stock will be exchanged for approximately
2.72 shares of Company common stock (the "Exchange Ratio").
Each share of eB2B preferred stock, options or other security
convertible into eB2B common stock will be exchanged for shares of
Company preferred stock, options or other securities convertible into
Company common stock, as the case may be, having the same terms as the
eB2B convertible securities being exchanged. The number of shares of
Company common stock issuable upon exercise or conversion of such
Company preferred stock, options or other convertible securities being
delivered will be determined by multiplying (i) the number of shares
of eB2B common stock issuable upon exercise or conversion of such eB2B
preferred stock, options or other convertible security being exchanged
by (ii) the Exchange Ratio. The exercise or conversion price of the
Company preferred stock, option or other convertible securities being
delivered will be determined by dividing (i) the exercise or
conversion price of the eB2B preferred stock, option or other
convertible security being exchanged by (ii) the Exchange Ratio.
eB2B's board of directors and stockholders have already approved the
adoption of the merger agreement. However, the merger cannot be completed unless
the stockholders of the Company approve it. After careful consideration, the
board of directors of the Company has determined that the merger with eB2B is
advisable and in the best interests of its stockholders, and unanimously
recommends voting FOR adoption of the merger agreement.
The Company has scheduled a special meeting of its stockholders to vote on
the merger agreement. At the special meeting, the Company's stockholders will
also be asked to consider approval of the Reincorporation (which is a condition
to the merger with eB2B) and to consider approval of the 2000 Stock Option Plan.
Your vote at the Company's upcoming special meeting is very important.
Whether or not you plan to attend the Company's special meeting, please take the
time to vote by completing and mailing the enclosed proxy card to the Company.
If your shares are held in "street name," you must instruct your broker in order
to vote. If you fail to vote or return your proxy card or to instruct your
broker to vote your
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shares, the effect will be the same as a vote against the merger agreement and
the other proposals. If you sign, date and mail your proxy card without
indicating how you want to vote, your proxy will be counted as a vote FOR
adoption of the merger agreement and the other proposals.
The Company's special meeting will be held at _________________________, on
April __, 2000, at 10:00 a.m., local time.
This proxy statement/prospectus provides you with detailed information
about the proposed merger. The Company encourages you to read this document
carefully.
Steven L. Vanechanos, Jr.
Chief Executive Officer
DynamicWeb Enterprises, Inc.
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved of the Company securities to be issued in the
merger, or determined if this proxy statement/prospectus is accurate or
adequate. Any representation to the contrary is a criminal offense.
Proxy statement/prospectus, dated March ___, 2000
and first mailed to Company stockholders on March ___, 2000
This proxy statement/prospectus incorporates important business and
financial information about the Company that is not included in or delivered
with this document. This information is available without charge to stockholders
upon written or oral request to DynamicWeb Enterprises, Inc., 271 Route 46 West,
Building F, Suite 209, Fairfield, New Jersey 07001, Attention: Steven L.
Vanechanos, Jr. The telephone number is (973) 276-3100. Stockholders must
request the information no later than five (5) business days before the date
that they must make their investment decision.
The Company has not authorized anyone to give any information or make any
representation about the merger, eB2B or the Company that differs from, or adds
to, the information in this proxy statement/prospectus or in the Company's
documents that are publicly filed with the Securities and Exchange Commission.
Therefore, if anyone does give you different or additional information, you
should not rely on it.
If you are in a jurisdiction where it is unlawful to offer to exchange or
sell, or to ask for offers to exchange or buy, the securities offered by this
proxy statement/prospectus or to ask for proxies, or if you are a person to whom
it is unlawful to direct such activities, then the offer presented by this proxy
statement/prospectus does not extend to you.
The information contained in this proxy statement/prospectus is accurate
only as of its date unless the information specifically indicates that another
date applies. Certain information in this proxy statement/prospectus about eB2B
has been supplied by eB2B.
eB2B is a privately held company and its securities are not registered
under the Securities Act of 1933 or the Securities Exchange Act of 1934.
Accordingly, this proxy statement/prospectus is a proxy statement only with
respect to the Company and does not contain information addressed to eB2B's
stockholders in connection with any eB2B stockholder vote on the merger, except
insofar as it is a prospectus with respect to the issuance of the Company common
stock in connection with the merger.
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DYNAMICWEB ENTERPRISES, INC.
-----------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held on April __, 2000
-----------------------
To the Stockholders of DynamicWeb Enterprises, Inc.:
DynamicWeb Enterprises, Inc., a New Jersey corporation (the
"Company"), will hold its special meeting of stockholders at __________________,
on April __, 2000, at 10:00 a.m., local time, to vote on:
1. Approval of the Agreement and Plan of Merger, dated December 1,
1999, by and between the Company and eB2B Commerce, Inc. ("eB2B").
2. A proposal to change the Company's state of incorporation from New
Jersey to Delaware, by merging the Company into a newly-formed,
wholly-owned Delaware subsidiary, which merger is contingent upon and would
take place immediately prior to the proposed merger with eB2B.
3. The adoption of the 2000 Stock Option Plan.
4. Any other matters that properly come before the special meeting, or
any adjournments or postponements of the special meeting.
Record owners of the Company's common stock at the close of business
on March ___, 2000 will receive notice of and may vote at the meeting, including
any adjournments or postponements. A list of these stockholders will be
available for inspection for ten (10) days before the meeting at the Company's
offices during usual business hours. A stockholders' list will also be present
at and available for inspection during the special meeting.
The approval and adoption of the merger agreement, the
reincorporation proposal and the 2000 Stock Option Plan will require the
affirmative vote of the stockholders of a majority of the shares of Company
common stock outstanding on the record date.
Steven L. Vanechanos, Jr.
Chief Executive Officer
March ___, 2000
Your vote is important. Please mark, sign, date and return your proxy
promptly, whether or not you plan to attend the Company's special meeting. The
Company's board of directors unanimously recommends that you vote FOR approval
of the matters that you will vote on at the Company's special meeting.
v
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TABLE OF CONTENTS
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Page
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QUESTIONS AND ANSWERS ABOUT THE COMPANY/eB2B MERGER................................................
SUMMARY............................................................................................
The Companies......................................................................................
The Merger.........................................................................................
What Stockholders of eB2B Stock Will Receive in the Merger.........................................
Reasons for the Merger.............................................................................
Recommendations to Company Stockholders............................................................
Share Ownership by Directors and Officers and Votes Required for Approval of the Merger............
Opinion of Financial Advisor.......................................................................
Interests of Certain Persons Involved in the Merger...............................................
Board of Directors and Management of the Company Following the Merger..............................
Dissenters' Rights of Appraisal....................................................................
Regulatory Approval................................................................................
Federal Income Tax Consequences....................................................................
Exchange of Stock Certificates.....................................................................
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION.............................................
RISK FACTORS.......................................................................................
Risks Relating to the Merger.......................................................................
Risks Relating to the Business of the Combined Companies...........................................
THE COMPANY ANNUAL MEETING.........................................................................
Purpose, Time and Place............................................................................
Record Date; Voting Power..........................................................................
Votes Required.....................................................................................
Voting of Proxies..................................................................................
Revocability of Proxies............................................................................
Solicitation of Proxies and Consents...............................................................
Share Ownership of Management and Certain Stockholders.............................................
THE MERGER (Proposal Number One)...................................................................
General............................................................................................
Background of the Merger...........................................................................
Recommendation of the Company's Board of Directors and the Company's Reasons for the Merger........
Reasons of eB2B for the Merger.....................................................................
Opinion of Financial Advisor.......................................................................
Terms of the Merger Agreement......................................................................
Material Federal Income Tax Consequences...........................................................
Directors and Principal Officers of the Company after the Merger...................................
Interests of Certain Persons in the Merger.........................................................
Accounting Treatment...............................................................................
Restrictions on Resales by Affiliates..............................................................
Dissenters' Rights of Appraisal....................................................................
Related Agreements.................................................................................
DESCRIPTION OF COMPANY SECURITIES..................................................................
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vi
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TABLE OF CONTENTS -- (Continued)
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COMPARATIVE RIGHTS OF STOCKHOLDERS OF THE COMPANY AND eB2B.........................................
PRO FORMA FINANCIAL INFORMATION....................................................................
INFORMATION ABOUT THE COMPANY......................................................................
Business of the Company............................................................................
Financial Statements...............................................................................
Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Company..........................................................................
INFORMATION ABOUT eB2B.............................................................................
Financial Statements...............................................................................
Management's Discussion and Analysis of Financial Condition and Results of
Operations of eB2B.................................................................................
PROPOSAL TO CHANGE THE STATE OF INCORPORATION OF THE COMPANY TO DELAWARE (Proposal Number Two).....
- -- Principal Reasons for the Reincorporation Proposal
- -- Principal Features of the Reincorporation Proposal
- -- Comparison of Certain Charter Provisions
- -- Federal Income Tax Consequences of the Reincorporation Merger
- -- Rights of Dissenting Stockholders
- -- Vote Required
- -- Recommendation of the Board of Directors
ADOPTION AND APPROVAL OF THE 2000 STOCK OPTION PLAN (Proposal Number Three).........................
TRADEMARK MATTERS...................................................................................
LEGAL MATTERS......................................................................................
EXPERTS............................................................................................
WHERE YOU CAN FIND MORE INFORMATION ABOUT THE COMPANY..............................................
APPENDICES
APPENDIX A--Agreement and Plan of Merger........................................................... A-1
APPENDIX B--Fairness Opinion of Auerbach, Pollak & Richardson, Inc................................. B-1
APPENDIX C--Certificate of Incorporation of Newco (proposed)....................................... C-1
APPENDIX D--Bylaws of Newco (proposed)............................................................. D-1
APPENDIX E--Company Financial Statements for the year ended September 30, 1999..................... E-1
APPENDIX F--eB2B Financial Statements from Nov. 6, 1998 (inception) to Dec. 31, 1998 and
for the nine months ended September 30, 1999........................................... F-1
APPENDIX G--Form of Proxy.......................................................................... G-1
APPENDIX H--2000 Stock Option Plan.................................................................
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QUESTIONS AND ANSWERS ABOUT
THE COMPANY/eB2B MERGER
Q: Why are the Company and eB2B proposing to merge?
A: The Company believes that the consummation of the merger will create a
stronger, more competitive company capable of greater growth potential than
either company would have on its own. The merger will afford eB2B access to
the public market without some of the costs and uncertainties attendant in
eB2B's making its own public offering of securities. To review the
Company's and eB2B's reasons for in greater detail, see pages _____ to
____.
Q: Will the merger have any effect on the currently outstanding shares of the
Company's common stock?
A: The reincorporation of the Company from New Jersey to Delaware is a
condition to the merger. In connection with this reincorporation, Company
stockholders will receive one share of common stock of a newly formed
Delaware corporation in exchange for each share of Company common stock.
Otherwise, the merger with eB2B will not have any effect on the shares of
Company common stock. However, the number of outstanding shares of the
Company's common stock will increase from approximately 5.18 million shares
to approximately 44.4 million shares (on a fully-diluted basis) as a result
of the Company's common stock to be issued to eB2B's stockholders in
connection with the merger. Of the approximately 44.4 million fully-diluted
shares, approximately 40.6 million shares are subject to lock-up
agreements. See Risk Factor "The Expiration of Restrictions on the Resale
of Certain Securities May Negatively Affect the Price of The Company
Common Stock," for greater detail.
Q: Who needs to approve the merger?
A: In addition to the approvals by the boards of directors of the Company and
eB2B and the approval by eB2B's stockholders, all of which have already
been obtained, the merger must be approved by the Company's stockholders to
become effective. Approval by stockholders of fifty percent (50%) or more
of the Company's outstanding common stock is required to approve the
proposed merger.
Q: What does a stockholder of the Company need to do now?
A: The stockholders of the Company are urged to read this proxy
statement/prospectus, including its appendixes, carefully. Stockholders may
also want to review the documents referenced on page [__] under "Where You
Can Find More Information on the Company." After considering this
information, a stockholder should vote his, her or its shares.
Q: How does a stockholder of the Company vote?
A: Stockholders may indicate how they want to vote their shares on their proxy
card and then sign and mail the completed proxy card in the enclosed return
envelope as soon as possible so that their shares will be represented and
voted at the Company's special meeting. A stockholder may also attend the
special meeting in person instead of submitting a proxy. A stockholder
should be aware that if the stockholder fails to either return the proxy
card or to vote in person at the special meeting, or if the stockholder
marks the proxy card "abstain," the effect will be equivalent to a vote
against the merger.
Q: If you own shares of Company common stock held in "street name" by a
broker, can that broker vote those shares for you?
A: A broker that holds shares of the Company's common stock in "street name"
will not be able to vote those shares without instructions from the
beneficial owner of those shares. Therefore, stockholders of the Company
should instruct their brokers to vote their shares, following the
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procedure provided by their brokers.
Q: Can stockholders of the Company change their votes at any time after
casting their proxy ballots?
A: Yes. Owners of the Company's common stock can change their votes at any
time before their proxy cards are voted at the Company's special meeting.
This can be done in one of three ways. First, a stockholder may send a
written notice to Steve Vanechanos, Sr., Secretary of the Company (at the
address set forth below), stating that the proxy should be revoked. Second,
a new proxy card may be completed and submitted to Mr. Vanechanos, Sr. in
the same manner. Third, the Company's stockholders may attend the Company's
special meeting and vote in person. Attendance alone will not, however,
revoke a proxy. If a broker has been instructed to vote Company shares, the
broker's procedures must be followed to change those instructions.
Q: When does the Company expect the merger to be completed?
A: The Company is working toward completing the merger as quickly as possible.
The Company expects to complete the merger in the second quarter of 2000.
Q: After the merger, is the Company assured of a listing on The Nasdaq Stock
Market?
A: In conjunction with the merger, the combined company will submit an
application for a listing on The Nasdaq Stock Market. The Company believes
that the combined company will meet many of the objective initial listing
requirements of The Nasdaq Stock Market. However, The Nasdaq Stock Market
has broad discretionary authority and may decide not to approve the
Company's application.
Q: Will the composition of the Company's board of directors change after the
merger?
A: Yes. Upon the consummation of the merger, the Company's board of directors
will consist of six existing directors of eB2B and one existing director of
the Company. For information regarding the board of directors of the
Company, see "THE MERGER: Directors and Principal Officers of the Company
After the Merger" at pages ___ and ___.
Q: What other matters will be voted on at the meeting?
A: In addition to approving the merger agreement, Company stockholders will
also be asked to vote on the change of the domicile of the Company from New
Jersey to Delaware, which, if approved by the Company's stockholders, will
become effective immediately prior to the consummation of the merger.
When casting their votes on this additional proposal, Company stockholders
desiring to approve the merger should bear in mind that stockholder
approval of the reincorporation proposal is a condition which must be met
by the Company before eB2B is obligated to consummate the merger.
In addition, the Company stockholders will also be asked to approve the
2000 Stock Option Plan.
Q: Where can more information about the Company be found?
A: The Company files periodic reports and other information with the
Securities and Exchange Commission. This information may be read or copied
at the SEC's public reference facilities. Please call the SEC at
1-800-SEC-0330 for information about these facilities. This information is
also available at the SEC's Internet site (http:\\www.sec.gov). For a more
detailed description of information available, see "Where You Can Find More
Information About the Company" at page ____.
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Q: Who can help answer any additional questions?
A: If you are a Company stockholder and have more questions about the merger,
you can contact:
Steven L. Vanechanos Jr.
Chief Executive Officer
DynamicWeb Enterprises, Inc.
271 Route 46 West
Building F, Suite 209
Fairfield, New Jersey 07004
Telephone: (973) 276-3100
If you are an eB2B stockholder and have more questions about the merger,
you can contact:
Joseph Bentley
Executive Vice President
eB2B Commerce, Inc.
29 West 38th Street
New York, New York 10018
Telephone: (212) 868-0920
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SUMMARY
This summary highlights selected information from this proxy
statement/prospectus. It does not contain all of the information that may be
important to you. You should carefully read this entire document and the other
documents referred to in this proxy statement/prospectus. Together, these
documents will give you a more complete description of the transactions the
Company is proposing.
THE COMPANIES
DynamicWeb Enterprises, Inc.
271 Route 46 West
Building F, Suite 209
Fairfield, New Jersey 07004
(973) 276-3100
The Company provides services and software that facilitate business-to-
business e-commerce between buyers and sellers of direct goods. The Company's
services include the provision of the necessary infrastructure and operational
services to facilitate electronic transactions between buyers and sellers;
and consulting services to businesses that wish to build and/or operate their
own e-commerce infrastructure.
eB2B Commerce, Inc.
29 West 38th Street
New York, New York 10018
(212) 868-0920
eB2B is an Internet-based business-to-business e-commerce service provider
offering manufacturers and retailers the capability to conduct cost-effective
electronic commerce transactions utilizing the Internet. Through its eB2B.com
portal, retailers and manufacturers can conduct real-time interactive business
transactions such as product ordering, merchandising, inventory management,
shipping, billing and customer service.
THE MERGER
The merger agreement is the document that governs the merger of eB2B with
the Company. It is attached to this proxy statement/prospectus as Appendix A.
The Company encourages you to read this document as it is the legal document
that governs the merger.
WHAT eB2B STOCKHOLDERS WILL RECEIVE IN THE MERGER
Each share of eB2B common stock will be exchanged for approximately 2.72
shares of Company common stock.
Each share of eB2B preferred stock, options or other securities which are
convertible into eB2B common stock will be exchanged for securities which are
convertible into Company common stock, having the same terms as the eB2B
convertible securities being exchanged. The number of shares of Company common
stock issuable upon conversion of the Company securities being delivered will be
determined by multiplying (i) the number of shares of eB2B common stock issuable
upon conversion of such eB2B securities by (ii) approximately 2.72. The exercise
or conversion price of the Company securities being delivered will be determined
by dividing (i) the exercise or conversion price of such eB2B securities by (ii)
approximately 2.72.
REASONS FOR THE MERGER
The Company's board of directors believes that the merger is in the best
interests of the Company's stockholders because it enables the Company to expand
the scope of its mission and its organization, to gain effective financial
sponsorship, to gain access to substantial capital and potentially to attain a
<PAGE>
listing on The Nasdaq Stock Market. Furthermore, the Company's board of
directors believes that the terms of the merger are fair to the Company's
stockholders.
RECOMMENDATIONS TO COMPANY STOCKHOLDERS
The Company's board of directors believes that the merger is fair to the
Company's stockholders and in their best interests, and unanimously recommends
that the Company stockholders vote "FOR" the proposal to adopt and approve the
merger agreement. The Company's board of directors also unanimously recommends
that the Company stockholders vote "FOR" the reincorporation proposal and
"FOR" approval of the 2000 Stock Option Plan.
SHARE OWNERSHIP BY DIRECTORS AND OFFICERS AND
VOTES REQUIRED FOR APPROVAL OF MERGER
THE COMPANY
The Company's directors and officers, and their affiliates, own
approximately 25.4% of the Company's outstanding common stock. To become
effective, the merger must be approved by stockholders of more than 50% of
the Company's outstanding common stock. Steven L. Vanechanos, Jr. and Steve
Vanechanos, Sr. have agreed to vote their shares constituting approximately
16.9% of the Company's common stock in favor of the proposed merger.
eB2B
To become effective, the merger must be approved by stockholders of 50% or
more of eB2B's outstanding shares entitled to vote. On December 1, 1999, the
merger was approved by stockholders of more than 50% of eB2B outstanding shares
entitled to vote. At the time of such approval, eB2B's directors and officers,
and their affiliates, owned approximately 77.34% of eB2B's outstanding common
stock.
OPINION OF FINANCIAL ADVISOR
Auerbach, Pollak & Richardson, Inc. provided a written opinion to the
Company's board of directors as to the fairness of the merger to the Company's
stockholders from a financial point of view. The Company has attached this
written opinion as Appendix B to this document. You should read this entire
opinion carefully, as well as the additional information set forth under the
heading "THE MERGER--Opinion of Financial Advisor" at pages___ to ___, to
understand the procedures followed, assumptions made, matters considered and
limitations of the review undertaken by Auerbach, Pollak & Richardson, Inc. in
providing its opinion. This opinion is directed to the Company's board of
directors and does not constitute a recommendation to any of the Company's
stockholders as to how such stockholders should vote at the Company's special
meeting.
INTERESTS OF CERTAIN PERSONS INVOLVED IN THE MERGER
In considering the recommendation of the Company's board of directors to
approve the merger, Company stockholders should be aware that certain of the
Company's executive officers and directors and current officers and directors of
eB2B who will become directors after the merger have interests in the merger
that may be considered to be different from the Company stockholders' interests.
For example, certain of the Company's directors and officers will continue to be
employed by the Company after the merger. Also, present and former officers and
directors of eB2B and the Company will be entitled to certain indemnification
and insurance rights. See "THE MERGER--Interests of Certain Persons in the
Merger" at pages ____ to ___ for more information concerning these arrangements
benefiting the Company's officers and directors and those of eB2B.
BOARD OF DIRECTORS AND MANAGEMENT OF THE COMPANY FOLLOWING THE MERGER
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THE BOARD OF DIRECTORS
Upon consummation of the merger, the Company's board of directors will
initially consist of seven directors, six of whom are currently directors of
eB2B. One current Company director will continue as a director of the Company
after the merger.
MANAGEMENT
The present management team of eB2B will serve as the Company's management
team after the merger except that the Company's Chief Executive Officer, Steven
L. Vanechanos, Jr., will become the Company's Chief Technology Officer.
DISSENTERS' RIGHTS OF APPRAISAL
COMPANY STOCKHOLDERS
Owners of the Company's common stock do not have dissenters' rights of
appraisal in connection with the merger under either Delaware or New Jersey law.
eB2B STOCKHOLDERS
The merger has been approved by written consent of the owners of a majority
of the shares of voting stock of eB2B. eB2B delivered a notice to each of its
stockholders who did not execute the written consent approving the merger,
setting forth a description of their rights to seek an appraisal of and to be
paid the fair value of their shares in accordance with Section 262 of the
Delaware General Corporation Law. However, none of eB2B's stockholders elected
to exercise their rights of appraisal within the applicable time period allowed
under Section 262.
REGULATORY APPROVAL
No submissions to the Antitrust Division of the Department of Justice and
the Federal Trade Commission are required of either the Company or eB2B pursuant
to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
FEDERAL INCOME TAX CONSEQUENCES
The merger has been structured so that none of the Company, eB2B or either
company's stockholders will recognize any gain or loss as a result of the merger
for United States federal income tax purposes.
For a description of certain federal income tax consequences of the
transaction to stockholders of the Company and eB2B common stock, see page ____,
"THE MERGER--Material Federal Income Tax Consequences."
EXCHANGE OF STOCK CERTIFICATES
COMPANY STOCKHOLDERS
Company stockholders should retain their stock certificates.
eB2B STOCKHOLDERS
3
<PAGE>
After the merger is completed, eB2B stockholders will be sent written
instructions for exchanging their eB2B stock certificates for Company stock
certificates.
4
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following table shows the financial results actually achieved by each
of the Company and eB2B (the "historical figures") as well as the results as if
the companies had been combined for the period shown (the "pro forma combined"
figures) under the following circumstances:
Selected Historical and Pro Forma Data as of September 30, 1999
THE COMPANY SELECTED HISTORICAL CONDENSED FINANCIAL DATA
The following selected historical condensed financial data
should be read in conjunction with the Company's audited financial statements
and related notes and with the Company's "Management's Discussion and Analysis
of Financial Condition and Results of Operations" which are incorporated by
reference in this proxy statement/prospectus. The statement of operations
information for each of the years in the four year period ended September 30,
1999, and the balance sheet data as of September 30, 1999, 1998, 1997 and 1996
have been derived from the Company's financial statements, which have been
audited by Richard A. Eisner & Company, LLP, and are incorporated by reference
herein. Historical results are not necessarily indicative of the results to be
expected in the future. No cash dividends have been declared or paid on the
Company common stock.
<TABLE>
<CAPTION>
Fiscal Year Ended September 30,
-------------------------------
1996*# 1997* 1998* 1999
------ ----- ----- ----
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net Revenues $ 460,067 $ 637,000 $ 1,187,000 $ 3,045,000
Cost of Revenue 152,399 253,000 719,000 1,790,000
Research and development costs 28,990 235,000 412,000 534,000
Marketing and sales expenses --- 486,000 734,000 1,638,000
General and administrative expenses 719,443 1,369,000 1,925,000 1,876,000
---------- ------------ ------------ ------------
Operating loss (440,765) (1,706,000) (2,603,000) (2,793,000)
Gain on Sale of asset --- --- --- 12,000
Purchased Research and Development --- (714,000) --- ---
Interest Income (expense) (14,465) (765,000) (351,000) 15,000
---------- ------------ ------------ ------------
Net loss (455,230) (3,163,000) (2,954,000) (2,766,000)
Cumulative dividends on preferred
stock --- --- (77,000) (1,699,000)
---------- ------------ ------------ ------------
Net loss attributed to
common stockholders $ (455,230) $ (3,163,000) $ (3,031,000) $ (4,465,000)
========== ============ ============ ============
Net Loss per share (basic and
diluted) $ (.39) $ (2.28) $ (1.56) $ (1.81)
=== ==== ==== ====
Number of shares outstanding (basic
and diluted) 1,158,905 1,386,383 1,944,132 2,460,287
========== ============ ============ ============
Balance Sheet Data:
Working Capital $ 200,157 $ (1,043,923) $ 207,000 $ 245,000
Total Assets 536,177 887,716 1,750,000 2,133,000
Long-Term Obligations 197,661 185,811 181,000 24,000
Stockholders' equity 261,684 (651,451) 1,189,000 1,269,000
</TABLE>
* Reclassified revenue categories to conform to 1999 presentation of financial
statements.
# Reflects the consolidated financial statements of the Company and its
subsidiaries.
5
<PAGE>
eB2B SELECTED HISTORICAL CONDENSED FINANCIAL DATA
You should read the following selected financial data in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the financial statements and notes included elsewhere in this
prospectus.
The statement of operations data for period from November 6, 1998
(inception) to December 31, 1998 have been derived from eB2B's audited financial
statements included elsewhere in this prospectus, which have been audited by
Ernst & Young, LLP. The balance sheet data as of December 31, 1998 has been
derived from eB2B's audited financial statements included elsewhere in this
prospectus, which have been audited by Ernst & Young, LLP. The statement of
operations data for the nine months ended September 30, 1999 have been derived
from eB2B's unaudited financial statements included elsewhere herein in this
prospectus. The unaudited financial statements include normal recurring
adjustments that we consider necessary for a fair presentation of eB2B's
results of operation. Operating results for the nine month period ended
September 30, 1999 are not necessarily indicative of the results that may be
expected for the entire year or for any future period. The balance sheet data
for the nine months ended September 30, 1999 have been derived from eB2B's
unaudited financial statements included elsewhere herein in this prospectus. No
cash dividends have been declared or paid on the Company common stock.
<TABLE>
<CAPTION>
November 6, 1998
(inception) to Nine Months Ended
December 31, 1998 September 30, 1999
----------------- ------------------
<S> <C> <C>
Statement of Operations Data:
Net Sales $ --- $ ---
Cost of Goods Sold --- ---
---------- -----------
Gross Profit --- ---
Selling, general and administrative
expenses 55,000 1,934,000
Software Development Expenses 53,000 548,000
---------- -----------
Total Costs and Expenses 108,000 2,482,000
---------- -----------
Net loss $ (108,000) $(2,482,000)
========== ===========
Net loss per share (basic and diluted) $ (0.05) $ (0.98)
==== ====
Number of shares outstanding (basic and
diluted) 2,307,250 2,535,167
========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <S> <S>
Balance Sheet Data:
Cash $ 10,000 $ 63,000
Working Capital (41,000) (623,000)
Total Assets 384,000 125,000
Long-Term Debt 86,000 83,000
Stockholders' equity (deficit) 247,000 (650,000)
</TABLE>
6
<PAGE>
Comparative per share information
The following table sets forth unaudited data concerning the net loss,
dividends and book value per share for the Company and eB2B on a pro forma basis
after giving effect to the merger.
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The selected unaudited pro forma condensed combined financial data, which has
been derived from the selected historical financial statements, appearing
elsewhere herein or incorporated herein by reference, gives effect to the
acquisition of NetLan Enterprises Inc. This pro forma combined financial
information should be read in conjunction with the pro forma financial
statements and their notes. For the purpose of the unaudited pro forma condensed
combined statement of operations data, the Company's results of operations for
the fiscal year ended September 30, 1999 have been combined with both eB2B's
results of operations for its comparable twelve month period and NetLan's
results of operations for its comparable twelve month period. For the purpose of
the unaudited pro forma condensed combined balance sheet data, the Company's
balance sheet as of September 30, 1999 has been combined with both eB2B's and
NetLan's balance sheets. The pro forma information is presented for illustrative
purposes only and is not necessarily indicative of the future operating results
or financial position of the combined enterprise.
<TABLE>
<CAPTION>
Year Ended
September 30, 1999
-------------------
<S> <C>
Pro Forma Condensed Combined Statement of
Operations Data:
Net Revenue $ 7,363,478
Operating loss (13,604,612)
Net loss attributable to common stockholders (43,445,718)
Net loss per share--(basic and diluted) $(4.27)
</TABLE>
<TABLE>
<CAPTION>
September 30, 1999
-------------------
<S> <C>
Pro Forma Condensed Combined Balance Sheet Data:
Cash and cash equivalents $ 30,301,806
Total assets 56,482,924
Long-term obligations 107,061
Stockholders' equity 50,428,462
</TABLE>
COMPARATIVE PER SHARE DATA
The following table summarizes certain unaudited per share information
for the Company and eB2B on a historical condensed basis. The following
information should be read in conjunction with the audited and unaudited
financial statements of the Company and eB2B. The historical book value per
share is computed by dividing total stockholders' equity by the number of common
shares outstanding at the end of the period. The net loss per share from
continuing operations is computed by dividing the net loss from continuing
operations by the weighted average number of shares outstanding.
<TABLE>
<CAPTION>
THE COMPANY
- -----------
Year Ended
September 30, 1999
-------------------
<S> <C>
Historical Per Common Share Data:
Net loss from continuing operations--(basic and
diluted): $(1.81)
Book value: $ 0.52
</TABLE>
<TABLE>
<CAPTION>
EB2B
- ----
Nine Months Ended
September 30, 1999
------------------
<S> <C>
Historical Per Common Share Data:
Net loss from continuing operations--(basic and
diluted): $(0.98)
Book value: $(0.26)
</TABLE>
eB2B Securities
There is no established public trading market for any of eB2B's securities.
As of December 31, 1999, there were approximately 31 record holders of eB2B
common stock and 2,792,909 shares of eB2B common stock outstanding. As of
December 31, 1999, there were 300 shares of Series A Preferred Stock and
approximately 3.3 million shares of Series B Preferred Stock outstanding, and
convertible into a total of approximately 6 million shares of eB2B common stock.
As of December 31, 1999, there were outstanding options or warrants to purchase
approximately 5.5 million shares of eB2B common stock. As of December 31, 1999
there were no shares of eB2B common stock that could be sold pursuant to Rule
144 under the Securities Act of 1933 or which eB2B has agreed to register under
the Securities Act of 1933 for sale by stockholders. Since its inception, eB2B
has not declared or paid any dividends on its common stock.
Historical Per Share Data
The closing sales price per share of the Company's common stock on
November 10, 1999, the last trading day preceding public announcement of the
merger, was $4.75. There is no public market for eB2B's securities, therefore
there is no information available with respect to the market value of shares
of eB2B common stock on the last trading day preceding public announcement of
the merger.
7
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors before deciding
whether to vote in favor of the merger. You should also consider the other
information in this proxy statement/prospectus and the additional information in
the Company's other reports on file with the Securities and Exchange Commission
and in other documents incorporated by reference in this proxy
statement/prospectus. The merger may involve additional risks and uncertainties
not described below.
RISKS RELATING TO THE MERGER
THE PRICE OF THE COMPANY'S STOCK IS VOLATILE AND THERE WILL BE NO ADJUSTMENTS TO
THE NUMBER OF SHARES RECEIVED BY eB2B'S STOCKHOLDERS IF THE STOCK PRICE OF THE
COMPANY'S STOCK CHANGES.
The Company's stock price has been and is likely to continue to be
volatile. For example, from October 1, 1999 through December 31, 1999, the
Company's common stock traded as high as $16.75 per share and as low as $2.9375
per share. At the closing of the merger, each share of eB2B common stock will be
exchanged for shares of Company common stock based on a fixed exchange ratio. No
adjustment will be made as a result of changes in the market price of the
Company's common stock. In addition, neither the Company nor eB2B may terminate
or renegotiate the terms of the merger or resolicit the vote of its stockholders
solely due to changes in the market price of the Company's common stock.
Therefore, if the price of the Company common stock increases, the eB2B holders
will receive more value at the completion of the merger, and if the price of the
Company common stock declines, the eB2B holders will receive less value at the
completion of the merger.
Prior to and following the merger the Company's stock price is likely to
continue to be highly volatile due to a variety of factors, including:
variations in operating results or growth rates;
announcements of technological innovations;
the introduction of new products or services by the Company or its
competitors;
market conditions in the industry generally;
volatility of stock prices of Internet companies generally;
announcements of additional business combinations in the industry or
by the Company;
additions or departures of key personnel; and
general economic conditions.
In addition, the National Association of Securities Dealers
Over-the-Counter Bulletin Board service, where many publicly held Internet
companies' stock is quoted, has recently experienced extreme price and volume
fluctuations. These fluctuations are often unrelated or disproportionate to the
operating performance of these companies. The trading prices of many Internet
companies' stocks were recently at or near historical highs and these trading
prices and price-to-earnings multiples are substantially above historical
levels. These trading prices and multiples may not be sustainable. These broad
market and Internet industry factors may materially adversely affect the market
price of the Company's common stock, warrants and other securities regardless of
the Company's actual operating performance.
8
<PAGE>
THE INTEGRATION OF THE TWO COMPANIES MAY BE DIFFICULT AND DELAYS IN CONSUMMATING
THE MERGER AND/OR INTEGRATING THE TWO COMPANIES COULD IMPACT ADVERSELY ON THE
COMPANY'S LONG-TERM PROSPECTS.
Integrating the operations and personnel of the two companies will involve
complex technological, operational and personnel-related challenges. This
process will be time-consuming and expensive, and may disrupt the business of
the Company after the merger. There can be no assurance that the integration of
the two companies will occur rapidly or that it will result in the benefits
expected by the companies. The difficulties, costs and delays that may be
encountered by the Company may include:
integrating the information and communications systems, and
particularly the web site operations of the two companies, may be more
challenging, expensive and time-consuming than anticipated;
integration may negatively affect employee morale and the Company may
lose key employees after the merger;
the attention of the management of the Company may be diverted from
ongoing business concerns; and
the business cultures of the two companies may be more difficult to
integrate than anticipated.
The long term success of both eB2B and the Company is ultimately tied to a
timely and effective completion of an integration effort. Delays in completing
the merger will cause delays in the integration process and could adversely
impact the companies' prospects for long term success.
THE EXPECTED BENEFITS OF THE MERGER MAY NOT BE REALIZED.
The potential benefits that the companies expect to achieve as a result of
the merger may be more difficult to achieve than expected, or may not be
accomplished at all. For example, following the merger, the Company may be
unsuccessful in its efforts to build a single, widely-recognized Internet brand
name or achieve economies of scale or other cost reductions.
THE COMPANY IS SUBJECT TO LITIGATION REGARDING A CLAIM FOR A FINDER'S FEE
RELATING TO THE MERGER AND MAY BE SUBJECT TO OTHER LITIGATION.
The Company is subject to litigation that may injure its business
reputation and/or result in substantial damages. On December 17, 1999, Sands
Brothers & Co., Ltd. served the Company with a summons and complaint in a civil
action brought in the United States District Court for the Southern District
of New York. The Company had engaged Sands Brothers & Co., Ltd. to provide
financial advisory, corporate finance, and merger and acquisition advice. Sands
Brothers & Co., Ltd. alleges that it is entitled to compensation for introducing
eB2B, the company with which the Company is planning to merge, to the Company.
The Company's contention is that Sands Brothers & Co., Ltd. did not introduce
eB2B to the Company and disputes that Sands Brothers & Co., Ltd. is entitled to
compensation. Sands Brothers & Co., Ltd. seeks damages for breach of contract
in the amount of $3,500,000, plus interest and costs, and other related relief.
On January 6, 2000, the Company answered the complaint denying the material
allegations contained therein. Discovery is now proceeding.
More generally, certain of the Company's engagements involve the design
and development of customized e-commerce systems that are important to its
clients' businesses. Failure or inability to meet a client's expectations in the
performance of services could result in a diminished business reputation or a
claim for substantial damages regardless of which party is responsible for such
failure. In addition, the services provided to clients may include access to
confidential or proprietary client information. Although the Company has
implemented policies to prevent such client information from being disclosed to
unauthorized parties or used inappropriately, any unauthorized disclosure or use
could result in a claim against the Company for substantial damages. Contractual
9
<PAGE>
provisions attempting to limit such damages may not be enforceable in all
instances or may otherwise fail to protect it from liability for damages.
Moreover, the Company does not currently have, and does not currently plan
to obtain, errors and omissions insurance.
In addition, there is always the possibility that the Company's
stockholders will blame the Company or eB2B for taking some inappropriate action
that causes the loss of their investment. In the past, following periods of
volatility in the market price of a company's securities, securities class
action litigation often has been instituted against that company. Similar
litigation, if instituted against the Company, could result in substantial costs
and a diversion of the Company's management's attention and resources. Your
investment in the Company's stock may become illiquid and you may lose your
entire investment.
THE COMPANY WILL LOSE CERTAIN TAX BENEFITS AS A RESULT OF THE MERGER.
After the consummation of the merger, the Company will be limited, in
accordance with Section 382 of the Internal Revenue Code, in the use of its
federal net operating loss carryforwards. The federal limitations are triggered
upon a change of control of a corporation. Under the Internal Revenue Code,
after the consummation of the proposed merger with eB2B, the Company will
be able to use approximately $868,000 per year of its potential net operating
loss carryforwards. Under the New Jersey law and regulations, after the Company
reincorporates in the State of Delaware, the Company will most likely lose the
future use of approximately $2,200,000 in net operating loss carryforwards
resulting in a potential loss of approximately $198,000 in New Jersey tax
benefits.
THE COMPANY HAS NEGATIVE CASH FLOW AND LIMITED CAPITAL RESOURCES; IF THE CASH
AVAILABLE TO THE COMPANY PRIOR TO THE CONSUMMATION OF THE MERGER IS NOT
SUFFICIENT, THE COMPANY MAY NEED TO CONDUCT ADDITIONAL FINANCING ACTIVITIES.
The Company's negative cash flow of the year ended September 30, 1999 was
funded by proceeds from private placements of the Company's securities. On
September 30, 1999, the capital resources available to the Company were not
adequate to finance the Company's activities for the quarter ending December 31,
1999. Pursuant to a loan agreement with eB2B, the Company has received as of
December 29, 1999 a loan in the aggregate amount of $2,000,000. The Company
expects that its cash flow and the proceeds of this loan will be sufficient to
support the Company's operations through June 30, 2000, by which time the
Company anticipates having consummated the merger with eB2B. If the merger is
delayed or is not consummated the Company may need to conduct additional
financing activities. There can be no assurance that such financing activities
will be successful. The merger agreement with eB2B prohibits the Company from
selling its stock or from incurring additional indebtedness outside the ordinary
course of business, without the prior consent of eB2B. If the merger does not
occur or if Company is not able to raise additional capital if needed prior to
the merger, the Company may need to scale back operations or possibly cease
operations.
FAILURE TO COMPLETE THE MERGER MAY RESULT IN A NEGATIVE IMPACT ON THE COMPANY'S
OPERATING RESULTS AND A NEGATIVE IMPACT ON THE COMPANY'S MARKET PRICE.
If the merger is not completed, the Company may be subject to a number of
negative effects, including:
the Company may be required to pay eB2B a termination fee of $500,000,
unless the companies have mutually agreed to withdraw from completing
the merger;
the Company will remain obligated to repay to eB2B the principal and
interest of a loan made to the Company having a principal amount of
$2,000,000, which if not repaid upon maturity is convertible into
Company Common Stock at $.25 per share by eB2B.
10
<PAGE>
the Company's stockholders may experience dilution to their stock
ownership due to warrants granted to eB2B in connection with the loan
made to the Company and the conversion of loan principle into Company
common stock;
costs associated with the merger, such as legal and accounting costs,
must be paid by the Company even if the merger is not completed; and
the market price of the Company's common stock may decline if the
current market price of the common stock reflects an assumption that
the merger will be completed.
In addition, if the merger is not completed and the Company seeks to locate
another strategic partner, the Company may be unable to find a willing partner
or to structure a transaction on terms which are equivalent or more attractive
to the terms of the merger. This risk may be exacerbated by the presence of the
indebtedness that the Company incurred in connection with the loan from eB2B, as
well as the dilutive effect of the warrants issued by the Company in connection
with such loan.
Any of the foregoing risks may have an adverse effect on the value of the
Company's securities.
RISKS RELATING TO THE BUSINESS OF THE COMPANY AFTER THE MERGER
EACH OF THE COMPANY AND eB2B HAS INCURRED AND WILL CONTINUE TO INCUR SUBSTANTIAL
LOSSES; CONSEQUENTLY, ADDITIONAL CAPITAL WILL BE NEEDED TO CONTINUE OPERATIONS.
The Company has engaged in the business of electronic commerce since March
1996 and has incurred net losses from operations since that time. As of
September 30, 1999, the Company had lost a total of $2,766,000. eB2B has
incurred net losses from operations during each fiscal period since its
inception. The Company cannot give assurances that it will soon make a profit or
that it will ever make a profit. Even though the Company expects that sales will
increase substantially in the near future, expenses are expected to outpace
sales. Among other things, to achieve profitability, the Company will be
required to market and sell substantially more products and services, and hire
and retain qualified and experienced employees. The Company cannot give
assurances that it will be successful in its efforts.
Following the merger, the Company expects to invest heavily in
acquisitions, infrastructure development, applications development and sales and
marketing in order to extend its services to potential customers and partners,
and expects to continue to incur net losses. The Company anticipates that,
following the merger, its available cash resources, including the net proceeds
from eB2B's recent private placement of securities, will be sufficient to meet
anticipated working capital and capital expenditure requirements for at least
the next 12 months. However, the actual time period may differ materially
from that indicated in the foregoing forward-looking statement as a result of a
number of factors, and the Company may be required to obtain additional
financing at an earlier date. Such financing may not be available in sufficient
amounts or on favorable terms when required, and may dilute the stock of
existing stockholders. Accordingly, there can be no assurance that present
capital resources will be sufficient for anticipated or unanticipated working
capital and capital expenditure requirements for this period. The Company does
not have any commitments or arrangements for additional funding. If the Company
lacks sufficient capital, it may not be able to take advantage of unanticipated
opportunities, develop new products or services, or otherwise respond to
competitive pressures, and may need to substantially curtail its operations.
THE COMPANY'S AUDITORS HAVE EXPRESSED DOUBT REGARDING THE COMPANY'S ABILITY TO
CONTINUE AS A GOING CONCERN.
The Company's auditors' opinion on the financial statements for the fiscal
year ended September 30, 1999 calls attention to substantial doubts as to the
ability of the Company to continue as a going concern.
11
<PAGE>
THE COMPANY AND eB2B HAVE LIMITED OPERATING HISTORIES AND THEREFORE YOU CANNOT
EVALUATE THEIR PROSPECTS BASED ON PAST RESULTS.
The merger will combine two companies that have limited operating histories
in the business-to-business electronic commerce industry. The Company has
engaged in electronic commerce since March 1996 and eB2B was incorporated in
November 1998 and to date has not generated any revenues. Since both companies
have a limited operating history upon which you can evaluate their business and
prospects, you should consider all of the risks, expenses and uncertainties
typically encountered by young companies that operate in the new and rapidly
evolving markets for Internet products and services. These risks include:
evolving and unpredictable business models;
intense competition;
the need and ability to manage growth;
the rapid evolution of technology in electronic commerce; and
insufficient capital.
eB2B'S AND THE COMPANY'S BUSINESS MODEL IS UNPROVEN AND MAY NOT BE SUCCESSFUL.
eB2B's business-to-business electronic commerce model is based on the
development of trading communities for the purchase and sale of goods between
manufacturers and retailers. To date, eB2B has generated no revenue from
the trading communities. The success of eB2B's business model following the
merger, will depend upon a number of factors, including:
changes in and continued growth of the Internet for processing
business to business transactions;
the number of manufacturers and retailers that participate in the
trading communities;
the Company's ability to attract current customers and maintain
customer satisfaction;
the Company's ability to upgrade, develop and maintain the technology
necessary for its operations;
the introduction of new or enhanced services by the Company's
competitors;
the pricing policies of competitors; and
the Company's ability to attract personnel with Internet industry
expertise.
If its business strategy is flawed or if the Company fails to execute its
strategy effectively, the business, operating results and financial condition of
the Company after the merger will be substantially harmed. Neither the Company
nor eB2B has substantial experience in developing and operating trading
communities and neither company can assure you that the trading communities will
be operated effectively, that manufacturers or retailers will join the trading
communities or that the Company will generate significant revenues from
transactions processed within the trading communities.
THE BUSINESS OF PROVIDING SERVICES OVER THE INTERNET IS A NEWLY EMERGING MARKET
AND THEREFORE IS DIFFICULT TO EVALUATE.
12
<PAGE>
Internet-based business-to-business commerce is a newly emerging market.
Consequently, it is difficult to evaluate the Company's or eB2B's businesses and
prospects based on the performance of other companies operating within their
markets. In addition, the companies' pro forma historical financial information
is of limited value in projecting future operating results due, in part, to the
emerging nature of the electronic commerce market.
THE SUCCESS OF THE COMPANY WILL DEPEND ON EXPANDING MARKET ACCEPTANCE FOR
INTERNET BUSINESS-TO-BUSINESS ELECTRONIC COMMERCE.
The Company's future revenues and any future profits depend upon the
widespread acceptance and use of the Internet as an effective medium of
business-to-business electronic commerce, particularly as a medium to perform
goods procurement and fulfillment functions in the markets targeted by eB2B and
the Company. If the use of the Internet in electronic commerce in such markets
does not grow or if it grows more slowly than expected, the Company's business
will suffer. A number of factors could prevent such growth, including:
Internet electronic commerce is at an early stage and retailers may be
unwilling to shift their purchasing from traditional methods to
electronic methods;
Internet electronic commerce may not be perceived as offering a cost
savings to users;
the necessary network infrastructure for substantial growth in usage
of the Internet may not be adequately developed;
increased governmental regulation or taxation or a general shift from
flat rate pricing to usage based pricing for Internet access may
adversely affect the viability of electronic commerce;
insufficient availability of telecommunication services or changes in
telecommunication services could result in slower response times;
technical difficulties; and
concerns regarding the security of electronic commerce transactions.
SECURITY RISKS ASSOCIATED WITH ELECTRONIC COMMERCE MAY DETER FUTURE USE OF THE
COMPANY'S AND eB2B'S PRODUCTS AND SERVICES.
A fundamental requirement to conduct Internet-based, business-to-business
electronic commerce is the secure transmission of confidential information over
public networks. Failure to prevent security breaches of the trading
communities, or well publicized security breaches affecting the Internet in
general, could significantly harm the Company's business, operating results and
financial condition. There can be no certainty that advances in computer
capabilities, new discoveries in the field of cryptography, or other
developments will not result in an ability to compromise or breach the systems
which the Company uses to protect content and transactions from unauthorized
access. If these security measures are breached, a person could misappropriate
proprietary or confidential information or cause interruptions in operations.
There are significant cost requirements to protect against security breaches or
to alleviate problems caused by breaches. Further, a well-publicized compromise
of security could deter potential customers from using the Internet to conduct
financial transactions or to transmit confidential information.
ADDITIONAL GOVERNMENTAL REGULATIONS MAY INCREASE COSTS OF DOING BUSINESS.
The laws governing Internet transactions remain largely unsettled. The
adoption or modification of laws or regulations relating to the Internet could
harm the Company's business, operating results and financial condition by
increasing its costs and administrative burdens. It may take years to determine
whether and how existing laws such as those governing intellectual property,
privacy, libel, consumer
13
<PAGE>
protection and taxation apply to the Internet. Laws and regulations directly
applicable to communications or commerce over the Internet are becoming more
prevalent. The growth and development of electronic commerce may prompt calls
for more stringent consumer protection laws as well as new laws governing the
taxation of Internet-based commerce. The Company must comply with new
regulations in the United States, as well as any regulations adopted by
other countries where the Company may do business. Compliance with any newly
adopted laws may prove difficult for the Company and may harm its business,
operating results and financial condition.
FAILURE TO EXPAND INTERNET INFRASTRUCTURE COULD LIMIT FUTURE GROWTH.
The recent growth in Internet traffic has caused periods of decreased
performance. If Internet usage continues to grow rapidly, its infrastructure may
not be able to support these demands and its performance and reliability may
decline. If outages or delays on the Internet occur frequently, overall Internet
usage, including usage of the Company's products and services, could grow more
slowly or decline. The Company's ability to increase the speed and scope of its
services to its customers is ultimately limited by and depends upon the speed
and reliability of both the Internet and the customers' internal networks.
Consequently, the emergence and growth of the market for the Company's services
depends upon improvements being made to the entire Internet as well as to the
individual customers' networking infrastructures to alleviate overloading and
congestion. If these improvements are not made, the ability of the customers to
utilize the Company's Internet-based services will be hindered, and the
Company's business, operating results and financial condition may be materially
adversely affected.
THE INTERNET-BASED BUSINESS-TO-BUSINESS INDUSTRY IS HIGHLY COMPETITIVE AND HAS
LOW BARRIERS TO ENTRY.
The market for Internet-based, business-to-business electronic commerce
solutions is extremely competitive. The Company's competition is expected to
intensify as current competitors expand their service offerings and new
competitors -- including larger, more established companies with more resources
- -- enter the market. There can be no assurance that the Company will be able to
compete successfully against current or future competitors, or that competitive
pressures will not harm the Company's business, operating results or financial
condition. Because there are relatively low barriers to entry in the electronic
commerce market, competition from other established and emerging companies may
develop in the future. In addition, users and technology partners of the Company
may become competitors in the future. Certain competitors may be able to
negotiate alliances with technology partners on more favorable terms than the
Company is able to negotiate. Increased competition is likely to result in lower
average transaction prices, reduced margins and decrease or loss of market
share, any of which could harm the Company's business, operating results or
financial condition. In addition, competitors may be able to develop services
that are superior to, or that achieve greater acceptance than, the services
currently offered by the Company and eB2B and the services which may be offered
by the Company following the merger.
REVENUE GROWTH MAY BE DELAYED BY LENGTHY SALES AND IMPLEMENTATION CYCLES.
The period between initial contact with a potential customer and the
enrollment in eB2B's trading communities is often long and may have delays
associated with the lengthy budgeting and approval process of such potential
customers. These lengthy cycles will have a negative impact on the timing of the
combined Company's revenues, especially the realization of any transaction
fee-based revenues. A customer's decision to purchase these services is
discretionary, involves a significant commitment of resources, and is influenced
by the customer's budgetary cycle. To successfully sell the services offered by
eB2B and the Company, the Company after the merger must educate potential
customers regarding the use and benefit of such services, which can require
significant time and resources.
IF THE COMPANY CANNOT ENROLL A SUFFICIENT NUMBER OF MAJOR MANUFACTURERS OR
RETAILERS IN THE TRADING COMMUNITIES, THE COMPANY WILL NOT BE ABLE TO ATTRACT
ADDITIONAL MANUFACTURERS AND RETAILERS.
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eB2B's business model depends in large part on its ability to create a
network effect of manufacturers and retailers. Manufacturers may not be
attracted to the network trading communities if there are an insufficient number
of major retailers within the communities. Similarly, retailers may not perceive
value in the communities if there are an insufficient number of major
manufacturers. If the Company is unable to increase either the number of
manufacturers or retailers, the Company will not be able to benefit from any
network effect. As a result, the overall value of the trading communities would
be adversely affected, which could negatively affect the Company's business,
operating results and financial condition.
THE BUSINESS OF THE COMPANY IS DEPENDENT ON A LIMITED NUMBER OF PRODUCTS AND
SERVICES.
The Company derives most of its revenues from a limited number of products
and services. The development and marketing of many of these products and
services involve substantial costs. If one or more of the Company's products or
services fails to achieve anticipated results, the Company would be adversely
affected. The Company cannot predict whether it will:
continue to remain dependent upon a limited number of products and
services for a substantial portion of its revenues;
introduce products and services that are commercially viable; or
introduce products or services which have life cycles sufficient to
permit the Company to recoup the development, marketing and other
costs associated with the product or service.
THE BUSINESS OF THE COMPANY IS DEPENDENT ON A LIMITED NUMBER OF CUSTOMERS.
The Company derives its revenues from a limited number of customers.
Approximately twenty-nine percent (29%) of the Company's revenues for the fiscal
year ended September 30, 1999 was derived from one customer: Toys R Us. The only
product or service that Toys R Us received from the Company was
EDIxchangeSupport. There is no assurance that Toys R Us will continue to require
the Company's products or services on the current terms or at all.
If Toys R Us or any other customer of the Company were to substantially
reduce or stop their use of its products or services, the Company's business,
operating results and financial condition would be harmed. Following the merger,
the Company expects that it will continue to derive its revenues from a limited
number of customers. Generally, neither the Company nor eB2B has long-term
contractual commitments from any of its current customers and customers may
terminate their contracts with either the Company or eB2B with little or no
advance notice and without significant penalty. As a result, the Company cannot
assure you that any of the current customers of the Company or eB2B will
continue to use the Company's products or services in future periods.
Furthermore, the Company's business model depends in large part on its
ability to build a critical mass of customers. Customers may not be attracted to
the Company if there are an insufficient number of other customers in the supply
chain using the Company's services. If the Company is unable to increase the
number of customers, the Company will not be able to benefit from any network
effect. As a result, the overall value of the trading communities and the
Company's solutions would be adversely affected, which could negatively affect
its business, operating results and financial condition.
THE COMPANY MUST HAVE THE ABILITY TO QUICKLY ADAPT TO TECHNOLOGICAL CHANGES AND
CUSTOMER PREFERENCES.
The Internet and electronic commerce industries are characterized by:
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rapid technological change;
changes in user and customer requirements and preferences;
frequent introductions of new products and services embodying new
technologies; and
the emergence of new industry standards and practices.
If the Company does not respond to these developments quickly and efficiently,
it will not be competitive within the industry. The Company faces a significant
danger because it presently has a limited number of products and services to
offer potential customers. If the Company fails to determine accurately the
features its customers require, enhance its existing services or develop new
services, it may lose current and potential customers. Some of the Company's
customers also may require customized features or capabilities, which would
increase the Company's costs and consume its limited resources. If the Company
does not respond to the rapid technological changes in the industry, its
services could become obsolete and its business will be severely harmed.
THE COMPANY'S BUSINESS IS DEPENDENT ON INTELLECTUAL PROPERTY RIGHTS.
To protect its proprietary products, the Company relies on a combination of
copyright, patent, trade secret and trademark laws, as well as contractual
provisions relating to confidentiality and related matters. Despite the
Company's efforts to protect its proprietary rights, unauthorized parties may
attempt to copy aspects of the Company's products or to obtain and use
information that the Company regards as proprietary. There can be no assurance
that the Company's means of protecting its proprietary rights will be adequate
or that competitors will not independently develop similar or superior
technology.
THE COMPANY IS DEPENDENT ON ESSENTIAL TECHNOLOGY AND SOFTWARE.
In addition, the Company incorporates software licensed from third parties
and any defects or significant interruption in the availability of these
products could harm the Company's business. For example, the Company uses
software from Oracle Corporation, Sterling Commerce, Inc., TSI International
Software Ltd., Red Hat, Inc. and Sun Microsystems, Inc. Some of the software
licensed from third parties would be difficult to replace. This software may not
continue to be available on commercially reasonable terms or at all. The loss or
inability to maintain any of these technology licenses could result in delays in
the sale of the Company's services until equivalent technology, if available, is
identified, licensed and integrated. Such delays could harm the Company's
business. The Company may not be able to replace the functionality provided by
third-party software currently offered with the Company's services if that
software is found to be obsolete, defective or incompatible with future versions
of the Company's services or if that software is discontinued or upgraded in
such a way that it becomes incompatible with the Company's services. In
addition, if this third-party software is not adequately maintained or updated
it may become incompatible with the Company's current services. The absence of,
or any significant delay in, the replacement of third-party software could
result in delayed or lost sales and increased costs and could harm the Company's
business and operating results.
Additionally, the Company relies on "open source" software like Linux,
Apache and Practical Extraction and Reporting Language (known as "PERL") to
provide critical aspects of its e-commerce service offerings. In particular, the
Company's EDIxchangeBuy/Sell server is written in PERL. PERL is widely used to
write Internet application software. A single individual, Larry Wall, owns the
copyright for the PERL language. Since PERL's inception, Mr. Wall has opted to
freely license and distribute PERL in both source code and object code form.
There is no assurance that Mr. Wall will continue this practice. Should Mr. Wall
decide to charge fees for licensing PERL, both the future development of PERL
and the Company's operating results could be adversely affected.
THE COMPANY IS DEPENDENT ON ITS PRIMARY DATA CENTER.
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The Company operates its primary data center at Exodus Communications,
Inc.'s Internet Data Center facility in Jersey City, New Jersey. The data center
operates twenty-four (24) hours a day, seven (7) days a week, and is connected
to: (1) the Internet via Exodus Communications, Inc.; and (2) the electronic
data interchange ("EDI") network via AT&T and IBM Global Network. The data
center consists primarily of servers, storage subsystems, and other peripheral
technology to provide on-line, batch and back-up operations. Customers' data is
backed-up daily and stored off-site.
The Company relies on Exodus Communications, Inc. to provide the Company
with Internet capacity, security personnel and fire protection, and to maintain
the facilities, power and climate control necessary to operate the Company's
servers. Additionally, the Company relies on Exodus Communications, Inc. for
redundant subsystems, such as multiple fiber trunks from multiple sources, fully
redundant power on the premises and multiple back-up generators. If Exodus
Communications, Inc. fails to adequately host or maintain the Company's servers,
the Company's services could be disrupted and its business and operating results
could be significantly harmed. Since December 1997, Exodus Communications, Inc.
has provided the facilities and the hosting and maintenance services for the
Company's servers used to process transactions. The Company's agreement with
Exodus Communications, Inc. has a term of one year and is automatically
renewable for additional one year terms.
There can be no assurance that Exodus Communications, Inc. can effectively
provide and manage the aforementioned infrastructure and services in a reliable
fashion.
EACH OF eB2B AND THE COMPANY IS DEPENDENT ON RETAINING KEY PERSONNEL.
Prior to and following the merger, the future performance of eB2B and the
Company will depend upon retaining key personnel. The loss of services of one or
more key employees, especially Peter J. Fiorillo, the Chief Executive Officer of
eB2B and Steven L. Vanechanos, Jr., the Chief Executive Officer of the Company
prior to the merger, could have a materially adverse effect on the business,
operating results and financial condition of the Company after the merger. The
Company will require that key personnel sign confidentiality and non-competition
agreements as a part of their employment but even the enforcement of these
agreements will not protect the Company from the loss of an employee's knowledge
and expertise upon termination of employment. To protect itself against
dependence on a few individuals, the Company after the merger may have life
insurance policies for key employees. Nevertheless, financial compensation may
not replace the knowledge loss upon the incapacity or death of a key employee.
THE COMPANY MUST EXPAND ITS SALES AND MARKETING CAPABILITIES, AND INCREASE ITS
TECHNICAL STAFF.
The Company must substantially expand its sales, operations and marketing
efforts in order to increase market awareness and sales of its products and
services. The Company will also need to increase its technical staff to support
the growth of the business. To develop these capabilities, the Company must hire
and retain additional sales, marketing and technical personnel. However,
competition for qualified sales, marketing and technical personnel is intense.
As a result, the Company might not be able to hire and retain sufficient numbers
of such personnel. If the Company fails to hire and retain sufficient numbers of
sales, marketing and technical personnel, its business, operating results and
financial condition would be adversely affected.
THE COMPANY'S PRODUCTS MAY CONTAIN DEFECTS.
The Company's products are complex and may contain undetected errors which
become apparent only after introduction or adaptation to a customer's computer
systems. In particular, computer hardware is characterized by a wide variety of
non-standard peripherals and configurations that cause pre-release testing for
errors to be highly difficult and time-consuming. Remedying such errors may
delay the provision of the Company's services and products, cause the Company to
incur additional costs and adversely affect the Company's reputation.
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THE COMPANY WILL BE SUBJECT TO CERTAIN LEGAL RISKS AND UNCERTAINTIES RELATING TO
THE INFORMATION TRANSMITTED IN TRANSACTIONS CONDUCTED BY ITS CUSTOMERS.
In the course of its business, the Company will be exposed to certain
legal risks and uncertainties relating to information transmitted in
transactions conducted by its customers. The services provided to customers may
include access to confidential or proprietary information. Any unauthorized
disclosure of such information could result in a claim against the Company for
substantial damages. In addition, the Company's services include managing the
collection and publication of catalog content. The failure to publish accurate
catalog content could deter users from participating in trading communities,
damage the Company's business reputation and potentially expose it to legal
liability. From time to time, some of the Company's manufacturers may submit
inaccurate pricing or other catalog information. Even though such inaccuracies
may not be caused by the Company and are not within its control, similar
consequences could occur. Although the Company believes that it has implemented
and will continue to implement policies to prevent disclosure of confidential or
inaccurate information, there can be no assurance that claims alleging such
matters may not be brought against the Company. Any such claim may be
time-consuming and costly and may adversely affect the Company's business and
financial condition. The Company maintains insurance for many of the risks
encountered in its business; however, the Company's present insurance policies
do not cover all potential areas of exposure which may result from the Company's
business.
THE COMPANY'S BUSINESS WILL SUFFER IF IT FAILS TO MANAGE ITS GROWTH.
The Company has rapidly and significantly expanded its operations and
expects that, if and when the merger is consummated, the Company will continue
to do so. This growth has placed a significant strain on the Company's
managerial, operational, financial and other resources and is expected to
continue to strain the resources of the Company following the merger. If the
Company is unable to respond to and manage this expected growth, then the
quality of its services and its results of operations could be materially
adversely affected.
RISKS RELATING TO AN INVESTMENT IN THE COMPANY'S COMMON STOCK
THE COMPANY'S QUARTERLY OPERATING RESULTS MAY VARY, WHICH COULD AFFECT THE
MARKET PRICE OF ITS COMMON STOCK.
Fluctuations in the Company's quarterly results could adversely affect
the market price of the Company's common stock in a manner unrelated to its
long-term operating performance. The Company expects to increase activities and
spending in substantially all operational areas and will base its expense levels
on anticipated revenue levels. The Company may not be able to reduce its
spending as a short-term in response to any shortfall in revenue which may
occur. For these and other reasons, the Company may not meet the earnings (loss)
estimates of securities analysts or investors and its stock price could be
adversely affected.
A LISTING ON THE NASDAQ STOCK MARKET IS NOT ASSURED.
In conjunction with the merger, the combined company will submit an
application for a listing on The Nasdaq Stock Market. The Company believes
that the combined company will meet the objective initial listing requirements
of The Nasdaq Stock Market. However, The Nasdaq Stock Market has broad
discretionary authority and may decide not to approve the Company's application.
FOLLOWING THE MERGER, THE COMPANY'S DIRECTORS AND EXECUTIVE OFFICERS WILL HAVE
SIGNIFICANT CONTROL AND INFLUENCE OVER THE COMPANY.
As a group, following the merger, the Company's directors and executive
officers will beneficially own approximately 24.02% of the Company's outstanding
common stock, on a fully diluted basis. If they vote
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together, the directors and executive officers will be able to exercise
significant influence over all matters requiring shareholder approval, including
the election of directors. The interests of the directors and executive officers
of the Company may conflict with the interests of the other stockholders of the
Company.
FOLLOWING THE MERGER, THE COMPANY MAY ENTER INTO ADDITIONAL BUSINESS
COMBINATIONS, EACH OF WHICH MAY ENTAIL ADDITIONAL RISKS AND COMPLICATIONS.
As part of its business strategy, the Company may elect to enter into
additional business combinations. Such transactions are typically accompanied by
a number of risks, including:
the difficulty of integrating the operations and personnel of the
acquired companies;
the attention of management of the Company may be diverted;
the challenges of integrating technology, including unanticipated
expenses;
the risk of unknown liabilities of the acquired companies;
the impact of new personnel on uniform procedures, standards and
policies developed by the Company;
impairment of relationships with customers; and
if stock is used to pay for such transactions it would dilute existing
stockholders.
The Company may fail to address these risks or any other complications
relating to potential business combinations, which may have a negative affect on
the Company's business and stock price.
"PENNY STOCK" RULES MAY MAKE SELLING THE COMPANY'S SECURITIES DIFFICULT.
The Securities and Exchange Commission has adopted rules that regulate
broker-dealer practices in connection with transactions in "penny stocks." Penny
stocks generally are equity securities with a price of less than $5.00 (other
than securities registered on certain national securities exchanges or quoted on
the Nasdaq system, provided that the system provides current price and volume
information with respect to transactions in such securities). The penny stock
rules require broker-dealers to deliver, prior to any transaction in a penny
stock, certain information to their customers and to comply with other
requirements which may have the effect of reducing the level of trading activity
in a penny stock and make it more difficult to sell such stock.
In the past, the price of the Company's common stock has often been
below $5.00 per share and, since the Company common stock has not traded on an
applicable national security exchanges or The Nasdaq Stock Market, at such times
the stock has been subject to the penny stock rules. The Company has filed an
application for listing its common stock on The Nasdaq Stock Market. The Company
believes that, upon consummation of the merger, the Company common stock will be
approved for trading on The Nasdaq Stock Market. However, The Nasdaq Stock
Market has broad discretion. There can be no assurance that The Nasdaq Stock
Market will approve the Company's application or that the Company's common stock
will become exempt from the penny stock rules.
THERE MAY BE A LIMITED MARKET FOR THE SHARES OF THE COMPANY'S COMMON STOCK.
At times, the Company's common stock has not been traded actively and
the investment community has not shown a great deal of interest in the Company's
shares. Simply stated, there have been relatively few buyers and sellers of the
Company's stock. A limited volume of transactions may make it difficult for a
stockholder to sell the Company's common stock.
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THE COMPANY DOES NOT ANTICIPATE PAYING DIVIDENDS ON ITS COMMON STOCK.
Neither the Company nor eB2B has ever paid dividends on its common
stock. Following the merger, the Company does not anticipate paying dividends in
the future. The Company intends to reinvest any funds that might otherwise be
available for the payment of dividends in further development of the Company's
business following the merger.
THE EXERCISE OR CONVERSION OF CONVERTIBLE SECURITIES MAY DILUTE THE PERCENTAGE
OWNERSHIP OF THE OWNERS OF COMPANY COMMON STOCK AND MAY NEGATIVELY AFFECT THE
PRICE OF THE COMMON STOCK.
After the merger the Company will have a substantial number of outstanding
shares of convertible preferred stock and a substantial number of outstanding
options and warrants to purchase shares of Company common stock. If a
significant number of these shares of preferred stock were converted or if a
significant number of these options or warrants were exercised, the percentage
ownership of the holders of Company common stock would be materially diluted.
Such conversion or exercise of convertible securities could negatively affect
the price of the Company's common stock.
THE EXPIRATION OF RESTRICTIONS ON THE RESALE OF CERTAIN SECURITIES MAY
NEGATIVELY AFFECT THE PRICE OF THE COMPANY COMMON STOCK.
A significant number of shares of common stock which are currently
outstanding, and a significant number of shares of common stock underlying
convertible preferred stock, options or warrants, are subject to lock up
agreements under which the stockholders have agreed not to sell such shares for
specified periods of time. Specifically:
In connection with eB2B's most recent private placement, which was
completed in December 1999, each of the investors in such private
placement were required to enter into lock up agreements prohibiting the
sale of the securities purchased in the private placement for a period of
at least twelve (12) months from the closing of such private placement.
The merger agreement between the Company and eB2B requires that all of the
directors, officers and principal stockholders of the Company enter into
lock up agreements prohibiting the sale of such securities for a period
equal to that agreed to by investors in eB2B's most recent private
placement.
In accordance with an agreement between eB2B and Commonwealth Associates,
L.P., the placement agent in connection with eB2B's private placement,
each of the directors, officers and principal stockholders of eB2B were
required to enter into lock up agreements prohibiting the sale of any
securities held by such persons for at least twelve (12) months from the
closing of the private placement.
Upon the expiration of the restrictions imposed by the lock up agreements
described above, the persons party to those agreements will be able to sell
their shares, subject to the restrictions imposed by the federal securities
laws. In the event that such persons elect to sell their shares of Company
common stock, the market price of the Company common stock may be adversely
affected.
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INACCURACIES IN FORWARD-LOOKING STATEMENTS MAY BE MATERIAL.
Some of the statements under "Summary," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and elsewhere in this proxy statement/prospectus constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, levels of
activity, performance or achievements following the merger to be materially
different from any future results, levels of activity performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among other things, those listed under "Risk Factors" and
elsewhere in this proxy statement/prospectus.
In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "could," "expects," "plans,"
"intends," "anticipates," "believes," "thinks," "estimates," "predicts,"
"potential," or "continue" or the negative of such terms and other comparable
terminology.
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THE COMPANY'S SPECIAL MEETING
PURPOSE, TIME AND PLACE
The Company is furnishing this proxy statement/prospectus to
the holders of shares of the Company's common stock in connection with the
solicitation of proxies by the Company's board of directors for use at the
Company's special meeting to be held on April __, 2000. The Company's special
meeting will be held at ___________________ ______________, at 10:00 a.m., local
time, and at any adjournments or postponements thereof.
At the Company's special meting, the owners of the Company's
common stock will be asked to vote on proposals to:
adopt and approve the agreement and plan of merger, dated
December 1, 1999, by and between the Company and eB2B and the
transactions contemplated thereby;
change the state of incorporation of the Company from New
Jersey to Delaware by merging the Company into a newly-formed,
wholly-owned Delaware subsidiary, with the subsidiary as the
surviving entity of such merger, which merger is contingent
upon and would take place immediately prior to the proposed
merger with eB2B;
adopt and approve the 2000 Stock Option Plan; and
vote on any other matters that properly come before the
special meeting, or any adjournments or postponements of the
special meeting.
RECORD DATE; VOTING POWER
The Company's board of directors has fixed the close of business (5:00
p.m., New York time) on March __, 2000 as the record date for determining the
holders of shares of the Company's common stock entitled to notice of, and
to vote at, the Company's special meeting. Only holders of record of Company
common stock at the close of business on the record date will be entitled to
notice of, and to vote at, the special meeting.
At the close of business on the record date, ______ shares of Company
common stock were issued and outstanding and entitled to vote at the Company's
special meeting. Holders of record of Company common stock are entitled to
one vote per share on any matter which may properly come before the Company's
meeting. Votes at the Company's special meeting may be cast in person or by
proxy.
The presence at the Company's special meeting, either in person or by
proxy, of the holders of a majority of the outstanding shares of the Company's
common stock entitled to vote is necessary to constitute a quorum in order to
transact business at the meeting. However, in the event that a quorum is not
present at the special meeting, the Company expects to adjourn or postpone the
meeting in order to solicit additional proxies.
VOTES REQUIRED
Approval of the merger agreement and each of the other proposals will
require the affirmative vote of a majority of the outstanding shares of the
Company's common stock outstanding on the record date. Abstentions by the
Company's stockholders will have the same effect as a vote against the
proposals, although they will count toward the presence of a quorum. You may
vote your shares by completing and returning the enclosed proxy card.
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Brokers who hold shares of Company common stock as nominees, in the
absence of instructions from the beneficial owners thereof, will not have
discretionary authority to vote for approval and adoption of the merger
agreement, but brokers who hold shares of Company common stock as nominees,
with discretionary authority to vote, will have such authority to vote such
shares for the proposal or the other proposals. Any shares which are not voted
because the nominee-broker lacks discretionary authority will have the same
effect as a vote against the proposals. Accordingly, any beneficial owner of
the Company's common stock whose stock is held by a broker as a nominee should
instruct their broker as to how to vote their shares. See "Voting of Proxies"
below.
VOTING OF PROXIES
Shares of the Company's common stock represented by properly executed
proxies that the Company receives prior to the start of the Company's special
meeting will be voted at the special meeting in the manner specified by such
proxies. Company stockholders should be aware that, if their proxy is properly
executed but does not contain voting instructions, their proxy will be voted FOR
adoption and approval of each of the proposals before the special meeting.
Company stockholders should also be aware that, if their proxy is not submitted
or is improperly executed, their proxy will be voted against adoption and
approval of each of the proposals.
The Company does not expect that any matter other than as described
herein will be brought before the Company's special meeting. If other matters
are properly presented before the meeting, the persons named in a properly
executed proxy will have authority to vote in accordance with their judgment on
any other such matter, including any proposal to adjourn or postpone the meeting
or otherwise concerning the conduct of the meeting; provided that a properly
executed proxy that has been designated to vote against the adoption and
approval of the merger agreement will not be voted, either directly or through a
separate proposal, to adjourn the meeting to solicit additional votes.
REVOCABILITY OF PROXIES
The grant of a proxy on the enclosed proxy card or a vote by telephone,
does not preclude a stockholder from voting in person. Also, a stockholder of
the Company may revoke or change their vote on a proxy at any time prior to its
exercise by:
delivering, prior to the start of the Company's special meeting, to
Steve Vanechanos, Sr., Secretary of the Company, 271 Route 46 West,
Building F, Suite 209, Fairfield, New Jersey 07004, a written notice
of revocation bearing a later date or time than the proxy previously
delivered to the Company;
delivering to the Secretary of the Company, at the prior address, a
duly executed proxy with different instructions bearing a later date
or time than the proxy previously delivered to the Company; or
attending the Company's special meeting and voting in person.
The Company does not expect to adjourn the Company's special meeting
for a period of time long enough to require the setting of a new record date for
such meeting. If an adjournment occurs, it will have no effect on the ability of
the Company's stockholders of record as of the record date to exercise their
voting rights or to revoke any previously delivered proxies.
SOLICITATION OF PROXIES AND CONSENTS
THE COMPANY
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The Company will solicit proxies by mail, and the Company's directors,
officers and employees also may solicit proxies from the Company's stockholders
by telephone, telecopy, telegram, or in person. In addition, as of this
year, stockholders of record can simplify their voting and reduce the Company's
costs by voting their shares via telephone. The telephone voting procedures are
designed to authenticate stockholders' identities, to allow stockholders to vote
their shares and to confirm that their instructions have been properly recorded.
If your shares are held in the name of a bank or broker, the availability
telephone voting will depend on the policies of the bank or broker. Therefore,
it is recommended that you follow the voting instructions on the form that you
receive. If you do not choose to vote by the telephone, please date, sign and
return the proxy card by mail.
The Company will bear the cost of the solicitation of proxies from its
own stockholders. The Company has engaged the firm of Morrow & Co., Inc. to
assist in the distribution and solicitation of proxies. The Company has agreed
to pay Morrow & Co., Inc. a fee of $7,000 plus expenses for these services.
Arrangements also will be made with brokerage houses and other custodians,
nominees and fiduciaries for the forwarding of solicitation material to the
beneficial owners of the Company's stock held of record by such persons, and the
Company will reimburse such brokers, custodians, nominees and fiduciaries for
their reasonable out-of-pocket expenses in connection therewith.
eB2B
The merger has been approved by the eB2B stockholders.
SHARE OWNERSHIP OF MANAGEMENT AND CERTAIN STOCKHOLDERS
The Company
The following table sets forth, as of December 28, 1999, information as to:
(a) the beneficial ownership of Company common stock by (i) each person serving
the Company as a director on such date; (ii) each person who qualifies as a
"named executive officer" as defined in Item 402(a)(2) of Regulation S-B under
the Securities Exchange Act; and (iii) all of such directors and executive
officers of the Company as a group; and (b) each person known to the Company as
having beneficial ownership of more than five percent (5%) of Company common
stock as of December 28, 1999.
Unless otherwise indicated in a footnote, each of the following persons
held sole voting and investment power, as of December 28, 1999, over the shares
listed as beneficially owned.
<TABLE>
<CAPTION>
Beneficial Ownership of Percent of
Beneficial Options Exerciseable Common
Name and Address Ownership within 60 Days of Stock (3)
of Beneficial Owner of Shares (1)(2) December 28, 1999 (1)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Steven L. Vanechanos, Jr. (6) 316,950 40,748 8.45%
Steve Vanechanos, Sr. (4)(6) 314,914 40,626 8.40%
Kenneth R. Konikowski (6) 134,598 0 3.50%
James D. Conners(6) 103,255 103,255 2.71%
Robert J. Gailus (6) 28,912 28,912 0.77%
Frank T. DiPalma (5)(6) 15,610 8,825 0.42%
Robert Droste (6) 10,296 8,142 0.28%
Denis Clark (6) 15,324 15,324 0.41%
All directors and executive 939,859 245,832 24.94%
officers as a group (8 persons)
</TABLE>
(1) The securities "beneficially owned" by an individual are
determined in accordance with the definitions of "beneficial
ownership" set forth in the rules of the Securities and Exchange
Commission and may include securities owned by or for the individual's
spouse and minor children and any other relative who has the same
home, as well as securities to which the individual has voting rights
or investment power or had the right to acquire beneficial ownership
within sixty (60) days after December 28, 1999. Beneficial ownership
may be disclaimed as to certain of the securities.
(2) Information furnished by the directors and executive officers of
the Company.
(3) Percentages based upon a total of (a) 3,709,407 shares outstanding
as of December 28, 1999, plus (b) each persons additional shares
issuable (if any) within sixty (60) days of that date to directors
under the 1997 Stock Option Plan for Outside Directors and other
agreements.
(4) All of such shares are held jointly by Mr. Vanechanos, Sr. and his
spouse.
(5) All of such shares are held jointly by Mr. DiPalma and his spouse.
(6) The address of each person c/o DynamicWeb Enterprises, Inc., 271
Rt. 46 West, Suite F209, Fairfield, NJ 07004
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<PAGE>
eB2B
The following table sets forth, as of December 31, 1999, information as
to: (a) the beneficial ownership of eB2B common stock by (i) each person serving
as a director of eB2B on such date, (ii) each person who qualifies as a "named
executive officer" as defined in Item 402(a)(2) of Regulation S-B under the
Exchange Act, and (iii) all of such directors and executive officers of eB2B as
a group; and (b) each person known to eB2B as having beneficial ownership of
more than five percent (5%) of eB2B common stock.
As of December 31, 1999, eB2B had 2,792,909 shares of common stock, 300
shares of Series A Convertible Preferred Stock, and 3,299,999 shares of Series B
Convertible Preferred Stock issued and outstanding.
25
<PAGE>
<TABLE>
<CAPTION>
Beneficial Percent of
Name and Address Ownership of Common
of Beneficial Owner Capital Stock (1) Stock (12)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Peter J. Fiorillo(2) 1,379,326(3) 10.26%
Joseph Bentley(2) 554,294(4) 4.12%
Kevin Hayes(2) 820,889(5) 6.10%
Victor L. Cisari(2) 33,333(6) 0.25%
Christopher Byrnes(2) 17,500(7) 0.13%
Michael S. Falk(8) 174,505(9) 1.30%
Timothy Flynn(8) 298,922(10) 2.22%
Commonwealth Associates, L.P(8) 1,482,600(11) 11.03%
All directors and executive 3,278,769 24.38%
officers as a group (7 persons)
</TABLE>
(1) Except as otherwise noted, each individual or entity has sole
voting and investment power over the securities listed. Includes
ownership of options and warrants that are exercisable within 60 days.
(2) Except as otherwise noted, the address of each person is c/o
eB2B Commerce, Inc., 29 West 38th Street, New York, New York 10018.
(3) Includes 250,000 shares underlying immediately exercisable
options and warrants.
(4) Includes 100,000 shares underlying immediately exercisable
options and warrants.
(5) Includes 100,000 shares underlying immediately exercisable
options.
(6) Includes 33,333 shares underlying immediately exercisable
options.
(7) Includes 5,000 shares underlying immediately exercisable
options.
(8) The address is c/o Commonwealth Associates, L.P., 830 Third
Avenue, New York, New York 10022.
(9) Mr. Falk became a director of eB2B on January 4, 2000. In
addition, he is a principal of Commonwealth Associates, L.P. Includes
27,273 shares underlying Series B Preferred Stock and 132,800 shares
underlying immediately exercisable warrants held by Mr. Falk. Includes
2,273 shares underlying Series B Preferred Stock and 4,943 shares
underlying immediately exercisable warrants held jointly by Mr. Falk
and his wife. Includes 2,273 shares underlying Series B Preferred
Stock and 4,943 shares underlying immediately exercisable warrants held
by Mr. Falk's IRA account. The amount does not include 1,482,600 shares
underlying immediately exercisable warrants granted to Commonwealth
Associates, L.P. as a fee for acting as placement agent in connection
with eB2B's private placement offering.
(10) Mr. Flynn became a director of eB2B on January 4, 2000.
Includes 188,636 shares underlying Series B Preferred Stock and 110,286
shares underlying immediately exercisable warrants held by the Flynn
Corporation, of which Mr. Flynn is the principal owner. Includes 50,000
shares underlying options that were granted to Mr. Flynn upon accepting
a position on eB2B's Board of Directors.
26
<PAGE>
(11) Includes 1,482,600 shares underlying immediately exercisable
warrants granted as a fee for acting as placement agent in connection
with eB2B's private placement offering.
(12) The ownership percentages are calculated on a fully diluted
basis giving effect to shares underlying immediately exercisable
options and warrants, the Series A Preferred Stock, and the Series B
Preferred Stock as follows: 13,447,298 shares.
27
<PAGE>
PROPOSAL NUMBER ONE
THE MERGER
GENERAL
This proxy statement/prospectus is being furnished to the Company's
stockholders in connection with the solicitation of proxies by the Company's
board of directors from stockholders of the shares of the Company's common stock
for use at the Company's special stockholders' meeting to be held on April __,
2000. This proxy statement/prospectus also constitutes the Company's prospectus,
which is part of a registration statement on Form S-4 filed with the Securities
and Exchange Commission under the Securities Act of 1933, as amended, to
register the shares of the Company's common stock to be issued to the
stockholders of eB2B securities in the merger.
BACKGROUND OF THE MERGER
In May 1999, the board of directors of the Company conducted a meeting
to determine the goals of the Company during the next twelve (12) months. The
organizing principle in developing the goals was the best interest of the
stockholders and, more specifically, identifying the most effective way to
maximize the value of the Company's existing assets to benefit its stockholders.
As a result of the discussions during the meeting, the Company's board of
directors developed the following five goals:
(1) expand the scope of the Company's mission
(2) expand the depth of the Company's organization
(3) obtain effective financial sponsorship
(4) raise substantial capital
(5) attain a listing on The Nasdaq Stock Market
The Company's board of directors concluded that, in order to achieve
these five goals, the Company would need to enter into a strategic partnership
or a merger with another entity. Based on this conclusion, the board of
directors instructed management of the Company to seek an investment banker
and/or financial advisor to assist the Company in identifying potential
strategic partners. In September 1999, the Company engaged Sands Brothers &
Company, Ltd., which the Company contends has not made any introductions that
resulted in a strategic partnership.
In October 1999, Jerry Messana of Commonwealth Associates, L.P. placed
an unsolicited phone call to the Company's Chief Executive Officer, Steven L.
Vanechanos, Jr. Mr. Messana informed Mr. Vanechanos, Jr. that Commonwealth
Associates, L.P. had researched the Company and believed that there were several
opportunities available to the Company in the electronic commerce business-
to-business industry. Mr. Messana invited Mr. Vanechanos, Jr. to make a
presentation to Commonwealth Associates, L.P.'s Chief Executive Officer, Michael
Falk, and other members of the senior corporate finance committee. Mr.
Vanechanos, Jr. made this presentation on October 26, 1999.
On October 27, 1999, Commonwealth Associates, L.P. introduced eB2B's
Chief Executive Officer, Peter J. Fiorillo, Chief Financial Officer, Joseph
Bentley, and Chief Technology Officer, Kevin Hayes to Mr. Vanechanos, Jr. At
this meeting, Commonwealth Associates, L.P. proposed the following transactions:
eB2B would complete a private placement for a minimum of $15
million, with Commonwealth Associates, L.P. as the placement agent;
eB2B would alleviate the Company's financial crisis by lending the
Company $2 million for interim financing; and
eB2B would merge into the Company in a reverse merger.
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<PAGE>
Following this meeting, Mr. Fiorillo and Mr. Bentley visited the
Company's corporate headquarters, where they met with Mr. Vanechanos, Jr. and
the Company's President, James D. Conners. The executive officers of the
respective companies agreed that the two companies complemented each other and
that it would be in the best interests of their stockholders to pursue a merger
in the near future. On November 2, 1999, the executive officers therefore
proposed to agree to the following proposals:
eB2B would complete a private placement for at least $15 million;
subject to execution of a letter of intent, eB2B would lend the
Company $2 million;
upon the consummation of the merger, the Company would issue a
minimum of 25,000,000 shares of its common stock in exchange for
all of the capital stock, on a fully diluted basis, of eB2B in
accordance with an exchange formula;
owners of eB2B preferred stock, warrants, options and other
securities convertible into eB2B common stock will receive preferred
stock, warrants, options and other securities convertible upon
similar terms and conditions into Company common stock; and
stockholders of eB2B would receive additional shares, in accordance
with a formula, if more than $15 million was raised in eB2B's
private placement.
During the week following November 2, 1999, the boards of both
companies considered and approved the terms of the merger as set forth in a
binding Letter Agreement, executed November 10, 1999. The Letter Agreement
obligated the parties to enter into a definitive merger agreement, which was
executed on December 1, 1999. The agreements of the parties are outlined in
the Letter Agreement, dated November 10, 1999, as amended November 19, 1999;
and are most fully articulated in the Agreement and Plan of Merger, dated
December 1, 1999.
RECOMMENDATIONS OF THE COMPANY'S BOARD OF DIRECTORS AND THE COMPANY'S REASONS
FOR THE MERGER
The Company's board of directors believes that the merger is fair to,
and in the best interests of, the Company and the Company's stockholders.
Accordingly, the Company's board of directors has unanimously approved the
merger agreement and recommends that the Company's stockholders vote FOR the
approval and adoption of the merger agreement and the transactions contemplated
thereby, including the merger.
In reaching its decision to approve the merger agreement and recommend
its approval to the Company's stockholders, the Company's board of directors
consulted with the Company's management and, through management, with its
legal advisors. The Company's board of directors considered a variety of
factors, including the following:
The merger with eB2B accomplishes the board's five goals for a
strategic partnership, including:
(1) expand the scope of the Company's mission;
(2) expand the depth of the Company's organization;
(3) obtain effective financial sponsorship;
(4) raise substantial capital; and
(5) potentially attain a listing on The Nasdaq Stock Market.
The written opinion of Auerbach, Pollak & Richardson, Inc. that, as
of the date of such opinion and based upon and subject to certain
matters stated in such opinion, the exchange ratio is fair, from a
financial point of view, to the Company's stockholders. A copy of
such opinion, which sets forth the assumptions made, matters
considered and limitations on the
29
<PAGE>
review undertaken, is attached as Appendix B to the proxy
statement/prospectus and is incorporated herein by reference.
The structure and terms of the merger agreement, which was the
product of significant arm's length negotiations and, among other
things: is substantially reciprocal in nature as to representations,
warranties and covenants; provides for conversion ratios that will
not fluctuate in the event that there are any increases or decreases
in the price of the Company's common stock; and permits the Company
to terminate the merger agreement for a certain fee under
circumstances where the Company's board receives a competing
proposal which the Company's board of directors determines is more
advantageous to the Company's stockholders than the acquisition of
eB2B.
The ability to obtain a premium to the Company's cash in the form of
lower conversion ratios under certain circumstances.
The Company's evaluation of other potential transactions,
particularly in light of the difficulties the Company faced in
commanding value in such transactions due to the Company's
relatively small size and cash concerns.
Also in its deliberations concerning the merger, the Company's board of
directors considered potential risk factors that could adversely affect the
Company's stockholders. Some, but not all, of the risk factors considered
including the following:
eB2B might not be able to raise the $15 million required in its
private placement.
The value to be received in the merger, based on the exchange ratio,
might not be fair to the Company's stockholders.
The shares held by the Company's stockholders would be significantly
diluted as a result of the merger.
After the merger, the Company's management will consist primarily of
eB2B's current management, which may not be as effective as the
Company's current management.
Sands Brothers & Co., Ltd. claimed that it is entitled to a finder's
fee in connection with the merger and, if the Company disputed this
claim, a legal dispute might ensue between Sands Brothers & Co.,
Ltd. and the Company.
The potential benefits sought in the merger might not be fully
realized or may take longer to achieve than anticipated.
Integrating the businesses of the two companies might be difficult.
eB2B's products might not be scalable and therefore would not
provide a good foundation for expansion of the products, services
and business of the two companies.
Other applicable risks described in this proxy statement/prospectus
under "Risk Factors" starting on page ___.
After due consideration, the Company's board of directors concluded
that the Company could avoid or mitigate some of these risks, and that, on
balance, the potential benefits of the merger outweighed the risks associated
with the merger.
30
<PAGE>
The above discussion of the information and factors considered by the
Company's board is not intended to be exhaustive, but includes all material
factors considered by the Company's board. In reaching its determination to
approve and recommend the merger, the Company's board did not assign any
relative or specific weights to the foregoing factors, and individual directors
may have given differing weights to different factors. The Company's board
unanimously recommends that the Company' stockholders vote FOR adoption and
approval of the merger agreement.
REASONS OF eB2B FOR THE MERGER
eB2B's board of directors believes that the merger is fair to and in
the best interests of eB2B and its stockholders. Accordingly, eB2B's board of
directors has unanimously approved the merger agreement and the consummation of
the merger.
In reaching its decision, eB2B's board consulted with its management,
as well as its financial and legal advisors, and considered a variety of
factors. Among the factors considered in the deliberations of eB2B's board of
directors were the following:
historical information concerning the Company's and eB2B's
respective financial performance, results of operations, assets,
liabilities, operations, technology, management and competitive
position, including the information set forth in the Company's
reports filed with the Securities and Exchange Commission during the
past fiscal year;
the complementary nature of the companies' businesses and technology
and possible synergies from combining the two companies;
the view of management of eB2B with respect to the financial
condition, results of operations, assets, liabilities, businesses
and prospects of the companies after giving effect to the merger;
identifying the strategic alternative that would provide the
greatest stockholder value;
current market conditions and historical trading information with
respect to the Company;
the terms of the merger agreement, which was the product of
substantial arm's length negotiations: contains extensive
representations and warranties; provides for certain indemnification
rights; and under certain circumstances, requires the Company to pay
a fee to eB2B in the event of termination by the Company;
the expected tax-free treatment to eB2B stockholders;
the results of the due diligence investigation of the Company
conducted by eB2B's management and counsel;
eB2B's dependence on a limited number of customers and the Company's
track record demonstrating an ability to develop a base of retailer
customers; and
the greater experience of some of the Company's personnel,
particularly its software developers and sales and marketing
personnel.
eB2B's board of directors also identified and considered a variety of
potential negative factors in its deliberations concerning the merger,
including, but not limited to:
the risk to eB2B stockholders that the value to be received in the
merger could decrease significantly due to the fixed exchange ratio;
31
<PAGE>
the risk that the potential benefits sought in the merger might not
be fully realized or may take longer to achieve than anticipated;
the potential difficulties in integrating the businesses of the two
companies;
the claim of Sands Brothers & Company, Ltd. for a finder's fee in
connection with the merger; and
other applicable risks described in this proxy statement/prospectus
under "Risk Factors" starting on page ___.
After due consideration, eB2B's board of directors concluded that eB2B
could avoid or mitigate some of these risks, and that, on balance, the potential
benefits of the merger outweighed the risks associated with the merger.
The above discussion of the information and the factors considered by
eB2B's board of directors is not intended to be exhaustive, but eB2B's board
believes that it includes all material factors considered by eB2B's board. In
reaching its determination to approve and recommend the merger, the board did
not assign any relative or specific weights to the foregoing factors. However,
after taking into consideration all of the factors set forth above, eB2B's board
of directors concluded that the letter agreement and merger agreement were fair
to, and in the best interests of, eB2B and its stockholders and that eB2B should
proceed with the merger.
32
<PAGE>
OPINION OF FINANCIAL ADVISOR
In December 1999, the Company requested Auerbach, Pollak & Richardson,
Inc. ("Auerbach") to render an opinion as to whether the proposed merger
transaction was fair to the stockholders of the Company from a financial point
of view. Based on its qualifications, expertise and reputation, Auerbach was
retained by the Company in an agreement, dated December 16, 1999. Auerbach has
not previously provided any financial advisory services to the Company. On
December 23, 1999, Auerbach rendered to the Company's board its written opinion
that, as of such date and based upon the considerations set forth in the
opinion, the merger transaction was fair from a financial point of view to the
holders of the shares of the Company's common stock. The full text of the
Auerbach opinion is attached as Appendix B to this proxy statement/prospectus.
The Company's stockholders are urged to read the opinion carefully and
in its entirety. The Auerbach opinion has certain limitations: it is directed to
the Company's board, it addresses only the fairness of the merger consideration
from a financial point of view to the holder of the shares of the Company's
common stock, and it does not address any other aspect of the merger or
constitute a recommendation to any of the Company's stockholders or the
stockholders of eB2B as to how such stockholders should vote on the merger or
any other matter at a special meeting. This summary is qualified in its entirety
by reference to the full text of such opinion.
In arriving at its opinion, Auerbach, among other things, completed the
following: (i) reviewed this proxy statement/prospectus; (ii) reviewed the
merger agreement; (iii) reviewed the Company's filings with the Securities and
Exchange Commission, including the most recent report on Form 10-KSB, certain
quarterly reports on Form 10-Q, and audited financial
33
<PAGE>
statements for the Company for the years ended September 30, 1998, and September
30, 1999; (iv) reviewed the Company's internal business and financial analyses
prepared by the Company's management; (v) reviewed eB2B's Confidential Private
Placement Memorandum for Series B Convertible Preferred Stock, dated
November 1, 1999, as supplemented November 2, 1999 and November 18, 1999;
(vi) reviewed recent financial results and certain internal financial
analyses and business forecasts prepared by eB2B's management for eB2B,
including unaudited financial statements for eB2B for the nine months ended
September 30, 1999; (vii) visited the corporate headquarters and conducted
meetings with members of management of the Company and eB2B in which the
companies' management discussed their businesses and business prospects; and
(viii) reviewed the results of a variety of financial and comparative analyses
performed by Auerbach. Auerbach considered such other information, financial
studies, analyses, investigations and financial, economic and market criteria
that it deemed relevant. Auerbach also had discussions with certain officers and
employees of the Company and eB2B to review the foregoing as well as other
matters it believes relevant to its analysis.
In connection with its opinion, with the permission of the Company and
without any independent verification, Auerbach relied on the accuracy and
completeness of all the financial and other information reviewed by Auerbach,
furnished, or otherwise communicated to Auerbach by the Company or obtained by
Auerbach from publicly available sources. Auerbach did not make an independent
valuation or appraisal of the assets or liabilities of the Company or eB2B and
was not furnished with any such valuation or appraisal. Any inaccuracies or
omissions in the information on which Auerbach relied could materially affect
its opinion.
In conjunction with rendering its written opinion, dated December 23,
1999, to the board of directors of the Company, Auerbach presented a summary of
its analysis to the board on January 14, 2000. Set forth below is a brief
summary of the analyses performed by Auerbach in reaching its December 23, 1999
opinion.
Analysis of selected comparable publicly traded companies. Using
publicly available information and estimates of future financial results
published by First Call, an industry service provider of earnings estimates
based on averages of earnings estimates published by various investment banking
firms, Auerbach compared certain financial and operating information and ratios
for the Company and eB2B with the corresponding financial and operating
information for ten publicly-traded companies involved in three general
business areas of (1) business-to-business vertical internet portal companies;
(2) business-to-business software and services companies; (3)
business-to-business packaged application companies. All multiples were based
on closing stock prices as of December 22, 1999.
The business-to-business-vertical internet portal comparable companies
used in Auerbach's analysis included: Retek, Inc.; Sourcing Link.net, Inc.;
Commerce One, Inc.; Entrade, Inc.; and Cyber Merchants Exchange, Inc. Auerbach's
analysis yielded public company market multiples in ranges of approximately 34x
to 1040x total market value to revenues; and 21x to 107x enterprise value to
book value. Neither total market value to operating income or total market value
to earnings provided meaningful comparisons due to the ongoing losses at the
majority of these companies. These multiples compare to the Company's total
market value to revenue of 13x and total market value to book value of 18x.
The business to business software and software and services companies
used in Auerbach's analysis included: Harbinger Corporation; Sterling Commerce,
Inc.; and Connectinc.com, Corporation. Auerbach's analysis yielded public
company market multiples in ranges of approximately 4x to 8x total market value
to revenues; and 3x to 10x enterprise value to book value. Neither total market
value to operating income or total market value to earnings provided meaningful
comparisons due to the inconsistency of available information and the
incomparable nature of the evaluation points. These multiples compare to the
Company's total market value to revenue of 13x and total market value to book
value of 18x.
The business to business packaged application companies used in
Auerbach's analysis included: Open Market, Inc.; Interworld Corporation; and
Broadvision, Inc. Auerbach's analysis yielded public company market multiples in
ranges of approximately 24x to 126x total market value to revenues; and 31x
34
<PAGE>
to 91x enterprise value to book value. Neither total market value to operating
income or total market value to earnings provided meaningful comparisons due to
the ongoing losses at the majority of these companies. These multiples compare
to the Company's total market value to revenue of 13x and total market value to
book value of 18x.
Precedent transaction analysis. Auerbach analyzed the aggregate value
and implied transaction value multiples paid or proposed to be paid in selected
merger or acquisition transactions in industries similar to the Company.
Auerbach compared, among other things, the aggregate value in these transactions
as a multiple of the latest 12 months revenues and equity closing sales prices
one day and one month prior to the announcement of such transactions. In the
course of this evaluation, Auerbach took into consideration both public and
private transactions where information was readily available. Among others,
transactions covered in this evaluation included: Vertical Net, Inc. in its
transactions with (a) Techspex, (b) Lab.com, (c) Necx Exchange, LLC, and
(d) Isdra; Chemdex, Corp. in its transactions with (a) Promedix.com, and
(b) SpecialtyMD.com; Netgateway, Inc. in its transaction with Galaxy, Inc.;
Ariba, Inc. in its transactions with (a) Trading Dynamics, Inc. and (b) Tradex
Technologies, Inc.; ShopNow.com, Inc. in its transaction with Galleon
Distributed Technologies, Inc.; and America Online, Inc. in its transaction with
Netscape, Inc. The range of transaction premiums included in this evaluation,
based upon contribution analyses of each company and the exchange ratios or per
share purchase prices of these transactions, ranged from premiums of 0% to 674%
above fair market values. These transaction premiums compare to the Company's
proposed transaction premium, based upon its latest 12 months revenues, cash
and working capital accounts, shareholder's equity, book value,and equity
closing sales prices between one day and one month prior to the announcement
of the proposed transaction, which range from a proposed acquisition premium
of 11% to a premium of 99% above its imputed fair market value.
No company or transaction used in the above analyses is identical to
the Company, eB2B or the proposed merger. Accordingly, an analysis of the
results of the foregoing is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other facts that could affect the public
trading value of the companies to which they are being compared.
The material analyses performed by Auerbach have been summarized above.
Nonetheless, the summary set forth above does not purport to be a complete
description of the analyses performed by Auerbach. The preparation of a fairness
opinion involves various determinations as to the most appropriate and relevant
methods of financial analysis and the application of these methods to the
particular circumstances. Therefore, such an opinion is not readily susceptible
to a summary description. Auerbach did not form a conclusion as to whether any
individual analysis, considered in isolation, supported or failed to support an
opinion as to fairness. Rather, in reaching its conclusion, Auerbach considered
the results of the analyses in light of each other and ultimately reached its
opinion based on the results of all analyses taken as a whole. Auerbach did not
place a particular reliance or weight on any particular analysis, but instead
concluded that its analyses, taken as a whole, supported its determination.
In performing its analyses, Auerbach made numerous assumptions with
respect to the Company's performance, general business and economic conditions
and other matters. The analyses performed by Auerbach are not necessarily
indicative of future actual values or future results, which may be significantly
more or less favorable than suggested by such analyses. The analyses do not
purport to be appraisals or to reflect prices at which a company might actually
be sold or the prices at which any securities may trade at the present time or
at any time in the future. Auerbach used in its analyses various projections of
future performance prepared by the management of eB2B. The projections were
based on numerous variables and assumptions which are inherently unpredictable
and which may not occur as projected. Accordingly, actual results could vary
significantly from those assumed in the projections and any related analyses.
Auerbach's opinion does not address the relative merits of the proposed merger
as compared to any alternative business strategies that might exist for the
Company or the effect of any other business combination in which the Company
might engage.
Pursuant to the terms of Auerbach's engagement, the Company has agreed
to pay Auerbach for its financial advisory services in connection with the
fairness opinion an aggregate fee of $85,000. The Company also has agreed to
reimburse Auerbach for reasonable out-of-pocket expenses incurred by it in
performing its services, including reasonable fees and expenses for legal
counsel, and to indemnify Auerbach and certain related persons and entities
against certain liabilities, including liabilities under the federal securities
laws, arising out of Auerbach's engagement. In the ordinary course of its
business, Auerbach and its affiliates may actively trade the debt and equity
securities of the Company for their own accounts and for the accounts of
customers and, accordingly, may at any time hold long or short positions in such
securities.
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<PAGE>
TERMS OF THE MERGER AGREEMENT
The following is a brief summary of the material provisions of the
merger agreement, a copy of which is attached as Appendix A to this proxy
statement/prospectus and incorporated by reference. The following summary of the
merger agreement does not purport to be complete. Stockholders of the Company
and eB2B are urged to read the merger agreement carefully and in its entirety
for a more complete description of the terms and conditions of the merger
agreement.
Closing; Consummation of the Merger
Following the adoption and approval of the merger agreement by the
Company stockholders and the satisfaction or waiver of certain other conditions
described in the merger agreement, eB2B will merge into the Company. The closing
of the merger will take place at 9:00 a.m. Eastern Standard Time on the third
(3rd) day after the receipt of the Company stockholder approval, unless another
time is agreed by the Company and eB2B that will be within five (5) days after
the receipt of the Company stockholder approval. The merger will become
effective at the date and time of the filing of a certificate of merger with the
Secretary of State of the State of Delaware.
Certificate of Incorporation; Bylaws
Immediately prior to the consummation of the merger, the Company will
be reincorporated as a Delaware corporation ("Newco"). The certificate of
incorporation and bylaws of Newco in effect at the time of the consummation of
the merger will remain the certificate of incorporation and bylaws of the
Company after the merger until such time as they will be duly altered, amended
or repealed, except that upon the consummation of the merger, the name of the
Company will be changed to "eB2B Commerce, Inc.," "eB2B.com, Inc." or such other
name acceptable to eB2B and reasonably acceptable to the Company.
Directors and Officers
Upon the consummation of the merger, the directors and officers of eB2B
then in office will become the directors and officers of the Company, except
that one director of the Company will remain a director of the Company following
the merger and except that the Chief Executive Officer of the Company, Steven L.
Vanechanos, Jr., will become the chief technology officer of the Company.
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The Merger Consideration
Each share of eB2B common stock will be exchanged for approximately
2.72 shares of Company common stock (the "Exchange Ratio").
Each share of eB2B preferred stock, options or other securities
convertible into eB2B common stock will be exchanged for shares of Company
preferred stock, options or other securities convertible into Company common
stock, as the case may be, having the same terms as the eB2B convertible
securities being exchanged. The number of shares of Company common stock
issuable upon exercise or conversion of such Company preferred stock, options or
other convertible securities being delivered will be determined by multiplying
(i) the number of shares of eB2B common stock issuable upon exercise or
conversion of such eB2B preferred stock, options or other convertible security
being exchanged by (ii) the Exchange Ratio. The exercise or conversion price of
the Company preferred stock, option or other convertible securities being
delivered will be determined by dividing (i) the exercise or conversion price of
the eB2B preferred stock, option or other convertible security being exchanged
by (ii) the Exchange Ratio.
No fractional shares will be issued in connection with the merger. The
number of shares to be delivered to the eB2B stockholders will be rounded to the
nearest whole share.
Exchange of Stock Certificates
On the effective day of the merger, the Company will deposit, or cause
to be deposited, with American Stock Transfer & Trust Company, as exchange
agent, for the benefit of the former stockholders of eB2B securities,
certificates representing shares of Company securities to be issued in exchange
for certificates representing eB2B securities outstanding immediately prior to
the consummation of the merger. Thereafter, the Company will deposit, or cause
to be deposited, with the exchange agent, for the benefit of any former
stockholders of eB2B securities who have not yet surrendered their certificates
for exchange, the amount of dividends or other distributions, if any, with a
record date after the consummation of the merger but prior to surrender, payable
with respect to any Company securities remaining in the exchange fund on such
record date (such amount, if any, will be deposited on the appropriate payment
date). The "exchange fund" refers to Company securities deposited pursuant to
the terms mentioned above, together with any cash deposited from time to time
with the exchange agent pursuant to the merger agreement.
Promptly after the consummation of the merger, upon surrender to the
exchange agent of the certificate representing eB2B securities for cancellation
and presentation of a letter of transmittal executed and completed according to
the appropriate instructions, the exchange agent will distribute to each former
stockholder of eB2B securities, the appropriate amount of the Company securities
into which such eB2B securities were converted or exchanged pursuant to the
merger. In addition, the exchange agent will distribute any dividends or
distributions which the former stockholder of eB2B securities is entitled to
receive pursuant to provisions of the merger agreement (after giving effect to
any required withholding tax). Certificates representing eB2B securities
surrendered in such a manner will be canceled.
No dividends or other distributions declared or made with respect to
the Company securities on or after the consummation of the merger will be paid
to the stockholder of any eB2B securities until the stockholder surrenders any
certificate representing an eB2B security.
Any portion of the exchange fund which remains unclaimed by the former
stockholders of eB2B securities for twelve (12) months after the consummation of
the merger will be delivered to the Company, upon demand. Also, any former
stockholders of eB2B securities who have not complied with the procedures for
the exchange of certificates found in the merger agreement will, subject to
applicable laws, after the merger look only to the Company for any Company
securities and an cash to which they are entitled.
The Company or the exchange agent will be entitled to deduct and
withhold from the
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consideration otherwise payable pursuant to the merger agreement to any former
stockholder of eB2B securities such amounts as the Company or the exchange agent
are required to deduct and withhold in order to make payments required under the
Internal Revenue Code, or any other tax law. Such withheld amounts, if any, will
be treated for all purposes of the merger agreement as having been paid to the
former stockholder of eB2B securities for whom such deduction and withholding
was made by the Company.
If any eB2B securities certificates are lost, stolen or destroyed, the person
claiming the certificate to be lost, stolen or destroyed must make an affidavit
to that fact and, if required by the Company, post a bond in such reasonable
amount as the Company may direct (as indemnity against claims that may be made
against it with respect to such certificate). The exchange agent will then issue
in exchange for such lost, stolen or destroyed certificate, a certificate for
the Company securities to which the stockholder may be entitled pursuant to the
merger agreement and any other distributions to which the stockholder thereof
may be entitled pursuant to the merger agreement.
Representations and Warranties
Each of eB2B and the Company have made certain customary
representations and warranties in the merger agreement relating to, among other
things:
its organization, existence and good standing;
its capitalization;
the authorization, execution, delivery and enforceability of the
merger agreement and related matters;
compliance with laws;
the absence of conflicts under its charter, bylaws and material
agreements;
broker's fees;
continuity of business activities;
title to assets and properties;
its financial statements and the accuracy of the information
contained therein;
the absence of certain material changes and events;
tax matters;
real property;
intellectual property;
tangible assets;
material contracts;
notes and accounts receivable;
absence of powers of attorney;
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insurance;
litigation;
product warranty;
product liability;
employees;
employee benefits;
environmental, health and safety matters;
certain business relationships;
takeover statutes; and
disclosure.
The merger agreement also contains representations and warranties of the Company
relating to:
registration of its securities and filing of documents with the SEC;
guaranties of other persons; and
Year 2000 compliance.
The merger agreement also contains representations and warranties made
by eB2B relating to its private placement memorandum prepared in connection with
its most recent private placement of securities.
Certain Covenants of the Company Regarding Actions Prior to the Merger
The Company has agreed to use its best efforts to cause the following
to occur immediately prior to the merger:
The reincorporation of the Company in Delaware, as more fully
described below. See "PROPOSAL NUMBER TWO: PROPOSAL TO CHANGE THE
STATE OF INCORPORATION OF THE COMPANY TO DELAWARE;"
The amendment of the Company's bylaws, substantially in the form
attached hereto as Appendix D;
The receipt by the Company of consent of the stockholders of the
Company preferred stock to the conversion of all of the outstanding
shares of such preferred stock into shares of Company common stock;*
and
The authorization and designation of an additional series of Company
preferred stock which, to the maximum extent possible, will have the
same terms as the eB2B preferred stock. Such new series of Company
preferred stock will be the preferred stock delivered to
stockholders of eB2B preferred stock upon their surrender of such
shares in accordance with the merger agreement.
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*Note that the Company no longer needs to obtain consent from stockholders of
Company preferred stock because as of December 27, 1999, all Company preferred
stock had been converted to Company common stock.
Conduct of Business Prior to the Merger
eB2B and the Company have agreed that neither company will, prior to
the merger, engage in any practice, take any action, or enter into any
transaction outside the ordinary course of business, without the prior written
consent of the other party. Specifically, the companies agreed not to:
authorize any change to the Company's or eB2B's certificate of
incorporation or bylaws;
grant any options, warrants, or other rights to purchase or obtain
any of its capital stock or issue, sell or otherwise dispose of any
of its capital stock (except as set forth in the merger agreement);
declare, set aside, or pay any dividend or distribution with respect
to its capital stock (whether in cash or in kind), or redeem,
repurchase or otherwise acquire any of its capital stock;
issue any note, bond or other debt security or create, incur, assume
or guaranty any indebtedness for borrowed money or any other
liability;
grant or agree to grant any security interest upon any of its
assets;
make any capital investment in, make any loan to or acquire the
securities or assets of any other person;
transfer any of its assets;
make any change in employment terms for any of its directors,
officers and employees or, whether in the ordinary course of
business or not, enter into any transactions with any of its
affiliates, officers, directors or stockholders; or
commit to any of the foregoing.
Nevertheless, eB2B and the Company agree that any action taken by eB2B which is
materially consistent with the description of the anticipated use of proceeds by
eB2B and the description of eB2B's strategy as set forth in eB2B's private
placement memorandum will be considered to be in the ordinary course of business
of eB2B. Further, eB2B has the right to take other actions that are outside the
ordinary course of business if it obtains the consent of the Company, provided
that such consent will not be unreasonably withheld by the Company.
Exclusivity
The Company agreed not to directly or indirectly solicit, encourage,
initiate or participate in any discussions or enter into any agreement with
respect to any offer or proposal to acquire all or a substantial part of the
Company's business or any of its capital stock. However, the board of directors
of the Company remains obligated to exercise its fiduciary responsibility to
its stockholders with respect to any unsolicited offers received by the Company.
Insurance and Indemnification
The Company after the merger will provide each individual who served as
a director or officer of eB2B at any time prior to the consummation of the
merger with liability insurance for a period of forty-eight (48) months after
the consummation of the merger on terms no less favorable in coverage and amount
than any applicable insurance currently in effect for eB2B, provided that the
cost of liability insurance amount does not exceed $25,000 per annum. The
Company, as the surviving corporation in the merger,
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will observe any indemnification provisions now existing in the certificate of
incorporation or bylaws of eB2B for the benefit of any individual who served as
a director or officer of eB2B at any time prior to the consummation of the
merger. The Company will indemnify each individual who served as a director or
officer of eB2B at any time prior to the consummation of the merger from and
against any matter resulting from, arising out of, relating to, in the nature
of, or caused by the merger agreement or any of the transactions contemplated by
it (except for any liability incurred as a result of fraud). After the merger,
the Company will use its reasonable efforts to obtain coverage at least as
favorable as the coverage contemplated in the merger agreement for each person
who has resigned from a position as director or officer of the Company, covering
acts prior to the consummation of the merger, if available. The Company after
the merger will cause any personal guaranty by any officer or director of the
Company of any obligations of the Company, which was disclosed in the merger
agreement, to be terminated. If the Company cannot cause such guaranty to be
terminated, the Company will indemnify such officer or director with respect to
such guaranty.
Agreement Regarding Board of Directors
For a period of two (2) years from the consummation of the merger, the
Company will recommend in its proxy statement for each annual or special meeting
of stockholders at which directors will be elected, and will nominate and
recommend at each such subsequent stockholders' meeting, as part of the
management's or the board of director's slate for election to the Company's
board of directors, Steven L. Vanechanos, Jr., as a member of the board of
directors. All shares fo which the Company's management or board of directors
holds proxies (including undesignated proxies) will be voted in favor of the
election of Steven L. Vanechanos, Jr., as described above.
Conditions to the Consummation of the Merger
Except as may be waived by eB2B in writing at or prior to the closing,
eB2B's obligation to consummate the merger is also subject to satisfaction of
several conditions, including:
The merger agreement and the merger must have received Company
stockholder approval, and the number of dissenting shares, if any,
must not exceed ten percent (10%) of outstanding Company shares.
The Company's representations and warranties must be true and
correct in all material respects at and as of the closing date
(except with respect to matters arising as contemplated pursuant to
the merger agreement or as the parties may have otherwise agreed).
However, the Company may supplement its disclosure schedule to the
merger agreement at or prior to the closing for any matters which
would not have a material adverse effect either singularly or,
together with other matters in the Company's disclosure schedule, in
the aggregate.
The Company must perform and comply with all of its covenants under
the merger agreement in all material respects through the closing.
All governmental and third party consents required for consummation
of the merger must be obtained.
The merger agreement and the merger must have received eB2B
stockholder approval and the certificates of merger must be filed.
eB2B must have received from counsel to the Company an opinion in
form and substance reasonably satisfactory to eB2B, addressed to
eB2B, and dated as of the closing date.
Subject to the provisions of the merger agreement, eB2B must have
received the resignations, effective as of the closing, of each
director and officer of the Company
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other than those whom eB2B specifies in writing at least five (5)
business days prior to the closing.
Each of the directors, officers and principal stockholders of the
Company must have entered into lock-up agreements containing the
terms which are summarized below.
Steven L. Vanechanos, Jr. must have executed and delivered an
indemnification agreement containing the terms which are summarized
below.
Kenneth Konikowski, Executive Vice President of the Company, must
have entered into an agreement to indemnify the Company for any
damages incurred by the Company in connection with certain mortgage
debt for which the Company and Mr. Konikowski are jointly obligated.
Except as may be waived in writing by the Company at or prior to the
closing, the obligation of the Company to consummate the merger is subject to
several conditions, including:
The merger agreement and the merger must have received eB2B
stockholder approval and the number of dissenting shares must not
exceed ten percent (10%) of the then outstanding eB2B shares.
The representations and warranties of eB2B must be true and correct
in all material respects at and as of the closing date (except with
respect to matters arising as contemplated pursuant to the merger
agreement or as the parties may have otherwise agreed). However,
eB2B may supplement its disclosure schedule at or prior to the
closing for any matters which would not have a material adverse
effect either singularly or, together with other matters in the eB2B
disclosure schedule, in the aggregate.
eB2B must have completed a private placement of securities raising
gross proceeds of at least $15 million.
eB2B must perform and comply with all of its covenants under the
merger agreement in all material respects through the closing.
Peter J. Fiorillo, Joseph Bentley and Kevin Hayes must have agreed
to waive the terms of any agreement between such persons and eB2B
regarding a change of control of eB2B.
There must be in effect, with respect to the surviving corporation,
officers and directors liability insurance in the amount of
$2,000,000 (or a lesser amount that is acceptable to the Company).
This merger agreement and the merger must have received Company
stockholder approval and the certificates of merger must be filed.
Steven L. Vanechanos, Jr. must have been elected or appointed as a
member of the board of directors of the surviving corporation,
effective when the merger is consummated.
All material Internet domain names, trademarks and other items of
intellectual property of eB2B must have been properly assigned to
the surviving corporation.
The Company and Steven L. Vanechanos, Jr. must have entered into an
employment agreement containing the terms set forth in the letter
agreement, dated November 10, 1999 between eB2B and the Company, as
amended on November 19, 1999 (and such other terms as may be
reasonably acceptable to the parties).
The Company must have received from counsel to eB2B an opinion in
form and substance reasonably satisfactory to the Company, addressed
to the Company, and dated as of the closing date.
Lock-Up Agreements
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The merger agreement also requires that each officer, director and
principal stockholder of the Company who owns shares of the Company's capital
stock which have not been registered under the Securities Act of 1933 to enter
into a lock-up agreement. Under the lock-up agreement, a person must agree not
sell, assign or transfer any shares of the Company's capital stock until the
later of (i) twelve (12) months from the closing of the merger, or (ii) up to
twelve (12) months from the closing of a private or public offering by the
Company after the merger which raises at least $20 million and occurs within the
initial twelve (12) month period after closing of the merger. In addition, any
Company stockholder who owns or controls more than ten percent (10%) of the
Company's capital stock (or securities which are convertible into the Company's
shares) which have been registered under the Securities Act will enter into a
similar lock-up agreement.
Termination
Either eB2B or the Company may terminate the merger agreement (whether
before or after stockholder approval) as provided below:
The companies may terminate the merger agreement by mutual written
consent at any time prior to the consummation of merger.
The Company may terminate the merger agreement by giving written
notice to eB2B at any time prior to the consummation of the merger:
(i) in the event eB2B has breached any material representation,
warranty, or covenant contained in the merger agreement in any
material respect, the Company has notified eB2B of the breach, and
the breach has continued without cure for a period of thirty (30)
days after the notice of breach, or (ii) if the closing has not
occurred on or before June 30, 2000, because any condition to
the Company's obligation to close has not been satisfied (unless
the failure results primarily from the Company's breaching any
representation, warranty, or covenant contained in the merger
agreement); or
eB2B may terminate the merger agreement by giving written notice to
the Company at any time prior to the consummation of the merger: (i)
in the event the Company has breached any material representation,
warranty or covenant contained in the merger agreement in any
material respect, eB2B has notified the Company of the breach, and
the breach has continued without cure for a period of thirty (30)
days after the notice of breach, or (ii) if the closing has not
occurred on or before June 30, 2000, because any condition to
eB2B's obligation to close has not been satisifed (unless the
failure results primarily from eB2B's breaching any representation,
warranty, or covenant contained in the merger agreement).
Effect of Termination. If any party terminates the merger agreement
according to the termination provisions described above, all rights and
obligations of the parties under the merger agreement will terminate without any
liability to either party except that the party terminating the merger agreement
will be liable to the other party for the transaction costs incurred by the
other party, to be payable upon demand (unless the parties mutually agree to
terminate the merger agreement, the each party will be responsible for their own
transaction costs).
Break-up Fee. If the Company either withdraws from or terminates the
merger agreement (other than according to the termination provisions described
above), then within thirty (30) days, the Company will pay to eB2B the sum of
five hundred thousand dollars ($500,000) as liquidated damages (however, no
liquidated damages will be due if eB2B does not consummate the merger solely
because of the failure of Company stockholders to enter into lock-up
agreements). In addition, if prior to the closing, the Company
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receives an unsolicited offer to participate in a transaction which would result
in a change of control of the Company or a sale of all or a material portion of
the assets of the Company, and the Company accepts such offer, the Company will
pay eB2B the sum of five hundred thousand dollars ($500,000) as liquidated
damages within thirty (30) days of the acceptance of the offer. In the event the
liquidated damages described in this paragraph are not paid within thirty (30)
days of the due date, the five hundred thousand dollars ($500,000) due to eB2B
will be convertible, at the discretion of eB2B, into seven hundred fifty
thousand (750,000) shares of Company common stock, which will be issuable
immediately upon written notice to the Company to that effect.
Amendments.
No amendment to the merger agreement will be effective unless in
writing and signed by both eB2B and the Company.
Dispute Resolution.
The merger agreement provides that, in the event of any dispute arising
out of the merger agreement, the parties will first attempt to settle the
dispute through negotiations. If the dispute is not settled within a specified
time period, the dispute will be submitted to arbitration.
OTHER AGREEMENTS
Indemnification Agreement.
In connection with the merger agreement, Steven L. Vanechanos, Jr., the
Company's Chief Executive Officer has agreed to enter into an indemnification
agreement with eB2B and the Company. Under the indemnification agreement, Mr.
Vanechanos agrees to indemnify, defend and hold harmless the Company and its
affiliates from any damages incurred as a result of any material breach or
inaccuracy of any representation or warranty of the Company contained in the
merger agreement if, at the time such representation or warranty was made, Mr.
Vanechanos or James D. Conners had actual knowledge of such misrepresentation.
For the purposes of the indemnification agreement, the representations and
warranties of the Company will survive for the period from the date of the
merger agreement until the conclusion of the first annual audit of the Company
following the closing of the merger. No claim for indemnification may be made by
the Company unless its damages are at least $250,000. If the damages exceed
$250,000, the Company will be reimbursed only for the damages incurred by the
Company in excess of $250,000 up to a maximum amount equal to the value of the
shares owned by Mr. Vanechanos in the Company. To secure his obligations under
the indemnification agreement, Mr. Vanechanos' shares of the Company's common
stock will be held in escrow pursuant to the terms of a separate escrow
agreement. For the purposes of the indemnification right, the value of the
shares will be calculated as the average of the closing bid prices for the
shares of the common stock of the Company as reported on the principal stock
exchange where such shares are traded for the ten (10) days immediately
preceding and the ten (10) days immediately succeeding the date of the
resolution of the claim.
Employment Agreement.
In connection with the merger, the parties have agreed that after the
consummation of the merger Steven L. Vanechanos, Jr. will be employed by the
Company as its chief technology officer. The principal terms of the employment
relationship are as follows: (i) term of two years, (ii) annual compensation
comprised of base salary of $170,000, and a minimum guaranteed annual bonus of
$40,000, with $20,000 of that sum paid in four quarterly $5,000 installments
during each year, and the balance paid within 90 days of the end of each year,
(iii) four weeks of vacation annually, and (iv) severance pay equal to two years
of base compensation, paid in accordance with normal payroll procedures, in the
event the Company terminates the employment of Mr. Vanechanos, Jr. without
"cause" prior to the end of the term. The definition of the term "cause" will be
the same definition contained in the employment agreement between
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eB2B and Peter J. Fiorillo, dated December 1, 1998.
Loan Agreement.
The Company has also entered into a Loan Agreement with eB2B, dated
November 12, 1999, which was amended by Amendment No. 1 to Loan Agreement, dated
November 19, 1999. Under the Loan Agreement, eB2B agreed to loan the Company
$2,000,000 subject to certain conditions. As of December 29, 1999, the Company
had received a series of loans from eB2B having an aggregate outstanding
principal amount of $2,000,000.
All loans under the loan agreement accrue simple interest at the rate
of eight percent (8%) per year. The loans mature on May 12, 2000. However, if
on May 12, 2000, eB2B chooses not to consummate the merger for any reason, the
new maturity date of the loans will be November 12, 2000. If the loans are not
repaid when due, eB2B may choose to convert the aggregate value of the loan into
shares of the Company's common stock at a conversion price of $0.25 per share.
In addition, the loan agreement contains standard termination provisions, as
well as representations, warranties and covenants from the Company to eB2B.
As additional consideration for the loans, the Company also issued to
eB2B warrants to purchase an aggregate of 7,500,000 shares of the Company's
common stock at an exercise price of $2.00 per share.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain material federal income tax
consequences of the merger of eB2B into the Company pursuant to the merger
agreement that are applicable to eB2B stockholders. It is based on the Internal
Revenue Code of 1986, as amended, applicable U.S. Treasury Regulations, judicial
authority, and administrative rulings and practice, all as of the date of this
proxy statement/prospectus, and all of which are subject to change, possibly
with retroactive effect. The discussion below does not address all aspects of
federal income taxation, or any state, local or foreign tax consequences of the
merger. Each eB2B stockholder's tax treatment may vary depending upon the
particular situation of the stockholder. Each eB2B stockholder may also be
subject to special rules not discussed below if the stockholder is a certain
kind of stockholder of eB2B, including:
an individual who holds options or warrants for eB2B common stock or
acquired shares of eB2B common stock through the exercise of options
or similar derivative securities or otherwise as compensation;
an insurance company;
a tax-exempt organization;
a financial institution or broker-dealer;
a person who is neither a citizen nor resident of the United States;
or
a stockholder of eB2B stock as part of a hedge, appreciated
financial position, straddle or conversion transaction.
The following discussion assumes that an eB2B stockholder holds the
eB2B common stock (and held any eB2B preferred stock converted or convertible
into eB2B common stock) as a capital asset at the time of the merger and that
such stock does not constitute "section 306 stock".
Neither the Company nor eB2B has requested, or will request, an advance
ruling from the Internal Revenue Service as to the tax consequences of the
merger or any related transaction. The Internal Revenue Service may adopt
positions contrary to that discussed below and such positions could be
sustained.
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eB2B STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES OF THE MERGER TO THEM, INCLUDING THE APPLICABILITY
AND EFFECT OF ANY STATE, LOCAL OR FOREIGN LAWS, AND THE EFFECT OF POSSIBLE
CHANGES IN APPLICABLE TAX LAWS.
It is the intention of the Company and eB2B that the merger be treated
as a tax-free reorganization under Section 368(a) of the Internal Revenue Code
(and that each of eB2B and the Company will be parties to the reorganization).
Provided that the merger so qualifies:
eB2B stockholders will not recognize any gain or loss as a
result of the receipt of Company common stock or Company
preferred stock in exchange for eB2B common stock and
preferred stock pursuant to the merger.
An eB2B stockholder's aggregate tax basis for the shares of
Company common stock or Company preferred stock received
pursuant to the merger, including any fractional share of
Company common stock not actually surrendered in exchange
therefor, will equal such stockholder's aggregate tax basis in
shares of eB2B common stock or eB2B preferred stock held
immediately before the merger.
An eB2B stockholder's holding period for the shares of Company
common stock or Company preferred stock received pursuant to
the merger will include the period during which the shares of
eB2B common stock or eB2B preferred stock were held.
No gain or loss will be recognized by eB2B solely as a result
of the merger.
If the merger fails to qualify as a tax-free reorganization and fails
to qualify as tax-free under any other provision of the Internal Revenue Code,
an eB2B stockholder will recognize gain or loss with respect to each share of
eB2B common stock or eB2B preferred stock exchanged. This gain or loss would
equal the difference between such stockholder's tax basis in the share exchanged
and the fair market value, at the time of the merger, of the Company common
stock or Company preferred stock received. An eB2B stockholder's tax basis in
the Company common stock or Company preferred stock received would equal its
fair market value on the date of receipt, and the holding period for the Company
common stock or Company preferred stock would begin on the day after the merger.
There may also be adverse tax consequences to eB2B if the merger is not treated
as a tax-free reorganization.
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TAX CONSEQUENCES TO THE COMPANY AND ITS COMMON STOCKHOLDERS
No gain or loss will be recognized by the Company solely as a result of
the merger. There will be no federal income tax consequences as a result of the
consummation of the merger to the Company's common stockholders.
Limitation of Utilization of Net Operating Loss Carryforwards
Section 382 of the Internal Revenue Code generally limits a
corporation's use of its net operating loss carryforwards and certain built-in
losses if the corporation undergoes an "ownership change." An ownership change
generally occurs when a percentage of the corporation's stock held by certain
persons, identified in the Internal Revenue Code Section 382 as "5%
Stockholders," increases in the aggregate by more than fifty (50) percentage
points over the lowest level held by such persons during a three-year testing
period. If an ownership change occurs, the corporation's annual use of its net
operating loss carryforwards is limited to the product of the corporation's
equity value immediately before the ownership change multiplied by the
applicable long-term federal tax-exempt rate. The merger will result in an
ownership change of the Company for purposes of Section 382 of the Internal
Revenue Code. Under the Internal Revenue Code, after the consummation of the
proposed merger with eB2B, the Company will be able to use approximately
$868,000 per year of its potential net operating loss carryforwards. The net
operating loss carryforwards available to the Company are approximately
$5.2 million, which is subject to the Section 382 limitation.
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN UNITED STATES
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER AND DOES NOT PURPORT TO BE A
COMPLETE ANALYSIS OF ALL POTENTIAL TAX EFFECTS RELEVANT TO A STOCKHOLDER'S
DECISION WHETHER TO VOTE IN FAVOR OF THE MERGER. BECAUSE CERTAIN TAX
CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON THE PARTICULAR CIRCUMSTANCES
OF EACH STOCKHOLDER, EACH STOCKHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX
ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO SUCH STOCKHOLDER OF THE
MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL AND FOREIGN TAX
LAWS.
DIRECTORS AND PRINCIPAL OFFICERS OF THE COMPANY AFTER THE MERGER
In accordance with the merger agreement, all of the current members of
the Company's board will resign immediately prior to the consummation of the
merger. Immediately following the merger, six directors of eB2B, and one current
director of the Company, will become the sole members of the Company's board. In
addition, all of the Company's executive officers other than Steven L.
Vanechanos, Jr. will resign upon the consummation of the merger, to be replaced
by current executive officers of eB2B.
The following table sets forth the names, ages (as of January 10, 2000)
and positions of all directors and executive officers of the Company after the
merger.
47
<PAGE>
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Peter J. Fiorillo 40 Chief Executive Officer, President, Director
Joseph Bentley 62 Executive Vice President-Administration, Director
Steven L. Vanechanos, Jr. 45 Chief Technology Officer, Director
Kevin Hayes 40 Director
Victor L. Cisario 38 Chief Financial Officer, Secretary, Treasurer
Christopher Byrnes 42 Director
Michael S. Falk 38 Director
Timothy P. Flynn 49 Director
</TABLE>
Peter J. Fiorillo has served as Chief Executive Officer of eB2B since
November 1998 and as a director of eB2B since its inception. From January 1991
until October 1998, Mr. Fiorillo held various positions with FIND/SVP,
Inc., a consulting and business advisory company (NasdaqSC: FSVP) serving as
Executive Vice President from November 1994 to October 1998, as Chief Financial
Officer from 1991 to October 1998 and as Treasurer, Corporate Secretary, and
Chief Information Officer from 1997 to October 1998. Prior to that, he was
President of Robert Half of New York, an executive recruitment firm. He is a
certified public accountant in New York State and has spent many years in the
sporting goods industry as an investor, owner, retailer, manufacturer and
developer of technology products. Mr. Fiorillo holds a B.A. from Franklin &
Marshall College.
Joseph Bentley has held the position of Executive Vice President-
Administration of eB2B since January 2000 and served as Chief Financial Officer,
Secretary and Treasurer of eB2B from November 1998 until January 2000.
Mr. Bentley has also served as a director of eB2B since its inception.
He has spent over 20 years as the owner, operator and investor in several
manufacturing and retail companies. Mr. Bentley received a B.A. degree
from Pace University.
Steven L. Vanechanos, Jr. has served as Chief Executive Officer and
Chairman of the Board of Directors of the Company since March 1996. Prior to
that, he was Chief Executive Officer of DynamicWeb Transaction Systems, Inc., a
wholly-owned subsidiary of the Company, from its incorporation in October 1995
until it merged with the Company in September 1998. He also was a co-founder in
1981 of Megascore, Inc., which was a wholly-owned subsidiary of the Company, and
was its President from October 1985 until it merged with the Company in
September 1998. He has a bachelor of science degree in finance and economics
from Fairleigh Dickinson University, Rutherford, New Jersey.
Kevin Hayes has served as Chief Technology Officer of eB2B since
November 1998 and as a director of eB2B since inception. Prior to joining eB2B,
Mr. Hayes was employed with American Software Inc., and prior to that, he was
employed with Technology Solutions Corporation, Inc., technology development and
design firms. While at American Software and Technology Solutions Corporation,
Mr. Hayes held such positions as an architect, designer and developer of
technology products. Mr. Hayes has provided technology consulting services to
companies such as Time Warner, Cigna, Georgia Pacific and Lotus. In addition,
Mr. Hayes has consulted for many sporting goods and apparel manufacturers during
the last 10 years. Mr. Hayes received a B.S. degree from Washington University.
Victor L. Cisario has been eB2B's Chief Financial Officer since January
2000. From March 1995 to December 1999 Mr. Cisario held various positions with
FIND/SVP, Inc., a consulting and business advisory company (NasdaqSC:
FSVP),serving as Vice President and Chief Financial Officer from October 1998
until December 1999, Vice President and controller from January 1997 to October
1998 and controller from March 1997 to January 1997. From 1992 to 1995, Mr.
Cisario served as director of finance
48
<PAGE>
and administration for R.J. Rudden and Associates, an energy industry consulting
firm. Mr. Cisario received a B.B.A. degree from Hofstra University and is a
certified public accountant in New York State.
Christopher Byrnes has served as a director of eB2B since September
1999. Since 1989, Mr. Byrnes has served as a director and co-head of the
investment banking division of The Madison-Davis Group, Inc., an executive
search firm specializing in financial services. Prior to joining The
Madison-Davis Group, Inc., Mr. Byrnes engaged in financial sales with Financial
Network Investment Corp, for a period of approximately two years. Prior to that,
he obtained eight years of experience in accounting, financial reporting and
corporate planning, including six years with Westinghouse Group W Cable Inc. Mr.
Byrnes holds a masters of business administration from Fairleigh Dickinson
University and a bachelor of arts in accounting from Franklin & Marshall
College.
Michael S. Falk has been a member of the board of directors of eB2B
since January 2000. Mr. Falk is the co-founder, Chairman and Chief Executive
Officer of Commonwealth Associates, L.P., a New York-based merchant bank and
investment bank. Mr. Falk is also a member of the board of directors of
FutureLink Corporation, an application service provider supplying computer
utility services, computer infrastructure management and information technology
business consulting (NasdaqNM: FTRL). Mr. Falk is a graduate of the Stanford
University Executive Program for Smaller Companies and holds a bachelor of arts
degree from Queens College.
Timothy P. Flynn has been a member of the board of directors of eB2B
since January 2000. Mr. Flynn is also a member of the boards of directors of
FutureLink Corporation, an application service provider (NasdaqNM: FTRL) and
MCG Communications, Inc., a telecommunications company (NasdaqNM: MGCX).
Mr. Flynn has also served on the board of directors of PurchasePro.com, Inc.,
a business-to-business electronic commerce company (NasdaqNM: PPRO). From 1993
until 1997, Mr. Flynn served as a director of ValuJet Airlines. Prior to that,
he served as a senior executive and director of WestAir Holdings, Inc., a
company which operated WestAir, a California-based commuter airline affiliated
with United Airlines.
All of the above directors will hold office from the consummation of
the merger until the next annual meeting of the stockholders and until their
successors have been duly elected and qualified. As required by the merger
agreement, for a period of two (2) years from the consummation of the merger, in
connection with each meeting of stockholders at which directors will be elected,
the Company will nominate and recommend the election of Mr. Vanechanos, Jr. to
the board of directors of the Company. All shares for which the Company's
management or board of directors holds proxies (including undesignated proxies)
will be voted in favor of the election of Mr. Vanechanos, Jr.
Mr. Byrnes and Mr. Fiorillo are brothers-in-law. There are no other
family relationships among any of the directors or executive officers.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
You should be aware that, as described below, certain executive
officers and directors of the Company and eB2B have interests in the merger that
may be considered to be different from, or in addition to, your interests and
that may create potential conflicts of interest.
Executive officers and directors of the Company own shares of Company
common stock, as more fully described elsewhere herein. In addition, Steven L.
Vanechanos, Jr. will be entering into an employment agreement with the Company
upon the closing of the merger, and the employment agreement of Steve
Vanechanos, Sr. has been extended for a one year period in connection with the
merger.
Michael S. Falk, a director of the Company following the merger, is a
principal and the Chief Executive Officer of Commonwealth Associates, L.P. Under
an agreement between Commonwealth Associates, L.P. and eB2B, upon completion of
the merger, Commonwealth Associates, L.P. will receive a finder's fee equal to
3% of the total number of shares to be received by eB2B stockholders in the
merger.
49
<PAGE>
Peter J. Fiorillo, Chief Executive Officer of eB2B and the designated
Chief Executive Officer of the Company after the merger, has been granted
options to purchase 500,000 shares of eB2B's common stock at an exercise price
of $5.50. These options will vest upon consummation of the merger.
INSURANCE AND INDEMNIFICATION
Pursuant to the merger agreement, the Company has, for the time
specified in the merger agreement, agreed to:
for a period of forty-eight (48) months after consummation of
the merger, provide each individual who served as a director
or officer of the Company or eB2B prior to the merger with
liability insurance on terms no less favorable than the
coverage and amount of the insurance in effect before the
merger, provided that the Company may reduce the coverage and
amount of liability insurance if the full coverage and amount
would exceed $25,000 per year;
observe any indemnification provisions that are in eB2B's
certificate of incorporation or bylaws prior to the merger for
the benefit of anyone who served as a director or officer of
eB2B prior to the consummation of the merger;
indemnify each individual who served as a director or officer
of eB2B at any time prior to the consummation of the merger
from and against any and all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims,
demands, injunctions, judgments, orders, decrees, rulings,
damages, dues, penalties, fines, costs, amounts paid in
settlement, liabilities, obligations, taxes, liens, losses,
expenses, and fees, including all court costs and reasonable
attorneys' fees and expenses, resulting from, arising out of,
relating to, in the nature of, or caused by the merger
agreement or any transaction related to the merger (except for
liability incurred as a result of fraud);
for each person who resigns in connection with the merger as a
director or officer of the Company, obtain tail coverage at
least as favorable as the coverage provided before the merger,
covering acts by the former director or officer prior to the
consummation of the merger and in addition to the existing
indemnification arrangements maintained for former directors
or officers; and
cause any personal guaranty listed on a schedule to the merger
agreement, which is by an officer or director of the Company,
to be terminated or, if termination is not possible, the
Company will indemnify the officer or director with respect to
the guaranty.
See "THE MERGER - - Terms of the Merger Agreement - - Insurance and
Indemnification."
ACCOUNTING TREATMENT
The merger will be accounted for as a reverse merger whereby eB2B will
acquire the Company. Accordingly, the historical financial information of the
merged entity will reflect that of eB2B.
DISSENTERS' RIGHTS OF APPRAISAL
The Company
Under applicable Delaware and New Jersey law, the Company's
stockholders are not entitled to any appraisal rights with respect to the
merger.
50
<PAGE>
eB2B
The merger was approved by the stockholders of a majority of the
outstanding voting stock of eB2B by written consent, pursuant to Section 228 of
the General Corporation Law of the State of Delaware. The record date for such
consent was December 1, 1999.
Stockholders of record who did not execute the consent were entitled to
appraisal rights under Section 262 of the Delaware General Corporation Law. In
accordance with Section 262, eB2B notified each stockholder of the stockholder's
right to seek an appraisal of the stockholder's shares of eB2B stock and elect
to have the "fair value" of the stockholder's shares determined and paid to such
stockholder, provided that the stockholder complied with the requirements of
Section 262. Any stockholder who wished to exercise appraisal rights was
required to deliver a notice to that effect, within twenty (20) days of the
notice from eB2B. No stockholder delivered a notice within such time period.
DESCRIPTION OF COMPANY SECURITIES
As of the date of this proxy statement/prospectus, the Company's
authorized capital stock consists of 50,000,000 shares of common stock, and
5,000,000 shares of undesignated preferred stock. As of the date of this proxy
statement/prospectus, there were 3,744,067 shares of common stock issued and
outstanding. As of December 21, 1999, the common stock was held of record by
approximately 3,297 stockholders.
COMMON STOCK
Holders of common stock have the right to cast one vote, in person or
by proxy, for each share owned of record on the record date on all matters
submitted to a vote, including the election of directors of the holders of
common stock. Holders of common stock do not have cumulative voting rights,
which means that holders of more than fifty (50%) of the outstanding shares
voting for the election of the class of directors to be elected by the common
stock can elect all of the directors, and, in that event, the holders of the
remaining shares of common stock will be unable to elect any of the Company's
directors.
Holders of the common stock are entitled to share proportionately in
any dividends that may be declared by the board of directors out of funds
legally available for dividends. They are also entitled to share proportionately
in all of the assets of the Company available for distribution to holders of
shares of common stock upon the liquidation, dissolution or winding up of the
affairs of the Company. Holders of common stock do not have preemptive,
subscription or conversion rights. All outstanding shares of common stock are,
and those shares of common stock issued in the merger will be, validly issued,
fully paid and non-assessable.
PREFERRED STOCK
In addition, the Company's board of directors has the power, without
further vote of the stockholders, to authorize the issuance of up to a total of
5,000,000 shares of Company preferred stock and to fix the terms,
limitations, rights, privileges and preferences of any of these shares of
preferred stock. This power includes the ability to establish voting, dividend,
redemption, conversion, liquidation and other rights and preferences for any of
these shares. There are presently no shares of Company preferred stock
outstanding.
TRANSFER AGENT
American Stock Transfer & Trust Company, based in New York, New York
serves as transfer agent for the shares of the Company's common stock.
RANGE OF PRICES OF SHARES
The range of high and low bid quotations for the Company's common stock
for the two most recently completed fiscal years and the current fiscal year to
date were obtained from the National Association of Securities Dealers and are
provided below. The volume of trading in the Company's common stock has been
limited during the entire period presented, and the bid prices reported may not
be indicative of the value of the Company's common stock or the existence of an
active trading market. These over-the-counter market quotations reflect
interdealer prices without retail markup, markdown or commissions and do not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
BID(1)
QUARTER ENDED HIGH LOW
<S> <C> <C>
March 31, 1998 5 11/32 1 7/16
June 30, 1998 6 5
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
BID(1)
QUARTER ENDED HIGH LOW
<S> <C> <C>
September 30, 1998 6 7/16 2 3/8
December 31, 1998 6 1 1/8
March 31, 1999 9 3/8 3 3/8
June 30, 1999 8 3/4 5 1/4
September 30, 1999 5 7/8 3 5/8
December 31, 1999 16 3/4 2 15/16
</TABLE>
(1) All prices in the table above are adjusted on a pro forma basis (rounded to
the nearest 1/8) to take into account the 0.2608491-for-one reverse stock split
whereby each share of the Company's common stock became 0.2608491 of a share as
of January 9, 1998. The above prices do not represent actual bid prices during
the periods indicated.
52
<PAGE>
COMPARATIVE RIGHTS OF STOCKHOLDERS OF THE COMPANY AND eB2B
The following is a summary of the material differences between the
current rights of eB2B stockholders and the rights they will have as Company
stockholders after the merger. The following summary assumes that the Company
has completed its reincorporation from the State of New Jersey to the State of
Delaware and that the Company's certificate of incorporation and bylaws have
been amended in connection with such reincorporation, as described under
"Proposal Number Two: Proposal To Change the State of Incorporation of the
Company to Delaware." There are few material differences between the rights of
owners of eB2B securities and the rights of owners of the Company securities.
Material differences are described below. The following discussion is
not intended to be complete and is qualified in its entirety by reference to the
certificate of incorporation and bylaws of eB2B and the Company. The Company's
proposed certificate of incorporation and bylaws, to become effective after the
reincorporation, are attached as Appendices C and D, respectively, to
this proxy statement/prospectus. The certificate of incorporation and bylaws of
eB2B are available to eB2B stockholders directly from eB2B upon request.
AUTHORIZED AND OUTSTANDING CAPITAL
The authorized capital stock of eB2B includes 100,000,000 shares of
capital stock and, after the reincorporation, the authorized capital stock of
the Company will include 250,000,000 shares of capital stock.
SPECIAL MEETINGS OF STOCKHOLDERS
eB2B's bylaws provide that special meetings of the stockholders may be
called by the board of directors, the President or by written request of 10% of
the stockholders entitled to vote. After the reincorporation, the Company's
bylaws will provide that special meetings of the stockholders may be called by
the board of directors, the President or by written request of holders of a
majority of the shares entitled to vote at the meeting. Such written request
must be submitted to each member of the Company's board of directors.
NUMBER OF DIRECTORS
eB2B's bylaws provide that there shall be three (3) members of the
board of directors, unless otherwise determined by a vote of a majority of the
board of directors. After the reincorporation, the Company's bylaws will provide
that there shall be seven (7) members of the board of directors, unless
otherwise determined by a vote of a majority of the board of directors.
53
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On December 1, 1999, the Company entered into an agreement to
merge with eB2B, for consideration consisting of shares of Company common stock,
Company preferred stock with similar conversion features and rights to those
held by eB2B shareholders, and options and warrants to purchase Company common
stock with features similar to the outstanding options and warrants to purchase
eB2B common stock. The transaction is being accounted for as a reverse
acquisition because eB2B shareholders will hold approximately 88% of the
outstanding common stock of the Company after the merger is completed.
Accordingly, the transaction is valued at $26 million, which represents the
fair market value of the Company based on the number of common shares
outstanding on that date, plus the number of common shares issued subsequently
as a result of the conversion of the Company's preferred stock into common
shares. Additionally, on January 7, 2000, eB2B signed a letter of intent to
acquire NetLan Enterprises, Inc. and its subsidiaries (NetLan). In this
transaction, 125,000 post-merger shares of Company common stock will be issued
to NetLan. These shares of Company common stock have been valued at
$1.3 million. Additionally, up to 200,000 shares of Company common stock may be
issued to certain employees of NetLan. The aggregate value of these shares is
$2.075 million. The Company common stock value is based on the fair market value
of Company common stock as of the date of the letter of intent. The transaction
is anticipated to close on or about January 31, 2000.
The following pro forma unaudited condensed financial statements give
effect to the merger, as well as the acquisition of NetLan by eB2B. Both
transactions will be accounted for under the purchase method of accounting. The
unaudited pro forma statement of operations for the year ended September 30,
1999 gives effect to the merger as well as eB2B's acquisition of NetLan, as if
each had occurred on October 1, 1998. The pro forma statement of operations is
based on historical results of operations of the Company for the twelve (12)
months ended September 30, 1999, the historical results of operations of eB2B
for the period from its inception on November 6, 1998 through September 30, 1999
and the historical results of operations of NetLan for the twelve (12) months
ended September 30, 1999. The unaudited pro forma balance sheet as of September
30, 1999, gives effect to the merger and eB2B's acquisition of NetLan as if
these transactions had occurred on September 30, 1999.
The unaudited pro forma combined financial statements should be read in
conjunction with the historical financial statements and notes thereto
incorporated by reference for DWEB, and included herein for eB2B and NetLan.
The proforma financial information is presented for illustrative purposes only
and is not necessarily indicative of the future financial position or future
results of operations of the consolidated company after the merger with eB2B
and their pending acquisition of NetLan, or of the financial position or results
of operations of the consolidated company that would have actually occurred had
the merger with eB2B and their pending acquisition of NetLan been effected as
of the dates described above.
54
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET(A)
SEPTEMBER 30, 1999
NETLAN eB2B DYNAMICWEB
ENTERPRISES COMMERCE, ENTERPRISES, PROFORMA PROFORMA
INC. INC. INC. & SUBS ADJUSTMENT(B) CONSOLIDATED
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 207,856 $ 62,950 $ 418,000 $ 29,613,000 k $ 30,301,806
Accounts Receivable - net 788,987 627,000 1,415,987
Other current assets 19,985 40,000 59,985
Inventories 49,976 49,976
Property, Plant & Equipment, net 784,306 55,027 459,000 (42,695)c 1,255,638
Patents, trademarks, customer list, net 66,000 66,000
Software licence 73,000 73,000
Cost in excess of fair value of assets acquired, net 781,279 436,000 24,353,467 i 22,883,638
(4,870,693)i
2,729,481 j
(545,896)j
Other Assets 70,401 6,937 14,000 91,338
----------------------------------------------------------------------------
Total Assets $ 2,702,790 $ 124,914 $ 2,133,000 $ 51,236,664 $ 56,197,368
----------------------------------------------------------------------------
Accounts Payable & Accrued expenses $ 1,454,117 $ 686,449 $ 701,000 2,841,566
Line of credit 582,704 582,704
Current Portion of long-term debt 1,670,780 $ 32,000 1,702,780
Deferred Revenue 498,644 $ 95,000 593,644
Other liabilities 155,862 12,000 167,862
----------------------------------------------------------------------------
4,362,107 686,449 840,000 5,888,556
Long term debt 98,846 83,061 24,000 205,907
----------------------------------------------------------------------------
4,460,953 769,510 864,000 -- 6,094,463
Common Stock 825,683 2,557 828,240
Preferred Stock - Series A & B 2,137,000 $ (2,137,000)p 3,300
3,300 k
Additional Paid in Capital 1,942,311 8,508,000 29,609,700 k 100,962,759
(5,200)e
2,137,000 p
2,075,000 h
24,353,467 i
2,729,481 j
29,613,000 o
Unearned portion of compensatory stock options (78,000) (78,000)
Accumulated Deficit (2,583,846) (2,589,464) (9,298,000) (1,332,066)g (51,613,394)
(35,810,018)f
----------------------------------------------------------------------------
Total Stockholders' equity (deficit) (1,758,163) (644,596) 1,269,000 51,236,664 50,102,905
Total liabilities and stockholders'equity (deficit) $ 2,702,790 $ 124,914 $ 2,133,000 $ 51,236,664 $ 56,197,368
----------------------------------------------------------------------------
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
(Unaudited) Proforma Condensed Statement of Operations
Year ended September 30, 1999
NetLan eB2B DynamicWeb
Enterprises, Commerce, Enterprises, Inc. Proforma Proforma
Inc. Inc. and Subsidiaries Adjustments consolidated
------------- --------- ----------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues
Transaction subscription processing - - $ 882,000 $ - $ 882,000
Consulting services $2,313,933 1,494,000 3,807,933
Network development 2,010,067 669,000 (84,219)c 2,594,848
Other 78,697 78,697
---------- ---------- --------- ---------- ----------
4,402,697 - 3,045,000 (84,219) 7,363,478
Cost of revenues
Transaction subscription processing 598,000 598,000
Consulting services 1,409,489 893,000 2,302,489
Network development 1,112,422 299,000 1,411,422
---------- ---------- --------- ---------- ----------
2,521,911 - 1,790,000 - 4,311,911
1,880,786 - 1,255,000 (84,219)c 3,051,567
Expenses
Marketing and sales 13,476 1,638,000 1,651,476
General and administrative 2,582,274 2,041,652 1,876,000 (5,200)e 8,506,302
(63,424)c
10,000 d
(10,000)d
2,075,000 h
Amortization of Goodwill 545,896 j 5,416,589
4,870,693 i
Research and development 547,812 534,000 1,081,812
---------- ---------- --------- ---------- ----------
2,595,750 2,589,464 4,048,000 7,422,965 16,656,179
---------- ---------- --------- ---------- ----------
Loss from operations before other
expense, income, income taxes and
discontinued operations (714,964) (2,589,464) (2,793,000) (7,507,184) (13,604,612)
Other
Gain on sale of asset 12,000 12,000
Interest Expense (199,331) (5,000) (204,331)
Other (55,775) (55,775)
Interest Income 20,000 20,000
---------- ---------- --------- ---------- ----------
(255,106) - 27,000 -- (228,106)
Loss before discontinued operations (970,070) (2,589,464) (2,766,000) (6,197,018) (13,832,718)
Loss from discontinued operations (1,310,166) (21,900)c -
1,332,066 g
---------- ---------- --------- ---------- ----------
Net loss (2,280,236) (2,589,464) (2,766,000) (6,197,018) 13,832,718
Cumulative Dividend on Preferred Stock - - - (29,613,000)o (29,613,000)
Cumulative Dividend on Preferred Stock,
including imputed dividends (1,699,000) 1,699,000 f -
---------- ---------- --------- ---------- ----------
Net Loss attributable to common
stockholders $(2,280,236) $(2,589,464) $(4,465,000) $(34,111,018) $(43,445,718)
---------- ---------- --------- ---------- ----------
---------- ---------- --------- ---------- ----------
Net Loss per common share - basic and diluted $ (1.81) $ (4.27)
Weighted average number of shares
outstanding - basic and diluted 2,460,287 7,710,949 l,m 10,171,236
</TABLE>
56
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED FINANCIAL DATA
Pro Forma Adjustments and Assumptions:
(1) Assumptions:
(A) The pro forma financial information reflects the Company's merger with
eB2B which is accounted for as a reverse acquisition, preliminarily
valued at approximately $26 million on December 1, 1999. The pro forma
financial data also reflects the anticipated acquisition of NetLan by
eB2B for consideration preliminarily valued at approximately $1.3
million, consisting of the equivalent of 125,000 shares of Company
common stock, plus up to 200,000 shares of Company common stock may be
issued to certain employees of NetLan. The aggregate value of these
compensatory shares is $2.075 million. These share values are based on
the fair market value of Company common stock as of the date of the
letter of intent. Since the merger and the acquisition of NetLan have
not yet been completed, the actual consideration for the transactions
may change. For the purpose of the pro forma financial information, the
number of shares of the Company common stock assumed issued in the
reverse merger with eB2B is approximately 3.7 million. This amount is
based on the number of shares of the Company common stock outstanding
as of December 1, 1999, the date of the merger agreement, adjusted for
Company preferred stock outstanding, which has subsequently been
converted to Company common stock in accordance with the merger
agreement.
The amount of purchase price in excess of the historical net
book values of the acquired assets and assumed liabilities of the
Company in the reverse acquisition has been allocated to goodwill in
the accompanying pro forma presentation, and is for illustrative
purposes only. The actual purchase price allocation will be based on
fair values of the acquired assets and assumed liabilities as of the
actual merger date. The pro forma adjustments reconcile the historical
balance sheets of the Company, eB2B and NetLan to the allocated
purchase prices above.
(B) The pro forma adjustment includes $4.9 million and $0.6 million in
amortization of goodwill and other intangible assets that would have
been recorded during the period covered by the pro forma statement of
operations related to the reverse merger with eB2B and the acquisition
of NetLan, respectively. The pro forma adjustment is based on the
assumption that the entire amount identified as goodwill and other
intangible assets in both transactions will be amortized on a
straight-line basis over a five-year period.
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The Company has not yet completed the valuation of the actual
intangible assets to be acquired. When completed, certain amounts
identified as intangible assets may be amortized over periods other
than the five-year period represented in the pro forma statement of
operations. Additionally, a portion of the purchase price may be
identified as in-process research and development. This amount, if any,
will be charged to operating results in the Company's fiscal year 2000
financial statements, when the acquisition accounting and valuation
amounts are finalized. The pro forma statement of operations does not
give effect to any potential in-process research and development charge
related to the transactions.
(2) Adjustments:
(C) The pro forma adjustment represents the elimination of revenue
transactions between eB2B and NetLan during the period represented by
the pro forma statement of operations.
(D) The pro forma adjustment represents four (4) months rent for office
space provided by NetLan to eB2B.
(E) The pro forma adjustment represents the value of the warrants issued by
eB2B to NetLan during 1999.
(F) The pro forma adjustment represents cumulative dividends on preferred
shares assuming shares converted on date of issuance. Presentation is
made to reflect net loss attributable to common stockholders.
Accordingly, the accumulated deficit is not affected by this
adjustment.
(G) The pro forma adjustment represents the reversal of discontinued
operations treatment for disposed segments of NetLan.
(H) The pro forma adjustment represents compensation expense for certain
shares issued in connection with the NetLan merger.
(I) The pro forma adjustment represents the goodwill and related
amortization expense for the Company's merger with eB2B.
(J) The pro forma adjustment represents the goodwill and related
amortization expense for eB2B's acquisition of NetLan.
(K) The pro forma adjustment represents the net proceeds received by eB2B
during December 1999, from a private placement offering of 3.3 million
shares of eB2B preferred stock, par value $0.001 per share.
(L) Since the pro forma statement of operations results in a loss from
continuing operations, the pro forma basic and diluted loss from
continuing operations per common share are computed by dividing the
loss from continuing operations available to common stockholders by the
weighted average number of common shares outstanding. The calculation
of the pro forma weighted average number of common shares outstanding
assumes that the 7,386,000 and 325,000 shares of the Company's common
stock issued in the merger with eB2B and the proposed acquisition of
NetLan, respectively, were outstanding for the entire period.
(M) Since the pro forma statement of operations results in a loss from
continuing operations, the pro forma basic and diluted loss from
continuing operations per common share are computed by dividing the
loss from continuing operations available to common stockholders by the
weighted average number of common shares outstanding. The calculation
of the weighted average number of common shares outstanding assumes
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that the 1,070,000 shares of the Company's common stock issued upon
conversion of preferred shares and warrants in conjunction with the
definitive merger agreement with eB2B were outstanding for their
applicable period.
(N) Reflects the conversion of Company preferred stock into Company common
stock in accordance with the merger agreement.
(O) Reflects the imbedded beneficial conversion feature of eB2B's Series B
preferred stock. In December 1999 eB2B issued 3,300,000 shares of
Series B preferred stock for approximately $29,613,000, which as a
result of the merger agreement with the Company, were convertible
into approximately 16,320,000 shares of the Company's common shares
valued at $7.35 per share, the Company's per share price on December 1,
1999, the date of the definitive merger agreement. As this value is
significantly greater than the proceeds received, the total proceeds
received were allocated to the convertible feature and amortized
as a cumulative preferred dividend, resulting in a charge to retained
earnings and a credit to additional paid in capital.
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INFORMATION ABOUT THE COMPANY
DynamicWeb Enterprises, Inc. (the "Company") provides services and
software that facilitate business-to-business e-commerce between buyers and
sellers. The Company's services include the provision of the necessary
infrastructure and operational services to facilitate electronic transactions
between buyers and sellers; and consulting services to businesses that wish to
build and/or operate their own e-commerce infrastructure.
The executive offices of the Company are located at 271 Route 46 West,
Building F, Suite 209, Fairfield, New Jersey 07004. The Company's telephone
number is (973) 276-3100 and the Company's facsimile number is (973) 575-9830.
For more information, you may visit the Company's website at www.dynamicweb.com.
BUSINESS OF THE COMPANY
INDUSTRY BACKGROUND
The success of the Internet in streamlining business-to-consumer
transactions is leading companies to seek similar efficiencies in their
business-to-business transactions. Companies are increasingly seeking to improve
their operating efficiency through electronic commerce solutions. Forrester
Research estimates that U.S.-based business-to-business electronic commerce will
increase from $109 billion in 1999 to $1.03 trillion in 2003, and that by 2003
the market for business-to-business transactions will be more than ten times
larger than the business-to-consumer transactions market.
Electronic Data Interchange ("EDI") is a specific form of electronic
commerce, consisting of a standard protocol for electronic transmission of data
between a company and a third party. In an EDI transaction, the computers of the
buyer and seller communicate and exchange the relevant information using an
agreed-upon or standard format. A typical example of EDI is electronically
placing a purchase order for merchandise with a vendor, and having the vendor
electronically confirm the order and produce an invoice when the goods are
shipped. In an earlier stage of electronic commerce, companies that wanted to
conduct business electronically were required to have a special type of computer
network called a value-added computer network or "VAN."
The emergence of the Internet as an additional means of conducting
electronic commerce has revolutionized the way businesses operate and interact
with their customers and trading partners by creating new, highly efficient
channels of communication and distribution. The Internet gives small to
medium-size buyers and sellers access to the efficiencies associated with
traditional EDI systems. In addition, the Internet enables buyers and sellers to
interact with a greater number of potential trading partners.
THE COMPANY'S PRODUCTS AND SERVICES
The Company's business is providing services and software that
facilitate business-to-business e-commerce between buyers and sellers of direct
goods, which are the goods or materials that businesses utilize in their core
business. For instance, a tire purchased by an automobile manufacturer is a
direct good. Conversely, a fax machine purchased by the same company, for
general use in the office, is an indirect good.
The Company's services fall into two general categories:
e-commerce network services, including network development and
transaction/subscription processing, where the Company provides
the necessary infrastructure (hardware, software
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and communications links) and operational services to facilitate
electronic transactions between buyers and sellers; and
professional consulting services where the Company provides
expertise to businesses that wish to build and/or operate their
own e-commerce infrastructure.
The Company markets and sells four principal electronic commerce
technology solutions:
(1) EDIxchangeBuy'sm' and EDIxchangeSell'sm'
EDIxchangeBuy and EDIxchangeSell include the design, development and
implementation of customized business-to-business e-commerce web sites. These
web sites facilitate e-commerce between buyers and sellers of direct goods,
resulting in improved inventory, increased customer satisfaction, and improved
productivity within a supply chain. The service allows the Company's customer's
EDI systems to communicate with other systems that do not use EDI. The service
translates between purchase orders delivered over EDI systems and purchase
orders sent via basic web browsers like Netscape or Microsoft Internet Explorer.
In addition, this service supports the use of a broad array of documents,
including catalogs with product information such as prices, descriptions and
other data codes. The availability of this documentation enables customers to
easily update, modify and customize their purchases.
(2) EDIxchangeOutsource'sm'
EDIxchangeOutsource includes the data processing equipment, software
and technical people needed to manage and operate an EDI infrastructure. These
services include security, mapping, translation, mail boxing and routing of
business documents between the Company's customers, their EDI computer networks
and their trading partners. In essence, the Company acts as an off-site EDI
department on a customer's behalf. This service offers the flexibility both to
process received (inbound) business documents in any format, and to send out
(outbound) the same documents in the trading partner's specific requested
format. The service can manage and optimize a client's entire EDI operation
without the requirement for specialized software, personnel or training.
(3) EDIxchangeConnect'sm'
EDIxchangeConnect, a combination of electronic commerce software and
services, is developed for businesses that require their older computer systems
to handle EDI transactions. The software formats electronic transactions, such
as purchase orders, invoices and shipment notifications, into commonly preferred
data formats. Combined with the Company's EDIxchangeOutsource service,
EDIxchangeConnect provides a powerful e-commerce solution that is easy to
implement.
(4) EDIxchangeSupport'sm'
EDIxchangeSupport is a portfolio of professional consulting services
provided to customers who wish to augment their in-house electronic commerce
resources. EDIxchangeSupport includes consulting provided on-site and from other
locations. It is focused on developing and implementing electronic commerce,
communications between new and old computer systems, application integration,
distribution logistics and translations between EDI and other types of data.
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DISTRIBUTION AND MARKETING OF PRODUCTS AND SERVICES
The Company believes that the most likely users of the Company's
services are companies that are committed to aggressively using electronic
commerce to improve their productivity. Since EDI is a fundamental part of
business-to-business electronic commerce, the Company have focused the Company's
marketing efforts on existing users of EDI. In addition, the Company is able to
determine likely prospects by studying industry and financial analyses of EDI
companies and the industry in general.
EDIxchangeBuy and EDIxchangeSell are services targeted specifically at
large companies and their suppliers. The target market for EDIxchangeOutsource
consists primarily of middle market suppliers, who are forced to manage the
complexity of EDI compliance with their various customers. EDIxchangeOutsource,
supported by the Company's EDIxchangeNetwork, leverages the knowledge of the
trading requirements of major enterprises to benefit multiple suppliers. In
addition, the overall cost of EDI management is reduced by the shared
connections to the Company's services, and by the Company's highly specialized
customer service.
The Company's sales strategy is to utilize a highly qualified and
focused sales force to target early adopters and EDI-capable enterprises, such
as the drug store industry and certain specialty retail market segments. In
addition, the Company markets in traditional electronic commerce venues, such as
electronic commerce trade shows and exhibitions.
COMPETITION
The electronic commerce, EDI network services and computer software
markets are highly competitive. The principal competitors in the electronic
commerce software and services markets are Harbinger Corporation, Sterling
Commerce, Inc., General Electric Company's GE Information Services subsidiary,
Netscape Corporation, America Online, Inc., Open Market, Inc., InterWorld Corp.,
PurchasePro, Inc., Ariba, Inc., Commerce One, Inc., BroadVision, Inc.,
ConnectInc.com, International Business Machines Corporation, Microsoft
Corporation, Electronic Data Systems Corporation and MCI WorldCom, Inc. Each of
those companies is engaged in, or has announced plans to engage in, providing
software products and services that facilitate electronic commerce over the
Internet.
Competition from Internet-based competitors may also be significant.
The market for Internet software and services is emerging and highly
competitive. It ranges from small companies with limited resources to large
companies with substantially greater financial, technical and marketing
resources than the Company. Management of the Company believes that existing
competitors are likely to expand the range of their electronic commerce services
to include Internet access, and that new competitors, which may include
telephone companies and media companies, are increasingly likely to offer
services that utilize the Internet to provide business-to-business data
transmission services. Also, in the future the Company expects the major on-line
service companies, such as America Online, Inc., CompuServe and Prodigy
Communications Corp., to enhance their services to include certain aspects of
electronic commerce.
CUSTOMERS
The following chart lists the Company's key customers, the business in
which such customers engage, and the solutions the Company provides to them.
EDIxchangeBuy'sm' or EDIxchangeSell'sm'
<TABLE>
<CAPTION>
Company Business
- ------- --------
<S> <C>
Rite Aid Corporation Retail pharmacy chain
GTE Service Corporation Communications
Southern New England Telephone Co. Communications
</TABLE>
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<TABLE>
<CAPTION>
Company Business
- ------- --------
<S> <C>
The Walt Disney Company Entertainment
Best-Buy Co., Inc. Specialty retail
Service Merchandise Company, Inc. Specialty retail
Linens N' Things Inc. Specialty retail
Great American Knitting Mills, Inc. Manufacturer of Gold Toe, Nautica brands
EDIxchangeOutsource'sm'
Company Business
- ------- --------
SDI Technologies Inc. Manufacturer of SoundDesign electronics
Church & Dwight Co. Inc. Manufacturer of Arm & Hammer products
The Royal Doulton Company Maker of fine china
The Swatch Company Distributor of Swatch, Longines watches
EDIxchangeSupport'sm'
Company Business
- ------- --------
Nabisco Holdings Corp. Consumer goods
Toys R Us, Inc. Toy retailer
Neuman Distributors Consumer goods wholesaler
</TABLE>
The only customer that accounts for more than ten percent (10%) of the
Company's business is Toys R Us, Inc., which accounted for approximately
twenty-nine percent (29%) of the Company's business in fiscal year 1999,
exclusively for EDIxchangeSupport consulting services.
INTELLECTUAL PROPERTY
To protect the Company's proprietary products, the Company relies
primarily on a combination of copyright, patent, trade secret and trademark
laws, as well as confidentiality procedures and contractual provisions. On March
16, 1999, a patent number was assigned to the Company's NetCat software. In
addition, the Company owns the United States trademark registrations of its
DynamicWeb, NetCat, EDIxchange and ECbridgeNet trademarks. The Company also has
on file with the U.S. Patent and Trademark Office pending applications for
registration of the DWEB and EXTENDING THE ENTERPRISE trademarks. In addition,
the Company owns a copyright registration for the Company's ordering system, and
may have a right to assert copyright protection for additional works, including
software.
Despite the Company's efforts to protect the Company's proprietary
rights, unauthorized parties may attempt to copy aspects of the Company's
products or to obtain and use information that the Company regards as
proprietary. There can be no assurance that the Company's means of protecting
its proprietary rights will be adequate or that competitors will not
independently develop similar or superior technology. The Company believes that,
due to the rapid pace of innovation within the electronic commerce, EDI and
related software industries, factors such as the technological and creative
skills of its personnel are more important in establishing and maintaining a
leadership position within the electronic commerce industry than are the various
legal protections of its technology. The Company does not believe that any of
its products infringe upon the proprietary rights of third parties. There can be
no assurance, however, that third parties will not claim infringement by the
Company with respect to current or future products. From time to time, the
Company has received notices which allege, directly or indirectly, that the
Company's products or services infringe the rights of others. The Company
generally has been able to address these allegations without material cost. The
Company expects that software product developers will increasingly be subject to
infringement claims as the number of products and competitors in electronic
commerce grows and the functionality of products in different industry segments
overlaps. Any such claims, irrespective of
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their merit, could be time-consuming, result in costly litigation, cause product
shipment delays, require the Company to enter into royalty or licensing
agreements, or prevent the Company from using certain technologies. Such royalty
or licensing agreements, if required, may not be available on terms acceptable
to the Company or at all, which could have a material adverse effect.
The Company currently has in place confidentiality and non-competition
agreements with all fifty-two (52) of its employees. The Company has adopted a
policy of requiring that all future employees sign appropriate confidentiality
agreements and, where appropriate, non-competition agreements.
The Company's proprietary Internet software is written in Practical
Extraction and Reporting Language (known as "PERL"), which is the computer
program language utilized for Internet applications. Because the Internet is not
controlled or supervised by any one person or group, the evolution and continued
utilization of PERL cannot be controlled or predicted. Changes in or the
elimination of PERL could cause the Company to have to assume responsibility for
support and development of that software.
The Company currently licenses proprietary data encryption and
authentication software from RSA Data Security, Inc. The RSA Data Security, Inc.
software, which is licensed to the Company from Community ConneXion, Inc., is
incorporated in certain other software related to the Web server utilized by the
Company. The RSA Data Security, Inc. software is available on a non-exclusive
basis. No assurance can be given that the encryption software presently
available will continue to be available to the Company on commercially
reasonable terms, or at all. Additionally, there is no assurance that, if a new
encryption technology develops, it will be available to the Company on
commercially acceptable terms, if at all.
The Company also licenses: credit-card verification software from
Cybercash, Inc. on a non-exclusive basis; data transformation software from
Mercator Software Pty Ltd. on a non-exclusive basis; EDI translator software
from the Gentran product line of Sterling Commerce, Inc. on a non-exclusive
basis; and database software from Oracle Corporation on a non-exclusive basis.
REQUISITE GOVERNMENTAL APPROVAL; EFFECT OF GOVERNMENTAL REGULATIONS
The Company's network services are transmitted to customers over
dedicated and public telephone lines. These transmissions are governed by
regulatory policies establishing charges and terms for communications. The
Company's business and products could experience adverse impacts as a result of
changes in the legislation and regulations relating to on-line services, EDI,
the Internet access industry, telecommunication costs, competition in the
telecommunications industry and international competition. Management believes
that the Company is in material compliance with all applicable regulations.
PRODUCT DEVELOPMENT
The Company spent approximately $534,000 in the year ended September
30, 1999 and $412,000 in the year ended September 30, 1998 for the research and
development of products. To reduce product development time and expense, if
appropriate, the Company has incorporated into its products certain software
licensed to it by other software developers.
The Company continues to assess the needs of trading partners in
various trading communities and to develop software programs and network
services to facilitate electronic commerce transactions over the EDIxchange
Network. The Company's product development efforts currently are focused on
providing a full range of electronic commerce solutions to new and existing
customers. Specifically, the Company is in various stages of developing other
software applications, including bar code integration to facilitate the shipping
and receiving of goods, and catalog-based solutions.
EMPLOYEES
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As of September 30, 1999, the Company had forty-nine (49) full-time and
three (3) part-time employees. Approximately nine (9) are technical personnel
engaged in maintaining or developing the Company's products or performing
related services, approximately ten (10) are marketing and sales personnel,
approximately seventeen (17) are involved in providing consulting services to
customers, approximately nine (9) are engaged in customer support and
operations, and approximately seven (7) are involved in administration and
finance. None of the Company's employees are represented by a union.
PROPERTIES
The Company currently does not own or have any investment in real
property. The Company's corporate offices are located at 271 Route 46 West,
Building F, Suite 209, Fairfield, New Jersey. It has entered into two leases for
approximately 5,400 square feet for its executive and administrative staff at an
aggregate monthly rental of $6,600 with terms expiring on October 31, 2001 and
December 31, 2002. The Company believes that additional space will be necessary
in the near future and that additional space is available at rental rates that
would not materially adversely affect the Company.
The Company sold its former offices (at 1033 Route 46 East, Clifton,
New Jersey) on November 23, 1998, for a sale price of approximately $205,000.
The Company received proceeds net of repayment of mortgage debt and expenses of
sale of approximately $12,000.
In addition, the Company leases an apartment for James Conners, space
for storage, and space incidental to its agreement for an Internet server.
LEGAL PROCEEDINGS
On December 17, 1999, Sands Brothers & Co., Ltd. commenced a civil
action against the Company in the United States District Court for the Southern
District of New York. The Company had retained Sands Brothers & Co., Ltd. under
an agreement to provide financial advisory, corporate finance, and merger and
acquisition advice. Sands Brothers & Co., Ltd. alleges that it is entitled to
compensation under the agreement for introducing eB2B, the company with which
the Company is planning to merge, to the Company. Sands Brothers & Co., Ltd. did
not introduce eB2B to the Company and the Company disputes that Sands Brothers &
Co., Ltd. is entitled to compensation. The complaint of Sands Brothers & Co.,
Ltd. alleges breach of contract, unjust enrichment and other related causes of
action arising from the allegations that it introduced eB2B to the Company.
Sands Brothers & Co., Ltd. seeks an accounting, a declaratory judgment adjudging
the respective rights under its agreement with the Company, and damages in an
amount not less than $3,500,000, plus interest, costs and attorneys' fees. The
Company believes the lawsuit to be without merit. On January 6, 2000, the
Company answered the complaint denying the material allegations contained
therein. Discovery is now proceeding.
The Company is not a party to any other material legal proceeding.
FURTHER INFORMATION ABOUT THE COMPANY
The Company incorporates by reference the following documents filed
with the Securities and Exchange Commission:
1. The Company's annual report on Form 10-KSB for the fiscal year
ended September 30, 1999.
2. The Company's quarterly report on Form 10-QSB for the recent
fiscal quarters.
3. All other reports filed pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934.
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Any statement contained in a document incorporated or deemed to be
incorporated by reference herein will be deemed to be modified or superseded for
purposes of this proxy statement/prospectus to the extent that a statement
contained herein modifies or supersedes such statement. Any statement so
modified or superseded will not be deemed, except as so modified or superseded,
to constitute a part of this prospectus.
COPIES OF DOCUMENTS
To each person who receives a proxy statement/prospectus, the Company
will provide upon request and without charge a copy of the additional documents
listed above, not including the exhibits to those documents unless the exhibits
are specifically incorporated by reference into those documents. Requests for
those documents should be made to: DynamicWeb Enterprises, Inc., 271 Route 46
West, Building F, Suite 209, Fairfield, New Jersey 07004. The telephone number
is (973) 276-3100. Stockholders must request the information no later than
five business days before the date they must make their investment decision.
FINANCIAL STATEMENTS OF THE COMPANY
The audited balance sheet of the Company as of September 30, 1999 and
the related statements of operations, changes in stockholders' equity and cash
flows for each of the years in the two-year period then ended is attached to
this proxy statement/prospectus as Appendix F.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF THE COMPANY
The following discussion and analysis should be read in conjunction
with the financial statements included in this proxy statement/prospectus and in
conjunction with the description of the Company's business included in this
proxy statement/prospectus. It is intended to assist the reader in understanding
and evaluating the financial position of the Company.
This discussion contains, in addition to historical information,
forward looking statements that involve risks and uncertainty. The Company's
actual results could differ materially from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed in this proxy statement/prospectus.
RESULTS OF OPERATIONS
For the year ended September 30,1999, the Company's revenue has been
classified into three categories: transaction/subscription processing,
consulting services and network development. Previously, the Company classified
revenues as transaction processing, professional services and other.
Accordingly, certain revenues from prior periods have been reclassified to
conform to current classifications.
The Company had net sales of $3,045,000 for the year ended September
30, 1999, compared to $1,187,000 for the year ended September 30, 1998, an
increase of approximately $1,858,000, or one hundred fifty-six percent (156%).
The increase in sales was attributable to the increase of the Company's new
EDI/Internet products and services, particularly transaction processing services
offered through the Company's EDI service bureau and sales of the Company's
consulting services.
Transaction/subscription processing revenues include initial
subscription fees, and monthly transaction fees. These revenues for the year
ended September 30, 1999 were $882,000, as compared to $419,000 for the year
ended September 30,1998, an increase of $463,000 or one hundred eleven percent
(111%).
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Consulting service revenues represent fees from contract computer
programming. These revenues for the year ended September 30, 1999 were
$1,494,000 as compared to $601,000 for year ended September 30, 1998, an
increase of $893,000 or one hundred forty-nine percent (149%). The increase
resulted from additional customers coupled with an increase in the average
amount billed per programmer.
Network development revenues primarily relate to the development of EDI
data transformation tools and to the custom development of EDIxchange,
EDIxchangeBuy and EDIxchangeSell from which the transaction/subscription
processing revenues are derived. Network development revenues for the year ended
September 30, 1999 were $669,000 as compared to $167,000 for the year ended
September 30, 1998, resulting in an increase of $502,000 or three hundred one
percent (301%). This increase is attributable to the increased customized
development of data transformation tools for customers using the EDIxchange
suite of services and also the new customer setup of the EDIxchange suite of
products.
Total cost of sales was $1,790,000 for the year ending September 30,
1999, for a gross profit of approximately $1,255,000 and gross margin of
forty-one percent (41%). This compares to cost of sales of $719,000 for the year
ended September 30, 1998, resulting in gross profit of $468,000 and gross margin
of thirty-nine percent (39%). A portion of the increase in cost of sales is
attributable to salary increases that took effect in the second, third, and
fourth quarters of fiscal 1999. The aggregate salary increase consists of the
salary expense of the addition of ten (10) new employees plus normal course pay
raises for all other employees. The increase is also attributable to increased
costs for maintaining and upgrading equipment and communications for better
service to the Company's customers. In addition, certain amounts previously
recorded as operating expenses in the year ending September 30, 1998 have been
reclassified into cost of sales.
Cost of transaction/subscription processing was $598,000 for the year
ended September 30, 1999, for a gross profit of approximately $284,000 and gross
margin of thirty-two percent (32%). This compares to cost of
transaction/subscription processing of $240,000 for the year ended September 30,
1998, resulting in gross profit of $179,000 and gross margin of forty-three
percent (43%).
Cost of consulting service revenues provided by the Company was
$893,000 for the year ended September 30, 1999, for a gross profit of $601,000
and gross margin of forty percent (40%). This compares to cost of consulting
services of $427,000 for the year ended September 30, 1998, resulting in gross
profit of $174,000 and gross margin of twenty-nine percent (29%).
Cost of network development revenues was $299,000 for the year ended
September 30, 1999, or a gross profit of $370,000, and gross margin of
fifty-five percent (55%). This compares to cost of network development revenues
of $52,000 for the year ended September 30, 1998, resulting in gross profit of
$115,000 and gross margin of sixty-nine percent (69%).
Marketing and sales expenses were $1,638,000 for the year ended
September 30, 1999 as compared to $734,000 for the year ended September 30,
1998. The increase is attributable to salaries for new hires, the costs of
attendance at trade shows associated with the Company's efforts to market its
EDI/Internet products and services, additional advertising expenses, and the
creation of a new division, customer satisfaction, to provide support for the
Company's products.
General and administrative expenses were $1,876,000 for the year ended
September 30, 1999 as compared to $1,925,000 for the year ended September 30,
1998. The decrease is attributable to lower expenditures in various areas.
Research and development expenses were $534,000 for the year ended
September 30, 1999 as compared to $412,000 for the year ended September 30,
1998. The increase is attributable to hiring of additional staff and to higher
compensation.
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LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, the Company had cash of approximately
$418,000 and total current assets of approximately $1,085,000 and total current
liabilities of $840,000.
The Company had a net loss of approximately $2,766,000 for the year
ended September 30, 1999 and negative operating cash flow of approximately
$2,187,000. The Company's negative cash flow for the year was funded by proceeds
from private placements of the Company's common stock.
On September 30, 1999, the capital resources available to the Company
were not adequate to finance the Company's activities for the quarter ending
December 31, 1999. Pursuant to a loan agreement with eB2B, the Company has
received an aggregate amount of $2,000,000 as of December 29, 1999. Management
expects that the Company's cash flow will be sufficient to last through June 30,
2000, by which time the Company anticipates having consummated the merger with
eB2B. If the merger is not consummated, or if the cash available before the
consummation of the merger is insufficient to meet the Company's needs, the
Company will need to conduct additional financing activities. There can be no
assurance that such financing activities will be successful.
On December 3, 1998, the Company closed on a second private placement
of Series A 6% convertible preferred stock with The Shaar Fund, Ltd. In this
second private placement, The Shaar Fund, Ltd. purchased 625 additional shares
of the Company's Series A 6% convertible preferred stock and an additional
50,000 common stock purchase warrants with a term of three (3) years and an
exercise price of $6.00 for an aggregate price of $500,000. The Company received
net proceeds of approximately $415,000.
On February 16, 1999, the Company completed a private placement to The
Shaar Fund, Ltd. of 500 shares of the Company's Series B 6% convertible
preferred stock and 45,000 common stock purchase warrants. The total offering
price was $500,000, and the Company received net proceeds of approximately
$375,000. Trautman Kramer & Company Incorporated, acting as placement agent for
the private placement, received a fee of $50,000 and additional compensation of
50,000 common stock purchase warrants exercisable at $7.00 per share.
On April 26, 1999, the Company completed a private placement to
Cranshire Capital, L.P. and Keeway Investments, Ltd. of 235,295 shares of the
Company's common stock. The total offering price was $1,000,000 and the Company
received net proceeds of approximately $940,000.
On May 12, 1999, the Company completed a second private placement of
the Series B 6% convertible preferred stock to The Shaar Fund, Ltd. This private
placement included 1,000 shares of the Company's Series B 6% convertible
preferred stock and 90,000 common stock purchase warrants for an aggregate price
of $1,000,000. The Company received net proceeds of $750,000 and used the
proceeds for general operating expenses.
Some of the statements under "Management's Discussion and Analysis or
Plan of Operation," "Business" and elsewhere in this proxy statement/prospectus
constitute forward-looking statements. These statements involve known and
unknown risks, uncertainties and other factors that may cause the Company's
actual results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by such forward-looking statements. In some
cases, you can identify forward-looking statements by terminology such as "may,"
"will," "should," "could," "expects," "plans," "intends," "anticipates,"
"believes," "thinks," "estimates," "predicts," "potential," or "continue" or the
negative of such terms and other comparable terminology.
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INFORMATION ABOUT eB2B
GENERAL
eB2B is an Internet-based business-to-business service provider
offering manufacturers and retailers the capability to conduct electronic
commerce transactions utilizing the Internet. eB2B's proprietary Internet-based
technology solutions enable business-to-business transactions on a
pay-per-transaction basis.
eB2B's business strategy is to use the Internet to develop electronic
commerce trading channels within specific industries and industry segments that
will provide automation of product procurement and transaction management
between manufacturers and retailers. eB2B believes that Internet-based
business-to-business e-commerce is poised for rapid growth and is expected to
represent a significantly larger opportunity than business-to-consumer or
person-to-person e-commerce, due to the long-term, recurring nature of
business-to-business relationships. Since business transactions between
manufacturers and retailers are typically recurring and non-discretionary,
the average order size and lifetime value of a business-to-business e-commerce
relationship is typically greater than that of a business-to-consumer e-commerce
relationship.
eB2B believes that its target markets - manufacturers and retailers
that would use eB2B's network trading channels - consist of approximately
1,401,800 retailers and 105,000 manufacturers processing approximately 1.3
trillion transactions annually. eB2B projects that with a market penetration
rate of 2.2% for retailers and 0.4% for manufacturers, it can secure
approximately 31,000 retailers and 400 manufacturers within a 5 year period, and
generate approximately 285 million transactions per year. As eB2B's revenues
will be derived from fees charged to manufacturers for each transaction
processed, the more transactions eB2B processes the greater its revenues.
However, there can be no assurance that eB2B will be able to process enough
transactions to achieve profitability or that eB2B can achieve the required
penetration rate in any market.
U.S. MARKET FOR eB2B'S TARGETED MARKETS*
<TABLE>
<CAPTION>
Manufacturers Retailers
------------- ---------
<S> <C> <C>
Sporting Goods & Recreational Retailers 2,400 155,000
Specialty Retailers 10,700 142,500
Home Furnishings Stores 9,400 156,600
Apparel & Accessory Stores 22,200 137,000
Food and Food Products 9,000 288,000
Eating & Drinking Places 24,600 433,700
Miscellaneous Retailers 26,700 89,000
-------- ---------
Total 105,000 1,401,800
</TABLE>
*Data extracted from U.S. Department of Commerce, Bureau of Census
using eB2B's criteria
eB2B'S SOLUTION
eB2B provides software and services to the e-commerce
business-to-business market. eB2B's network is a secure, Internet-based purchase
and sales channel that enables manufacturers and retailers,
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from a variety of industries, to buy and sell goods from one another
efficiently. eB2B believes its technology gives eB2B sustainable competitive
advantages in cost, quality and functionality.
eB2B believes that the network trading channels will provide the
following advantages to retailers:
online, real-time access to manufacturers' software systems through
a system that ensures the retailer of having the most accurate and
up-to-date information possible;
manufacturers can customize the data and services available to each
individual retailer on the system;
substantially more convenient and efficient ordering
improved product information;
more reliable status of order information and timing of shipments
faster delivery;
greater order accuracy;
lower inventory carrying costs that result in lower transaction;
and
processing costs and greater accounting and data entry efficiency.
eB2B believes that the network trading channels will provide the
following advantages to manufacturers:
significant reduction in order processing costs;
increased inventory turnover;
reduced customer service costs; and
decreased order-to-delivery time.
ELECTRONIC NETWORK TRADING CHANNELS
eB2B's network trading channels are a simplified and cost efficient
extension of electronic data interchange (EDI) systems. Current EDI systems
allow buyers and sellers to conduct transactions, electronically and at set
prices, between each other across an expensive proprietary network. Each side to
the transaction is required to purchase expensive software and hardware
specifically designed for the applicable EDI system. Transactions are
standardized transmissions that do not allow for deviations once the initial
computer format is set. Small to medium-sized retailers generally lack access to
the EDI systems that larger retailers utilize because of the significant capital
expenditures required for the hardware and software. eB2B believes that most
current EDI systems are antiquated, do not utilize the current Internet-based
technologies and are more expensive to use and build than Internet-based
systems.
The network trading channels allow manufacturers and retailers within a
market to obtain product information, perform transactions and otherwise allow
interaction with each other over the Internet. eB2B believes that as more
manufacturers and retailers are drawn to the network trading channels, a
networking effect should develop, where the value to each manufacturer in the
network increases with the addition of each new retailer, and the value to each
retailer increases with the addition of each new manufacturer.
eB2B's network trading channels provide retailers with a form of
on-line, real-time purchase ordering capability and inventory management access
to manufacturers' software systems. Many of today's business-to-business
e-commerce solutions must be integrated with an manufacturer's existing software
systems, a process that can be complex, time-consuming and expensive.
Manufacturers' personnel must be trained to use the new software. Consequently,
selection and implementation of present business-to-business e-commerce
solutions represents a significant commitment by the manufacturer, and the costs
of switching solutions are high.
eB2B believes that its business-to-business e-commerce solutions can be
inexpensively integrated into a manufacturers'
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particular software system. By providing such integration, a manufacturer's
personnel would not have to learn a new computer system and a manufacturer can
maintain its existing software system. A retailer utilizing eB2B's solution will
have the ability to purchase products at any time, 24 hours a day, 7 days a
week, by using their current Internet browser and without having to learn a new
customized program.
Currently, eB2B operates two network trading channels in the sporting
goods market. The "eB2B Team Sports Network" was launched in June 1999 with
retailer Team Athletic Goods (TAG). TAG has set up approximately 250 of its
retail member locations on the new network trading channel. Three major
manufacturers have enrolled in the eB2B Team Sports Network, Cramer Products,
Twin City Knitting Mills and Marshall-Browning. In addition, the TAG catalog
will be available online and accessible by the TAG retailers.
The "eB2B Golf Network" was launched in July 1999. eB2B Golf Network
has enrolled approximately 50 pro shops located in the state of Minnesota who
are members of the Professional Golfers' Association (PGA). Wilson Sporting
Goods has enrolled and provides its golf products online to each of these golf
pro shops.
eB2B intends to follow the implementation of the golf and team apparel
networks with the creation of network trading channels in other markets that are
characterized by large manufacturers interacting with a large numbers of
retailers.
STRATEGY
Strategic Partnerships
eB2B's strategy to achieve heavy penetration in each targeted market,
is to attract the buying power of large retailer buying and trading
organizations and to attract leading manufactures to use eB2B's solutions. eB2B
believes that alliances with technology partners, marketing partners, and
retailer purchasing organizations in each of the targeted markets should allow
eB2B to capture market share ahead of the competition.
eB2B has initiated negotiations with a number of retailer purchasing
organizations whose members consist of approximately 10,000 individual
retailers. One of these organizations has signed an engagement letter to enroll
in a network trading channel. Each industry purchasing organization consists of
a large number of retailers. eB2B believes that these purchasing organizations
will refer eB2B to manufacturers and that these manufacturers will enroll in a
Network Trading Channel.
Growth Strategy
eB2B has identified a number of markets within which it intends to
launch network trading channels during the next twenty-four months. Each network
trading channel will be targeted at markets characterized by a large number of
buyers and sellers, a high degree of fragmentation among buyers, sellers or
both, significant dependence on information exchange, large transaction volume
and user acceptance of the Internet. These markets include: apparel, home
furnishings, specialty retail, food and beverage, eating and drinking
establishments, and mass retailers. Two network trading channels are intended to
be launched in each market. After the successful launch of two network trading
channels within the targeted markets, eB2B will evaluate and select additional
network trading channels and additional markets.
TECHNOLOGY
At the core of eB2B's technology is a proprietary Internet-based
electronic commerce capability licensed by eB2B called Enterprise Commerce
Solution ("ECS"). This network software runs on eB2B's servers in New York, New
York and integrates with the technologies of eB2B's technology partners. The
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software is an enterprise-wide Internet based product that gives manufacturers
and retailers access to each other's internal software systems.
eB2B's technology package includes both proprietary and non-proprietary
elements. On the front end, ECS integrates a retailer's accounting systems and a
retailer purchasing organization's tracking systems through any secure Internet
browser. On the back end, ECS ties into the manufacturer's software systems,
various EDI value added networks (VANS) and other logistics and freight tracking
modules in the supply chain. By connecting the systems of all of the
participants in the network trading channel, ECS integrates their systems into
an electronic marketplace.
The retailers' interface with ECS is powered by InterWorld
Corporation's "Commerce Exchange" software, which has been extensively modified
for eB2B to accommodate the needs of the network trading channels. eB2B believes
that Commerce Exchange is a highly configurable, scalable, reliable and secure
application server platform, ideal for deploying sophisticated e-commerce
solutions. It is designed to integrate with a wide variety of hardware,
operating systems, databases, and business applications.
The back end's communications capabilities are based on the messaging
software of Sterling Commerce Inc. ("Sterling"). Furthermore, Sterling's
expertise with EDI systems will allow eB2B to easily integrate the software
systems of participating retailers and manufacturers with ECS.
The diagram of the Network Trading Channel configuration is as follows:
[CHART]
ECS can bring together retailer support, product merchandising, shipping,
logistics, order processing, manufacturing systems, financial and asset
management in a real time environment.
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TECHNOLOGY PARTNERS
Currently, eB2B has working arrangements with three corporate partners that
assist with such functions as sales, marketing, technology development and
integration of eB2B's services with manufacturers' and retailers' software
systems: Sterling Commerce, Inc. (Sterling), InterWorld Corporation
(InterWorld), and Netlan Enterprises, Inc. (Netlan).
Sterling is a supplier of electronic commerce products and services with
over 20 years of experience in assisting Fortune 500 companies with their EDI
and software needs. Sterling and eB2B have agreed to a pilot Electronic Commerce
Services Partnership Agreement for six months beginning October 8, 1999. eB2B
will become the first provider of web enabled EDI services to Sterling's
customers using their EDI value added network. eB2B will re-market Sterling's
COMMERCE: Network in conjunction with its own electronic commerce products for
manufacturers that require value added network services. Sterling will dedicate
ten (10) salespeople throughout the United States to sell eB2B's product
exclusively, in exchange for a percentage of the transaction fee charged to
manufacturers by eB2B. Sterling will also provide eB2B with manufacturers' UPC
catalog data to load into the network trading channels, use of their value added
network, marketing resources, sales support, and financial incentives to bring
manufacturers to their COMMERCE: Network.
InterWorld provides enterprise-class Internet commerce software for sales,
order management, fulfillment and customer service applications. InterWorld is
providing the software that the retailers will use to place their orders through
the Internet to manufacturers. InterWorld has recently been recognized by
Gartner Group's Dataquest as having the highest market share in the
business-to-business, sell-side Internet commerce applications segment. eB2B has
signed a licensing agreement for the use of InterWorld's Commerce Exchange
software, in addition to contracting with InterWorld's Professional Services
Group to enhance the network trading channel's functionality.
Netlan provides web development, network development, end-user training,
and technical support services to eB2B. In addition, Netlan will resell eB2B's
product and services to manufacturers and retailers. Netlan is providing hosting
services for the first two Network Trading Channels launched by eB2B.
COMPETITION
Business-to-business e-commerce is a new and rapidly evolving industry,
competition is intense and expected to increase significantly in the future.
Currently, business-to-business electronic commerce capabilities are fragmented
and primarily used in the supplier to manufacturer chain. eB2B believes that
very few networks exist where the manufacturer's finished goods inventory is
being accessed by a retailer procurement system. eB2B believes that it provides
a unique service in the marketplace, where a small to medium sized retailer can
process transactions with multiple manufacturers. However, eB2B believes that
competition may develop from four areas: EDI/electronic commerce companies,
technology/software development companies, retailer purchasing organizations,
and leading industry manufacturers.
The EDI value added networks and e-commerce companies have provided the
basis for the electronic commerce expansion currently taking place. However,
many have only recently started to develop and market products that address the
Internet. Many of the products being offered are extensions of existing
products, allowing companies to offer Internet products. However, frequently
these products lack the flexibility available through Internet-based e-commerce.
Some companies provide the software and services that would allow groups to
create trading networks similar to eB2B's trading networks. However, these
companies do not currently organize the networks.
The software development companies have developed products which fall into
three broad categories. First, the packaged application, which provides
out-of-the-box readiness, but with limited functionality. Second, the
application toolkit, which provides base functionality with easy access to make
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modifications. Finally, hosted services, which provides the capability on an
outsourced basis. All of these alternatives may present competition for eB2B, in
that each provides an alternative product for an eB2B competitor to create its
own business-to-business marketplace.
The retailer purchasing organizations also present competition to eB2B in
the electronic commerce market. Many of these organizations have established an
online presence that services their community with content and general
information. However, many of these organizations are relatively small
enterprises that are unable to purchase expensive or cumbersome electronic
commerce systems.
Manufacturers may enter into the business-to-business market either on
their own or by partnering with other large manufacturers. Additionally,
manufacturers may attempt to contact consumers directly, thus bypassing
retailers. Many leading manufacturers have, in fact, commenced offering products
directly to the consumer. These offerings compete indirectly with the network
trading channels. As more manufacturers utilize the business-to-consumer
transactions, there is less need for the business-to-business marketplace.
TRADEMARKS
eB2B's principal trademark is "eB2B", for which eB2B is seeking a federal
registration. There can be no assurance that a trademark will be granted by the
United States Patent and Trademark Office. If a trademark is not obtained than
there can be no assurance that the mark can be adequately protected against any
third party infringement, which could adversely affect eB2B's business.
RECENT DEVELOPMENTS
On January 7, 2000, eB2B and Netlan Enterprises, Inc. ("Netlan") entered
into a letter of intent under which Netlan has agreed to merge into eB2B (or a
subsidiary of eB2B), subject to certain conditions. It is contemplated that this
proposed merger (the "Netlan Merger") will be completed prior to the merger of
eB2B into the Company. However, there can be no assurance that the Netlan Merger
will be completed during such time period or that it will ever be completed.
The letter of intent provides that Netlan's stockholders will receive an
aggregate of 125,000 shares of eB2B common stock in exchange for all of the
outstanding Netlan common stock. These shares will be exchanged for 325,000
shares of Company common stock upon the completion of the merger of eB2B and the
Company (200,000 shares of which will be earned by the sellers over a one year
period, and accordingly, the value of the 200,000 shares will be charged to
compensation expense). The boards of directors of each of eB2B and the Company
have approved the Netlan Merger. In addition, eB2B and the Company have agreed
that the shares to be issued in connection with the Netlan Merger will not
alter the exchange ratio applicable to the merger of eB2B and the Company.
The letter of intent also provides that if either party withdraws or
terminates from the Netlan Merger other than by mutual consent (and other than
if eB2B withdraws due to Netlan's failure to fulfill any condition to eB2B's
obligation to complete the transaction) then the withdrawing party will pay to
the other party the sum of $250,000.
EXECUTIVE COMPENSATION
The table below provides information concerning the annual and long-term
compensation earned or paid to eB2B's Chief Executive Officer and to each of its
most highly compensated executive officers other than the Chief Executive
Officer whose total annual salary and bonus exceeded $100,000, for services
rendered to eB2B during the year ended December 31, 1999.
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<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Annual Compensation Long Term Compensation
- ---------------------------------------------------------------------------------------------------------------------
Name Year Salary (1) Bonus Options Awarded Securities underlying Options
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Peter J. Fiorillo 1999 $195,000 $50,000 750,000 (2)(3) 750,000
- ---------------------------------------------------------------------------------------------------------------------
Joseph Bentley 1999 $115,000 $20,000 100,000 (4) 100,000
- ---------------------------------------------------------------------------------------------------------------------
Kevin Hayes 1999 $125,000 $25,000 100,000 (4) 100,000
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) From January 1, 1999 to September 30, 1999, eB2B elected, in accordance with
the right it was granted under each employment agreement, to accrue the base
salary for each of the executive officers of eB2B. In January 2000, the accrued
salary for each officer (which represented approximately seventy-five percent
(75%) of the total salary for each officer) was converted at the election of the
officers, into common stock of eB2B at $5.50 per share, the fair market value of
the common stock on the date of conversion.
(2) Includes 250,000 options to purchase shares of common stock of eB2B granted
under an executive performance equity plan between eB2B and the executive
officer. The options vested during the 1999 calendar year, upon eB2B's
achievement of the performance based goals set by the Board of Directors of
eB2B.
(3) Includes 500,000 options that were granted to Mr. Fiorillo by eB2B, which
options will vest immediately upon the completion of the merger with the
Company.
(4) Includes 100,000 options to purchase shares of common stock of eB2B granted
under an executive performance equity plan between eB2B and the executive
officer. The options vested during the 1999 calendar year, upon eB2B's
achievement of the performance based goals set by the Board of Directors of
eB2B.
OPTION GRANTS
The following table provides information regarding options [and warrants]
issued during the year ended December 31, 1999 to executive officers of eB2B.
Option Grants in Last Fiscal Year
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
Individual Grants
- ----------------------------------------------------------------------------------------------------
Name Number of Percent of Total Exercise Expiration Date
Securities Options Granted to Price per
Underlying Options All Employees in Share
Granted Fiscal Year
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Peter J. Fiorillo(1) 250,000 20% $0.50 August 15, 2004
- ----------------------------------------------------------------------------------------------------
Peter J. Fiorillo(2) 500,000 39% $5.50 November 9, 2004
- ----------------------------------------------------------------------------------------------------
Joseph Bentley(3) 100,000 8% $0.50 August 15, 2004
- ----------------------------------------------------------------------------------------------------
Kevin Hayes(3) 100,000 8% $0.50 August 15, 2004
- ----------------------------------------------------------------------------------------------------
</TABLE>
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(1) Includes 250,000 options to purchase shares of common stock of eB2B granted
under an executive performance equity plan between eB2B and the executive
officer. The options vested during the 1999 calendar year, upon eB2B's
achievement of the performance based goals set by the Board of Directors.
(2) Includes 500,000 options that were granted to Mr. Fiorillo by the board of
directors of eB2B, which options will vest immediately upon the completion of
the merger with the Company.
(3) Includes 100,000 options to purchase shares of common stock of eB2B granted
under an executive performance equity plan between eB2B and the executive
officer. The options vested during the 1999 calendar year, upon eB2B's
achievement of the performance based goals set by the Board of Directors.
EMPLOYMENT AGREEMENTS
After the merger, the Company will have employment agreements with the
following executive officers: Peter J. Fiorillo, Joseph Bentley, Kevin Hayes and
Steven L. Vanechanos, Jr. The terms of Mr. Vanechanos' employment agreement are
summarized above under "Terms of the Merger Agreement--Conditions to the
Consummation of the Merger".
Mr. Fiorillo's employment agreement, dated December 1, 1998, provides for
a base salary of $195,000 per year. The base salary will increase by at least
five percent (5%) per year. Mr. Fiorillo is also entitled to an annual bonus of
at least $50,000 per year. The term of employment extends until December 31,
2002, however, Mr. Fiorillo's employment may be terminated by Mr. Fiorillo upon
60 days' notice or for cause, and may be terminated by the Company with or
without cause. In the event employment is terminated by Mr. Fiorillo for
cause, is terminated by the Company without cause, or is terminated as a result
of Mr. Fiorillo's death, then the Company is required to pay Mr. Fiorillo a
severance payment and all of Mr. Fiorillo's options would immediately vest. The
severance payment is the greater of (1) 400% of the remaining compensation due
under the agreement or (2) 250% of the highest annual compensation received
during the preceding three years. The employment agreement also provides that
Mr. Fiorillo has the right to terminate his employment upon a change of control
and, in such case, receive the foregoing severance payment. However, as a
condition to the merger, Mr. Fiorillo has waived his rights with respect to a
change of control.
Mr. Bentley's employment agreement, dated December 1, 1998, provides for a
base salary of $115,000 per year. The base salary will increase by at least five
percent (5%) per year. Mr. Bentley is also entitled to an annual bonus of at
least $20,000 per year. The term of employment extends until December 31, 2001,
however, Mr. Bentley's employment may be terminated by Mr. Bentley upon 60 days'
notice or for cause, and may be terminated by the Company with or without cause.
In the event his employment is
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terminated by Mr. Bentley for cause, is terminated by the Company without cause,
or is terminated as a result of Mr. Bentley's death, then the Company is
required to pay Mr. Bentley a severance payment and all of Mr. Bentley's options
would immediately vest. The severance payment is the greater of (1) 300% of the
remaining compensation due under the agreement or (2) 200% of the highest annual
compensation received during the preceding three years. The employment agreement
also provides that Mr. Bentley has the right to terminate his employment upon a
change of control and, in such case, receive the foregoing severance payment.
However, as a condition to the merger, Mr. Bentley has waived his rights with
respect to a change of control.
Mr. Hayes's employment agreement, dated December 1, 1998, provides for a
base salary of $125,000 per year. The base salary will increase by at least five
percent (5%) per year. Mr. Hayes is also entitled to an annual bonus of at least
$25,000 per year. The term of employment extends until December 31, 2001,
however, Mr. Hayes' employment may be terminated by Mr. Hayes upon 60 days'
notice or for cause, and may be terminated by the Company with or without cause.
In the event his employment is terminated by Mr. Hayes for cause, is terminated
by the Company without cause, or is terminated as a result of Mr. Hayes' death,
then the Company is required to pay Mr. Hayes a severance payment and all of Mr.
Hayes' options would immediately vest. The severance payment is the greater of
(1) 300% of the remaining compensation due under the agreement or (2) 200% of
the highest annual compensation received during the preceding three years. The
employment agreement also provides that Mr. Hayes has the right to terminate his
employment upon a change of control and, in such case, receive the foregoing
severance payment. However, as a condition to the merger, Mr. Hayes has waived
his rights with respect to a change of control.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Michael S. Falk, a director of eB2B, is a principal and the Chief Executive
Officer of Commonwealth Associates, L.P. Under an agreement between Commonwealth
Associates, L.P. and eB2B, upon completion of the merger, Commonwealth
Associates, L.P. will receive a finder's fee equal to three percent (3%) of the
total number of shares to be received by eB2B stockholders in the merger. Under
an Agency Agreement between eB2B and Commonwealth Associates, L.P., until
October 2000, the Company would be required to provide Commonwealth Associates,
L.P. a right of first refusal to serve as manager, placement agent or investment
banker in connection with an offering of securities of up to $25 million. In
addition, in the event the Company is sold for cash or stock on or prior to
October 2004, Commonwealth Associates, L.P. would be entitled to a fee equal
to 1% of the consideration paid in such transaction.
Peter J. Fiorillo, Chief Executive Officer of eB2B and the designated Chief
Executive Officer of the Company after the merger, has been granted options to
purchase 500,000 shares of eB2B's common stock at an exercise price of $5.50.
These options will vest upon completion of the merger.
In December 1998, Joseph Bentley, Executive Vice President and a director
of eB2B, purchased on behalf of eB2B partially developed software at a price of
$86,000. In consideration of such purchase eB2B issued to Mr. Bentley a
promissory note for $86,000. As of November 1999, $6,000 had been repaid by eB2B
and the parties agreed to convert the remaining principal of the note, equal to
$80,000, into shares of eB2B common stock at a conversion price of $0.50 per
share.
FINANCIAL STATEMENTS OF eB2B
The audited balance sheet of eB2B as of December 31, 1998 and the related
statements of operations, stockholders' equity and cash flows for the period
from November 6, 1998 (date of inception) through December 31, 1998 and the
unaudited balance sheet of eB2B as of September 30, 1999 and the related
statements of operations, stockholders' equity (deficiency) and cash flows for
the nine month period ended September 30, 1999 are attached to this proxy
statement/prospectus as Appendix __.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF eB2B
Except for historical information, the discussion in this prospectus
contains forward-looking statements that involve risks and uncertainties. eB2B's
actual results could differ materially from those discussed in this prospectus.
Factors that could cause or contribute to these differences include, but are not
limited to, the risks discussed in the section entitled "Risk Factors" in this
prospectus. See "Special Note Regarding Forward-Looking Statements".
OVERVIEW
eB2B is an Internet-based business-to-business service provider allowing
manufacturers and retailers within specific industry and industry segments to
conduct cost effective transactions utilizing the Internet. We were incorporated
in November 1998, and launched our web site which continues to be developed, in
June 1999. For the period from inception to September 1999, our primary
activities consisted of raising capital, recruiting and training employees,
developing our business strategy, designing a business system to implement our
strategy, and developing business relationships with retailers and
manufacturers. Since launching our service, we have continued establishing
additional relationships with retailers and manufacturers, promoting our brand
name eB2B, and building a customer service operation. Our operating expenses
have increased significantly since inception and are expected to continue to
increase. This trend reflects the costs associated with our formation as well as
increased efforts to promote the eB2B brand, build market awareness, attract
customers, recruit personnel, and build our infrastructure. We must develop and
build our customer base, implement and successfully execute our business and
marketing strategy, continue to develop and enhance our transaction processing
systems, respond to competitive developments and attract, retain and motivate
quality personnel. Since our inception, we have incurred significant losses, and
as of September 30, 1999 we had an accumulated deficit of approximately $2.5
million. We believe that our success will depend on our ability to:
substantially increase the number of retailers and manufacturers
conducting transactions through our service;
realize repeat orders from a significant number of retailers and
manufacturers;
achieve favorable gross margins; and
rapidly expand and build out Network Trading Channels in new Vertical
Markets.
To meet these challenges, we intend to invest heavily in marketing and
promotion, infrastructure facilities, equipment, technology and personnel. As a
result, we expect to incur substantial operating losses for the foreseeable
future and the rate at which such losses will be incurred may increase
significantly from current levels. See "Risk Factors". In addition, our limited
operating history makes the prediction of future results of operations
difficult, and accordingly, we cannot assure you that we will achieve or
sustain revenue growth or profitability. See "Risk Factors".
RESULTS OF OPERATIONS FOR THE PERIOD FROM INCEPTION TO DECEMBER 31, 1998
NET SALES
We recognize revenue at the time our services are performed. We launched
our web site, which continues to develop, and commenced operations in October
1999. We therefore did not generate any net sales in 1998.
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OPERATING EXPENSES
SELLING, GENERAL AND ADMINISTRATIVE
General and administrative expenses include costs related to consulting and
legal services. General and administrative expenses were approximately $55,000
for the period from inception to December 31, 1998. We expect general and
administrative expenses to increase as we expand our staff and incur additional
costs to support the expected growth of our business.
SOFTWARE DEVELOPMENT. Software development expense was $53,000 for the period
from inception to December 31, 1998, representing amortization of capitalized
software development costs.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
NET SALES
We did not recognize any revenue during the nine months ended September 30,
1999.
OPERATING EXPENSES
SELLING, GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased to approximately $1.9 million for the nine months ended September 30,
1999 from $55,000 from inception to December 31, 1998. The increase in general
and administrative expenses was attributable to an increase in payroll and
related expenses due to increased staffing, stock based compensation expense,
consulting and professional fees related to legal, marketing and finance, and
rent and facility charges due to additional corporate office space.
STOCK BASED COMPENSATION. In connection with the granting and vesting of certain
stock options during 1999, we recorded stock based compensation expense of
$675,000, representing the difference between the fair market value of eB2B's
common stock on the date of vesting, and the option exercise price as determined
by our Board of Directors on the date of grant. The stock based compensation
expense is attributable to the granting and vesting of 450,000 options to the
founders in accordance with executive performance equity agreements executed
between each founder and eB2B in 1998.
SOFTWARE DEVELOPMENT. Software development expenses increased to $548,000 in the
nine months ended September 30, 1999 from $53,000 from inception to December 31,
1998. This increase was primarily attributable to depreciation relating to the
software that was capitalized in 1998. eB2B purchased and developed new software
containing additional features and functionality during the nine months ending
September 30, 1999 and capitalized those costs in 1999.
LIQUIDITY AND CAPITAL RESOURCES.
Since inception, we have financed our operations primarily through private
sales of common stock and preferred stock, which through September 30, 1999
totaled $475,000.
Net cash used in operating activities was approximately $165,000 in the
nine months ended September 30, 1999 and $5,000 in the period from inception
through 1998. Net cash used in operating activities for each of these periods
primarily consisted of net losses, partially offset by accrued liabilities and
depreciation and amortization.
Net cash used in investing activities was approximately $240,000 in the
nine months ended September 30, 1999, and no cash was used in the period from
inception through December 31, 1998. Net cash used in investing activities for
the nine months ending September 30, 1999 primarily consisted of purchases of
software, computer equipment and furniture and fixtures.
Net cash provided by financing activities was approximately $457,000 in the
nine months ended September 30, 1999, and $15,000 in the period from inception
through 1998. Net cash provided by financing activities during the nine months
ended September 30, 1999 primarily consisted of proceeds from the issuance of
common stock and preferred stock.
In September 1999, eB2B executed a letter of intent with an investment
banking firm to raise capital in a private placement offering of eB2B's
securities. In October 1999, in anticipation of the private placement offering,
the investment banking firm arranged for $1,000,000 in bridge financing for eB2B
until the private placement offering commenced. The bridge financing consisted
of convertible notes and warrants to purchase shares of common stock of eB2B.
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In December 1999 the Company concluded its private placement offering and
received gross proceeds of approximately $33 million and issued approximately
3.3 million shares of Series B Preferred Stock and approximately 1.5 million
warrants to purchase shares of common stock.
eB2B anticipates that with its existing available capital resources, and
the net proceeds of the private placement offering it concluded in December
1999, it will be sufficient to meet anticipated working capital and capital
expenditure requirements for at least the next twelve months. Our future capital
needs will be highly dependent on the number of additional Network Trading
Channels we launch, the timing of these launches and the success once they are
launched. Thus, any projections of future cash needs and cash flows are subject
to substantial uncertainty. If cash generated from operations is insufficient to
satisfy our liquidity requirements, we may seek to sell additional equity or
debt securities, obtain a line of credit or curtail our expansion plans. In
addition, if we issue additional securities to raise funds, those securities may
have rights, preferences or privileges senior to those of the rights of our
common stock and our stockholders may experience additional dilution. We cannot
be certain that additional financing will be available to us on favorable terms
when required, or if at all, to permit us to continue with current operations.
Except for historical information, the discussion in this prospectus
contains forward-looking statements that involve risks and uncertainties. eB2B's
actual results could differ materially from those discussed in this prospectus.
Factors that could cause or contribute to these differences include, but are not
limited to, the risks discussed in the section entitled "Risk Factors" in this
prospectus.
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PROPOSAL NUMBER TWO
PROPOSAL TO CHANGE THE STATE OF
INCORPORATION OF THE COMPANY TO DELAWARE
PRINCIPAL REASONS FOR THE REINCORPORATION PROPOSAL
The board of directors believes that the best interests of the Company and
its stockholders will be served by changing the Company's state of incorporation
from New Jersey to Delaware. At the time of the Company's incorporation in New
Jersey in 1979 under the name of Seahawk Oil International, Inc., the New Jersey
Business Corporation Act was deemed to be adequate for the conduct of the
Company's business, in part because of the limited business and basic
organizational features of the Company at that time. Over the years, the
expansion of the Company's business has increased its need for a more
sophisticated corporate structure and a more flexible and current regulatory
foundation.
For many years, Delaware has followed a policy of encouraging incorporation
in that state and, in furtherance of that policy, has adopted comprehensive,
modern and adaptable corporation laws which are periodically updated and revised
to meet changing business needs. Delaware courts have developed considerable
expertise in dealing with corporate legal issues and a substantial body of case
law has developed construing Delaware law and establishing public policy with
respect to Delaware corporations. The relative clarity and predictability of
Delaware corporate law presented in the numerous precedents decided by the
Delaware courts should be of great advantage to the Company by allowing it to
make corporate decisions and take actions with increased confidence of what the
outcome and consequences of those decisions and actions will be under the
General Corporation Law of the State of Delaware. Further, the Delaware
Secretary of State's office is staffed with experienced regulators recognized
for their efficient and business-sensitive approach to administering the state's
business laws and regulations. As a result of these and other factors, many
major corporations have chosen Delaware for their initial domicile or have
subsequently reincorporated in Delaware in a manner similar to that proposed by
the Company.
For the foregoing reasons, the board of directors believes that the
activities of the Company, both present and contemplated, can be better managed
if the Company is governed by Delaware law. It should be noted, however, that
stockholders in some instances have fewer rights and hence less protection under
Delaware law than under New Jersey law. See the discussion under the heading
"Comparison of Stockholders' Rights under New Jersey law and Delaware law,"
below.
The Company's board of directors has approved, subject to stockholder
approval, a proposal ("Reincorporation Proposal") to change the Company's state
of incorporation from New Jersey to Delaware by means of a merger (the
"Reincorporation Merger") of the Company with and into a newly formed,
wholly-owned subsidiary of the Company that has been incorporated under Delaware
law ("Newco"). The principal office of Newco will be 271 Route 46 West, Building
F, Suite 209, Fairfield, New Jersey 07004, telephone (973) 276-3101. If the
stockholders approve the Reincorporation Proposal, Newco will be the surviving
corporation of the Reincorporation Merger. A consequence of the Reincorporation
Merger will be a change in the law applicable to the Company's corporate affairs
from New Jersey law to Delaware law which will also result in certain
differences in stockholders' rights.
The following discussion summarizes certain aspects of the Reincorporation
Proposal, including certain material differences between New Jersey law and
Delaware law. This summary does not purport to be a complete description of the
Reincorporation Proposal or the differences between stockholders' rights under
New Jersey law and Delaware law and is qualified in its entirety by reference to
(i) the Agreement and Plan of Merger, between the Company and Newco (the
"Reincorporation Merger Agreement"), (ii) the certificate of incorporation of
Newco attached hereto as Appendix C, and (iii) the bylaws of Newco
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attached hereto as Appendix D. Copies of the Company's certificate of
incorporation, as amended, and bylaws are available for inspection at the
Company's principal office, and copies will be sent to stockholders on request,
without charge.
Approval of the Reincorporation Proposal by the Company's stockholders will
also constitute approval of the Reincorporation Merger and the Reincorporation
Merger Agreement, as well as other matters included in the Reincorporation
Proposal described in this proxy statement/prospectus. Pursuant to the terms of
the Reincorporation Merger Agreement, Newco's certificate of incorporation and
bylaws will replace the Company's certificate and the Company's bylaws as the
charter documents affecting corporate governance and stockholders' rights. For a
description of the differences between the Company's certificate of
incorporation and bylaws and Newco's certificate of incorporation and bylaws,
see "Comparison of Certain Charter Document Provisions," below.
The approval of the Reincorporation Proposal will affect certain rights of
the Company's stockholders. Accordingly, stockholders are urged to carefully
read this proxy statement/prospectus and the appendices.
PRINCIPAL FEATURES OF THE REINCORPORATION PROPOSAL
Upon the consummation of the Reincorporation Merger, the separate existence
of the Company will cease and Newco, to the extent permitted by law, will
succeed to all business, properties, assets and liabilities of the Company. Each
share of common stock of the Company issued and outstanding immediately prior to
the consummation of the merger will, by virtue of the Reincorporation Merger, be
converted into one share of common stock of Newco. Upon the consummation of the
merger, certificates which immediately prior to the consummation of the merger
represented common stock of the Company, including common stock held in the
treasury of the Company, will be deemed for all purposes to represent the same
number of shares of Newco common stock. IT WILL NOT BE NECESSARY FOR
STOCKHOLDERS TO EXCHANGE THEIR EXISTING STOCK CERTIFICATES FOR STOCK
CERTIFICATES OF NEWCO.
Approval of the Reincorporation Proposal will not result in any change in
the business, management, assets or liabilities of the Company. The directors
and officers of the Company will be the directors of Newco following the
Reincorporation Merger. Following the consummation of the Reincorporation
Merger, the Newco common stock will be listed on the National Association of
Securities Dealers Over-The-Counter Bulletin Board, where the common stock of
the Company is currently listed. The bulletin board will consider the delivery
of existing stock certificates representing common stock of the Company as
constituting "good delivery" of shares of the Newco common stock in transactions
subsequent to the merger.
Pursuant to the terms of the Reincorporation Merger Agreement, each option
and warrant to purchase common stock of the Company outstanding immediately
prior to the consummation of the Reincorporation Merger will become an option or
warrant to purchase Newco common stock, subject to the same terms and conditions
as set forth in the Company's 1997 Employee Stock Option Plan, 1997 Stock Option
Plan for Outside Directors, or other agreement pursuant to which such option or
warrant was granted. All employee benefit plans and other agreements and
arrangements of the Company will be continued by Newco upon the same terms and
subject to the same conditions as currently in effect.
In accordance with generally accepted accounting principles, the Company
expects that the Reincorporation Merger will be accounted for as a
reorganization of entities under common control at historical cost in a manner
similar to a pooling of interests. Under this method, the assets and liabilities
of the combining entities will be carried forward at their recorded historical
book values.
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COMPARISON OF CERTAIN CHARTER PROVISIONS
Newco's certificate of incorporation and bylaws are different from the
Company's certificate of incorporation and bylaws. Some differences are
primarily the result of differences between Delaware law and New Jersey law.
Significant provisions and certain important similarities and differences
are discussed below.
CAPITAL STOCK
Both Delaware and New Jersey law provide that a corporation has the power
to issue the number of shares stated in its certificate of incorporation. Such
shares may consist of one or more classes and any class may be divided into one
or more series. Each class or classes and series may be with or without par
value and have such designation and relative voting, dividend, liquidation and
other rights, preferences and limitations as stated in the certificate of
incorporation.
The authorized capital stock of the Company currently consists of
50,000,000 shares of the Company's common stock, and 5,000,000 shares of
preferred stock, having such par value as the board of directors determines from
time to time.
The capitalization of Newco will consist of 250,000,000 shares of common
stock, and 10,000,000 shares of preferred stock.
New Jersey law and Delaware law are similar with respect to the manner in
which directors may fix the terms of a series of preferred stock and the terms
which may be so fixed. Under both Delaware law and New Jersey law, the
certificate of incorporation may authorize the directors to fix the terms of a
series of preferred stock and/or provide for different voting rights between
series of preferred stock. Both the Company's certificate of incorporation and
the Newco certificate of incorporation permit the board of directors to exercise
broad discretion in fixing the terms and/or voting rights of a series of
preferred stock.
SERIES A PREFERRED STOCK
The Newco certificate of incorporation authorizes 2,000 shares of preferred
stock designated as "Series A Preferred Stock." The board of directors of Newco
will have the authority to increase or decrease the number of authorized shares
of Series A Preferred Stock. The material terms of the Series A Preferred Stock
are as follows:
Dividends. Holders of Series A Preferred Stock are entitled to dividends
only to the extent that Newco declares or pays a dividend on its common stock.
Liquidation Preference. Upon any liquidation, dissolution or winding up of
Newco, the holders of Series A Preferred Stock shall be entitled to payment of
$1,000 per share plus an amount equal to any accrued and unpaid dividends,
before any distribution is made to the holders of common stock of Newco. If the
assets to be distributed are insufficient to permit such payment, then the
entire assets to be so distributed shall be distributed ratably among the
holders of Series A Preferred Stock.
Optional Conversion. A holder of shares of Series A Preferred Stock may
convert any or all of such shares, at the holder's option at any time, into 500
shares of common stock of Newco at a conversion price of $2.00 per share (or the
conversion price as last adjusted and then in effect, as described below).
Anti-dilution Protection. If Newco issues or sells any shares of its common
stock for consideration less than the conversion price then in effect, the
conversion price shall be adjusted by dividing (i) the sum of (a) the number of
shares of common stock outstanding prior to such sale (including all shares
issuable upon conversion of the Series A Preferred Stock) multiplied by the then
existing conversion price and (b) the consideration received in such sale by
(ii) the number of shares of common
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stock outstanding after such sale (including all shares issuable upon conversion
of the Series A Preferred Stock). Similarly, if Newco issues other convertible
securities (other than options granted to employees, officers, directors,
consultants and/or vendors of Newco) with a conversion price less than the then
existing conversion price applicable to the Series A Preferred Stock, such
conversion price with be appropriately adjusted. If Newco shall complete an
underwritten public offering involving the sale of common stock at a price per
share of not less than $7.50 and providing proceeds of not less than $7,500,000,
then the Series A Preferred Stock shall be automatically converted into common
stock at the conversion price then in effect.
Voting Rights. On all matters submitted to a vote by the stockholders of
Newco, the holders of Series A Preferred Stock are entitled to one vote for each
share of common stock into which such share of Series A Preferred Stock is then
convertible.
SERIES B PREFERRED STOCK
The Newco certificate of incorporation authorizes 4,000,000 shares of
preferred stock designated as "Series B Preferred Stock." The material terms of
the Series B Preferred Stock are as follows:
Dividends. Holders of Series B Preferred Stock are entitled to dividends
only to the extent that Newco declares or pays a dividend on its common stock,
in which case such holders will receive an amount of dividends as if their
shares had been converted to common stock.
Liquidation Preference. Upon any liquidation, dissolution or winding up of
Newco, the holders of Series B Preferred Stock shall be entitled to payment of
$10 per share plus an amount equal to any accrued and unpaid dividends, before
any distribution is made to the holders of common stock of Newco. If the assets
to be distributed are insufficient to permit such payment, then the entire
assets to be so distributed shall be distributed ratably among the holders of
Series B Preferred Stock.
Ranking. Newco will not create or authorize any series of stock ranking
senior to, or pari passu with, the Series B Preferred Stock, without the
affirmative vote or the written consent of at least one-third of the outstanding
shares of Series B Preferred Stock.
Optional Conversion. A holder of shares of Series B Preferred Stock may
convert any or all of such shares, at the holder's option at any time, into a
number of shares of common stock of Newco equal to $10.00 per share divided by
$5.50 (subject to adjustment as described below).
Mandatory Conversion. The Series B Preferred Stock will automatically
convert into common stock upon a public offering of Newco's securities raising
gross proceeds in excess of $20 million or the completion of a private placement
in an amount of at least $20 million, provided, in either case that at the
closing of the public offering or private placement, Newco's market valuation is
at least $122.5 million (determined by multiplying the number of shares of
common stock and common stock equivalents by the per share offering price in the
public offering or private placement) and provided further that the per share
offering price is at least $13.75 (subject to adjustment).
Anti-dilution Protection. The Series B Preferred Stock will be protected
against dilution upon the occurrence of certain events, including but not
limited to: sales of shares of common stock for less than fair market value or
$5.50.
Voting Rights. On all matters submitted to a vote by the stockholders of
Newco, the holders of Series B Preferred Stock are entitled to one vote for each
share of common stock into which such share of Series B Preferred Stock is then
convertible.
Right to Elect Director. The holders of the Series B Preferred Stock,
voting as a class, shall be entitled to elect one (1) director of Newco (and the
number of directors constituting the board of directors shall be seven (7)).
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PREEMPTIVE RIGHTS
Under New Jersey law and Delaware law, stockholders have preemptive rights
to purchase shares only if the certificate of incorporation so provides. The
Company's certificate of incorporation and the Newco certificate of
incorporation do not provide stockholders with preemptive rights.
Provisions governing management, stockholder voting, voting control, and
indemnification that were once in the Company's certificate of incorporation are
not included in the Newco certificate of incorporation and, where applicable,
have been replaced with the relevant provisions below from Newco's bylaws.
BOARD OF DIRECTORS; COMMITTEES
Under New Jersey law, a board of directors may consist of one or more
members as provided in the bylaws and subject to any provision contained in the
certificate of incorporation. The participation of directors with a majority
vote will constitute a quorum for the transaction of business unless the
certificate of incorporation or the bylaws provide otherwise. However, in no
event will the quorum be less than one third of the votes of the board. Changes
to a bylaw or amendment of the certificate of incorporation can be made by the
vote of a majority of the shares entitled to vote at a meeting at which a quorum
is present, or by the written consent of the stockholders of a majority of the
outstanding shares entitled to vote, or by the board. The Company's certificate
of incorporation provides that the number of directors of the Company may not be
less than five nor more than twenty-five, with the precise number to be fixed
from time to time. Although the number of directors may be changed, currently,
the number of directors has been fixed at seven (7). To qualify as a nominee to
the Company's board of directors, an individual must have been a shareholder for
at least three (3) years or have received a waiver of that requirement from the
board. The Company's directors are divided into three (3) classes that have
staggered terms of three (3) years each. Elected directors hold office until the
annual meeting for the year in which their term expires and until successors are
elected and qualified, subject to earlier death, resignation, incapacity or
removal from office. Vacancies are filled by action of a majority of the
remaining directors. Pursuant to the Company's bylaws, special meetings of the
Company's board may be called by the chairman of the board, the president or a
majority of the Company's board. Under the Company's bylaws, a majority of the
entire board constitutes a quorum for the transaction of business by the board
of directors, and an act by a majority of the quorum of directors constitutes an
act of the board of directors.
Under Delaware law, a board of directors of a corporation may consist of
one or more members as provided in the bylaws, unless the certificate of
incorporation fixes the number of directors. A majority of the total number of
directors will constitute a quorum for the transaction of business unless the
certificate of incorporation or the bylaws require a greater number. However, a
quorum may not be less than one-third of the number of directors. The Newco
bylaws provide that the number of directors of Newco will be seven (7) unless
otherwise determined by a vote of a majority of the entire board of directors.
Action by a majority of the directors present at a meeting at which a quorum is
present is considered to be an act of the entire Newco board. Each director will
hold office until the annual meeting of the stockholders next succeeding his
election and until his successor is elected and qualified, or until his prior
death, resignation or removal.
Delaware law provides that a transaction between a corporation and one or
more of its directors or officers or an entity in which one or more of its
directors or officers has an interest may not be voided if: (1) the material
facts of the relationship or interest is disclosed or known to the board or
committee so deciding and the contract or transaction is authorized in good
faith by a majority vote of the disinterested stockholders, even if the number
of disinterested directors is less than a quorum; (2) the material facts of the
relationship or interest is disclosed to the stockholders and a majority of the
stockholders approve of the transaction; or (3) the contract or transaction is
fair and reasonable to the Company. A similar provision
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under New Jersey law permits a transaction to be declared void if it is between
a corporation and one or more directors or entities in which a director has an
interest.
Under the Company's bylaws, special meetings of the board of directors may
be called by the president or any director. Newco's bylaws set forth equivalent
provisions.
New Jersey law allows the board of directors, by resolution adopted by a
majority of the entire board, to designate an executive committee or other
committee or committees, each consisting of one or more members, with the power
and authority (to the extent permitted by law) to act on behalf of the entire
board if the certificate or bylaws so provides. The Company's bylaws provide for
such committee and for the establishment of an audit committee. Delaware law
allows the establishment of committees of the board without the need to so
provide in the certificate or the bylaws. Newco's bylaws provide that the board
may designate an executive committee or other such committees, each consisting
of three (3) or more members, with such powers as the board may determine.
CUMULATIVE VOTING
The Company's certificate of incorporation and bylaws do not provide for
cumulative voting in the election of directors, nor do Newco's certificate of
incorporation and bylaws. Therefore the stockholders of a majority of the voting
power of Newco will be entitled to elect all of the directors of Newco.
NEWLY CREATED DIRECTORSHIPS AND VACANCIES
Under New Jersey law, any vacancy, however caused, may be filled by a
majority vote of the remaining directors. Any directorship not filled by the
board may be filled by the stockholders at a meeting of the stockholders. The
Company's bylaws provide that vacancies, however caused, including vacancies
resulting from any increase in the authorized number of directors, may be filled
by a majority of the directors then in office, or by a sole remaining director.
Each director so elected will hold office for the unexpired portion of the term
of the director whose place will be vacant, and until his successor is elected
and qualified.
Under Delaware law, vacancies and newly created directorships may be
filled, in the case of directors elected by all stockholders as a single class,
by a majority vote of directors or by the sole remaining director.
Alternatively, in the case of directors elected by a class or series of stock, a
majority of directors so elected or by the sole director so elected can fill
vacancies. The Newco bylaws provide that any vacancy in the board occurring by
an increase in the number of directors, or by reason of the death, resignation,
disqualification, removal (unless such removal will be filled by the
stockholders at the meeting at which the removal was effected), inability to act
of any director, or otherwise, will be filled for the unexpired portion of the
term by the vote of not less than a majority of the remaining directors then
holding office, at any regular meeting or special meeting of the board called
for that purpose.
REMOVAL OF DIRECTORS
Under New Jersey law, directors may be removed, subject to certain
qualifications, for cause or, unless otherwise provided in the certificate of
incorporation, without cause by an affirmative vote of stockholders entitled to
vote for the election of directors. The Company's bylaws provide that directors
may be removed for cause by an affirmative vote of all stockholders entitled to
vote for the election of directors. However, no act by a removed board member or
members will be invalidated solely because the director was removed.
Under Delaware law, directors may be removed, subject to certain
qualifications, with or without cause, by an affirmative vote of stockholders
entitled to vote for the election of directors. The Newco bylaws provide that
any director may be removed, with or without cause, at any time by the
affirmative
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vote of the stockholders holding an aggregate of at least a majority of the
outstanding shares of Newco and may be removed for cause by action of the board.
DIRECTOR LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Both New Jersey law and Delaware law contain provisions and limitations
regarding directors' liability and regarding indemnification by a corporation of
its officers, directors and employees.
New Jersey law permits a New Jersey corporation to include a provision in
its certificate of incorporation which eliminates or limits the personal
liability of a director or officer to the Company or its stockholders for
monetary damages for breach of fiduciary duties as a director or officer.
However, no such provision may eliminate or limit the liability of a director or
officer for any breach of duty based upon an act or omission (i) in breach of
the director's or officer's duty of loyalty to the Company or its stockholders,
(ii) not in good faith or involving a knowing violation of law, or (iii)
resulting in receipt by such person of an improper personal benefit. Under New
Jersey law, corporations are also permitted to indemnify directors in certain
circumstances and required to indemnify directors under certain circumstances.
Under New Jersey law, a director, officer, employee or agent may, in general, be
indemnified by the Company if he has acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Company and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. In addition, under New
Jersey law, corporations must indemnify a director to the extent the director
has been successful on the merits or otherwise. The Company's certificate of
incorporation includes such a provision. The Company's certificate of
incorporation does not have any provisions relating to the availability of
equitable remedies (such as an injunction or rescissions) for breach of
fiduciary duty. However, as a practical matter, equitable remedies may not be
available in particular circumstances.
Delaware law permits a corporation to include a provision in its
certificate of incorporation which eliminates or limits the personal liability
of a director to the Company or its stockholders for monetary damages in the
case of a breach of fiduciary duties by a director, including conduct which
could be characterized as negligence or gross negligence. However, no such
provision may eliminate or limit the liability of a director (i) in the case of
a breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for the unlawful payment of
dividends or unlawful stock purchase or redemption or other violations of
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit. This provision may
be extended to persons other than directors if such persons exercise or perform
any of the powers or duties otherwise conferred or imposed upon the board of
directors. Delaware law further provides that no such provision can eliminate or
limit the liability of a director for any act or omission occurring prior to the
date when such provision becomes effective. Under Delaware law, a corporation
has the power to indemnify a director against judgments, settlements and
expenses in any litigation or other proceeding other than a derivative suit, if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to a
criminal proceeding, had no reasonable cause to believe his conduct was
unlawful. The indemnification provisions of Delaware law make mandatory the
indemnification of a director to the extent that the director has been
successful on the merits or otherwise, thus possibly requiring indemnification
of settlements in certain instances. Delaware law also provides that a director
may be indemnified by the corporation for expenses of a derivative suit even if
he is not successful on the merits. However, the director must have acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation. This is subject, in the case of an adverse
judgment, to court approval. The Newco certificate of incorporation includes
such a provision.
LOANS TO DIRECTORS/OFFICERS/EMPLOYEES
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New Jersey law allows a corporation to lend money to, or guaranty an
obligation of, any director, officer or employee of the Company or any
subsidiary whenever the directors determine that such an action may reasonably
be expected to benefit the Company. However, a director who votes for such an
action may be held jointly and severally liable if the loan or guaranty is made
contrary to the provisions of New Jersey law. Delaware law permits a corporation
to lend money to, or to guarantee an obligation of, an officer or other employee
of the Company or any subsidiary thereof, including an officer or employee who
is also a director of the Company or of its subsidiaries, whenever such loan or
guarantee may, in the judgment of the directors, reasonably be expected to
benefit the Company. In contrast to New Jersey law, Delaware law generally does
not impose liability on the directors who vote for or assent to a loan to or a
guarantee of an obligation of an officer, director or stockholder.
ANTI-TAKEOVER PROVISIONS
New Jersey law provides, among other things, that any person making an
offer to purchase in excess of ten percent (10%) (or such amount which, when
aggregated with such person's present holdings, exceeds ten percent (10%) of any
class of equity securities) of any corporation or other issuer of securities
organized under the laws of New Jersey must, twenty (20) days before the offer
is made, file a disclosure statement with the target company and with the Bureau
of Securities of the Division of Consumer Affairs of the New Jersey Department
of Law and Public Safety.
Such a takeover bid may not proceed until after the receipt by the filing
party of the permission from the Bureau of Securities. Such permission may not
be denied unless the Bureau, after a public hearing, finds that (i) the
financial condition of the offeror may jeopardize the financial stability of the
target company or prejudice the interests of any employees or security
stockholders who are unaffiliated with the offeror, (ii) the terms of the offer
are unfair or inequitable to the security stockholders of the target company,
(iii) the plans and proposals which the offeror has to make any material change
in the target company's, business, corporate structure, or management are not in
the interest of the target company's remaining security stockholders or
employees, (iv) the competence, experience and integrity of those persons who
would control the operation of the target company are such that it would not be
in the interest of the target company's remaining security stockholders or
employees to permit the takeover, or (v) the terms of the takeover bid do not
comply with the provisions of Chapter 10A of the New Jersey law.
Chapter 10A (the "Shareholder Protection Act") was added to New Jersey law
in 1986 to protect stockholders and other corporate "constituents." It generally
provides that no resident domestic corporation will engage in any business
combination with any interested stockholder for a period of five (5) years
following that interested stockholder's stock acquisition date unless the
business combination is approved by the board of directors prior to that stock
acquisition date. An "interested stockholder" is any person (other than the
resident domestic corporation or its subsidiary) that (i) is the beneficial
owner directly or indirectly, of ten percent (10%) or more of the voting power
of the outstanding voting stock of the resident domestic corporation, or (ii) is
an affiliate or associate of that resident domestic corporation who, at any time
within the five (5) year period immediately prior to the date in question, was a
beneficial owner. A "beneficial owner" of stock is a person that, individually
or with or through any of its affiliates or associates (i) beneficially owns
that stock directly or indirectly, (ii) has the right to acquire or vote that
stock, or (iii) has any agreement, arrangement or understanding for the purpose
of acquiring, holding, voting or disposing of that stock with any other
beneficial owner thereof. An "affiliate" of a beneficial owner is a person that
directly or indirectly through one or more intermediaries controls, or is
controlled by or under common control with, the beneficial owner.
Accordingly, New Jersey law gives the Company's board of directors a veto
power over any business combination proposed by a person who directly or
indirectly acquires ten percent (10%) or more of the Company's voting stock. The
"business combinations" at which these provisions are directed include any
merger or consolidation.
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Unless it falls under certain excluded categories of transactions, a
business combination is prohibited unless any one of the following three
conditions is satisfied:
(1) the board of directors must approve the business combination prior
to the stock acquisition date of the interested stockholder;
(2) the stockholders of two-thirds of the voting stock of the resident
domestic corporation not beneficially owned by the interested
stockholder must approve the business combination by affirmative vote
at a meeting called for that purpose; or
(3) (a) the stockholders of the resident domestic corporation must
receive the higher of (i) the maximum price paid by the interested
stockholder during the five (5) years preceding the announcement date
or the date the interested stockholder became such, whichever is
higher, or (ii) the market value of the resident domestic
corporation's common stock on the announcement date or the interested
stockholder's stock acquisition date, whichever yields a higher price;
(b) the stockholder of stock other than common stock receives a
similarly determined price, taking into account the highest
preferential amount per share to which the stockholders of such shares
are entitled in the event of any liquidation, dissolution or winding
up of the resident domestic corporation, plus any preferential
dividends to which they would be entitled that is not included in the
preferential amount;
(c) the consideration to the stockholders is paid in cash or in the
same form that the interested stockholder used to acquire the largest
block of stock that he acquired;
(d) the stockholders of all outstanding stock not owned by the
interested stockholder received the consideration required by the
preceding paragraphs in the business combination; and
(e) the interested stockholder did not become the beneficial owner of
any additional shares of stock of the resident domestic corporation
between his stock acquisition date and the date of consummation of the
business combination, except as part of the transaction that resulted
in his becoming an interested stockholder by virtue of proportionate
stock splits, dividends or distributions not themselves constituting a
business combination, to a business combination meeting the conditions
of paragraph (c) bought to purchase at a price that would have
satisfied the requirements of paragraphs (a), (b) and (c).
The Company's certificate of incorporation provides that, unless approved
in advance by sixty-six and two thirds percent (66-2/3%) of the members of the
Company's board of directors at a meeting, the affirmative vote of eighty
percent (80%) of stockholders entitled to vote or a majority vote of
stockholders voting as a class will be required to approve any of the following:
(a) any merger or consolidation of the Company with or into any other
corporation; (b) any share exchange in which a corporation, person or entity
acquires the issued or outstanding shares of capital stock or the issued or
outstanding shares of capital stock of the Company pursuant to a vote of
stockholders; (c) any sale, lease, exchange or other transfer of all, or
substantially all, of the assets of the Company to any other corporation, person
or entity; or (d) any transaction similar to, or having similar effect as, any
of the foregoing transactions, as determined by the board.
If voting control (as defined in the Company's certificate) of the Company
is acquired in violation of the above provisions, all shares so acquired will be
considered from and after the date of acquisition to be "excess shares." All
shares deemed to be excess shares will thereafter no longer be entitled to vote
on any matter or to take other stockholder action. If, after giving effect to
such provision any person still has
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voting control of the Company based on the number of votes then entitled to be
cast (rather than the number of issued and outstanding shares of common stock),
then shares held in excess of the number of shares deemed to confer voting
control upon such person also will not be entitled to vote on any matter or take
any other stockholder action. However, this subsequent reduction in voting
rights will be effected only once. These provisions regarding excess shares will
only apply for so long as such shares are held by such person who has acquired
voting control.
There are no provisions in Newco's certificate of incorporation or bylaws
which relate to business combinations. Under the Delaware law an agreement of
merger, or the sale, lease or exchange of all or substantially all of a
corporation's assets, must be approved by the corporation's board of directors
and the stockholders of a majority of the outstanding shares of stock.
Delaware's anti-takeover provision, embodied in Section 203 of the Delaware
General Corporation Law, provides that if a person acquires fifteen percent
(15%) or more of a corporation's voting stock (thereby becoming an "interested
stockholder") that person may not engage in a wide range of transactions
("business combinations") with the Company. The restriction lasts for a period
of three (3) years following the date the person became an interested
stockholder unless (i) the board of directors approved either the business
combination or the transaction which resulted in the person acquiring such
voting stock prior to that acquisition date, (ii) upon consummation of the
transaction which resulted in the person's becoming an interested stockholder,
that person owned at least eighty-five percent (85%) of the Company's voting
stock outstanding at the time the transaction commenced (excluding shares owned
by officers and directors and shares owned by employee stock plans in which
participants do not have the right to confidentially determine whether shares
will be tendered in a tender or exchange offer), or (iii) the business
combination is approved by the board of directors and authorized by the
affirmative vote (at an annual or special meeting and not by written consent) of
at least sixty-six and two-thirds percent (66-2/3%) of the outstanding voting
stock not owned by the interested stockholder.
For the purpose of determining whether a stockholder is the "owner" of
fifteen percent (15%) or more of a corporation's voting stock for purposes of
Section 203, ownership is defined broadly to include beneficial ownership and
other indicia of control. A "business combination" is also defined broadly as
including (i) mergers and sales or other dispositions of ten percent (10%) or
more of the assets of a corporation with or to an interested stockholder, (ii)
certain transactions resulting in the issuance or transfer to the interested
stockholder of any stock of the Company or its subsidiaries, (iii) certain
transactions which would result in increasing the proportionate share of the
stock of the Company or its subsidiaries owned by the interested stockholder,
and (iv) receipt in certain instances by the interested stockholder of the
benefit (except proportionately as a stockholder) of any loans, advances,
guarantees, pledges or other financial benefits.
The restrictions placed on interested stockholders under Delaware law do
not apply under certain circumstances. For instance, the restrictions do not
apply: if the Company's original certificate of incorporation contains a
provision by which it expressly elects not to be governed by the statute, (ii)
if the Company, by action of its stockholders, adopts an effective amendment to
its bylaws or certificate of incorporation expressly electing not to be governed
by Section 203, or (iii) if the business combination is proposed prior to the
consummation or abandonment of and after the announcement of a proposed
transaction with an independent party.
The proposed transactions referred to above are limited to (i) a merger or
consolidation of the Company (except for a merger in which a vote of the
stockholders of the Company is not required); (ii) a sale, lease, exchange,
mortgage, pledge, transfer or other disposition (in one transaction or a series
of transactions), whether as part of a dissolution or otherwise, of assets of
the Company or of any direct or indirect majority-owned subsidiary of the
Company (other than to any direct or indirect wholly-owned subsidiary or to the
Company) having an aggregate market value equal to fifty percent (50%) or more
of either the aggregate market value of all of the assets of the Company
determined on a consolidated basis or the aggregate market value of all the
outstanding stock of the Company; or (iii) a proposed tender or exchange offer
for fifty percent (50%) or more of the outstanding voting stock of the Company.
The
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corporation is required to give not less than twenty (20) days notice to all
interested stockholders prior to the consummation of any of the transactions
described above.
DIVIDENDS
New Jersey law prohibits a corporation from making a distribution to its
stockholders if, after giving effect to such distribution, the Company would be
unable to pay its debts as they become due in the usual course of business or
the Company's total assets would be less than its total liabilities. Delaware
law permits a corporation to pay dividends out of any surplus. If it does not
have a surplus, a dividend may be paid out of any net profits for the fiscal
year in which the dividend is paid or for the preceding fiscal year (provided
that such payment will not reduce capital below the amount of capital
represented by all classes of shares having a preference upon the distribution
of assets).
AMENDMENT TO GOVERNING DOCUMENTS
To amend certain terms of a corporation's articles of incorporation, New
Jersey law allows an amendment to be made by board action alone (for example, an
amendment to effect a share dividend). Other, general amendments under the New
Jersey law require the action of the board with the approval of a majority of
the stockholders or class of stockholders unless the Company's certificate of
incorporation require a greater percentage. New Jersey law provides that a board
of directors has the power to make, alter and repeal a corporation's bylaws,
unless such power is reserved to the Company's stockholders in the Company's
certificate of incorporation.
Other than the provisions relating to voting rights, class directorships
and anti-takeover measures, the Company's certificate of incorporation may be
altered or repealed by the board or the stockholders as provided by New Jersey
law. The provisions relating to voting rights, class directorships and
anti-takeover measures may be altered or repealed only by a majority vote of
eighty percent (80%) of either stockholders or the board. The Company's bylaws
may be altered or repealed only by the directors, although the stockholders may
change any board action by a majority vote of sixty-six and two-thirds percent
(66-2/3%).
Under Delaware law, the stockholders of a Delaware corporation and, if the
certificate of incorporation so provides, the board of directors, have the power
to adopt, amend or repeal a corporation's bylaws. Delaware law requires the
approval of stockholders holding a majority of the voting power of the
outstanding stock of a company (and, if applicable, a majority of the
outstanding stock of each class entitled to vote thereon) in order to amend a
company's certificate of incorporation. However, a greater number or proportion
may be specified in the certificate of incorporation. Newco's certificate of
incorporation does not specify such greater number or other proportion of
stockholders of securities having power to vote on amendments. Newco's
certificate of incorporation and bylaws provide that the directors of Newco have
the power to amend the bylaws. This authority, however, does not extend to
giving directors power to change provisions regarding the quorum for meetings of
stockholders or of the board or any provisions regarding removal of directors or
filling board vacancies resulting from removal by stockholders. The grant of
such authority to the board does not divest or otherwise affect the power of the
stockholders to adopt, amend or repeal the bylaws. Newco's bylaws provide that
the stockholders may amend or repeal the bylaws by the affirmative vote of the
stockholders holding at least a majority of the outstanding shares. The notice
or waiver of such meeting must summarize the proposed amendment.
RIGHT TO CALL A SPECIAL MEETING OF STOCKHOLDERS
New Jersey law provides that a special meeting of stockholders may be
called by the president, the board of directors, any stockholder, director,
officer or other person as may be provided in the bylaws. Upon application of
the stockholder or stockholders of not less than ten percent (10%) of all the
shares entitled to vote at a meeting, the Superior Court of New Jersey, for good
cause shown, may order that a special meeting be called. The Company's bylaws
provide that special meetings of the stockholders of the
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Company may be called by the president or by a majority of the Company's board,
but not by the stockholders unless otherwise required by law.
Delaware law provides that a special stockholders' meeting may be called by
the corporation's board of directors or by a person authorized in the
certificate of incorporation or the bylaws. The Newco bylaws provide that
special meetings of Newco stockholders may be called either by the president or
by a majority of the Newco board and will be called by the president or the
secretary upon the written request of ten percent (10%) of the stockholders
entitled to vote.
STOCKHOLDER ACTION BY WRITTEN CONSENT
Under the New Jersey law, any action which may be taken by stockholders at
a meeting may be taken without a meeting if all the stockholders entitled to
vote give their written consent. However, if stockholder approval is required to
effectuate a merger, consolidation, acquisition or sale of assets, the
transaction may also be effectuated if all of the shares entitled to vote
provide written consent and all other stockholders are provided with appropriate
notice. Note that the Company's certificate of incorporation provides that
actions required or permitted to be taken at any meeting of the stockholders may
not be taken by written consent of the stockholders of outstanding stock.
Delaware law provides that, unless limited by the certificate of
incorporation, any action which may be taken at a meeting of stockholders may be
taken without a meeting, without prior notice and without a vote, if the
stockholders of a certain required minimum number of votes consent in writing.
Newco's bylaws provide that any action which is required or which may be taken
at any annual or special meeting of Newco stockholders may be taken without a
meeting, without prior notice and without a vote. To do so, a written consent
setting forth the action generally must be signed by the stockholders of a
majority of the outstanding shares. Prompt notice of the taking of corporate
action without a meeting by less than unanimous written consent must be given to
any stockholder who has not consented in writing.
STOCKHOLDER PROPOSAL AND NOMINATION PROCEDURE
The Company's bylaws and certificate of incorporation are silent on the
issue of advance notice of stockholder proposals and director nominations at
annual meetings. New Jersey law does not explicitly require that stockholder
proposals be the subject of an advance notice to stockholders.
The Newco bylaws and certificate of incorporation are silent on the issue
of advance notice of stockholder proposals and director nominations at annual
meetings. Delaware General Corporation Law does not explicitly require that
stockholder proposals be the subject of an advance notice to stockholders.
MERGERS, ACQUISITIONS AND OTHER TRANSACTIONS
In addition to the anti-takeover provisions discussed above, New Jersey law
provides that the sale of substantially all of a corporation's assets, mergers,
consolidations, and any acquisitions which involve the issuance of additional
voting shares, such that the number of additional voting shares issued exceeds
forty percent (40%) of the voting shares outstanding prior to the transaction,
must be approved by a majority of the shares (or, if applicable, a majority of
each class or series of shares) entitled to vote thereon.
Under Delaware law, mergers and consolidations require the approval of a
majority of the shares entitled to vote thereon. A sale of substantially all of
a Delaware corporation's assets must be approved by a majority of the shares
outstanding. However, Delaware law does not require stockholder approval for
acquisitions, whether or not additional shares are issued to effectuate the
transaction. Delaware law allows a board of directors to issue additional shares
of stock, up to the amount authorized in a corporation's certificate of
incorporation, if the certificate so provides. The Newco certificate of
incorporation does not give the board of directors this power.
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DISSOLUTION
New Jersey law and Delaware law each provide that a corporation may be
voluntarily dissolved by (i) the written consent of all its stockholders or (ii)
the adoption by the Company's board of directors of a resolution recommending
that the Company be dissolved and submission of the resolution to a meeting of
stockholders, at which meeting the resolution is adopted. New Jersey law
requires that to effect a dissolution by consent of stockholders, all
stockholders entitled to vote thereon must sign and file a certificate of
dissolution. If dissolution is pursuant to the action of the board and
stockholders, New Jersey law requires the affirmative vote of the majority of
votes cast (assuming that the number of votes cast constitutes a quorum) by the
stockholders entitled to vote, while Delaware law requires the affirmative vote
of a majority of the outstanding stock entitled to vote.
APPRAISAL RIGHTS
Under New Jersey law, dissenting stockholders who comply with certain
procedures are entitled to appraisal rights in connection with the merger,
consolidation, sale, lease exchange or other disposition of all or substantially
all of the assets of a corporation not in the usual or regular course of
business, unless the certificate of incorporation otherwise provides. However,
appraisal rights are not provided when (i) the shares to vote on such
transaction are listed on a national securities exchange or held of record by
not less than 1,000 stockholders (or stockholders receive in such transaction
cash and/or securities which are listed on a national securities exchange or
held of record by not less than 1,000 stockholders), or (ii) no vote of the
corporation's stockholders is required for the proposed transaction. See "Rights
of Dissenting Stockholders," below.
Under Delaware law, dissenting stockholders who follow prescribed
statutory procedures are entitled to appraisal rights in connection with certain
mergers or consolidations, unless otherwise provided in the corporation's
certificate of incorporation. Such appraisal rights are not provided when (i)
the shares of the corporation are listed on a national securities exchange or
designated as a national market system security by the National Association of
Security Dealers or held of record by more than 2,000 stockholders and
stockholders receive in the merger shares of the Company or of any other
corporation the shares of which are listed on a national securities exchange or
designated as a national market system security by the National Association of
Security Dealers, or held of record by more than 2,000 stockholders, or (ii) the
corporation is the surviving corporation and no vote of its stockholders is
required for the merger.
REPURCHASES OF STOCK
New Jersey law prohibits a corporation from repurchasing or redeeming
its shares if (i) after giving effect to such repurchase or redemption, the
corporation would be unable to pay its debts as they become due in the usual
course of business or the corporation's total assets would be less than its
total liabilities, (ii) after giving effect to such repurchase or redemption,
the corporation would have no equity outstanding, (iii) the redemption or
repurchase price exceeded that specified in the securities acquired, or (iv)
such repurchase or redemption is contrary to any restrictions contained in the
corporation's certificate of incorporation. Under Delaware law, a corporation
may repurchase or redeem its shares only out of surplus and only if such
purchase does not impair its capital. However, a corporation may redeem common
stock out of capital if such shares will be retired upon redemption and the
stated capital of the corporation is thereupon reduced in accordance with
Delaware law.
FEDERAL INCOME TAX CONSEQUENCES OF THE REINCORPORATION MERGER
The Company will not request a ruling from the United States Internal
Revenue Service regarding the federal income tax consequences of the
Reincorporation Merger. However, the Company believes the merger will constitute
a "mere change in ... place of organization" under Section 368(a)(1)(F) of the
Internal Revenue Code. Consequently, owners of the Company's common stock will
not recognize any gain or loss for federal income tax purposes as a result of
the conversion of their Company's common
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stock into shares of Newco's common stock. For federal income tax purposes, a
stockholder's aggregate basis in the shares of the Newco common stock received
in the Reincorporation Merger will equal such stockholder's aggregate basis in
the Company's common stock converted therefor and such stockholder's holding
period for the Newco common stock received in the merger will include his
holding period in the Company common stock converted therefor.
Likewise, the Company will not recognize any gain or loss for federal
income tax purposes upon the transfer of its property to Newco pursuant to the
Reincorporation Merger. In addition, Newco will succeed to and take into account
the earnings and profits, accounting method and other tax attributes of the
Company specified in Section 381(c) of the Internal Revenue Code.
Owners of the Company's common stock should consult their own tax
advisors as to the application and effect of state, local and foreign income and
other tax laws to the conversion of their Company's common stock into shares of
Newco common stock pursuant to the Reincorporation Merger.
RIGHTS OF DISSENTING STOCKHOLDERS
Under the New Jersey Business Corporation Act, the stockholders of
shares of the Company's common stock are not entitled to any appraisal rights
with respect to the Reincorporation Proposal.
VOTE REQUIRED
The affirmative vote of holders of a majority of the shares of
common stock of the Company present, or represented by proxy, and entitled to
vote thereon at the special meeting, is required for approval of the
Reincorporation Merger proposal. A vote for the Reincorporation Merger proposal
will constitute specific stockholder approval for the adoption of the
Reincorporation Merger agreement and all other transactions related to the
Reincorporation Merger proposal, including the increase in authorized capital
stock.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The board of directors recommends a vote "FOR" the approval of the
Reincorporation Merger proposal.
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PROPOSAL NUMBER THREE
ADOPTION AND APPROVAL OF THE 2000 STOCK OPTION PLAN
GENERAL
The board of directors of the Company has adopted, subject to
shareholder approval, the 2000 Stock Option Plan, which will be effective as of
the closing of the merger with eB2B. Under the 2000 Stock Option Plan,
employees, management, independent contractors, consultants and non-employee
directors of the Company may receive incentive compensation in the form of stock
options.
The 2000 Stock Option Plan is being submitted for stockholder approval
at the special meeting for a number of reasons. First, stockholder approval of
the 2000 Stock Option Plan is required for the award of incentive stock options
under the requirements of Section 422 of the Internal Revenue Code. Second,
while not otherwise required, the board of directors believes it is appropriate
to obtain stockholder approval. Approval of the 2000 Stock Option Plan requires
the affirmative vote of the holders of a majority of the shares of Company
common stock.
The material provisions of the 2000 Stock Option Plan are summarized
below. The following summary is qualified by reference to the full text of the
2000 Stock Option Plan, which is attached to this proxy statement/prospectus as
Appendix H.
PURPOSE
The purpose of the 2000 Stock Option Plan is to aid in attracting and
retaining employees, management, independent contractors, consultants, other
personnel and non-employee directors capable of assuring the future success of
the Company, to offer such persons incentives to put forth maximum efforts for
the success of the Company's business and to afford them an opportunity to
acquire a proprietary interest in the Company.
EFFECT ON PRIOR PLANS
For purposes of administration and share accounting under the 2000
Stock Option Plan, the Company's 1997 Incentive Stock Option Plan, as amended,
and eB2B's 1998 Incentive Stock Option Plan (collectively, the "Prior Plans"),
will be incorporated in the 2000 Stock Option Plan upon its effective date. All
outstanding options subject to the terms of the Prior Plans will remain
outstanding and subject to the terms and conditions of those plans but are
counted as part of the total number of shares of Common Stock awarded under the
2000 Stock Option Plan.
TYPES OF AWARDS
The 2000 Stock Option Plan will permit the granting of (a) incentive
stock options ("Incentive Stock Options") meeting the requirements of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), and (b) stock
options that do not meet such requirements ("Nonstatutory Stock Options")
(collectively "Stock Awards").
ADMINISTRATION
The 2000 Stock Option Plan will be administered by the Company board of
directors unless and until it delegates administration to a committee composed
of not fewer than two of its members ("Administrator"). All of the members of
any such committee must be non-employee directors (unless the Company's board of
directors expressly declares that such requirement shall not apply) and may also
be, in the discretion of the Company's board of directors, outside directors. If
administration is delegated to a committee, that committee will have, in
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connection with the administration of the plan, the powers possessed by the
Company's board of directors, subject, however, to such resolutions, not
inconsistent with the provisions of the 2000 Stock Option Plan, as may be
adopted from time to time by the Company's board of directors.
SHARES SUBJECT TO THE PLAN
The maximum aggregate number of shares of common stock that may be
issued pursuant to awards under the 2000 Stock Option Plan could not exceed
7,500,000 shares. If any award expires or terminates, in whole or in part,
without having been exercised in full, or if any unvested award is forfeited,
the stock not purchased under such award will revert to and again become
available for issuance under the 2000 Stock Option Plan. The common stock
subject to the 2000 Stock Option Plan may be unissued shares or reacquired
shares bought on the market or otherwise.
ELIGIBILITY
Incentive Stock Options may be granted only to employees. Nonstatutory
Stock Options may be granted to employees, directors, independent contractors or
consultants. A person who owns more than 10% of the common stock at the time of
grant is eligible for Incentive Stock Options only if (i) the exercise price of
the shares subject to the grant is at least one hundred and ten percent (110%)
of the fair market value of the underlying common stock on the date it was
granted and (ii) the option has a term not longer than five (5) years from the
date it was granted.
TERM AND TERMINATION
No option is exercisable after the termination date provided at the
time it was granted (the "Stated Termination Date"). The Stated Termination Date
cannot be later than ten (10) years after the date the option is granted.
Options also terminate before the Stated Termination Date (an early termination)
on the date an optionee ceases to hold the status of an employee or director of
the Company. In the case of an early termination, the optionee's right to
exercise the option continues, as to the portion of the option that was
exercisable on the termination date, for a period of three (3) months, but in no
event to a date later than the Stated Termination Date. Under the 2000 Stock
Option Plan, the Administrator may include two additional provisions that would
extend the option exercise period. One provision would cover executive officers
or directors subject to the provisions of Section 16(b) of the Securities
Exchange Act of 1934; the other covers optionees who suffer an early termination
as a result of death or disability of the optionee. If the optionee could not
exercise the option during the three-month period normally provided without
incurring liability to under Section 16(b), the option may provide that the
option exercise period will extend to the end of a three-month period during
which the optionee could have exercised such rights without incurring such
liability, but in no event to a date later than the Stated Termination Date. In
the case of an optionee whose early termination date occurs as a result of the
optionee's death or disability, the option may provide that the option exercise
period will extend for a period of 12 months past the early termination date,
but in no event beyond the Stated Termination Date, and that during the
extension period the option may be exercised by the optionee, or the optionee's
estate, heirs, or beneficiaries. In the event of an early termination of an
option, the Company may purchase from the optionee any or all of the options
that were exercisable on the early termination date.
EXERCISE PRICE
The exercise price of each Incentive Stock Option will not be less than
one hundred percent (100%) of the fair market value of the Company common stock
on the date of granting the option. The exercise price of each Nonstatutory
Stock Option shall be determined at the discretion of the Administrator on the
date of the granting of the Nonstatutory Stock Option.
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CONSIDERATION
The purchase price of stock acquired pursuant to a Stock Award is paid
either in cash at the time of exercise (if provided by the Administrator at
the time of grant) by deferred payment or other arrangement, or in any other
form of legal consideration that may be acceptable to the Administrator.
Additionally, in the case of an option, if provided by the Administrator at
the time of the grant, consideration may be paid by delivery to the Company of
other Company common stock. In the case of any deferred payment arrangement,
interest will be payable at least annually and will be charged at the minimum
rate of interest necessary to avoid the treatment of it as interest of amounts
that are not stated to be interest.
TRANSFERABILITY
An Incentive Stock Option is not transferable except by will or by the
laws of descent and distribution, and is exercisable during the lifetime of the
person to whom the Incentive Stock Option is granted only by such person. A
Nonstatutory Stock Option shall only be transferable upon such terms and
conditions, as the Administrator shall determine in its sole discretion at the
time of grant. An optionee may designate a beneficiary who may exercise his or
her option after death.
VESTING
The total number of shares of stock subject to an option may, but need
not, be allotted in periodic installments. The option agreement may provide that
from time to time during each of such installment periods, the option may become
exercisable or vested with respect to some or all of the shares allotted to that
period. The option agreement may also provide that an optionee can exercise an
option as to shares prior to the time the option is vested. An option agreement
with this provision will also contain a provision regarding shares purchased
before they are vested, which provides that if the optionee loses the required
status before vesting occurs, the Company will have the right to repurchase
those shares.
ADJUSTMENTS UPON CHANGE IN STOCK
If any dividend or other distribution, recapitalization, stock split,
reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase or exchange of shares of common stock or other
securities of the Company or other similar corporate transaction or event
affecting the shares of common stock would be reasonably likely to result in the
diminution or enlargement of the benefits or potential benefits intended to be
made available under the 2000 Stock Option Plan, the Administrator shall, in
such manner as it deems equitable or appropriate in order to prevent such
diminution or enlargement of any such benefits or potential benefits, adjust any
or all of (a) the number and type of shares (or other securities or property)
which thereafter may be made the subject of awards, (b) the number and type of
shares (or other securities or property) subject to outstanding awards, and (c)
the purchase or exercise price with respect to any award.
AMENDMENT
The Administrator at any time, and from time to time, may amend the
2000 Stock Option Plan. However, no amendment shall be effective unless approved
by the stockholders of the Company if stockholder approval is required in order
for the 2000 Stock Option Plan to satisfy the requirements of Section 422 of the
Code, or to comply with the requirements of SEC Rule 16b-3 or Nasdaq National
Market listing requirements (if applicable). The Administrator may in its sole
discretion submit any amendment to the 2000 Stock Option Plan to the Company
stockholders for approval.
TERMINATION OR SUSPENSION
97
<PAGE>
The Administrator may suspend or terminate the 2000 Stock Option Plan
at any time. Unless sooner terminated, the 2000 Stock Option Plan will terminate
on March 25, 2010. No Stock Awards may be granted under the 2000 Stock Option
Plan while the plan is suspended or after it is terminated.
FEDERAL INCOME TAX INFORMATION
Incentive Stock Options. Incentive Stock Options under the 2000 Stock
Option Plan are intended to be eligible for the favorable federal income tax
treatment accorded "incentive stock options" under the Internal Revenue Code.
There generally are no federal income tax consequences to the optionee or the
Company by reason of the grant or exercise of an Incentive Stock Option.
However, the exercise of an Incentive Stock Option may increase the optionee's
alternative minimum tax liability, if any. If an optionee holds stock acquired
through exercise of an Incentive Stock Option for at least two (2) years from
the date on which the option is granted and at least one (1) year from the date
on which the shares are transferred to the optionee upon exercise of the option,
any gain or loss on a disposition of such stock will be long-term capital gain
or loss. Generally, if the optionee disposes of the stock before the expiration
of either of these holding periods (a "Disqualifying Disposition"), at the time
of disposition, the optionee will realize taxable ordinary income equal to the
lesser of (a) the excess of the stock's fair market value on the date of
exercise over the exercise price, or (b) the optionee's actual gain, if any, on
the purchase and sale. The optionee's additional gain, or any loss, upon the
Disqualifying Disposition will be a capital gain or loss. Capital gains
currently are subject to lower tax rates than ordinary income. To the extent the
optionee recognizes ordinary income by reason of a Disqualifying Disposition,
the Company will generally be entitled (subject to the requirement of
reasonableness and the satisfaction of a tax reporting obligation) to a
corresponding business expense deduction in the tax year in which the
Disqualifying Disposition occurs.
NONSTATUTORY STOCK OPTIONS
Nonstatutory Stock Options granted under the 2000 Stock Option Plan
generally have the following federal income tax consequences: There are no tax
consequences to the optionee or the Company by reason of the grant of a
Nonstatutory Stock Option. Upon exercise of a Nonstatutory Stock Option, the
optionee normally will recognize taxable ordinary income equal to the excess of
the stock's fair market value on the date of exercise over the option exercise
price. Generally, with respect to employees, the Company is required to withhold
taxes from regular wages or supplemental wage payments in an amount based on the
ordinary income recognized. Subject to the requirement of reasonableness and the
satisfaction of a reporting obligation, the Company will generally be entitled
to a business expense deduction equal to the taxable ordinary income realized by
the optionee. Upon disposition of the stock, the optionee will recognize a
capital gain or loss equal to the difference between the selling price and the
purchase price (to the extent not recognized as taxable income as described
above). Slightly different rules may apply to optionees who are subject to
Section 16(b) of the Exchange Act.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS YOU VOTE "FOR"
PROPOSAL 3.
98
<PAGE>
TRADEMARK MATTERS
This proxy statement/prospectus contains trademarks and service marks
of eB2B and the Company and may contain trademarks of others.
Trademarks and service marks of the Company include the following:
(1) DWEB, 75/642,215, filed 2/17/99
(2) DYNAMICWEB, 2,106,238, registered 10/21/97, expires 10/21/07
(3) DYNAMICWEB, 75/289,259, filed 5/9/97
(4) ECBRIDGENET, 2,225,529, registered 2/23/99, expires 2/23/09
(5) ECELITE, 75/390,261, filed 11/14/97
(6) EDIBRIDGENET, 2,189,092, registered 9/15/98, expires 9/15/08
(7) EDIXCHANGE, 2,189,091, registered 9/15/98, expires 9/15/98
(8) EXTENDING THE ENTERPRISE, 75/502,446, filed 6/15/98
(9) NETCAT, 2,154,517, registered 5/5/98, expires 5/5/08
eB2B's principal trademark is "eB2B", for which eB2B is seeking a
federal registration.
LEGAL MATTERS
The validity of the Company's common stock and preferred stock to be
issued to the eB2B stockholders in connection with the merger will be opined
upon for the Company by Brown Raysman Millstein Felder & Steiner LLP.
EXPERTS
The consolidated financial statements of DynamicWeb Enterprises, Inc.
and Design Crafting, Inc. incorporated by reference or appearing in this proxy
statement/prospectus have been audited by Richard A. Eisner & Company, LLP,
independent auditors, to the extent indicated in their reports on those
financial statements also appearing elsewhere in this proxy statement/prospectus
or incorporated by reference. In the case of the financial statements of the
Company, their reports contain an explanatory paragraph with respect to
substantial doubt as to the ability of the Company to continue as a going
concern. Such financial statements have been incorporated into this proxy
statement/prospectus by reference or included in this proxy statement/prospectus
in reliance upon such reports given upon the authority of Richard A. Eisner &
Company, LLP as experts in accounting and auditing.
The financial statements of eB2B as of December 31, 1998 and for the
period from November 6, 1998 (inception) to December 31, 1998 included in the
proxy statement of the Company which is referred to and made a part of this
prospectus and registration statement, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report appearing elsewhere herein,
and are included in reliance upon such report given on the authority of such
firm as experts in accounting and auditing.
The consolidated balance sheet as of December 31, 1998 and the
consolidated statements of operations, Stockholders' equity, and cash flows for
the year ended December 31, 1998, included in this Form S-4, have been
included herein in reliance on the report of Rothstein, Kass & Company, P.C.,
independent auditors, given on the authority of that firm as experts in
accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION ABOUT
THE COMPANY
THIS REGISTRATION STATEMENT
The Company has filed with the Securities and Exchange Commission on
Form S-4 a registration statement, including all amendments and exhibits to that
registration statement, for the shares being offered under the Securities Act of
1933. This proxy statement/prospectus is only a part of the registration
statement and does not contain all of the information filed with the Securities
and Exchange Commission.
99
<PAGE>
While statements in this proxy statement/prospectus concerning the provisions of
contracts or other documents describe the material terms of the provisions which
are being described, they do not discuss all of the terms of those contracts or
other documents. In each instance, the complete details of each contract or
document are contained in the exhibits filed with the registration statement.
Refer to the exhibit of each contract or document to obtain additional
information. For additional information about the Company and the shares being
issued in the merger, refer to the registration statement and the accompanying
exhibits and schedules.
For a fee, a copy of the registration statement, with exhibits, may be
obtained from the office of the Securities and Exchange Commission in
Washington, D.C. at 450 Fifth Street, N.W., Washington, D.C. 20549. The
registration statement, with exhibits, also is available for you to read at
their office without charge.
OTHER SEC FILINGS
The Company is required by the Securities Exchange Act of 1934 to file
reports, proxy statements, and other information with the Securities and
Exchange Commission.
Reports, proxy statements and other information filed with the
Securities and Exchange Commission can be inspected and copied at the public
reference facilities of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549. For a fee, copies of this material can be obtained from the Public
Reference Section of the Commission at its principal office at 450 Fifth Street,
N.W., Washington, D.C. 20549.
The Securities and Exchange Commission also maintains a World Wide Web
site that contains reports, proxy and information statements and other
information regarding issuers that file electronically. The address of the site
is http://www.sec.gov.
PREDICTIONS AND OTHER FORWARD-LOOKING INFORMATION
This proxy statement/prospectus and registration statement contain many
forward-looking statements and information that are based on the beliefs and
plans of the Company's management, on estimates and assumptions made by the
Company's management, or on information currently available to the Company's
management. Those forward-looking statements and information are also contained
in the Company's other reports filed from time to time with the Securities and
Exchange Commission, including its Form 10-KSB for the fiscal year ended
September 30, 1999.
When used in those filed documents, words such as "anticipate,"
"believe," "estimate," "expect," "future," "intend," "plan" and similar
expressions, as they relate to the Company and its management, identify
forward-looking statements. Such statements reflect the current views of the
Company and its management with respect to future events. They are subject to
many risks, uncertainties and assumptions relating to the future.
Some of those risks, uncertainties and assumptions include the
Company's operations and results of operations, competitive factors and pricing
pressures, shifts in market demand, the performance and needs of the customers
served by the Company, and the costs of pursuing the Company's business plan.
Other risks and uncertainties are specifically discussed in "Risk Factors"
elsewhere in this proxy statement/prospectus.
Should one or more of these risks or uncertainties materialize, or
should the underlying estimates or assumptions prove incorrect, actual results
or outcomes may vary significantly from those anticipated, believed, estimated,
expected, intended or planned.
100
<PAGE>
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
Company pursuant to the provisions set forth in the Company's articles of
incorporation, the Company has been informed that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the act and is therefore unenforceable.
101
<PAGE>
<TABLE>
<CAPTION>
Index to Financial Statements
eB2B Commerce, Inc.
<S> <C>
Report of Independent Auditors..................................................... F-2
Balance Sheet as of December 31, 1998.............................................. F-3
Statement of Operations for the period from November 6, 1998 (inception)
through December 31, 1998......................................................... F-4
Statement of Stockholders' Equity for the period from November 6, 1998 (inception)
through December 31, 1998......................................................... F-5
Statement of Cash Flows for the period from November 6, 1998 (inception)
through December 31, 1998......................................................... F-6
Notes to Financial Statements...................................................... F-7
Balance Sheet as of September 30, 1999 (unaudited)................................. F-14
Statement of Operations for the period from November 6, 1998 (inception) through
September 30, 1999 and for the nine months ended September 30, 1999 (unaudited)... F-15
Statement of Stockholders' Equity (Deficiency) for the period from November 6,
1998 (inception) through September 30, 1999 (unaudited) .......................... F-16
Statement of Cash Flows for the period from November 6, 1998 (inception)
through September 30, 1999 and for the nine months ended September 30, 1999
(unaudited)....................................................................... F-17
Notes to Financial Statements (unaudited).......................................... F-18
NETLAN ENTERPRISES, INC. AND SUBSIDIARIES
Independent Auditors' Report ...................................................... F-28
Consolidated Financial Statements
Consolidated Balance Sheet as of December 31, 1998........................... F-29
Consolidated Statement of Operations for the year ended December 31, 1998.... F-30
Consolidated Statement of Stockholders' Equity for the year ended
December 31, 1998.......................................................... F-31
Consolidated Statement of Cash Flows for the year ended December 31, 1998.... F-32
Notes to Consolidated Financial Statements................................... F-34
NETLAN ENTERPRISES, INC.AND SUBSIDIARIES
CONTENTS
Consolidated Financial Statements
Consolidated Balance Sheet as of September 30, 1999 (unaudited).............. F-44
Consolidated Statement of Operations for the nine months ended
September 30, 1999 (unaudited)............................................ F-45
Consolidated Statement of Stockholders' Equity (Deficit) for the nine
months ended September 30, 1999 (unaudited)............................... F-46
Consolidated Statement of Cash Flows for the nine months ended
September 30, 1999 (unaudited)............................................ F-47
Notes to Consolidated Financial Statements (unaudited)....................... F-49
</TABLE>
F-1
<PAGE>
Report of Independent Auditors
To the Board of Directors
eB2B Commerce, Inc.
We have audited the accompanying balance sheet of eB2B Commerce, Inc. (the
"Company") (a development stage company) as of December 31, 1998, and the
related statements of operations, stockholders' equity and cash flows for the
period November 6, 1998 (inception) through December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, based on our audit, the financial statements referred to above
present fairly, in all material respects, the financial position of eB2B
Commerce, Inc. at December 31 1998, and the results of its operations and its
cash flows for the period November 6, 1998 (date of inception) through December
31, 1998, in conformity with accounting principles generally accepted in the
United States.
/s/ ERNST & YOUNG LLP
New York, New York
December 22, 1999, except for
the last paragraph of Note 7,
as to which the date is
January 10, 2000.
F-2
<PAGE>
eB2B Commerce, Inc.
(A Development Stage Company)
Balance Sheet
December 31, 1998
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash $ 10,000
Software, net of depreciation of $53,000 (Note 1) 374,318
-----------
Total assets $ 384,318
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accrued expense $ 36,000
Note payable (Note 3) 15,000
----------
Total current liabilities 51,000
Long term - note payable (Note 3) 86,000
Stockholders' equity(Note 4 and 7):
Preferred stock--$.001 par value; 200,000 shares authorized; no
shares issued and outstanding --
Common stock--$.001 par value; 19,800,000 shares authorized;
2,318,500 shares issued and outstanding 2,319
Additional paid-in capital 352,695
Deficit accumulated during the development stage (107,696)
----------
Total stockholders' equity 247,318
----------
Total liabilities and stockholders' equity $ 384,318
==========
</TABLE>
See accompanying notes to the financial statements.
F-3
<PAGE>
eB2B Commerce, Inc.
(A Development Stage Company)
Statement of Operations
Period From November 6, 1998 (Inception)
through December 31, 1998
<TABLE>
<S> <C>
Net sales $ -
Cost of goods sold -
----------
Gross profit -
Costs and expenses:
Selling, general, and administrative 54,696
Software development costs 53,000
----------
Total costs and expenses 107,696
==========
Net loss $ (107,696)
==========
</TABLE>
See accompanying notes to the financial statements.
F-4
<PAGE>
eB2B Commerce, Inc.
(A Development Stage Company)
Statement of Stockholders' Equity
Period From November 6, 1998 (Inception)
through December 31, 1998
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING THE
------------ PAID-IN DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE TOTAL
------------ ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at November 6, 1998 - $ - $ - $ - $ -
Issuance of common stock in exchange
for software development 2,228,500 2,229 339,089 - 341,318
Issuance of common stock in connection
with legal services rendered 40,000 40 6,047 - 6,087
Issuance of common stock in connection
with consulting services rendered 50,000 50 7,559 - 7,609
Net loss - - - (107,696) (107,696)
--------- ------ -------- -------- ---------
Balance at December 31, 1998 2,318,500 $2,319 $352,695 $(107,696) $ 247,318
========= ====== ======== ========== =========
</TABLE>
See accompanying notes to the financial statements.
F-5
<PAGE>
eB2B Commerce, Inc.
(A Development Stage Company)
Statement of Cash Flows
Period From November 6, 1998 (Inception)
through December 31, 1998
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C>
Net loss $ (107,696)
Adjustments to reconcile net loss to net cash used by operations:
Non-cash legal and consulting expense 13,696
Depreciation expense 53,000
Accrued expense 36,000
----------
Net cash used by operating activities (5,000)
----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 15,000
----------
Net cash provided by financing activities 15,000
----------
Net cash increase for period 10,000
----------
Cash at end of period $ 10,000
==========
Non-cash transactions:
Common stock issued in exchange for software $ 341,318
==========
Long term - note payable in exchange for software $ 86,000
==========
</TABLE>
See accompanying notes to the financial statements.
F-6
<PAGE>
eB2B Commerce, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1998
1. ORGANIZATION AND BUSINESS
DESCRIPTION OF BUSINESS
eB2B Commerce, Inc. (the "Company") was incorporated in the state of Delaware on
November 6, 1998. The Company is an Internet-based business-to-business service
provider offering manufacturers and retailers the capability to conduct
cost-effective electronic commerce transactions utilizing the Internet. The
Company has developed an integrated set of proprietary Internet-based technology
solutions which enables manufacturers and retailers, without substantial capital
expenditures, to conduct cost-effective e-commerce transactions on a pay per
transaction basis.
SOFTWARE DEVELOPMENT COSTS
The Accounting Standards Executive Committee (AcSEC) issued Statement of
Position (SOP) 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use, during 1998. SOP 98-1 requires companies to
capitalize qualifying computer software costs incurred during the application
development stage. All other costs incurred in connection with internal use
software must be expensed as incurred. The useful life assigned to capitalized
software should be based on the period such software is expected to provide
future utility to the company. Capitalized software costs were approximately
$427,000 for the period ending December 31, 1998 and are being amortized over
one year. During 1999 the software was abandoned.
START-UP COSTS
In April 1998, the AcSEC issued SOP 98-5, Reporting on the Costs of Start-Up
Activities. The SOP requires the costs of start-up activities to be expensed as
incurred. The SOP is effective for fiscal years beginning after December 15,
1998. Earlier application is encouraged in fiscal years for which financial
statements have not been issued. The Company has expensed organization costs of
approximately $6,000 for the period ended December 31, 1998.
F-7
<PAGE>
eB2B Commerce, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
1. ORGANIZATION AND BUSINESS (CONTINUED)
RISKS AND UNCERTAINTIES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
STOCK-BASED COMPENSATION
The Company grants stock options generally for a fixed number of shares to
employees with an exercise price equal to the fair market value of the shares
at the date of grant. The Company accounts for stock option grants in
accordance with Accounting Principles Board (APB) Opinion No. 25, "Accounting
for Stock Issued to Employees," and, accordingly, recognizes compensation
expense only if the fair market value of the underlying common stock exceeds the
exercise price of the stock option on the date of grant. In October 1995, the
Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standard (SFAS) No. 123, "Accounting for Stock-Based Compensation,"
which provides an alternative to APB opinion No. 25 in accounting for
stock-based compensation. As permitted by SFAS No. 123, the Company accounts
for stock-based compensation in accordance with APB Opinion No. 25 and has
elected the pro forma disclosure alternative as permitted by SFAS No. 123.
2. DEVELOPMENT STAGE OPERATIONS
The Company is a development stage enterprise as defined in SFAS No. 7,
Accounting and Reporting by Development Stage Enterprises. SFAS No. 7 requires
certain information to be presented on both a period and cumulative basis. As
these financial statements present activity from November 6, 1998 (inception)
through December 31, 1998, all information is cumulative, and no separate
cumulative presentation is provided.
Operations during this period have been devoted primarily to developing the
Company's proprietary computer software, raising capital, obtaining financing,
and marketing and promotion of the Company's capabilities to potential
customers.
F-8
<PAGE>
eB2B Commerce, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
3. NOTES PAYABLE
Upon inception, the Company issued shares of common stock (see Note 4) and an
$86,000 note payable ("Note") to a shareholder in exchange for partially
developed computer software. For the period from February 11, 1999 through the
maturity date on February 11, 2009, interest will accrue on the principal of the
note at the rate of 8 3/4% per annum. The aggregate of the principal and all
accrued interest will be paid by the Company on February 11, 2009. The Company
has the right to prepay all or part of the outstanding principal balance at any
time. In such event, the shareholder has the right to either accept the
prepayment of the note or exercise his right to convert such amount into shares
of common stock at a conversion price of $0.50 per share. On November 30, 1999,
this Note was converted by the shareholder into 160,000 shares of the Company's
common stock.
The Company issued a note payable for $15,000 in 1998. As subsequently
negotiated, the Company has the right to prepay all or part of the outstanding
principal balance at any time. In such event, the holder has the right to
either accept the prepayment of the note or exercise his right to convert such
amount into shares of Series A Convertible Preferred Stock at a conversion
price of $1,000 per share. In April 1999, this note was converted by the
holder into 15 shares of the Company's Series A Convertible Preferred Stock.
4. STOCKHOLDERS' EQUITY
Upon inception, the Company received partially developed computer software in
exchange for 2,228,500 shares of common stock and the issuance of a note payable
(See Note 3).
5. STOCK OPTION PLAN AND PERFORMANCE EQUITY AGREEMENTS
STOCK OPTION PLAN
On November 6, 1998, the Company established the 1998 Incentive Stock Option
Plan (the "Plan") for employees and directors of the Company to purchase common
stock. The Company's Board of Directors is responsible for determining the type
of awards, when and to whom the awards are granted, the number of shares and
terms of the awards and the exercise price. The options are exercisable for a
period not to exceed 10 years from the date of grant and vest in accordance with
the vesting schedule determined by the Board of Directors on the grant date of
the options. Under the Plan, no options were granted, exercised, canceled or
forfeited during the period ended December 31, 1998. As of December 31, 1998,
the Company has reserved 1,000,000 shares of common stock for future grants of
stock options under the Plan. During the nine months ended September 30,1999 the
Company granted 110,000 options, which vest annually over a four year period, at
an exercise price of $2.00 per common share.
F-9
<PAGE>
eB2B Commerce, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
5. STOCK OPTION PLAN AND PERFORMANCE EQUITY AGREEMENTS (CONTINUED)
EXECUTIVE PERFORMANCE EQUITY AGREEMENTS
On December 1, 1998, the Company entered into Executive Performance Equity
Agreements (the "Agreements") with three of its executive officers who are also
members of the Board of Directors, pursuant to their employment agreements. The
Agreements provide for the granting of options to purchase an aggregate of
450,000 shares of the Company's common stock at an exercise price of $0.50 per
share, contingent upon the Company commencing business operations during the
year ended December 31, 1999, as further defined in the Agreements. The Board of
Directors of the Company is responsible for determining whether the performance
goals have been met and on August 1, 1999, granted the 450,000 options to the
three executive officers. The options vested immediately upon grant and expire
five years from the date of grant.
6. INCOME TAXES
There was no provision for federal, or state and local income taxes as the
Company has sustained a loss for the period ended December 31, 1998. At December
31, 1998, the Company has approximately $430,000 of net operating loss
carryforwards for Federal income tax purposes, which begin to expire in 2018.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purpose. The deferred tax asset
pertains primarily to net operating loss carryforwards (approximately $150,000
at December 31, 1998).
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
asset will be realized. The ultimate realization of the deferred tax asset is
dependent upon the generation of future taxable income during the period in
which the net operating loss carryforwards can be utilized. Since the Company is
in the development stage and it is uncertain when the Company will begin
generating future taxable income, the Company has provided a full valuation
allowance for deferred tax assets at December 31, 1998.
F-10
<PAGE>
eB2B Commerce, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
7. COMMITMENTS
The Company has entered into employment agreements with the three founding
stockholders of the Company, whereby the Company has agreed to pay the
stockholders annual base salaries of $195,000, $115,000 and $125,000, which
increase by at least five percent per year. The stockholders also will be
entitled to receive annual bonuses of at least $50,000, $20,000 and $25,000,
respectively. These agreements are effective December 1, 1998 and last through
December 31, 2002, December 31, 2001 and December 31, 2001, respectively.
8. SUBSEQUENT EVENTS
In December 1999 the Company increased its authorized capital stock to 100
million shares, of which 90 million shares pertain to common stock and 10
million shares to preferred stock.
PREFERRED STOCK
In April 1999, the Company authorized 2,000 shares of Series A Convertible
Preferred Stock ("Series A") with a par value of $.001 and issued 300 shares of
Series A for $300,000. Each share of Series A is convertible into the number of
shares of common stock by dividing the purchase price for the Series A by the
conversion price in effect (which is currently $2.00), resulting in
approximately 150,000 shares of common stock. The Series A has antidilution
provisions which can change the conversion price in certain circumstances when
additional shares of common stock are issued by the Company. The holder has the
right to convert the shares of Series A, at any time into common stock. Upon
liquidation, dissolution or winding up of the Company, the stockholders of the
Series A are entitled to receive $1,000 per share plus any accrued and unpaid
dividends before distributions to any holder of the Company's common stock,
except for Series B.
In December 1999 the Company authorized 4 million shares of Series B Convertible
Redeemable Preferred Stock ("Series B") with a par value of $.001, and issued
approximately 3.3 million shares for $33 million in gross proceeds, in a private
placement conducted by the Company (see Private Placement below). Each share of
Series B is convertible into the number of shares of common stock that results
from dividing the purchase price by the conversion price per share in effect
(currently $5.50, resulting in approximately 6 million common shares). The
Series B has antidilution provisions which can change the conversion price in
certain circumstances when additional shares of common stock are issued by the
Company. The holder has the right to convert the shares of Series B at any time.
Upon liquidation, dissolution or winding up of the Company, the stockholders of
the Series B are entitled to receive $10.00 per share plus any accrued and
unpaid dividends before distributions to any holder of the Company's common
stock, except for Series A.
In the event the Company declares a dividend on the common stock, the Company
will at the same time, declare a dividend to the Series A and B stockholders
equal to the dividend which would have been payable if the Series A and B stock
had been converted into common stock. The holders of the Series A and B are
entitled to one vote for each share of the Company's common stock into which
such share of Series A and B is then convertible. In addition, upon any
liquidation of the Company, holders of shares of Series A and Series B shall be
entitled to payment of the purchase price before distributions to any holder of
the company's common stock.
F-11
<PAGE>
eB2B Commerce, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
8. SUBSEQUENT EVENTS (CONTINUED)
PRIVATE PLACEMENT
In September 1999, the Company signed a letter of intent with an investment
banking firm to raise capital in a private placement offering of the Company's
securities. In October 1999, in anticipation of the private placement offering,
the investment banking firm arranged for $1,000,000 in bridge financing for the
Company until the private placement offering commenced. The bridge financing
consisted of convertible notes in the aggregate of $1,000,000, which
automatically converted into units offered in the private placement offering
based on the face value of the bridge notes, and warrants to purchase up to
717,409 shares of common stock of the Company, exercisable at $4.00 per share
for a period of seven years. The warrants were valued at approximately $850,000
and were expensed at the closing of the private placement.
In December, 1999 the Company concluded its private placement offering and
received gross proceeds of approximately $33 million and issued approximately
3.3 million shares of Series B and approximately 1.5 million warrants to
purchase shares of common stock, at an exercise price of $5.50 per share for a
period of seven years. In addition, the investment banking firm, as part of its
fees received approximately 1.5 million warrants to purchase shares of common
stock, at an exercise price of $5.50 per share for a period of seven years.
MERGERS
On December 1, 1999, the Company entered into a definitive agreement to merge
with DynamicWeb Enterprises, Inc. (DWeb), a publicly traded company. DWeb
provides services and software that facilitates business-to-business electronic
commerce between buyers and sellers. In the merger, DWeb will issue
approximately 40 million shares of its common stock in exchange for all of the
outstanding capital stock of the Company, on a fully diluted basis. Holders of
the Series A, Series B, warrants and options of the Company will receive like
securities in Dweb, adjusted to reflect the increased number of shares of common
stock such holders will be entitled to either convert into or purchase. The
officers and directors of the Company will retain their positions with the
surviving company. The stockholders of the Company will own more than 80% of the
outstanding stock of DWeb and accordingly the transaction will be accounted for
by the Company as a reverse acquisition. DWeb will change its name to eB2B
Commerce, Inc upon the closing of the merger.
On November 12, 1999, DWeb entered into a loan agreement with the Company for $2
million, at an interest rate of 8% per annum. The loan matures March 2000,
unless the merger is not consummated, in which event the loan would mature
November 2000. If the loan is not repaid upon maturity, the Company may choose
to convert the aggregate value of the loan into DWeb shares of common stock at a
conversion price of $0.25 per share.
F-12
<PAGE>
eB2B Commerce, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
8. SUBSEQUENT EVENTS (CONTINUED)
MERGERS (CONTINUED)
In January 2000, the Company signed a letter of intent to merge with NetLan
Enterprises, Inc. The purchase price is 325,000 common shares of the Company's
common stock after the completion of the DWeb merger. If the DWeb merger is not
consummated, the purchase price will be 125,000 shares of the Company's common
stock.
9. YEAR 2000 (UNAUDITED)
The Company has addressed the matter of Year 2000 compliance to ensure that its
operating systems, business systems, facilities and environmental systems and
associated equipment will continue to operate properly and without major
disruptions into the next century.
The Company has identified mission critical and other relevant systems at each
of its facilities and has reviewed them for Year 2000 compliance. To date, the
Company is not aware of any area where a Year 2000 compliance problem with its
internal systems could have a material adverse impact on the Company's business
operations.
F-13
<PAGE>
eB2B Commerce, Inc.
(A Development Stage Company)
Balance Sheet
SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash $ 62,950
-----------
Total current assets 62,950
Property and equipment, net of accumulated depreciation of $11,700 (Note 1) 55,027
Other assets, net of accumulated amortization of $2,000 (Note 1) 6,937
===========
Total assets $ 124,914
===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities
Accrued expenses $ 686,449
-----------
Total current liabilities 686,449
-----------
Long-term liabilities
Notes payable (Note 3) 83,061
Stockholders' equity (deficiency) (Note 4 and 7):
Preferred stock--$.001 par value; 200,000 shares authorized --
Series A Preferred Stock--$.001 par value; 2,000 shares authorized;
300 shares issued and outstanding --
Common stock--$.001 par value; 19,800,000 shares authorized; 2,557,000 shares issued
and outstanding 2,557
Additional paid-in capital 1,942,311
Deficit accumulated during the development stage (2,589,464)
-----------
Total stockholders' equity (deficiency) (649,596)
===========
Total liabilities and stockholders' equity (deficiency) $ 124,914
===========
</TABLE>
See accompanying notes to the unaudited financial statements.
F-14
<PAGE>
eB2B Commerce, Inc.
(A Development Stage Company)
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Period from
November 6, 1998
Nine months ended (inception) through
September 30, 1999 September 30, 1999
------------------- ---------------------
<S> <C> <C>
Net sales (Note 1) $ -- $ --
Cost of goods sold -- --
----------- -----------
Gross profit -- --
Costs and expenses:
Selling, general, and administrative,
including stock based compensation
expense of $675,000 1,933,956 2,041,652
Software development costs (Note 1) 547,812 547,812
----------- -----------
Total costs and expenses 2,481,768 2,589,464
=========== ===========
Net loss $(2,481,768) $(2,589,464)
=========== ===========
</TABLE>
See accompanying notes to the unaudited financial statements.
F-15
<PAGE>
eB2B Commerce, Inc.
(A Development Stage Company)
Statement of Stockholders' Equity (Deficiency)
PERIOD FROM NOVEMBER 6, 1998 (INCEPTION) THROUGH SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL DURING THE
---------------- ---------------------- PAID-IN DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE TOTAL
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at November 6, 1998 -- -- -- $ -- $ -- $ -- $ --
Issuance of common stock in exchange for
software -- -- 2,228,500 2,229 339,089 -- 341,318
Issuance of common stock in connection
with legal services rendered -- -- 40,000 40 6,047 -- 6,087
Issuance of common stock in connection
with consulting services -- -- 50,000 50 7,559 -- 7,609
Net loss -- -- -- -- -- (107,696) (107,696)
--------------------------------------------------------------------------------------
Balance at December 31, 1998 -- -- 2,318,500 2,319 352,695 (107,696) 247,318
Sale of common stock -- -- 87,500 87 174,913 -- 175,000
Sale of Series A preferred stock 300 -- -- -- 300,000 -- 300,000
Issuance of common stock in exchange
for services -- -- 148,000 148 228,406 -- 228,554
Issuance of common stock in exchange
for a domain name -- -- 3,000 3 1,497 -- 1,500
Issuance of 55,000 warrants in
connection with legal service
rendered -- -- -- -- 28,600 -- 28,600
Issuance of 108,500 warrants in
connection with consulting services -- -- -- -- 181,200 -- 181,200
Stock based compensation -- -- -- -- 675,000 -- 675,000
Net loss -- -- -- -- -- (2,481,768) (2,481,768)
--------------------------------------------------------------------------------------
Balance at September 30, 1999 300 -- 2,557,000 $ 2,557 $ 1,942,311 $(2,589,464) $ (644,596)
======================================================================================
</TABLE>
See accompanying notes to the unaudited financial statements.
F-16
<PAGE>
eB2B Commerce, Inc.
(A Development Stage Company)
Statement of Cash Flows
(UNAUDITED)
<TABLE>
<CAPTION>
Period from
Nine months November 6, 1998
ended (inception) through
September 30, 1999 September 30, 1999
------------------ --------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(2,481,768) $(2,589,464)
Adjustments to reconcile net loss to
net cash used by operations:
Depreciation and amortization 560,012 613,012
Non-cash legal and consulting expense 438,354 452,050
Stock based compensation expense 675,000 675,000
Changes in operating assets and liabilities:
Other assets (7,437) (7,437)
Accrued expenses 650,449 686,449
----------- -----------
Net cash used by operating activities (165,390) (170,390)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of software (173,494) (173,494)
Purchase of property and equipment (65,227) (65,227)
----------- -----------
Net cash used by investing activities (238,721) (238,721)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowing -- 15,000
Repayment of borrowings (2,939) (2,939)
Proceeds from issuance of commons stock 175,000 175,000
Proceeds from issuance of preferred stock 285,000 285,000
----------- -----------
Net cash provided by financing activities 457,061 472,061
----------- -----------
Net increase in cash 52,950 62,950
Cash at the beginning of period
10,000 --
----------- -----------
Cash at end of period $ 62,950 $ 62,950
=========== ===========
Non-cash transactions:
Preferred stock issued in exchange for note payable $ 15,000 --
=========== ===========
Common stock issued in exchange for Domain name $ 1,500 $ --
=========== ===========
Common stock issued in exchange for software $ -- $ 341,318
=========== ===========
Long term - note payable in exchange for software $ -- $ 86,000
=========== ===========
</TABLE>
See accompanying notes to the unaudited financial statements.
F-17
<PAGE>
eB2B Commerce, Inc.
(A Development Stage Company)
Notes to Financial Statements
(Unaudited)
1. ORGANIZATION AND BUSINESS
BASIS OF PRESENTATION
These financial statements should be read in conjunction with the Company's
audited financial statements for the year ended December 31, 1998. Interim
results are not necessarily indicative of results that may be expected for the
full fiscal year.
DESCRIPTION OF BUSINESS
eB2B Commerce, Inc. (the "Company") was incorporated in the state of Delaware on
November 6, 1998. The Company is an Internet-based business-to-business service
provider offering manufacturers and retailers the capability to conduct
cost-effective electronic commerce transactions utilizing the Internet. The
Company has developed an integrated set of proprietary Internet-based technology
solutions which enables manufacturers and retailers, without substantial capital
expenditures, to conduct cost-effective e-commerce transactions on a pay per
transaction basis.
SOFTWARE DEVELOPMENT COSTS
The Accounting Standards Executive Committee (AcSEC) issued Statement of
Position SOP 98-1, Accounting for the Costs of Computer Software Developed for
Obtained for Internal Use, during 1998. SOP 98-1 requires companies to
capitalize qualifying computer software costs incurred during the application
development stage. All other costs incurred in connection with internal use
software must be expensed as incurred. The useful life assigned to capitalized
software should be based on the period such software is expected to provide
future utility to the company. Capitalized software costs were approximately
$427,000 for the period ending December 31, 1998. As of September 30, 1999 the
Company abandoned the use of the software capitalized at December 31, 1998 and
wrote off the unamortized portion along with additional software costs of
approximately $174,000 incurred during the nine months ended September 30, 1999.
Total software development expense for the nine months ended September 30, 1999
was approximately $547,000.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation of property and
equipment is provided using the straight-line method over the estimated useful
lives. The Company currently has capitalized costs related to software and
office equipment with estimated useful lives of 2 years. Depreciation expense
was $11,700 for the nine months ended September 30, 1999.
REVENUE RECOGNITION
Revenue is recognized on a pay per transaction basis when an e-commerce
transaction occurs between a retailer and manufacturer.
F-18
<PAGE>
eB2B Commerce, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
(Unaudited)
1. ORGANIZATION AND BUSINESS (CONTINUED)
AMORTIZATION OF INTANGIBLES
The other asset recorded on the Company's book represents a domain name which is
being amortized on a straight-line basis over a period of two years.
START-UP COSTS
In April 1998, the AcSEC issued SOP 98-5, Reporting on the Costs of Start-Up
Activities. The SOP requires the costs of start-up activities to be expensed as
incurred. The SOP is effective for fiscal years beginning after December 15,
1998. Earlier application is encouraged in fiscal years for which financial
statements have not been issued. The Company has expensed organization costs of
approximately $6,000 for the year ended December 31, 1998.
RISKS AND UNCERTAINTIES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
STOCK-BASED COMPENSATION
The Company grants stock options generally for a fixed number of shares to
employees with an exercise price equal to the fair market value of the
shares at the date of grant. The Company accounts for stock option grants in
accordance with Accounting Principles Board (APB) Opinion No. 25, "Accounting
for Stock Issued to Employees," and, accordingly, recognizes compensation
expense only if the fair market value of the underlying common stock exceeds the
exercise price of the stock option on the date of grant. In October 1995, the
Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standard (SFAS) No. 123, "Accounting for Stock-Based Compensation,"
which provides an alternative to APB opinion No. 25 in accounting for
stock-based compensation. As permitted by SFAS No. 123, the Company accounts
for stock-based compensation in accordance with APB Opinion No. 25 and has
elected the pro forma disclosure alternative permitted by SFAS No. 123.
F-19
<PAGE>
eB2B Commerce, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
(Unaudited)
2. DEVELOPMENT STAGE OPERATIONS
The Company is a development stage enterprise as defined in Statement of
Financial Accounting Standard No. 7, Accounting and Reporting by Development
Stage Enterprises, ("SFAS 7"). SFAS 7 requires certain information to be
presented on both a period and cumulative basis. These financial statements
include information for the nine months ended September 30, 1999 as well as
cumulative information from November 6, 1998 (inception) through September 30,
1999.
Operations during this period have been devoted primarily to developing the
Company's proprietary computer software, raising capital, obtaining financing,
and marketing and promotion of the Company's capabilities to potential
customers.
3. NOTES PAYABLE
Upon inception, the Company issued shares of common stock (see Note 4) and an
$86,000 note payable ("Note") to a shareholder in exchange for partially
developed computer software. For the period from February 11, 1999 through the
maturity date on February 11, 2009, interest will accrue on the principal of the
note at the rate of 8 3/4% per annum. The aggregate of the principal and all
accrued interest will be paid by the Company on February 11, 2009. The Company
has the right to prepay all or part of the outstanding principal balance at any
time. In such event, the shareholder has the right to either accept the
prepayment of the note or exercise his right to convert such amount into shares
of common stock at a conversion price of $0.50 per share. On November 30, 1999,
this Note was converted by the shareholder into 160,000 shares of the Company's
common stock.
The Company issued a note payable for $15,000 in December 1998. As subsequently
negotiated, the Company has the right to prepay all or part of the outstanding
principal balance at any time. In such event, the holder has the right to
either accept the prepayment of the note or exercise his right to convert such
amount into shares of Series A Convertible Preferred Stock at a conversion
price of $1,000 per share. In April 1999, this note was converted by the holder
into 15 shares of the Company's Series A Convertible Preferred Stock.
F-20
<PAGE>
eB2B Commerce, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
(Unaudited)
4. STOCKHOLDERS' EQUITY
PREFERRED STOCK
In April 1999, the Company authorized 2,000 shares of Series A Convertible
Preferred Stock ("Series A") with a par value of $.001 and issued 300 shares of
Series A for $300,000. Each share of Series A is convertible into the number of
shares of common stock by dividing the purchase price for the Series A by the
conversion price in effect (which is currently $2.00), resulting in
approximately 150,000 shares of common stock. The Series A has antidilution
provisions which can change the conversion price in certain circumstances when
additional shares of common stock are issued by the Company. The holder has the
right to convert the shares of Series A, at any time into common stock. Upon
liquidation, dissolution or winding up of the Company, the stockholders of the
Series A are entitled to receive $1,000 per share plus any accrued and unpaid
dividends before distributions to any holder of the Company's common stock,
except for Series B.
In December 1999 the Company authorized 4 million shares of Series B Convertible
Redeemable Preferred Stock ("Series B") with a par value of $.001, and issued
approximately 3.3 million shares for $33 million in gross proceeds, in a private
placement conducted by the Company (see Private Placement below). Each share of
Series B is convertible into the number of shares of common stock that results
from dividing the purchase price by the conversion price per share in effect
(currently $5.50, resulting in approximately 6 million common shares). The
Series B has antidilution provisions which can change the conversion price in
certain circumstances when additional shares of common stock are issued by the
Company. The holder has the right to convert the shares of Series B at any time.
Upon liquidation, dissolution or winding up of the Company, the stockholders of
the Series B are entitled to receive $10.00 per share plus any accrued and
unpaid dividends before distributions to any holder of the Company's common
stock, except for Series A.
In the event the Company declares a dividend on the common stock, the Company
will at the same time, declare a dividend to the Series A and B stockholders
equal to the dividend which would have been payable if the Series A and B stock
had been converted into common stock. The holders of the Series A and B are
entitled to one vote for each share of the Company's common stock into which
such share of Series A and B is then convertible. In addition, upon any
liquidation of the Company, holders of shares of Series A and Series B shall be
entitled to payment of the purchase price before distributions to any holder of
the company's common stock.
F-21
<PAGE>
eB2B Commerce, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
(Unaudited)
4. STOCKHOLDERS' EQUITY (CONTINUED)
COMMON STOCK
Upon inception, the Company received partially developed computer software in
exchange for 2,228,500 shares of common stock and the issuance of a note payable
(See Note 3).
In connection with various legal and consulting services rendered during 1999,
the Company issued 148,000 shares of common stock and 163,500 warrants to
purchase shares of common stock in exchange for these services. The warrants are
exercisable for a period of five years at prices of $0.50 or $2.00 per share.
The warrants were valued, utilizing the minimum value method, at $28,600 and
$181,200, respectively, and charged to expense in the current period.
At September 30, 1999, the Company has reserved for issuance (i) 150,000 shares
of common stock for conversion of the Series A, (ii) 163,500 shares of common
stock for the exercise of warrants, (iii) 1 million shares of common stock under
the 1998 Incentive Stock Option Plan and (iv) 450,000 shares of common stock
under the Executive Performance Equty Agreements with executive officers.
5. STOCK OPTION PLAN AND PERFORMANCE EQUITY AGREEMENTS
STOCK OPTION PLAN
On November 6, 1998, the Company established the 1998 Incentive Stock Option
Plan (the "Plan") for employees and directors of the Company to purchase common
stock. The Company's Board of Directors is responsible for determining the type
of awards, when and to whom the awards are granted, the number of shares and
terms of the awards and the exercise price. The options are exercisable for a
period not to exceed 10 years from the date of grant and vest in accordance with
the vesting schedule determined by the Board of Directors on the grant date of
the option.
F-22
<PAGE>
eB2B Commerce, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
(Unaudited)
5. STOCK OPTION PLAN AND PERFORMANCE EQUITY AGREEMENTS (CONTINUED)
PERFORMANCE EQUITY AGREEMENTS
On December 1, 1998, the Company entered into Executive Performance Equity
Agreements (the "Agreements") with three of its executive officers who are also
members of the Board of Directors, pursuant to their employment agreements. The
Agreements provide for the granting of options to purchase an aggregate of
450,000 shares of the Company's common stock at an exercise price of $0.50 per
share, contingent upon the Company commencing business operations during the
year ended December 31, 1999, as further defined in the Agreements. The Board of
Directors of the Company is responsible for determining whether the performance
goals have been met and on August 1, 1999, granted the 450,000 options to the
three executive officers. The options vested immediately on grant and expire
five years from the date of grant. The Company recorded stock-based compensation
expense of $675,000, as determined utilizing the minimum value method.
Stock option activity for the 1998 Incentive Stock Option Plan and the Executive
Performance Equity Agreement from November 6, 1998 (inception) to September 30,
1999 is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
----------------------
<S> <C> <C>
Outstanding at November 6, 1998 (Inception) $ -- $ --
-----------------------
Granted -- --
-----------------------
Outstanding at December 31, 1998 -- --
Granted 560,000 0.79
-----------------------
Outstanding at September 30, 1999 560,000 $0.79
=======================
Exercisable at September 30, 1999 477,500 $0.59
=======================
</TABLE>
F-23
<PAGE>
eB2B Commerce, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
(Unaudited)
5. STOCK OPTION PLAN AND PERFORMANCE EQUITY AGREEMENTS (CONTINUED)
Information regarding the options outstanding under the 1998 Incentive Stock
Option Plan and the Executive Performance Equity Agreement at September 30, 1999
is as follows:
<TABLE>
<CAPTION>
Number of Weighted- Weighted-
Options Weighted-Average Average Average
Exercise Price Currently Exercise Remaining Number Exercise
Range Outstanding Price Life Exercisable Price
- ---------------------------------------------------------------------------------------- ---------------------------
<S> <C> <C> <C> <C> <C>
$2.00 110,000 $ 2.00 4.7 years 27,500 $ 2.00
$0.50 450,000 $ 0.50 4.7 years 450,000 0.50
-------------------- --------------
560,000 477,500
==================== ==============
</TABLE>
Pro forma information regarding net income (loss) and earnings (loss) per share
is required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair market value method of
FAS 123. The fair market value for these options was estimated at the date of
grant using the minimum value option pricing model with the following weighted
average assumptions: risk free interest rate of approximately 6%; no dividend
yield and a weighted average expected life of the options of 5 years at date of
grant. The Company's pro forma information for the nine months ended September
30, 1999 is as follows:
<TABLE>
<S> <C>
Net loss:
As reported $(2,406,768)
============
Pro forma under SFAS No. 123 $(2,471,028)
============
</TABLE>
F-24
<PAGE>
eB2B Commerce, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
(Unaudited)
5. STOCK OPTION PLAN AND PERFORMANCE EQUITY AGREEMENTS (CONTINUED)
Options outstanding at September 30, 1999 had a weighted average remaining
contractual life of approximately 4.7 years. The weighted average fair market
value and exercise price of options granted during the nine months ended
September 30, 1999 whereby the fair market value of the stock on the date of
grant was equal to the exercise price was $0.41 and $1.45 per option,
respectively. The weighted average fair market value and exercise price of
options granted during the nine months ended September 30, 1999 whereby the fair
market value of the stock on the date of grant was greater than the exercise
price was $1.63 and $0.50 per option, respectively.
6. INCOME TAXES
There was no provision for federal, or state and local income taxes as the
Company has sustained a loss for the period ended September 30, 1999. At
December 31, 1998 the Company has approximately $430,000 of net operating loss
carryforwards for Federal income tax purposes, which begin to expire in 2018.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purpose. The deferred tax asset
pertains primarily to net operating loss carryforwards, start-up expenditures
and accrued expenses (approximately $150,000 at December 31, 1998).
In assessing the realizability of deferred tax asset, management considers
whether it is more likely than not that some portion or all of the deferred tax
asset will be realized. The ultimate realization of the deferred tax asset is
dependent upon the generation of future taxable income during the period in
which the net operating loss carryforwards can be utilized. Since the Company is
in the development stage and it is uncertain when the Company will begin
generating future taxable income, the Company has provided a full valuation
allowance for deferred tax assets at September 30, 1999.
7. COMMITMENTS
The Company has entered into employment agreements with the three founding
stockholders of the Company, whereby the Company has agreed to pay the
stockholders annual base salaries of $195,000, $115,000 and $125,000, which
increase by at least five percent per year. The stockholders also will be
entitled to receive annual bonuses of at least $50,000, $20,000 and $25,000,
respectively. These agreements are effective December 1, 1998 and last through
December 31, 2002, December 31, 2001 and December 31, 2001, respectively.
8. SUBSEQUENT EVENTS
In December 1999 the Company increased its authorized capital stock to 100
million shares, of which 90 million shares pertain to common stock and 10
million shares to preferred stock.
F-25
<PAGE>
eB2B Commerce, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
(Unaudited)
8. SUBSEQUENT EVENTS (CONTINUED)
PRIVATE PLACEMENT
In September 1999, the Company signed a letter of intent with an investment
banking firm to raise capital in a private placement offering of the Company's
securities. In October 1999, in anticipation of the private placement offering,
the investment banking firm arranged for $1,000,000 in bridge financing for the
Company until the private placement offering commenced. The bridge financing
consisted of convertible notes in the aggregate of $1,000,000, which
automatically converted into units offered in the private placement offering
based on the face value of the bridge notes, and warrants to purchase up to
717,409 shares of common stock of the Company, exercisable at $4.00 per share
for a period of seven years. The warrants were valued at approximately $850,000
and were expensed at the closing of the private placement.
In December 1999 the Company concluded its private placement offering and
received gross proceeds of approximately $33 million and issued approximately
3.3 million shares of Series B and approximately 1.5 million warrants to
purchase shares of common stock, at an exercise price of $5.50 per share for a
period of seven years. In addition, the investment banking firm, as part of its
fees received approximately 1.5 million warrants to purchase shares of common
stock, at an exercise price of $5.50 per share for a period of seven years.
MERGERS
On December 1, 1999, the Company entered into a definitive agreement to merge
with DynamicWeb Enterprises, Inc. (DWeb), a publicly traded company. DWeb
provides services and software that facilitates business-to-business electronic
commerce between buyers and sellers. In the merger, DWeb will issue
approximately 40 million shares of its common stock in exchange for all of the
outstanding capital stock of the Company, on a fully diluted basis. Holders of
the Series A, Series B, warrants and options of the Company will receive like
securities in Dweb, adjusted to reflect the increased number of shares of common
stock such holders will be entitled to either convert into or purchase. The
officers and directors of the Company will retain their positions with the
surviving company. The stockholders of the Company will own more than 80% of the
outstanding stock of DWeb and accordingly the transaction will be accounted for
by the Company as a reverse acquisition. DWeb will change its name to eB2B
Commerce, Inc upon the closing of the merger.
F-26
<PAGE>
eB2B Commerce, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
(Unaudited)
8. SUBSEQUENT EVENTS (CONTINUED)
MERGERS (CONTINUED)
On November 12, 1999, DWeb entered into a loan agreement with the Company for $2
million, at an interest rate of 8% per annum. The loan matures March 2000,
unless the merger is not consummated, in which event the loan would mature
November 2000. If the loan is not repaid upon maturity, the Company may choose
to convert the aggregate value of the loan into DWeb shares of common stock at a
conversion price of $0.25 per share.
In January 2000, the Company signed a letter of intent to merge with NetLan
Enterprises, Inc. The purchase price is 325,000 common shares of the Company's
common stock after the completion of the DWeb merger. If the DWeb merger is not
consummated, the purchase price will be 125,000 shares of the Company's common
stock.
9. YEAR 2000 (UNAUDITED)
The Company has addressed the matter of Year 2000 compliance to ensure that its
operating systems, business systems, facilities and environmental systems and
associated equipment will continue to operate properly and without major
disruptions into the next century.
The Company has identified mission critical and other relevant systems at each
of its facilities and has reviewed them for Year 2000 compliance. To date, the
Company is not aware of any area where a Year 2000 compliance problem with its
internal systems could have a material adverse impact on the Company's business
operations.
F-27
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
NETLAN Enterprises, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of NETLAN
Enterprises, Inc. and Subsidiaries as of December 31, 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of NETLAN Enterprises,
Inc. and Subsidiaries as of December 31, 1998, and the results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.
Roseland, New Jersey
March 16, 1999, except for the second, third,
fourth, fifth, sixth, seventh, and eighth
through tenth paragraphs of Note 17, which
are as of March 31, 1999, July 19, 1999,
July 22, 1999, October 31, 1999, December 1,
1999, and January 7, 2000, respectively
F-28
<PAGE>
NETLAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31, 1998
- --------------------------------------------------------------------------------
<S> <C>
ASSETS
Current assets
Cash $ 804,680
Accounts receivable, less allowance for
doubtful accounts of $115,000 2,259,585
Inventories 132,156
Other current assets 158,965
-----------
Total current assets 3,355,386
-----------
Property and equipment, net 749,153
-----------
Other assets
Intangible assets, net 1,003,706
Restricted cash 501,929
Other 54,500
-----------
1,560,135
-----------
$ 5,664,674
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Line of credit, bank $ 60,131
Loan payable 2,000,000
Accounts payable and accrued expenses 2,023,617
Obligations under capital leases, current portion 77,292
Deferred revenues 968,404
Commissions payable 211,057
Other current liabilities 167,242
-----------
Total current liabilities 5,507,743
-----------
Long-term liabilities,
Obligations under capital leases, less current portion 96,292
-----------
Commitments and contingencies
Stockholders' equity
Class A common stock, .01 par value,
authorized 2,500,000 shares,
issued and outstanding 1,098,000 shares 10,980
Class B common stock, .01 par value,
authorized 200,000 shares, no shares
issued and outstanding
Capital in excess of par value 814,703
Accumulated deficit (765,044)
-----------
Total stockholders' equity 60,639
-----------
$ 5,664,674
===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-29
<PAGE>
NETLAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<S> <C>
Revenues
Internet applications $ 1,067,267
Educational services 2,602,088
Other 44,579
------------
3,713,934
------------
Cost of revenues
Internet applications 422,472
Educational services 1,304,693
------------
1,727,165
------------
Gross profit 1,986,769
------------
Operating expenses 2,119,850
------------
Loss from operations (133,081)
------------
Interest expense 220,953
------------
Loss from continuing operations (354,034)
Loss from discontinued operations, net of
income tax benefit of approximately $10,000 (476,898)
------------
Net loss $ (830,932)
============
</TABLE>
See accompanying notes to consolidated financial statements.
F-30
<PAGE>
NETLAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Year Ended December 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------
Capital Retained
Class A in Excess Earnings
Common Stock of Par (Accumulated
Shares Amount Value Deficit)
<S> <C> <C> <C> <C>
Balances, January 1, 1998 1,038,000 $ 10,380 $ 415,303 $ 265,888
Issuance of common stock 60,000 600 399,400
Dividends (200,000)
Net loss (830,932)
--------------------------------------------------------------------
Balances, December 31, 1998 1,098,000 $ 10,980 $ 814,703 $ (765,044)
====================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-31
<PAGE>
NETLAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<S> <C>
Cash flows from operating activities
Net loss $ (830,932)
Deduct loss from discontinued operations (476,898)
-----------
Loss from continuing operations (354,034)
Adjustments to reconcile loss from continuing operations
to net cash used in operating activities:
Depreciation and amortization 174,392
Write off of deferred loan costs 180,000
Changes in operating assets and liabilities:
Increase in accounts receivable (361,663)
Decrease in inventories 6,886
Decrease in other current assets 5,752
Decrease in other assets 10,275
Increase in accounts payable and accrued expenses 127,983
Increase in deferred revenues 105,031
Increase in commissions payable 91,437
Increase in other current liabilities 5,237
-----------
Net cash used in operating activities of continuing operations (8,704)
Net cash provided by operating activities of discontinued
operations 514,208
-----------
Net cash provided by operating activities 505,504
Cash flows from investing activities
Purchases of property and equipment (263,334)
Acquisition of business, net of cash acquired (249,430)
Purchases of software (55,733)
-----------
Net cash used in investing activities (568,497)
-----------
Cash flows from financing activities
Payments for deferred loan costs (184,110)
Repayments of line of credit, bank (250,000)
Proceeds from line of credit, bank 60,131
Proceeds from loan payable 2,000,000
Increase in restricted cash (501,929)
Repayments of obligations under capital leases (114,901)
Repayments of assumed liabilities (252,618)
Dividends paid to stockholders (200,000)
-----------
Net cash provided by financing activities 556,573
-----------
Net increase in cash 493,580
Cash, beginning of year 311,100
-----------
Cash, end of year $ 804,680
===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-32
<PAGE>
NETLAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<S> <C>
Supplemental disclosures of cash flow
information, cash paid during the year for:
Interest $119,324
--------
Income taxes $ 30,017
--------
Supplementary schedule of non-cash investing
and financing activities
Property and equipment recorded pursuant
to obligations under capital leases $ 66,876
--------
Common stock issued in connection with
acquisition (Note 7) $400,000
--------
</TABLE>
See accompanying notes to consolidated financial statements.
F-33
<PAGE>
NETLAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
1. Nature of business NETLAN Enterprises, Inc. and Subsidiaries ("NETLAN") provides its client base
strategic technology and education solutions. NETLAN designs, develops and
implements collaborative computing applications providing client organizations
the ability to replace paper-based processes with enhanced computer-based
applications. In addition, NETLAN provides authorized technical education for
Citrix, Lotus Development Corporation, Microsoft Corporation and Novell Inc. to
its client base. NETLAN also provides services related to the expanding internet
marketplace through its Interactive Applications Division. These services
include internet strategy development and analysis, internet marketing strategy
development and implementation, web site development, development and
implementation of CD-ROM based and web based custom training applications.
NETLAN's services and products are provided to commercial, government and
not-for-profit organizations. Substantially all of NETLAN's revenues are derived
from customers in the New York Metropolitan area.
2. Summary of significant
accounting policies Principles of Consolidation
The consolidated financial statements include the accounts of NETLAN
Enterprises, Inc. and its wholly owned subsidiaries: Netlan Inc., Netlan II
Inc., and Netlan Acquisition Corp. (collectively "the Company"). On November 3,
1998, stockholders of Netlan Inc. and Netlan II Inc. contributed 100% of their
stock to NETLAN Enterprises, Inc. in exchange for 1,038,000 shares under a
reorganization. Accordingly, the transaction has been accounted for as a merger
of entities under common control, similar to a pooling of interests.
Simultaneous with the above transaction, Netlan Enterprises, Inc. acquired the
net liabilities of a company in exchange for 60,000 shares of common stock. The
transaction has been recorded for under the purchase method of accounting. All
significant intercompany transactions and balances have been eliminated.
Inventories
Inventories are stated at the lower of cost or net realizable value, determined
on the "first-in, first-out" (FIFO) basis.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is calculated on the straight-line method over
estimated useful lives ranging from 3 to 7 years. Leasehold improvements are
amortized using the straight-line method over the terms of the respective
leases.
</TABLE>
F-34
<PAGE>
NETLAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
2. Summary of significant
accounting policies
(continued) Intangible Assets
Intangible assets are amortized on a straight-line method over their estimated
useful lives as follows:
Estimated
Asset Useful Life
Goodwill 5 Years
Deferred software costs 3 Years
Income Taxes
NETLAN's stockholders have elected to treat the Company as an "S" Corporation
for federal and state income tax purposes. Accordingly, the individual
stockholders are liable for taxes on corporate income and receive the benefit of
allowable corporate losses.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue Recognition
Internet applications revenue is recognized on a percentage-of-completion
basis. The revenues and costs related to the unearned portion of a contract
are treated as deferred revenues and prepaid expenses in the accompanying
consolidated balance sheet. In addition, educational services revenue is
recognized upon completion of the seminar and based on the class attended.
Deferred revenues include amounts billed for training seminars and classes
that have not been completed.
</TABLE>
F-35
<PAGE>
NETLAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
3. Inventories At December 31, 1998, inventories consist of the following:
Spare parts $ 67,581
Course materials 64,575
-----------------
$ 132,156
=================
4. Property and equipment At December 31, 1998, property and equipment consist of the following:
Furniture and fixtures $ 300,257
Office, classroom, and lab equipment 1,739,332
Leasehold improvements 102,542
---------------
2,142,131
Accumulated depreciation
and amortization 1,392,978
---------------
$ 749,153
===============
Depreciation and amortization expense from continuing operations for the year
ended December 31, 1998 was $134,868.
</TABLE>
F-36
<PAGE>
NETLAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
5. Intangible assets At December 31, 1998, intangible assets consist of the following:
Goodwill $ 941,717
Deferred software costs 97,403
------------------
1,039,120
Accumulated amortization 35,414
------------------
$1,003,706
==================
Amortization expense from continuing operations for the year ended December 31,
1998 was $39,524.
6. Acquisition On November 3, 1998, the Company purchased the net liabilities of Interactive
Communications International, Inc., ("ICI") in exchange for 60,000 shares of
the Company's common stock (valued at $400,000) and payment of costs associated
with the acquisition ($259,280). Goodwill recorded in the acquisition amounted
to $941,717. The acquisition has been recorded under the purchase method of
accounting. The net liabilities acquired were recorded at their approximate fair
values, and are summarized as follows:
Cash $ 9,850
Accounts receivable 97,125
Property and equipment, net 84,543
Intangible assets 941,717
Accounts payable (221,338)
Loans payable (107,000)
Other current liabilities (145,617)
------------------
$ 659,280
==================
The following unaudited pro forma information for 1998 gives effect to the
acquisition of ICI as if it had occurred on January 1, 1998:
Revenues $ 4,631,000
Net loss 560,000
7. Line of credit, bank On March 31, 1998, the Company obtained a $1.5 million revolving line of credit
which bears interest at the bank's base rate plus 1.75%. The line of credit is
collateralized by substantially all of the Company's assets and is personally
guaranteed by certain stockholders of the Company. The maximum amount the Company
can borrow on the line of credit is the lesser of $1.5 million or 85% of the net
amount of Acceptable Accounts Receivable, as defined in the line of credit
agreement. At December 31, 1998, the balance outstanding on this revolving line
of credit was $60,131 (Note 17).
</TABLE>
F-37
<PAGE>
NETLAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
8. Loan payable In order to finance the acquisition (Note 6), the Company obtained financing in
the form of a loan payable of $2,000,000 bears interest at 10.25% and matures
November 3, 2005 (Note 17). Interest is payable in monthly installments beginning
on December 1, 1998. Principal is payable in monthly installments of $33,333
beginning on November 1, 2000 through the maturity date. The loan agreement
contains various restrictions and covenants. The loan includes warrants to purchase
102,000 shares or approximately 8.5% of the Company's common stock, as defined in
the agreement, at $14.42 per share through June 30, 2009. On or after November 3,
2003, the Company may repurchase the warrant at a call price as defined in the
agreement. In addition, the lender may require the Company to repurchase the
warrant at a put price, as defined in the agreement.
In exchange for professional services rendered in connection with the financing,
the Company has granted an unrelated consulting firm warrants to purchase 137,000
shares of the Company's common stock at $14.42 per share through October 3, 2008.
The Company is required to establish and maintain an escrow fund of $500,000 in
accordance with an agreement with the lender. Upon achieving earnings before
interest, income taxes, depreciation and amortization of at least $900,000, the
funds may be distributed to the Company. If the Company fails to achieve this
earnings level by March 31, 2000, then the balance of the escrow fund will be
applied to the outstanding balance of the loan payable (Note 17).
</TABLE>
F-38
<PAGE>
NETLAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
9. Obligations under
capital leases At December 31, 1998, obligations under capital leases consist of the following:
Various leases with monthly
payments aggregating $11,613 $ 196,779
Less amount representing
interest 23,195
-----------------
Present value of lease payments 173,584
Less current portion 77,292
-----------------
$ 96,292
=================
Scheduled aggregate payments on obligations under capital leases are as follows:
Years ending December 31,
1999 $ 93,215
2000 73,720
2001 29,844
------------------
$ 196,779
==================
At December 31, 1998, property and equipment includes assets acquired under
capital leases with a cost of $461,259 and accumulated depreciation of $290,252.
</TABLE>
F-39
<PAGE>
NETLAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
10. Profit sharing plan The Company has a 401(k) profit sharing plan, which covers substantially all
employees that meet certain eligibility requirements. The participants of the
plan are permitted to defer up to 15% of their compensation annually, however,
the deferral may not exceed limits imposed by the Internal Revenue Code. The
Company makes an annual contribution matching up to three percent of total
compensation. Any additional contributions to the plan by the Company are made
at the discretion of the Company's Board of Directors. Contributions under this
plan were approximately $63,000 for the year ended December 31, 1998.
</TABLE>
F-40
<PAGE>
NETLAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
11. Stock options
In November 1998, the Board of Directors and the Stockholders of the Company
approved the NETLAN Incentive Stock Option Plan (the "Plan"), as amended. The
Plan provides for the granting of stock options, for up to 100,000 common
shares, to key employees at a price not less than fair market value at the date
of the grant. The stock options are exercisable in five annual installments
beginning with the first anniversary date of employment of the key employee and
expire 10 years from the date of the grant or upon termination of employment. As
of December 31, 1998, the stock options outstanding, exercisable, and available
for grant are 22,600, 22,600 ("grandfathered" from a predecessor option plan in
existence prior to the Plan), and 77,400, respectively. All options were granted
at a price of $3.19 per share. Pro forma net loss for 1998, assuming the
application of the fair value method under Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," approximates the
net loss, as reported.
12. Concentration of credit
risk The Company maintains its cash balances in financial institutions located in the
New York Metropolitan area. At various times the Company's cash balances may
exceed the federally insured deposit limit of $100,000.
13. Commitments and
contingencies The Company leases its office facilities under four operating leases expiring in
2001. The leases provide for minimum annual rent plus adjustments for increases
in the Consumer Price Index and certain expenses over base period amounts.
Aggregate future minimum rental payments are as follows:
Years ending December 31,
1999 $ 296,900
2000 297,200
2001 194,200
------------------
$ 788,300
==================
Rent expense for the year ended December 31, 1998 was approximately $87,000.
The Company has standby letters of credit under the revolving line of credit
(Note 7) with the bank aggregating $200,000. These letters of credit collateralize
the Company's obligations to third parties for the purchase of inventories.
The Company is a defendant in various lawsuits related to matters arising in the
normal course of business. It is the opinion of management that the disposition
of these lawsuits will not, individually or in the aggregate, materially adversely
affect the consolidated financial position, results of operations or cash flows of
the Company.
F-41
<PAGE>
NETLAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
14. Related party transaction At December 31, 1998, the Company had loans payable to stockholders of $39,774,
which are included in other current liabilities. The loans bear interest at
3.20% and are due on demand.
15. Liquidity The Company has incurred a loss from continuing opertions of approximately
$354,000 and has a working capital deficit of approximately $2,152,000 at
December 31, 1998. The Company's plans include seeking strategic investors or
technology partners to fund its operating losses and financing arrangements.
Management believes that, despite the financial hurdles going forward, it has
under development, a business plan that, if successfully funded, can significantly
improve operating results (Note 17). The support of the Company's vendors,
customers, lenders, stockholders and employees will continue to be key to the
Company's future success. Long-term liquidity is dependent on the Company's ability
to obtain long-term financing and attain profitable operations.
16. Segment information The Company has two reportable segments: NetLan II Inc. and NetLan Acquisition
Corp. ("ICI"). The NetLan II Inc. segment provides authorized technical education
and training. The ICI segment provides services relating to internet strategy
development and analysis, internet marketing strategy development and
implementation, website development and CD-ROM based and web based custom training
applications and design, development and implementation of collaborative computing
applications. Some business activities cannot be classified in the aforementioned
segments and are shown under "corporate".
Operating segment information for the year ended December 31, 1998 is summarized
as follows (in thousands):
</TABLE>
<TABLE>
<CAPTION>
NETLAN
ACQUISITION
CORP.
NETLAN II INC. ("ICI") CORPORATE CONSOLIDATED
<S> <C> <C> <C> <C>
Revenues $ 2,647 $ 1,067 $ -- $ 3,714
------------------------------------------------------------------
Operating income (loss) $ 91 $ (139) $ (85) $ (133)
------------------------------------------------------------------
Interest expense $ (11) $ (1) $ (209) $ (221)
------------------------------------------------------------------
Depreciation and
amortization $ 124 $ 39 $ 11 $ 174
------------------------------------------------------------------
Total assets $ 815 $ 1,978 $ 1,345 $ 4,138
------------------------------------------------------------------
Capital expenditures $ 45 $ 2 $ -- $ 47
------------------------------------------------------------------
The total assets in the above table include the assets from
continuing operations only, total assets of Netlan Inc., the
discontinued segment, were $1,527 as of December 31, 1998. In
addition, Netlan Inc. incurred capital expenditures of $216
for the year ended December 31, 1998.
</TABLE>
<TABLE>
<S> <C>
17. Subsequent events In January 1999, the Company obtained a $2.5 million revolving line of credit
which bears interest at the bank's base rate plus .6%. The line of credit is
collateralized by substantially all of the Company's assets and is personally
guaranteed by certain stockholders of the Company. The maximum amount the
Company can borrow on the line of credit is the lesser of $2.5 million or 85% of
the net amount of Acceptable Accounts Receivable, as defined in the line of
credit agreement. In February 1999, the bank froze the outstanding borrowings of
approximately $583,000 under the revolving line of credit.
On March 31, 1999, the Company issued warrants to the Company's lender of the
$2,000,000 loan to purchase 4,000 shares or approximately .3323% of the Company's
common stock, as defined in the agreement, at $6.25 per share through June 30,
2009.
On July 19, 1999, the Company amended its certificate of incorporation
increasing the authored shares of common stock to 2,700,000 of which 2,500,000
shares are designated as voting (class A) and 200,000 shares are designated as
non-voting (class B). As a result of the amendment, the shareholders approved to
issue 99 voting shares of common stock for each of the 10,980 voting shares then
outstanding. The accompanying consolidated financial statements have been
restated to give effect of this transaction.
On July 19, 1999, the Company amended its incentive stock option plan (the
"Plan") which provides for the granting of stock options, for up to 83,700 class B
common shares, to key employees at a price not less than fair market value at
the date of the grant. The stock options expire and terminate automatically upon
the earlier of thirty days following cessation of employment by the Company,
three months following effective date of the grantee's retirement, one year
following the date on which the grantee's services ceases with the Company due
to death or disability, or the date of expiration of the option determined by
the Board of Directors of the Company. The Company granted 27,967 stock options
at $1.50 per share, the fair value at the date of the grant.
F-42
<PAGE>
NETLAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
18. Subsequent events On July 22, 1999, balance of the escrow fund of
(continued) $500,000 was applied to the outstanding balance of the
$2,000,000 loan payable (Note 8).
On October 31, 1999, the Company discontinued its services relating to computer
network design, consulting, implementation, integration, procurement and
support. In 1998, the loss from discontinued operations, net of tax benefit, was
approximately $477,000 and revenues from discontinued operations were
approximately $12,846,000. The accompanying consolidated financial statements have
been restated to reflect the income and expenses relating to these operations as
loss from discontinued operations, net of tax benefit.
On December 1, 1999, the Company issued 1,368,000 additional shares of its common
stock to certain of its existing stockholders/employees and to one of its
employees for no consideration.
As of January 7, 2000, the Company is in default of certain financial covenants
set forth in the revolving line of credit agreement.
As of January 7, 2000, the Company is in violation of certain covenants set
forth in the $2,000,000 loan agreement and as a result, the $2,000,000 is
reflected in current liabilities in the accompanying consolidated balance sheet.
On January 7, 2000, the Company signed a letter of intent with eB2B Commerce,
Inc. ("eB2B.com") whereby the Company's shareholders will exchange 100% of their
common stock for 125,000 equivalent shares, as defined in the agreement, of
eB2B.com.
</TABLE>
F-43
<PAGE>
NETLAN ENTERPRISES, INC.AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
================================================================================
SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
<S> <C>
ASSETS
CURRENT ASSETS
Cash $ 207,856
Accounts receivable, less allowance for doubtful
accounts of $31,000 788,987
Inventories 49,976
Other current assets 19,985
-----------------
Total current assets 1,066,804
-----------------
PROPERTY AND EQUIPMENT, net 784,306
-----------------
OTHER ASSETS
Intangible asset, net 781,279
Other 70,401
-----------------
851,680
-----------------
$ 2,702,790
=================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Line of credit, bank $ 582,704
Loan payable 1,500,000
Accounts payable and accrued expenses 1,454,117
Obligations under capital leases, current portion 170,780
Due to stockholders 32,888
Deferred revenues 498,644
Other current liabilities 122,974
-----------------
Total current liabilities 4,362,107
-----------------
LONG-TERM LIABILITIES
Obligations under capital leases, less current portion 98,846
-----------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Class A common stock, .01 par value,
authorized 2,500,000 shares,
issued and outstanding 1,098,000 shares 10,980
Class B common stock, .01 par value,
authorized 200,000 shares, no shares
issued or outstanding
Capital in excess of par value 814,703
Accumulated deficit (2,583,846)
-----------------
Total stockholders' deficit (1,758,163)
-----------------
$ 2,702,790
=================
</TABLE>
See notes to unaudited consolidated financial statements.
F-44
<PAGE>
NETLAN ENTERPRISES, INC.AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
================================================================================
NINE MONTHS ENDED SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
<S> <C>
REVENUES
Internet applications $ 1,295,874
Educational services 1,654,593
Other 75,508
-----------------
3,025,975
-----------------
COST OF REVENUES
Internet applications 878,324
Educational services 1,074,828
-----------------
1,953,152
-----------------
GROSS PROFIT 1,072,823
OPERATING EXPENSES 1,793,011
-----------------
LOSS FROM OPERATIONS (720,188)
OTHER EXPENSES
INTEREST EXPENSE 167,518
LOSS FROM DISPOSAL OF ASSETS 55,775
-----------------
223,293
-----------------
LOSS FROM CONTINUING OPERATIONS (943,481)
LOSS FROM DISCONTINUED OPERATIONS (875,321)
-----------------
NET LOSS $ (1,818,802)
=================
</TABLE>
See notes to unaudited consolidated financial statements.
F-45
<PAGE>
NETLAN ENTERPRISES, INC.AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)
<TABLE>
<CAPTION>
================================================================================
NINE MONTHS ENDED SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
CLASS A CAPITAL IN
COMMON STOCK EXCESS OF ACCUMULATED
SHARES AMOUNT PAR VALUE DEFICIT TOTAL
<S> <C> <C> <C> <C> <C>
BALANCES, January 1, 1999 1,098,000 $ 10,980 $ 814,703 $ (765,044) $ 60,639
NET LOSS (1,818,802) (1,818,802)
----------------------------------------------------------------------------
BALANCES, September 30, 1999 1,098,000 $ 10,980 $ 814,703 $(2,583,846) $(1,758,163)
============================================================================
</TABLE>
See notes to unaudited consolidated financial statements.
F-46
<PAGE>
NETLAN ENTERPRISES, INC.AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
================================================================================
NINE MONTHS ENDED SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,818,802)
Deduct loss from discontinued operations 875,321
-----------------
Loss from continuing operations (943,481)
Adjustments to reconcile loss from continuing operations
to net cash provided by continuing operations:
Depreciation and amortization 235,329
Write-off of deferred software costs 74,169
Changes in operating assets and liabilities:
Decrease in accounts receivable 407,879
Decrease in inventories 21,599
Increase in other current assets (16,671)
Increase in other assets (47,801)
Increase in accounts payable and accrued expenses 764,077
Decrease in deferred revenues (15,251)
Decrease in other current liabilities (3,250)
-----------------
Net cash provided by continuing operations 476,599
Net cash used in discontinued operations (1,382,077)
-----------------
NET CASH USED IN OPERATING ACTIVITIES (905,478)
-----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (83,484)
Decrease in restricted cash 1,929
-----------------
NET CASH USED IN INVESTING ACTIVITIES (81,555)
-----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings from line of credit, bank 522,573
Principal repayments of obligations under capital leases (132,364)
-----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 390,209
-----------------
NET DECREASE IN CASH (596,824)
CASH, beginning of period 804,680
-----------------
CASH, end of period $ 207,856
=================
</TABLE>
See notes to unaudited consolidated financial statements.
F-47
<PAGE>
NETLAN ENTERPRISES, INC.AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
================================================================================
NINE MONTHS ENDED SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
<S> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION,
cash paid during the period for interest $ 200,500
=================
SUPPLEMENTARY SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Property and equipment recorded pursuant to
obligations under capital leases $ 228,406
=================
In 1999, the Company used restricted cash of $500,000
to pay down the loan payable.
</TABLE>
See notes to unaudited consolidated financial statements.
F-48
<PAGE>
NETLAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
================================================================================
<TABLE>
<S> <C>
1. BASIS OF PRESENTATION These financial statements should be read in conjunction with the Company's audited financial
statements for the year ended December 31, 1998. Interim results are not necessarily indicative
of results that may be expected for the full fiscal year. All adjustments that are of a normal
and recurring nature and, in the opinion of management, necessary for a fair presentation have
been included.
2. NATURE OF BUSINESS NETLAN Enterprises Inc. and Subsidiaries ("NETLAN") provides its client base strategic technology
and education solutions. NETLAN designs, develops and implements collaborative computing
applications providing client organizations the ability to replace paper-based processes with
enhanced computer-based applications. In addition, NETLAN provides authorized technical education
for Citrix, Lotus Development Corporation, Microsoft Corporation, and Novell Inc. to its client
base. NETLAN also provides services related to the expanding internet marketplace through its
Interactive Applications Division. These services include internet strategy development and
analysis, internet marketing strategy development and implementation, web site development,
development and implementation of CD-ROM based and web based custom training applications.
NETLAN's services and products are provided to commercial, government and not-for-profit
organizations. Substantially all of NETLAN's revenues are derived from customers in the New York
Metropolitan area.
3. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES Principles of Consolidation
The consolidated financial statements include the accounts of NETLAN Enterprises, Inc. and its
wholly owned subsidiaries: Netlan Inc., Netlan II Inc., and Netlan Acquisition Corp.
(collectively "the Company").
Inventories
Inventories are stated at the lower of cost or net realizable value, determined on the "first-in,
first-out" (FIFO) basis.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and amortization.
Depreciation is calculated on the straight-line method over estimated useful lives ranging from 3
to 7 years. Leasehold improvements are amortized using the straight-line method over the terms of
the respective leases.
</TABLE>
F-49
<PAGE>
NETLAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
================================================================================
<TABLE>
<S> <C>
3. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED) Intangible Asset
Goodwill is amortized on a straight-line method over its estimated useful life of 5 years.
Income Taxes
NETLAN's stockholders have elected to treat the Company as an "S" Corporation for federal and
state income tax purposes. Accordingly, the individual stockholders are liable for taxes on
corporate income and receive the benefit of allowable corporate losses.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Revenue Recognition
Internet applications revenue is recognized on a percentage-of-completion basis. The revenues and
costs related to the unearned portion of a contract are treated as deferred revenues and prepaid
expenses in the accompanying consolidated balance sheet. In addition, educational service revenue
is recognized upon completion of the seminar and based on the class attended. Deferred revenues
include amounts billed for training seminars and classes that have not been completed.
</TABLE>
F-50
<PAGE>
NETLAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
================================================================================
<TABLE>
<S> <C>
4. INVENTORIES At September 30, 1999, inventories consist of the following:
Spare parts $ 7,000
Course materials 42,976
--------
$ 49,976
========
5. PROPERTY AND EQUIPMENT At September 30, 1999, property and equipment consist of the following:
Furniture and fixtures $ 300,257
Office,classroom and
lab equipment 2,051,222
Leasehold improvements 102,541
----------
$2,454,020
Accumulated depreciation
and amortization 1,669,714
----------
$ 784,306
==========
Depreciation and amortization expense from continuing operations for the nine months ended
September 30, 1999 was $87,000.
</TABLE>
F-51
<PAGE>
NETLAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
================================================================================
<TABLE>
<S> <C>
6. INTANGIBLE ASSET
At September 30, 1999, Intangible asset consists of the following:
Goodwill $ 941,717
Less accumulated amortization 160,438
-----------
$ 781,279
===========
Amortization expense from continuing operations for the nine months ended
September 30, 1999 was approximately $148,000.
F-52
<PAGE>
NETLAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
================================================================================
</TABLE>
<TABLE>
<S> <C>
7. LINE OF CREDIT, BANK In January 1999, the Company obtained a $2.5 million revolving line of credit which bears
interest at the bank's base rate plus .6%. The line of credit is collateralized by substantially
all of the Company's assets and is personally guaranteed by certain stockholders of the Company.
The maximum amount the Company can borrow on the line of credit is the lesser of $2.5 million or
85% of the net amount of Acceptable Accounts Receivable, as defined in the line of credit
agreement. In February 1999, the bank froze the outstanding borrowings of approximately $583,000
under the line of credit (Note 18).
8. LOAN PAYABLE On November 3, 1998 the Company obtained financing in the form of a loan payable of $2,000,000
which bears interest at 10.25% and matures November 3, 2005. Interest is payable in monthly
installments beginning on December 1, 1998. Principal is payable in monthly installments
of $33,333 beginning on November 1, 2000 through the maturity date. The loan agreement
contains various restrictions and covenants. The loan includes warrants to purchase
102,000 shares or 8.5% of the Company's common stock at $14.42 per share through June 30, 2009.
On or after November 3, 2003, the Company may repurchase the warrant at a call price as defined
in the agreement. In addition, the lender may require the Company to repurchase the warrant at a
put price, as defined in the agreement. In addition, the lender may require the Company to
repurchase the warrant at a put price, as defined in the agreement. The Company is required to
establish and maintain an escrow fund of $500,000 in accordance with an agreement with the
lender. On July 22, 1999, balance of the escrow fund of $500,000 was applied to the outstanding
balance of the $2,000,000 loan payable (Note 18).
In exchange for professional services rendered in connection with the financing, the Company has
granted an unrelated consulting firm a warrant to purchase 137,000 shares of the Company's common
stock at $14.42 per share through October 3, 2008.
On March 31, 1999, the Company issued a warrant to lender of the $2,000,000 loan payable to
purchase 4,000 shares or .3323% of the Company's common stock at $6.25 per share through June 30,
2009.
</TABLE>
F-53
<PAGE>
NETLAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
================================================================================
<TABLE>
<S> <C>
9. OBLIGATIONS UNDER
CAPITAL LEASES At September 30, 1999, obligations under capital leases consist of the following:
Various leases with monthly
payments aggregating $15,518 $ 299,646
Less amount representing interest 30,020
---------
Present value of lease payments 269,626
Less current portion 170,780
---------
$ 98,846
=========
Scheduled aggregate payments on obligations under capital leases are as follows:
YEARS ENDING SEPTEMBER 30,
2000 $ 195,494
2001 93,700
2002 10,452
---------
$ 299,646
=========
At September 30, 1999, property and equipment includes assets acquired under capital leases with
a cost of approximately $484,000 and accumulated depreciation of approximately $143,000.
</TABLE>
F-54
<PAGE>
NETLAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
================================================================================
<TABLE>
<S> <C>
10. PROFIT SHARING PLAN The Company has a 401(k) profit sharing plan, which covers substantially all employees that meet
certain eligibility requirements. The participants of the plan are permitted to defer up to 15%
of their compensation annually, however, the deferral may not exceed limits imposed by the
Internal Revenue Code. The Company makes an annual contribution matching up to three percent of
total compensation. Any additional contributions to the plan by the Company are made at the
discretion of the Board of Directors. Contributions under this plan were approximately $40,000
for the nine months ended September 30, 1999.
11. STOCKHOLDERS' EQUITY On July 19, 1999, the Company amended its certificate of incorporation increasing the authorized
shares of common stock to 2,700,000 of which 2,500,000 shares are designated as voting (class A)
and 200,000 shares are designated as non-voting (class B). As a result of the amendment, the
stockholders approved to issue 99 voting shares of common stock for each of the 10,980 voting
shares then outstanding. The accompanying consolidated financial statements have been restated to
give effect of this transaction.
12. STOCK OPTIONS On July 19, 1999, the Company amended its incentive stock option plan (the "Plan ") which
provides for the granting of stock options, for up to 83,700 class B common shares, to key
employees at a price not less than fair market value at the date of the grant. The stock options
expire and terminate automatically upon the earlier of thirty days following cessation of
employment by the Company, three months following effective date of the grantee's retirement, one
year following the date on which the grantee's services ceases with the Company due to death or
disability and the date of expiration of the option determined by the Board of Directors of the
Company. The Company granted 27,967 stock options at $1.50 per share, the fair value at the date
of the grant. Had compensation cost for the Plan been determined based on the fair value at the
grant dates, consistent with SFAS No. 123, the Company's 1999 net loss would have been adjusted
to the pro forma amounts indicated below:
Net loss,as reported $ (1,818,802)
===========
Net loss,pro forma (1,837,802)
===========
The fair value of each option grant is estimated on the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions used for grants in 1999:
risk-free interest rate of 6%; no dividend yield; expected lives of 10 years; and zero
volatility.
</TABLE>
F-55
<PAGE>
NETLAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
================================================================================
<TABLE>
<S> <C>
13. CONCENTRATION OF CREDIT
RISK The Company maintains its cash balances in financial institutions located in the New York
Metropolitan area. At various times during the nine months ended September 30, 1999, the
Company's cash balances exceeded the federally insured deposit limit of $100,000.
14. COMMITMENTS AND
CONTINGENCIES The Company leases its office facilities under four operating leases expiring in 2001. The leases
provide for minimum annual rent plus adjustments for increases in the Consumer Price Index and
certain expenses over base period amounts. Aggregate future minimum rental payments are as
follows:
YEARS ENDING SEPTEMBER 30,
2000 $ 297,000
2001 188,000
---------
$ 485,000
=========
Rent expense for the nine months ended September 30, 1999 was approximately $115,000.
The Company is a defendant in various lawsuits related to matters arising in the normal course of
business. It is the opinion of management that the disposition of these lawsuits will not
individually or in the aggregate materially adversely affect the consolidated financial position,
results of operations or cash flows of the Company.
15. RELATED PARTY TRANSACTION At September 30, 1999, the Company had loans payable to stockholders of approximately $33,000.
The loans bear interest at 3.20% and are due on demand.
</TABLE>
F-56
<PAGE>
NETLAN ENTERPRISES, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
================================================================================
<TABLE>
<S> <C>
16. LIQUIDITY The Company has incurred a loss from continuing operations of approximately $943,000 and has a
working capital deficit of approximately $3,295,000 at September 30, 1999. The Company's plans
include seeking strategic investors or technology partners to fund its operating losses and
financing arrangements. Management believes that, despite the financial hurdles going forward, it
has under development a business plan that, if successfully funded (Note 18), can significantly
improve operating results. The support of the Company's vendors, customers, lenders, stockholders
and employees will continue to be key to the Company's future success. Long-term liquidity is
dependent on the Company's ability to obtain long-term financing and attain profitable
operations.
17. SEGMENT INFORMATION The Company has two reportable segments: Netlan II Inc. and Netlan Acquisition Corp. ("ICI").
The Netlan II Inc. segment provides authorized technical education and training. The ICI segment
provides services relating to internet strategy development and analysis, internet marketing
strategy development and implementation, web site development, CD-ROM based and web based custom
training applications and design, development and implementation of collaborative computing
applications. Some business activities cannot be classified in the aforementioned segments and
are shown under "Corporate". Those businesses relate mainly to corporate activities of the
Company.
Operating segment information for the nine months ended September 30, 1999 is summarized as
follows (in thousands):
</TABLE>
<TABLE>
<CAPTION>
NETLAN
ACQUISITION
CORP.
NOTLAN II INC. ("ICI") CORPORATE CONSOLIDATED
<S> <C> <C> <C> <C>
Revenues $ 1,724 $ 1,302 $ -- $ 3,026
=====================================================================================
Operating loss $ (155) $ (158) $ (407) $ (720)
=====================================================================================
Total assets $ 933 $ 1,293 $ 251 $ 2,477
=====================================================================================
</TABLE>
F-57
<PAGE>
NETLAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
================================================================================
<TABLE>
<S> <C>
17. SEGMENT INFORMATION
(CONTINUED) The total assets in the above table include the assets from continuing operations only, total
assets of Netlan Inc., the discontinued segment (Note 18), were $226 as of September 30, 1999.
18. SUBSEQUENT EVENTS On October 31, 1999, the Company discontinued its services relating to computer network design,
network design, consulting, implementation, integration, procurement and support. For the nine
months ended September 30, 1989, the loss from discontinued operations, net of tax benefit was
approximately $875,000 and revenues from discontinued operations were approximately $5,348,000.
The accompanying consolidated financial statements have been restated to reflect the income and
expenses relating to these operations as loss from discontinued operations.
On December 1, 1999, the Company issued 1,368,000 additional shares of its common stock to
certain of its existing stockholders/employees and to one of its employees for no consideration.
The Company will charge compensation for the fair value of the shares issued.
On January 7, 2000, the Company signed a letter of intent with eB2B Commerce, Inc. ("eB2B.com")
whereby the Company's shareholders will exchange 100% of their common stock for 125,000
equivalent shares, as defined in the agreement, of eB2B.com.
As of January 22, 2000, the Company is in default of certain financial covenants set forth in the
line of credit agreement.
As of January 7, 2000, the Company is in violation of certain covenants set forth in the
$1,500,000 loan agreement and as a result, the $1,500,000 is reflected in current liabilities in
the accompanying consolidated balance sheet.
</TABLE>
F-58
<PAGE>
PART II
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's certificate of incorporation provides that the Company
will indemnify any person who is or was a director, officer, employee or agent
of the Company to the fullest extent permitted by the New Jersey Business
Corporation Act, and to the fullest extent otherwise permitted by law. The New
Jersey law permits a New Jersey corporation to indemnify its directors,
officers, employees and agents against liabilities and expenses they may incur
in such capacities in connection with any proceeding in which they may be
involved, unless a judgment or other final adjudication adverse to the director,
officer, employee or agent in question establishes that his or her acts or
omissions (a) were in breach of his or her duty of loyalty (as defined in the
New Jersey law) to the Company or its stockholders, (b) were not in good faith
or involved a knowing violation of law or (c) resulted in the receipt by the
director, officer, employee or agent of an improper personal benefit.
Pursuant to the Company's certificate of incorporation and the New
Jersey law, no director or officer of the Company will be personally liable to
the Company or to any of its stockholders for damages for breach of any duty
owed to the Company or its stockholders, except for liabilities arising from any
breach of duty based upon an act or omission (i) in breach of such director's or
officer's duty of loyalty (as defined in the New Jersey law to the Company or
its stockholders, (ii) not in good faith or involving a knowing violation of law
or (iii) resulting in receipt by such director or officer of an improper
personal benefit.
In addition, the Company's bylaws include provisions to indemnify its
officers and directors and other persons against expenses, judgments, fines and
amounts incurred or paid in settlement in connection with civil or criminal
claims, actions, suits or proceedings against such persons by reason of serving
or having served as officers, directors, or in other capacities, such person
acted in good faith, and in a manner such person reasonably believed to be in or
not opposed to the best interests of the Company and, in a criminal action or
proceeding, if he had no reasonable cause to believe that his/her conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent will
not, of itself, create a presumption that the person did not act in good faith
and in a manner which he or she reasonably believed to be in or not opposed to
the best interests of the corporation or that he or she had reasonable cause to
believe his or her conduct was unlawful. Indemnification as provided in the
bylaws will be made only as authorized in a specific case and upon a
determination that the person met the applicable standards of conduct.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
<S> <C>
2.1 Definitive Merger Agreement by and between eB2B Commerce, Inc. and
DynamicWeb Enterprises, Inc., dated December 1, 1999.#
2.2 Letter Agreement by and between eB2B Commerce, Inc. and DynamicWeb
Enterprises, Inc., dated November 10, 1999.#
2.3 Amendment No. 1 to the Letter Agreement by and between eB2B Commerce,
Inc. and DynamicWeb Enterprises, Inc., dated November 19, 1999.#
3.1.1 Certificate of Incorporation of DynamicWeb Enterprises, Inc., as filed
with the Secretary of State of New Jersey on August 7, 1979 (incorporated
by reference to Exhibit 3.1.1 filed with Registrant's Annual Report on
Form 10-K for the Year ended December 31, 1991).
3.1.2 Certificate of Amendment to the Certificate of Incorporation of DynamicWeb
Enterprises, Inc., as filed with the Secretary of State of New Jersey on
May 19, 1980 (incorporated by reference to Exhibit 3.1.2 filed with
Registrant's Annual Report on Form 10-K for the Year ended December 31, 1991).
3.1.3 Certificate of Amendment to the Certificate of Incorporation of DynamicWeb
Enterprises, Inc., as filed with the Secretary of State of New Jersey on
April 1981 (incorporated by reference to Exhibit 3.1.3 filed with Registrant's
Annual Report on Form 10-K for the Year ended December 31, 1991).
3.1.4 Certificate of Amendment to the Certificate of Incorporation of DynamicWeb
Enterprises, Inc., as filed with the Secretary of State of New Jersey on April
24, 1986 (incorporated by reference to Exhibit 3.1.4 filed with Registrant's
Annual Report on Form 10-K for the Year ended December 31, 1991).
3.1.5 Certificate of Amendment to the Certificate of Incorporation of DynamicWeb
Enterprises, Inc., as filed with the Secretary of State of New Jersey on July
15, 1988 (incorporated by reference to Exhibit 3.1.5 filed with Registrant's
Annual Report on Form 10-K for the Year ended December 31, 1991).
3.1.6 Certificate of Amendment to the Certificate of Incorporation of DynamicWeb
Enterprises, Inc., as filed with the Secretary of State of New Jersey on November
28, 1989 (incorporated by reference to Exhibit 3.1.6 filed with Registrant's
Annual Report on Form 10-K for the Year ended December 31, 1991).
3.1.7 Certificate of Amendment to the Certificate of Incorporation of DynamicWeb
Enterprises, Inc., as filed with the Secretary of State of New Jersey on August
15, 1994 (incorporated by reference to Exhibit 3.1.7 filed with Registrant's
Annual Report on Form 10-K for the Year ended December 31, 1994).
3.1.8 Certificate of Amendment to the Certificate of Incorporation of DynamicWeb
Enterprises, Inc., as filed with the Secretary of State of New Jersey on May
14, 1996, changing the name of the Company to DynamicWeb Enterprises, Inc.
(incorporated by reference to Exhibit 3.2.3 filed with Registrant's
Annual Report on Form 10-KSB for the Year ended December 31, 1995).
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
3.1.9 Certificate of Amendment and Restatement of the Certificate of
Incorporation of DynamicWeb Enterprises, Inc., as filed with the
Secretary of State of New Jersey on January 6, 1998 (incorporated by
reference to Exhibit 3.1.9 filed with Registrant's Registration
Statement on Form SB-2/A No. 4 filed on January 30, 1998).
3.1.10 Amendment to the Certificate of Incorporation of DynamicWeb
Enterprises, Inc. dated August 6, 1998, as filed with the Secretary of
State of New Jersey on August 7, 1998 (incorporated by reference to
Exhibit 3.1.10 of Registrant's Registration Statement on Form S-2 filed
on November 7, 1998).
3.1.11 Amendment to the Certificate of Incorporation of DynamicWeb
Enterprises, Inc., dated May 12, 1999, as filed with the State of New
Jersey on May 18, 1999, regarding the Series A 6% Cumulative Preferred
Stock.#
3.1.12 Amendment to the Certificate of Incorporation of DynamicWeb
Enterprises, Inc., dated May 12, 1999, as filed with the State of New
Jersey on May 13, 1999, regarding the Series B 6% Cumulative Preferred
Stock. ^
3.2.1 Bylaws of DynamicWeb Enterprises, Inc. adopted August 7, 1979 (incorporated
by reference to Exhibit 3.2.1 filed with Registrant's Annual Report on
Form 10-K for the Year ended December 31, 1991).
3.2.2 Amendments to Bylaws of DynamicWeb Enterprises, Inc., adopted March 8,
1982 (incorporated by reference to Exhibit 3.2.2 filed with Registrant's
Annual Report on Form 10-K for the Year ended December 31, 1991).
3.2.3 Amended and Restated Bylaws of DynamicWeb Enterprises, Inc., adopted March
7, 1997 (incorporated by reference to Exhibit 3.2.3 filed with Registrant's
Annual Report on Form 10-KSB for the Year ended September 30, 1996).
3.2.4 Amendments to the Bylaws of DynamicWeb Enterprises, Inc., adopted January
21, 1998 (incorporated by reference to Exhibit 3.2.4 of Registrant's
Registration Statement on Form SB-2 filed on September 15, 1997 as
amended by Registrant's Registration Statement on Form SB-2/A No. 5 filed
on January 30, 1998).
3.3.1 Certificate of Incorporation of eB2b Commerce, Inc., dated November 6,
1998 as filed with the State of Delaware on November 6, 1998.*
3.3.2 Certificate of Amendment to Certificate of Incorporation of eB2b
Commerce, Inc., dated December 10, 1998 as filed with the State of
Delaware on December 10, 1998.*
3.3.3 Certificate of Amendment to Certificate of Incorporation of eB2b
Commerce, Inc., dated January 19, 1999 as filed with the State of
Delaware on January 19, 1999.*
3.3.4 Certificate of Amendment to Certificate of Incorporation of eB2b
Commerce, Inc., dated March 18, 1999 as filed with the State of
Delaware on March 19, 1999.*
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
3.3.5 Certificate of Designation of Series A Preferred Stock of eB2B
Commerce, Inc., dated August 10, 1999 as filed with the State of
Delaware on August 12, 1999.*
3.3.6 Certificate of Designation of Series B Preferred Stock of eB2B
Commerce, Inc., dated November 22, 1999 as filed with the State of
Delaware on November 22, 1999.*
3.3.7 Certificate of Incorporation of Newco dated ____________, 2000
as filed with the State of Delaware on __________, 2000 (after the
merger).*
3.3.8 Certificate of Designation of Series A Preferred Stock of Newco,
dated _________________, 2000 as filed with the State of Delaware
on ________________, 2000 (after the merger).*
3.3.9 Certificate of Designation of Series B Preferred Stock of Newco,
dated _________________, 2000 as filed with the State of Delaware
on ________________, 2000 (after the merger).*
3.3.10 By-Laws of Newco (after the merger).*
4.1 Warrant Agreement, dated November 12, 1999, by and between eB2B
Commerce, Inc. and DynamicWeb Enterprises, Inc.#
4.2 Warrant Certificate in the name of eB2B Commerce, Inc. for 2,500,000
shares of common stock of DynamicWeb Enterprises, Inc., dated November
10, 1999.#
4.3 Warrant Certificate in the name of eB2B Commerce, Inc. for 5,000,000
shares of common stock of DynamicWeb Enterprises, Inc., dated November
19, 1999.#
5.1 Form of Opinion of Brown Raysman Millstein Felder & Steiner LLP as to
Legality.***
10.1 Letter Agreement between DynamicWeb Enterprises, Inc. and Robert J.
Gailus, dated November 27, 1998.#
10.2 Common Stock Purchase Warrant Agreement between DynamicWeb Enterprises,
Inc. and Robert Gailus, dated as of November 25, 1998.#
10.3 Employment Agreement between Peter J. Fiorillo and eB2B Commerce, Inc.,
dated effective as of December 1, 1998.*
10.4 Accrued Salary Stock Purchase Agreement between Peter J. Fiorillo and
eB2B Commerce, Inc., dated effective as of December 1, 1998.*
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C>
10.5 Executive Performance Equity Agreement between Peter Fiorillo and eB2B
Commerce, Inc., dated effective as of December 1, 1998.*
10.6 Employment Agreement between Kevin Hayes and eB2B Commerce, Inc., dated
effective as of December 1, 1998.*
10.7 Accrued Salary Stock Purchase Agreement between Kevin Hayes and eB2B
Commerce, Inc., dated effective as of December 1, 1998.*
10.8 Executive Performance Equity Agreement between Kevin Hayes and eB2B
Commerce, Inc., dated effective as of December 1, 1998.*
10.9 Employment Agreement between Joseph Bentley and eB2B Commerce, Inc.,
dated effective as of December 1, 1998.*
10.10 Accrued Salary Stock Purchase Agreement between Joseph Bentley and eB2B
Commerce, Inc., dated effective as of December 1, 1998.*
10.11 Executive Performance Equity Agreement between Joseph Bentley and eB2B
Commerce, Inc., dated effective as of December 1, 1998.*
10.12 Letter Agreement, dated September 27, 1999, between DynamicWeb
Enterprises, Inc. and Sands Brothers & Co., Ltd. for financial,
strategic and other consulting advice.#
10.13 Common Stock Purchase Warrant Agreement between DynamicWeb Enterprises,
Inc. and Donner Corp. International, dated as of September 30, 1999.#
10.14 Employment Agreement between James Conners and DynamicWeb Enterprises,
Inc., dated August 26, 1997, as renewed effective October 1, 1999.#
10.15 Loan Agreement by and between eB2B Commerce, Inc. and DynamicWeb
Enterprises, Inc., dated November 12, 1999.#
10.16 Common Stock Purchase Warrant Agreement between
DynamicWeb Enterprises, Inc. and Denis Clark, dated as of November 19,
1999.#
10.17 Common Stock Purchase Warrant Agreement between DynamicWeb Enterprises,
Inc. and Peter Baxter, dated as of November 19, 1999.#
10.18 Amendment No. 1 to the Loan Agreement by and between eB2B Commerce,
Inc. DynamicWeb Enterprises, Inc., dated November 19, 1999.#
10.19 Common Stock Purchase Warrant Agreement between DynamicWeb Enterprises,
Inc. and Virtual `Ex, dated as of November 19, 1999.#
10.20 Settlement Agreement between DynamicWeb Enterprises, Inc. and Virtual
`Ex, dated as of November 23, 1999.#
10.21 Agency Agreement between Commonwealth Associates, L.P. and eB2B
Commerce, Inc., dated October , 1999.*
10.22 Amended Agency Agreement between Commonwealth Associates, L.P. and eB2B
Commerce, Inc., dated October , 1999.*
10.23 Series B Preferred Stock Purchase Warrant Agreement between
Commonwealth Associates, L.P. and eB2B Commerce, Inc., dated October ,
1999.*
10.24 eB2B Commerce, Inc. 2000 Stock Option Plan (after the merger).***
11. Not applicable.
20. Fairness Opinion of Auerbach, Pollack & Richardson, Inc.*
21. Not applicable.
23.1 Consent of Brown Raysman Millstein Felder & Steiner LLP (included in
Exhibit 5.1).
23.2 Consent of Richard A. Eisner & Company, LLP*
23.3 Consent of Ernst & Young LLP*
23.4 Consent of Rothstein, Kass & Company, P.C.*
27. Financial Data Schedule (EDGAR filing only).#
99.1 Proxy Card of DynamicWeb Enterprises, Inc.*
</TABLE>
II-5
<PAGE>
* Filed herewith
** Incorporated here by reference to the Current Report on Form 8-K/A,
dated February 23, 1999, filed by DynamicWeb Enterprises, Inc. with the
Securities and Exchange Commission.
*** To be filed by amendment.
+ Incorporated here by reference to the Current Report on Form 8-K, dated
April 26, 1999, filed by DynamicWeb Enterprises, Inc. with the
Securities and Exchange Commission.
^ Incorporated here by reference to the Form S-2 Registration Statement
filed with the Securities and Exchange Commission on May 20, 1999.
# Incorporated here by reference to 10-KSB filed with the Securities and
Exchange Commission on December 30, 1999.
II-6
<PAGE>
ITEM 22. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnifications against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer or controlling person of the
Company in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the
securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, DynamicWeb
Enterprises, Inc. has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Fairfield, State of New Jersey on January 24, 2000.
DYNAMICWEB ENTERPRISES, INC.
By: /s/ STEVEN L. VANECHANOS, JR.
Steven L. Vanechanos, Jr.
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, each person whose signature appears
below constitutes and appoints Steve Vanechanos, Sr. and Steven L. Vanechanos,
Jr., and each of them, his true and lawful attorney-in-fact, as agent with full
power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacities, to sign any or all amendments to this
Registration Statement and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting to each such attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully and to all intents and purposes
as each of them might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1934, this
registration statement has been signed by the following persons and in the
capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ STEVEN L. VANECHANOS, JR. Chief Executive January 24, 2000
Steven L. Vanechanos, Jr. Officer and Director
/s/ STEVE VANECHANOS, SR. Vice President, Treasurer, January 24, 2000
Steve Vanechanos, Sr. Secretary and Director
/s/ NINA PESCATORE Controller January 24, 2000
Nina Pescatore
/s/ DENIS CLARK Director January 24, 2000
Denis Clark
/s/ FRANK T. DiPALMA Director January 24, 2000
Frank T. DiPalma
/s/ ROBERT DROSTE Director January 24, 2000
Robert Droste
/s/ ROBERT GAILUS Director January 24, 2000
Robert Gailus
/s/ KENNETH R. KONIKOWSKI Director January 24, 2000
Kenneth R. Konikowski
</TABLE>
II-8
STATEMENT OF DIFFERENCES
------------------------
The service mark symbol shall be expressed as ........................ 'sm'
<PAGE>
CERTIFICATE OF INCORPORATION
OF
eCHANNEL VENTURES INC.
FIRST: The name of this corporation is eChannel Ventures Inc.
SECOND: Its registered office in the State of Delaware is to be located at 15
North Street, in the City of Dover, County of Kent, 19901. The
registered agent in charge thereof is Nationwide Information Services,
Inc.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General
Coporation Law of Delaware.
FOURTH: The amount of the total authorized capital stock of this corporation is
200 shares with no par value.
FIFTH: The name and mailing address of the incorporation is as follows:
John J. Hughes, Jr
c/o Moskowitz, Altman & Hughes
11 East 44th St. Rm 504
New York, NY 10017-3608
I, the undersigned, for the purpose of forming a corporation under the
laws of the State of Delaware, do make, file and record this Certificate, and do
certify that the facts herein stated are true, and I have accordingly hereunto
set my hand on November 6, 1998.
s/ John J. Hughes, Jr.,
------------------------------
John J. Hughes, Jr.
Incorporator
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 11/06/1998
981427634 - 2963648
<PAGE>
CERTIFICATE OF AMENDMENT
TO CERTIFICATE OF INCORPORATION
eCHANNEL VENTURES INC.
The undersigned incorporator of eChannel Ventures Inc. (the "Company")
hereby certifies that the Company has not received any payment for any of its
stock, that the Company's directors have yet to be elected and that the sole
incorporator of the Company has adopted the following amendments to the
Company's Certificate of Incorporation in accordance with the provisions of
Section 241 of the General Corporation Law of the State of Delaware.
FIRST, that the Certificate of Incorporation of the Company be amended
by striking out the whole of Article Fourth as it now exists and inserting in
lieu thereof a new Article Fourth, which shall read as follows:
FOURTH: The total number of shares of stock which the
corporation shall have authority to issue is 20,000,000, of which
19,800,000 shares shall be Common Stock, $0.001 par value, and 200,000
of which shall be Preferred Stock, $0.001 par value, which shall be
subject to the provisions of ARTICLE SIXTH.
SECOND, that the Certificate of Incorporation of the Company be amended
by inserting a new Article Sixth, which shall read as follows:
SIXTH: The Board of Directors is authorized, subject to
limitations prescribed by law and the provisions of the Article FOURTH,
to provide for the issuance of shares of Preferred Stock in series, and
by filing a certificate pursuant to the applicable law of the State of
Delaware, to establish from time to time the number of shares to be
included in each such series, and to fix the designation, powers,
preferences and rights of the shares of each such series and the
qualifications, limitations or restrictions thereof.
THIRD, that the Certificate of Incorporation of the Company be amended
by inserting a new Article Seventh, which shall read as follows:
SEVENTH: The directors of the Company shall have the power to
make and to alter or amend the By-laws of the Company; to fix the
amount to be reserved as working capital; and to authorize and cause to
be executed mortgages and liens without limit as to the amount upon the
property and franchise of the Company.
FOURTH, that the Certificate of Incorporation of the Company be amended
by inserting a new Article Eighth, which shall read as follows:
EIGHTH: The personal liability of the directors of the Company
is hereby eliminated to the fullest extent permitted by Section
102(b)(7) of the General Corporation Law of the State of Delaware, as
the same may be amended and supplemented.
FIFTH, that the Certificate of Incorporation of the Company be amended
by inserting a new Article Ninth, which shall read as follows:
<PAGE>
NINTH: The Corporation shall, to the fullest extent permitted
by Section 145 of the General Corporation Law of the State of Delaware,
as the same may be amended and supplemented, indemnify any and all
persons whom it shall have the power to indemnify under said section
from and against any and all of the expenses, liabilities, or other
matters referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed exclusive of
any other rights to which those indemnified may be entitled under any
Bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action
in another capacity while holding such office, and shall continue as to
a person who has ceased to be director, officer, employee, or agent and
shall inure to the benefit of the heirs, executors, and administrators
of such person.
IN WITNESS WHEREOF, the undersigned incorporator of eChannel Ventures
Inc. has executed this certificate on the 10th day of December, 1998 and affirms
under penalties of perjury that the statements contained herein are true and
correct.
------------------------
John J. Hughes, Jr.
Incorporator
<PAGE>
CERTIFICATE OF AMENDMENT
TO CERTIFICATE OF INCORPORATION
eCHANNEL VENTURES INC.
The undersigned incorporator of eChannel Ventures Inc. (the "Company")
hereby certifies that the Company has not received any payment for any of its
stock, that the Company's directors have yet to be elected and that the sole
incorporator of the Company has adopted the following amendment to the Company's
Certificate of Incorporation in accordance with the provisions of Section 241 of
the General Corporation Law of the State of Delaware.
The Certificate of Incorporation of the Company shall be amended by
striking out the whole of Article First as it now exists and inserting in lieu
thereof a new Article First, which shall read as follows:
FIRST: The name of the corporation is: eB2Buy Inc.
IN WITNESS WHEREOF, the undersigned incorporator of eChannel Ventures
Inc. has executed this certificate on the 19th day of January, 1999 and affirms
under penalties of perjury that the statements contained herein are true and
correct.
-----------------------------------
John J. Hughes, Jr.
Incorporator
<PAGE>
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
eB2BUY INC.
The undersigned officers of eB2Buy Inc. (the "Company"), a corporation
organized and existing under the laws of the State of Delaware, hereby certify
that the following amendment to the Company's Certificate of Incorporation has
been duly adopted by the Board of Directors and Shareholders of the Company in
accordance with the provisions of Section 242 of the General Corporation Law of
the State of Delaware.
The Certificate of Incorporation of the Company shall be amended by
striking out the whole of Article First as it now exists and inserting in lieu
thereof a new Article First, which shall read as follows:
FIRST: The name of the corporation is: eB2B Commerce, Inc.
IN WITNESS WHEREOF, the undersigned, duly authorized officers of eB2Buy
Inc. have executed this certificate on the 18th day of March, 1999 and affirm
under penalties of perjury that the statements contained herein are true and
correct.
By:
--------------------------
Peter Fiorillo
President
Attest:
- --------------------------
Joseph Bentley
Secretary
<PAGE>
CERTIFICATE OF DESIGNATION
OF
SERIES A PREFERRED STOCK
OF
eB2B COMMERCE, INC.
eB2B Commerce, Inc. (the "Corporation"), a corporation organized and
existing under the General Corporation Law of the State of Delaware hereby
certifies that the following resolution was adopted by the Board of Directors of
the Corporation as required by Section 151 of the General Corporation Law of
Delaware:
Resolved, that pursuant to the authority granted and vested in the
Board of Directors of the Corporation, in accordance with ARTICLE SIXTH of the
Certificate of Incorporation of the Corporation, as amended, the Board of
Directors hereby creates a series of Preferred Stock, par value $0.001, of the
Corporation and hereby states the designation and number of shares, and fixes
the rights, limitations and preferences thereof as follows:
SERIES A PREFERRED STOCK:
1. Designation and Amount. The shares of such series shall be
designated as "Series A Preferred Stock" ("Series A Preferred Stock") and the
number of shares constituting the Series A Preferred Stock shall be two thousand
(2,000). Such number of shares may be increased or decreased by resolution of
the Board of Directors; provided that no decrease shall reduce the number of
shares of Series A Preferred Stock to a number less than the number of shares
then outstanding plus the number of shares reserved for issuance upon the
exercise of outstanding options, rights or warrants or upon the conversion of
any outstanding securities issued by the Corporation convertible into Series A
Preferred Stock.
2. Dividends. The holders of Series A Preferred Stock shall not be
entitled to receive dividends in any fixed amount; provided, however, that in
the event that the Corporation shall at any time declare or pay a dividend on
the Common Stock (other than a dividend referred to in Section 4.4.4 ), it
shall, at the same time, declare and pay to each holder of Series A Preferred
Stock a dividend equal to the dividend which would have been payable to such
holder if the shares of Series A Preferred Stock held by each holder had been
converted into Common Stock on the date of determination of holders of Common
Stock entitled to receive such dividends.
3. Liquidation. Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, before any distribution or
payment is made upon Common Stock, the holders of the shares of Series A
Preferred Stock shall be entitled to be paid an amount equal to one thousand
($1,000) dollars per share, plus, in each case, an amount equal to any dividends
accrued and unpaid, and the holders of Series A Preferred Stock shall not be
entitled to any further payment ("Liquidation Payments"). If, upon such
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, the assets to be distributed among the holders of Series A
Preferred Stock shall be insufficient to permit payment to such holders of the
preferential amounts to which they are entitled, then the entire assets of the
Corporation to be so distributed shall be distributed ratably among the holders
of Series A Preferred Stock. Upon any such liquidation, dissolution or winding
up of the Corporation, after
<PAGE>
the holders of Series A Preferred Stock shall have been paid in full the amounts
to which they shall be entitled, the remaining net assets of the Corporation
available for distribution to its shareholders shall be distributed to the
holders of Common Stock. Written notice of such liquidation, dissolution or
winding up, stating a payment date, the amount of the Liquidation Payments and
the place where said Liquidation Payments shall be payable, shall be given by
mail, postage prepaid, not less than thirty (30) days prior to the payment date
stated therein, to the holders of record of Series A Preferred Stock, such
notice to be addressed to each such holder at its post office address as shown
by the records of the Corporation. Neither the consolidation or merger of the
Corporation into or with any other corporation or corporations, nor the sale or
transfer by the Corporation of all or substantially all its assets, shall be
deemed to be a liquidation, dissolution or winding up of the Corporation within
the meaning of the provisions of this Section 3.
4. Conversion.
4.1 Right to Convert. Subject to the terms and conditions of this
Section 4, the holder of any share or shares of Series A Preferred Stock shall
have the right, at its option at any time, to convert any such shares of Series
A Preferred Stock (except that upon any liquidation, dissolution or winding up
of the Corporation the right of conversion shall terminate at the close of
business on the last full business day next preceding the date fixed for payment
of the amount distributable on the Series A Preferred Stock), into five hundred
(500) shares of Common Stock at a conversion price equal to two ($2.00) dollars
per share of Common Stock, or by the conversion price as last adjusted and in
effect at the date any share or shares of such series of Series A Preferred
Stock are surrendered for conversion (such price, or such price as last
adjusted, being referred to herein as the "Series A Conversion Price"). The
rights of conversion contained in this Section 4.1 shall be exercised by the
holder of shares of Series A Preferred Stock by giving written notice that such
holder elects to convert a stated number of shares of Series A Preferred Stock
into Common Stock and by surrender of a certificate or certificates for the
shares so to be converted to the Corporation at its principal office (or such
other office or agency of the Corporation as the Corporation may designate by
notice in writing to the holder of holders of the Series A Preferred Stock) at
any time during its usual business hours on the date set forth in such notice,
together with a statement of the name or names (with address) in which the
certificate or certificates for shares of Common Stock shall be issued.
4.2 Issuance of Certificates; Time Conversion Effected. Promptly after
the receipt of the written notice referred to in Section 4.1 and surrender of
the certificate or certificates for the share or shares of Series A Preferred
Stock to be converted, the Corporation shall issue and deliver, or cause to be
issued and delivered, to the holder, registered in such name or names as such
holder may direct, a certificate or certificates for the number of whole shares
of Common Stock issuable upon the conversion of such share or shares of Series A
Preferred Stock. To the extent permitted by law, such conversion shall be deemed
to have been effected, and the Series A Conversion Price shall be determined, as
of the close of business on the date on which such written notice shall have
been received by the Corporation and the certificate or certificates for such
share or shares shall have been surrendered as aforesaid, and at such time the
rights of the holder of such share or shares of Series A Preferred Stock shall
cease, and the person or persons in whose name or names any certificate or
certificates for shares of Common Stock shall be issuable upon such conversion
shall be deemed to have become the holder or holders of record of the shares
represented thereby.
4.3 Fractional Shares; Dividends; Partial Conversion. No fractional
shares may be
<PAGE>
issued upon conversion of the Series A Preferred Stock into Common
Stock and no payment or adjustment shall be made upon any conversion on account
of any cash dividends on the Common Stock issued upon such conversion. At the
time of each conversion, the Corporation shall pay in cash an amount equal to
all dividends, if any, accrued and unpaid on the shares surrendered for
conversion to the date upon which such conversion is deemed to take place as
provided in Section 4.2. In case the number of shares of Series A Preferred
Stock represented by the certificate or certificates surrendered pursuant to
Section 4.1 exceeds the number of shares converted, the Corporation shall, upon
such conversion, execute and deliver to the holder thereof, at the expense of
the Corporation, a new certificate or certificates for the number of shares of
Series A Preferred Stock represented by the certificate or certificates
surrendered which are not to be converted. If any fractional interest in a share
of Common Stock would, except for the provisions of the first sentence of this
Section 4.3, be deliverable upon any such conversion, the Corporation, in lieu
of delivering the fractional share thereof, shall pay to the holder surrendering
the Series A Preferred Stock for conversion an amount in cash equal to the
current market price of such fractional interest as determined in good faith by
the Board of Directors of the Corporation.
4.4 Adjustment of Price Upon Issuance of Common Stock. Except as
provided in Section 4.6 hereof, if and whenever the Corporation shall issue or
sell, or is in accordance with Sections 4.4.1 through 4.4.7 deemed to have
issued or sold, any shares of its Common Stock for a consideration per share
less than the Series A Conversion Price in effect immediately prior to the time
of such issue or sale, then, forthwith upon such issue or sale, the Series A
Conversion Price shall be determined by dividing (i) an amount equal to the sum
of (a) the number of shares of Common Stock outstanding immediately prior to
such issue or sale (including as outstanding all shares of Common Stock issuable
upon conversion of outstanding Series A Preferred Stock) multiplied by the then
existing Series A Conversion Price, and (b) the consideration, if any, received
by the Corporation upon such issue or sale, by (ii) the total number of shares
of Common Stock outstanding immediately after such issue or sale (including as
outstanding all shares of Common Stock issuable upon conversion of outstanding
Series A Preferred Stock without giving effect to any adjustment in the number
of shares so issuable by reason of such issue and sale).
For purposes of this Section 4.4, the following Sections 4.4.1 to 4.4.7
shall also be applicable:
4.4.1 Issuance of Rights or Options. In case at any time the
Corporation shall in any manner grant (whether directly or by assumption in a
merger or otherwise) any rights to subscribe for or to purchase, or any options
for the purchase of, Common Stock or any stock or securities convertible into or
exchangeable for Common Stock (such rights or options being herein called
"Options" and such convertible or exchangeable stock or securities being herein
called "Convertible Securities") whether or not such Options or the right to
convert or exchange any such Convertible Securities are immediately exercisable,
and the price per share for which Common Stock is issuable upon the exercise of
such Options or upon conversion or exchange of such Convertible Securities
(determined by dividing (i) the total amount, if any, received or receivable by
the Corporation as consideration for the granting of such Options, plus the
minimum aggregate amount of additional considerations payable to the Corporation
upon the exercise of all such Options, plus in the case of such Options which
relate to Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the issue or sale of such Convertible
Securities and upon the conversion or exchange thereof, by (ii) the total
maximum number of shares of Common Stock issuable upon the exercise of such
Options) shall be less than the Series A Conversion Price in effect
<PAGE>
immediately prior to the time of the granting of such Options, then the total
maximum number of shares of Common Stock issuable upon the exercise of such
Options or upon conversion or exchange of the total maximum amount of such
Convertible Securities shall be deemed to have been issued for such price per
share as of the date of granting of such Options and thereafter shall be deemed
to be outstanding. Except as otherwise provided in Section 4.4.3, no adjustment
of the Series A Conversion Price shall be made upon the actual issue of such
Common Stock or of such Convertible Securities upon exercise of such Options or
upon the actual issue of such Common Stock upon conversion or exchange of such
Convertible Securities.
4.4.2 Issuance of Convertible Securities. In case the
Corporation shall in any manner issue (whether directly or by assumption in a
merger or otherwise) or sell any Convertible Securities, whether or not the
rights to exchange or convert thereunder are immediately exercisable, and the
price per share for which Common Stock is issuable upon such conversion or
exchange (determined by dividing (i) the total amount received or receivable by
the Corporation as consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Corporation upon the conversion or exchange thereof, by (ii)
the total maximum number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities) shall be less than the Series A
Conversion Price in effect immediately prior to the time of such issue or sale
then the total maximum number of shares of Common Stock issuable upon conversion
or exchange of all such Convertible Securities shall be deemed to have been
issued for such price per share as of the date of the issue or sale of such
Convertible Securities and thereafter shall be deemed to be outstanding,
provided that (a) except as otherwise provided in Section 4.4.3 below, no
adjustment of the Series A Conversion Price shall be made upon the actual issue
of such Common Stock upon conversion or exchange of such Convertible Securities,
and (b) if any such issue or sale of such Convertible Securities is made upon
exercise of any Option to purchase any such Convertible Securities for which
adjustments of the Series A Conversion Price have been or are to be made
pursuant to other provisions of this Section 4.4 , no further adjustment of the
Series A Conversion Price shall be made by reason of such issue or sale.
4.4.3 Change in Option Price or Conversion Rate. If (i) the
purchase price provided for in any Option referred to in Section 4.4.1, (ii) the
additional consideration, if any, payable upon the conversion or exchange of any
Convertible Securities referred to in Sections 4.4.1 or 4.4.2 or (iii) the rate
at which any Convertible Securities referred to in Sections 4.4.1 or 4.4.2 are
convertible into or exchangeable for Common Stock shall change at any time (in
each case other than under or by reason of provisions designed to protect
against dilution), then the Series A Conversion Price in effect at the time of
such event shall, as required, forthwith be readjusted to such Series A
Conversion Price which would have been in effect at such time had such Options
or Convertible Securities still outstanding provided for such changed purchase
price, additional consideration or conversion rate, as the case may be, at the
time initially granted, issued or sold; and on the expiration of any such Option
or the termination of any such right to convert or exchange such Convertible
Securities, the Series A Conversion Price then in effect hereunder shall, as
required, forthwith be increased to the Series A Conversion Price which would
have been in effect at the time of such expiration or termination had such
Option or Convertible Securities, to the extent outstanding immediately prior to
such expiration or termination, never been issued, and the Common Stock issuable
thereunder shall no longer be deemed to be outstanding. If the purchase price
provided for in any such Option referred to in Section 4.4.1 or the rate at
which any Convertible Securities
<PAGE>
referred to in Section 4.4.1 or 4.4.2 are convertible into or exchangeable for
Common Stock shall be reduced at any time under or by reason of provisions with
respect thereto designed to protect against dilution, then, in case of the
delivery of Common Stock upon the exercise of any such Convertible Securities,
the Series A Conversion Price then in effect hereunder shall, as required,
forthwith be adjusted to such respective amount as would have been obtained had
such Option or Convertible Securities never been issued as to such Common Stock
and had adjustments been made upon issuance of the shares of Common Stock
delivered as aforesaid, but only if as a result of such adjustment the Series A
Conversion Price then in effect hereunder is thereby reduced.
4.4.4 Stock Dividends. In case the Corporation shall declare a
dividend or make any other distribution upon any stock of the Corporation
payable in Common Stock, Options or Convertible Securities, any Common Stock,
Options or Convertible Securities, as the case may be, issuable in payment of
such dividend or distribution shall be deemed to have been issued or sold
without consideration, and the Series A Conversion Price shall be reduced as if
the Corporation had subdivided its outstanding shares of Common Stock into a
greater number of shares, as provided in Section 4.5 hereof.
4.4.5 Consideration for Stock. In case any shares of Common
Stock, Options or Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount received by the
Corporation therefor, without deduction therefrom of any expenses incurred or
any underwriting commissions or concessions paid or allowed by the Corporation
in connection therewith. In case any shares of Common Stock, Options or
Convertible Securities shall be issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the
Corporation shall be deemed to be the fair value of such consideration as
determined in good faith by the Board of Directors of the Corporation, without
deduction therefrom of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in connection therewith. In case
any Options shall be issued in connection with the issue and sale of other
securities of the Corporation, together comprising one integral transaction in
which no specific consideration is allocated to such Options by the Corporation,
such Options shall be deemed to have been issued without consideration, and the
Series A Conversion Price shall be reduced as if the Corporation had subdivided
its outstanding shares of Common Stock into a greater number of shares, as
provided in Section 4.5 hereof.
4.4.6 Record Date. In case the Corporation shall take a record
of the holders of its Common Stock for the purpose of entitling them (i) to
receive a dividend or other distribution payable in Common Stock, Options or
Convertible Securities, or (ii) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record date shall be deemed to be
the date of the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right or subscription of
purchase, as the case may be.
4.4.7 Treasury Shares. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Corporation, and the disposition of any such shares shall be
considered an issue or sale of Common Stock for the purposes of Section 4.4.
4.5 Subdivision or Combination of Stock. In case the Corporation shall
at any time subdivide its outstanding shares of Common Stock into a greater
number of shares, the Series A Conversion Price in effect immediately prior to
such subdivision shall be proportionately
<PAGE>
reduced, and conversely, in case the outstanding shares of Common Stock of the
Corporation shall be combined into a smaller number of shares, the Series A
Conversion Price in effect immediately prior to such combination shall be
proportionately increased.
4.6 Certain issues of Common Stock Excepted. Anything herein to the
contrary notwithstanding, the Corporation shall not be required to make any
adjustment of the Series A Conversion Price upon the occurrence of either of the
following events: (i) the issuance of Common Stock upon conversion of
outstanding shares of Series A Preferred Stock or, (ii) the issuance of Common
Stock upon exercise of options granted to employees, officers, directors,
consultants and/or vendors of the Corporation.
4.7 Reorganization, Reclassification, Consolidation, Merger or Sale. If
any capital reorganization or reclassification of the capital stock of the
Corporation or any consolidation or merger of the Corporation with another
corporation, or the sale of all or substantially all of its assets to another
corporation shall be effected in such a way (including, without limitation, by
way of consolidation or merger) wherein holders of Common Stock shall be
entitled to receive stock, securities or assets with respect to or in exchange
for Common Stock, then, as a condition of such reorganization, reclassification,
consolidation, merger or sale, lawful and adequate provisions shall be made
whereby each holder of a share or shares of Series A Preferred Stock shall
thereafter have the right to receive, upon the basis and upon the terms and
conditions specified herein and in lieu of the shares of Common Stock of the
Corporation immediately theretofore receivable upon the conversion of such
shares or shares of the Series A Preferred Stock, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for a number of outstanding shares of such Common Stock equal to the number of
shares of such stock immediately theretofore so receivable had such
reorganization, reclassification, consolidation, merger or sale not taken place,
and in any such case appropriate provision shall be made with respect to the
rights and interests of such holder to the end that the provisions hereof
(including, without limitation, provisions for adjustment of the Series A
Conversion Price) shall thereafter be applicable, as nearly practicable, in
relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise of such conversion rights (including, if necessary to effect
the adjustments contemplated herein, an immediate adjustment, by reason of such
reorganization, reclassification, consolidation, merger or sale, of the Series A
Conversion Price to the value for the Common Stock reflected by the terms of
such reorganization, reclassification, consolidation, merger or sale if the
value so reflected is less than the Series A Conversion Price in effect
immediately prior to such reorganization, reclassification, consolidation,
merger or sale). In the event of a merger or consolidation of the Corporation as
a result of which a greater or lesser number of shares of common stock of the
surviving corporation is issuable to holders of Common Stock of the Corporation
outstanding immediately prior to such merger or consolidation, the Series A
Conversion Price in effect immediately prior to such merger or consolidation
shall be adjusted in the same manner as though there were a subdivision or
combination of the outstanding shares of Common Stock of the Corporation. The
Corporation will not effect any such consolidation or merger, or any sale of all
or substantially all of its assets and properties, unless prior to the
consummation thereof the successor corporation (if other than the Corporation)
resulting from such consolidation or merger or the corporation purchasing such
assets shall assume by written instrument, executed and mailed or delivered to
each holder of shares of Series A Preferred Stock at the last address of such
holder appearing on the books of the Corporation, the obligation to deliver to
such holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such holders may be entitled to receive.
<PAGE>
4.8 Automatic Conversion. In the event that, at any time while any of
the Series A Preferred Stock shall be outstanding, the Corporation shall
complete an underwritten public offering involving the sale by the Corporation
of shares of Common Stock (i) at a per share price to the public of not less
than seven dollars and fifty ($7.50) cents (appropriately adjusted for any stock
splits, combinations or stock dividends) and (ii) providing aggregate proceeds
(after deducting underwriting discounts and commissions) to the Corporation of
not less than seven million five hundred thousand ($7,500,000) dollars, then all
outstanding shares of Series A Preferred Stock shall, automatically and without
further action on the part of the holders of the Series A Preferred Stock, be
converted into shares of Common Stock in accordance with the terms of this
Section 4 with the same effect as if the certificates evidencing such shares had
been surrendered for conversion, such conversion to be effective simultaneously
with the closing of such public offering; provided, however, that certificates
evidencing the shares of Common Stock issuable upon such conversion shall not be
issued except on surrender of the certificates for the shares of the Series A
Preferred Stock so converted.
4.9 Notice of Adjustment. Upon any adjustment of the Series A
Conversion Price, then and in each such case the Corporation shall give written
notice thereof, by first class mail, postage prepaid, addressed to each holder
of shares of Series A Preferred Stock at the address of such holder as shown on
the books of the Corporation, which notice shall state the Series A Conversion
Price, resulting from such adjustment, setting forth in reasonable detail the
method of calculation and the facts upon which such calculation is based.
4.10 Other Notices. In case at any time:
4.10.1 the Corporation shall declare any dividend upon its
Common Stock payable in cash or stock or make any other distribution to the
holders of its Common Stock;
4.10.2 the Corporation shall offer for subscription pro rata
to the holders of its Common Stock any additional shares of stock of any class
or other rights;
4.10.3 there shall be any capital reorganization or
reclassification of the capital stock of the Corporation, or a consolidation or
merger of the Corporation with, or a sale of all or substantially all its assets
to, another corporation;
4.10.4 there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Corporation; or
4.10.5 the Corporation shall take any action or there shall be
any event which would result in an automatic conversion of the Series A
Preferred Stock pursuant to Section 4.8, then, in any one or more of said cases,
the Corporation shall give, by first class mail, postage prepaid, addressed to
each holder of any shares of Series A Preferred Stock at the address of such
holder as shown on the books of the Corporation, (a) at least twenty (20) days'
prior written notice of the date on which the books of the Corporation shall
close or a record shall be taken for such dividend, distribution or subscription
rights or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least
twenty (20) days' prior written notice of the date when the same shall take
place, and (c) in the case of any event which would result in an automatic
conversion of the Series A Preferred Stock pursuant to Section 4.8, at least
twenty (20) days' prior written notice of the date on which the same is expected
to be completed. Such notice in accordance with the foregoing clause (a) shall
also specify, in the case of any such dividend, distribution or subscription
rights, the date on which the holders of Common Stock shall be entitled thereto,
and such
<PAGE>
notice in accordance with the foregoing clause (b) shall also specify the date
on which the holders of Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, as the case may be.
4.11 Stock to Be Reserved. The Corporation will at all times reserve
and keep available out of its authorized Common Stock or its treasury shares,
solely for the purpose of issue upon the conversion of the Series A Preferred
Stock as herein provided, such number of shares of Common Stock as shall be then
issuable upon the conversion of all outstanding shares of Series A Preferred
Stock. The Corporation covenants that all shares of Common Stock which shall be
so issued shall be duly and validly issued and fully paid and nonassessable and
free from all taxes, liens and charges with respect to the issue thereof and,
without limiting the generality of the foregoing, the Corporation covenants that
it will from time to time take all such action as may be requisite to assure
that the par value per share of the Common Stock is at all times equal to or
less than the effective Series A Conversion Price. The Corporation will take all
such action as may be necessary to assure that all such shares of
Common Stock may be so issued without violation of any applicable law or
regulation, or of any requirements of any national securities exchange upon
which the Common Stock of the Corporation may be listed. The Corporation will
not take any action which results in any adjustment of the Series A Conversion
Price if the total number of shares of Common Stock issued and issuable after
such action upon conversion of the Series A Preferred Stock would exceed the
total number of shares of Common Stock then authorized by the Corporation's
Certificate of Incorporation.
4.12 No Reissuance of Series A Preferred Stock. Shares of Series A
Preferred Stock which are converted into shares of Common Stock as provided
herein shall not be reissued.
4.13 Issue Tax. The issuance of certificates for shares of Common Stock
upon conversion of the Series A Preferred Stock shall be made without charge to
the holders thereof for any issuance tax in respect thereof, provided that the
Corporation shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any certificate in a
name other than that of the holder of the Series A Preferred Stock which is
being converted.
4.14 Closing of Books. The Corporation will at no time close its
transfer books against the transfer of any Series A Preferred Stock or of any
shares of Common Stock issued or issuable upon the conversion of any shares of
Series A Preferred Stock in any manner which interferes with the timely
conversion of such Series A Preferred Stock.
4.15 Definition of Common Stock. As used in this Section 4, the term
"Common Stock" shall mean and include the Corporation's authorized Common Stock,
$0.001 par value, as constituted on the date of filing of this Certificate of
Designation and shall also include any capital stock of any class of the
Corporation thereafter authorized which shall not be limited to a fixed sum or
percentage of par value in respect of the rights of the holders thereof to
participate in dividends or in the distribution of assets upon the voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, provided,
however, that the shares of Common Stock receivable upon conversion of shares of
the Series A Preferred Stock of the Corporation, or in case of any
reorganization or reclassification of the outstanding shares thereof, the stock,
securities or assets provided for in Section 4.7, shall include only shares
designated as Common Stock of the Corporation on the date of filing of this
Certificate of Designation.
5. Voting Rights. Except as otherwise provided by law and the
Corporation's Certificate of Incorporation, on all matters submitted to vote by
stockholders of the Company, each share of the Series A Preferred Stock will
entitle the holder thereof to one vote for each
<PAGE>
share of the Corporation's Common Stock into which such share of Series A
Preferred Stock is then convertible.
IN WITNESS WHEREOF, the Company, by the hands of the President and
Secretary, have caused their hands to be affixed to this certificate on the
day of August, 1999 and affirm under penalty of perjury that the
statements contained herein are true and correct.
By: /s/ Peter Fiorillo
------------------------------
Peter Fiorillo
President
Attest:
/s/ Joseph Bentley
- -------------------------------
Joseph Bentley
Secretary
<PAGE>
CERTIFICATE OF DESIGNATION
OF
SERIES B PREFERRED STOCK
OF
eB2B COMMERCE, INC.
eB2B Commerce, Inc. (the "Corporation"), a corporation organized and
existing under the General Corporation Law of the State of Delaware hereby
certifies that the following resolution was adopted by the Board of Directors of
the Corporation as required by Section 151 of the General Corporation Law of
Delaware:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Corporation by ARTICLE SIXTH of the Corporation's Certificate
of Incorporation, as amended, a series of preferred stock of the Corporation be,
and it hereby is, created out of the authorized but unissued shares of the
capital stock of the Corporation, such series to be designated Series B
Preferred Stock (the "Preferred Stock"), to consist of four million (4,000,000)
shares, par value $0.001 per share, of which the preferences, rights,
qualifications, limitations or restrictions thereof, shall be (in addition to
those set forth in the Corporation's Certificate of Incorporation, as amended)
as follows:
SERIES B PREFERRED STOCK:
1. Certain Definitions. Unless the context otherwise requires, the terms defined
in this paragraph 1 shall have, for all purposes of this resolution, the
meanings herein specified.
a. Common Stock. The term "Common Stock" shall mean all shares now or
hereafter authorized of any class of Common Stock of the Corporation and any
other stock of the Corporation, howsoever designated, authorized after the Issue
Date, which has the right (subject always to prior rights of any class or series
of preferred stock) to participate in the distribution of the assets and
earnings of the Corporation without limit as to per share amount.
b. Conversion Date. The term "Conversion Date"shall have the meaning
set forth in Section 5(d) below.
c. Conversion Price. The term "Conversion Price" shall mean the price
per share of Common Stock used to determine the number of shares of Common Stock
deliverable upon conversion of a share of the Preferred Stock, which price shall
initially be five dollars and fifty ($5.50) cents per share, subject to
adjustment in accordance with the provisions of Section 6 below.
d. Current Market Price. The term "Current Market Price" shall have the
meaning set forth in Section 10 below.
e. Issue Date. The term "Issue Date" shall mean the date that shares of
Preferred Stock are first issued by the Corporation.
f. Junior Stock. The term "Junior Stock" shall mean, for purposes of
Sections 3 and 8 below, the Common Stock and any class or series of stock of the
Corporation issued after the Issue Date not entitled to receive any assets upon
the liquidation, dissolution or winding up of the affairs of the Corporation
until the Preferred Stock shall have received the entire amount to which such
stock is entitled upon such liquidation, dissolution or winding up.
g. Parity Stock. The term "Parity Stock" shall mean, for purposes of
Sections 3
<PAGE>
and 8 below, any other class or series of stock of the Corporation issued after
the Issue Date entitled to receive assets upon the liquidation, dissolution or
winding up of the affairs of the Corporation on a parity with the Preferred
Stock.
h. Qualified Public Offering. The term "Qualified Public Offering"
shall mean an initial public offering of the Corporation's securities raising
gross proceeds in excess of $20,000,000 where the offering price per share is at
least 2.5 times the then Conversion Price.
i. Qualified Private Offering. The term "Qualified Private Offering"
shall mean a private offering of the Corporation's securities raising gross
proceeds of at least $20,000,000 where the pre-money valuation is at least 2.5
times the post-private placement valuation of the Corporation and where the
offering price per share is at least 2.5 times the then Conversion Price.
j. Senior Stock. The term "Senior Stock" shall mean, for purposes of
Sections 3 and 8 below, any class or series of stock of the Corporation issued
after the Issue Date ranking senior to the Preferred Stock in respect of the
right to receive assets upon the liquidation, dissolution or winding up of the
affairs of the Corporation.
k. Subscription Price. The term "Subscription Price" shall mean ten
($10.00) dollars per share.
l. Subsidiary. The term "Subsidiary" shall mean any corporation of
which shares of stock possessing at least a majority of the general voting power
in electing the board of directors are, at the time as of which any
determination in being made, owned by the Corporation, whether directly or
indirectly through one or more Subsidiaries.
2. Ranking. The Preferred Stock shall rank, with respect to distributions upon a
Liquidation (as defined in Section 4), (i) senior to all classes of Common Stock
of the Corporation and to each other class of capital stock or series of
preferred stock established after the Issue Date by the Board of Directors, the
terms of which do not expressly provide that it ranks senior or on a parity with
the Preferred Stock as to distributions upon a Liquidation; (ii) on a parity
with any additional shares of Preferred Stock issued by the Corporation in the
future and any other class of capital stock or series of preferred stock issued
by the Corporation established afer the Issue Date by the Board of Directors,
the terms of which expressly provide that such class or series will rank on a
parity with the Preferred Stock as to distributions upon Liquidation; and (iii)
junior to each class of capital stock or series of preferred stock issued by the
Corporation established after the Issue Date by the Board of Directors, the
terms of which expressly provide that such class or series will rank senior to
the Preferred Stock as to distributions upon a Liquidation.
3. Dividends. The holders of the Preferred Stock shall not be entitled to
receive dividends in any fixed amount; provided, however, that in the event that
the Corporation shall at any time declare or pay a dividend on the Common Stock
(other than a dividend referred to in Section 6(a)), it shall, at the same time,
declare and pay to each holder of the Preferred Stock a dividend equal to the
dividend which would have been payable to such holder if the shares of the
Preferred Stock held by each holder had been converted into Common Stock on the
date of determination of holders of Common Stock entitled to receive such
dividends.
4. Distributions Upon Liquidation, Dissolution or Winding Up. In the event of
any voluntary or involuntary liquidation, dissolution or other winding up of the
affairs of the Corporation, subject to the prior preferences and other rights of
any Senior Stock, but before any distribution or payment shall be made to the
holders of Junior Stock, the holders of the
<PAGE>
Preferred Stock shall be entitled to be paid the Subscription Price of all
outstanding shares of Preferred Stock as of the date of such liquidation or
dissolution or such other winding up, plus any accrued and unpaid dividends
thereon to such date, and no more, in cash or in property taken at its fair
value as determined by the Board of Directors, or both, at the election of the
Board of Directors. If such payment shall have been made in full to the holders
of the Preferred Stock, and if payment shall have been made in full to the
holders of any Senior Stock and Parity Stock of all amounts to which such
holders shall be entitled, the remaining assets and funds of the Corporation
shall be distributed among the holders of Junior Stock, according to their
respective shares and priorities. If, upon any such liquidation, dissolution or
other winding up of the affairs of the Corporation, the net assets of the
Corporation distributable among the holders of all outstanding shares of the
Preferred Stock and of any Parity Stock shall be insufficient to permit the
payment in full to such holders of the preferential amounts to which they are
entitled, then the entire net assets of the Corporation remaining after the
distributions to holders of any Senior Stock of the full amounts to which they
may be entitled shall be distributed among the holders of the Preferred Stock
and of any Parity Stock ratably in proportion to the full amounts to which they
would otherwise be respectively entitled. Neither the consolidation or merger of
the Corporation into or with another corporation or corporations, nor the sale
of all or substantially all of the assets of the Corporation to another
corporation or corporations shall be deemed a liquidation, dissolution or
winding up of the affairs of the Corporation within the meaning of this Section
4.
5. Conversion Rights. The Preferred Stock shall be convertible into Common Stock
as follows:
a. Optional Conversion. Subject to and upon compliance with the
provisions of this Section 5, the holder of any shares of Preferred Stock shall
have the right at such holder's option, at any time or from time to time, to
convert any of such shares of Preferred Stock into fully paid and nonassessable
shares of Common Stock at the Conversion Price (as hereinafter defined) in
effect on the Conversion Date (as hereinafter defined) upon the terms
hereinafter set forth.
b. Automatic Conversion. Each outstanding share of Preferred Stock
shall automatically be converted, without any further act of the Corporation or
its stockholders, into fully paid and nonassessable shares of Common Stock at
the Conversion Price then in effect upon the closing of (i) a Qualified Public
Offering or (ii) a Qualified Private Offering.
c. Conversion Price. Each share of Preferred Stock shall be converted
into a number of shares of Common Stock determined by dividing (i) the sum of
the Subscription Price, by (ii) the Conversion Price in effect on the Conversion
Date. The Conversion Price at which shares of Common Stock shall initially be
issuable upon conversion of the shares of Preferred Stock shall be five dollars
and fifty ($5.50) cents. The Conversion Price shall be subject to adjustment as
set forth in Section 6. No payment or adjustment shall be made for any dividends
on the Common Stock issuable upon such conversion.
d. Mechanics of Conversion. The holder of any shares of Preferred Stock
may exercise the conversion right specified in Section 5(a) by surrendering to
the Corporation or any transfer agent of the Corporation the certificate or
certificates for the shares to be converted, accompanied by written notice
specifying the number of shares to be converted. Upon the occurrence of the
event specified in Subsection (b), the outstanding shares of Preferred Stock
shall be converted automatically without any further action by the holders of
such shares and whether or not the certificates representing such shares are
surrendered to the Corporation or its transfer agent; provided that the
Corporation shall not be obligated to
<PAGE>
issue to any such holder certificates evidencing the shares of Common Stock
issuable upon such conversion unless certificates evidencing the shares of
Preferred Stock are either delivered to the Corporation or any transfer agent of
the Corporation. Conversion shall be deemed to have been effected on the date
when delivery of notice of an election to convert and certificates for shares is
made or on the date of the occurrence of the event specified in Section 5(b), as
the case may be, and such date is referred to herein as the "Conversion Date."
Subject to the provisions of Section 6(i), as promptly as practicable thereafter
(and after surrender of the certificate or certificates representing shares of
Preferred Stock to the Corporation or any transfer agent of the Corporation in
the case of conversions pursuant to Section 5(b)) the Corporation shall issue
and deliver to or upon the written order of such holder a certificate or
certificates for the number of full shares of Common Stock to which such holder
is entitled and a check or cash with respect to any fractional interest in a
share of Common Stock as provided in Section 10. Subject to the provisions of
Section 6(i), the person in whose name the certificate or certificates for
Common Stock are to be issued shall be deemed to have become a holder of record
of such Common Stock on the applicable Conversion Date. Upon conversion of only
a portion of the number of shares covered by a certificate representing shares
of Preferred Stock surrendered for conversion (in the case of conversion
pursuant to Section 5(a)), the Corporation shall issue and deliver to or upon
the written order of the holder of the certificate so surrendered for
conversion, at the expense of the Corporation, a new certificate covering the
number of shares of Preferred Stock representing the unconverted portion of the
certificate so surrendered.
e. Conversion Price Adjustments. The Conversion Price shall be subject
to adjustment provisions of Section 6 below.
6. Anti-dilution Provisions. Subject to the provisions of Section 1 hereof, the
Conversion Price in effect at any time and the number and kind of securities
issuable upon the conversion of the Preferred Stock shall be subject to
adjustment from time to time upon the happening of certain events as follows:
a. In case the Corporation shall hereafter (i) declare a dividend or
make a distribution on its outstanding shares of Common Stock in shares of
Common Stock, (ii) subdivide or reclassify its outstanding shares of Common
Stock into a greater number of shares, or (iii) combine or reclassify its
outstanding shares of Common Stock into a smaller number of shares, the
Conversion Price in effect at the time of the record date for such dividend or
distribution or of the effective date of such subdivision, combination or
reclassification shall be adjusted so that it shall equal the price determined
by multiplying the Conversion Price by a fraction, the denominator of which
shall be the number of shares of Common Stock outstanding after giving effect to
such action, and the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such action. Such adjustment shall be
made successively whenever any event listed above shall occur.
b. Subject to the provisions of Section (i) below, in case the
Corporation shall fix a record date for the issuance of rights or warrants to
all holders of its Common Stock entitling them to subscribe for or purchase
shares of Common Stock (or securities convertible into Common Stock) at a price
(the "Purchase Price") (or having a conversion price per share) less than the
current market price of the Common Stock on such record date or less than the
Conversion Price, the Conversion Price shall be adjusted so that the same shall
equal the lower of (i) the price determined by multiplying the Conversion Price
in effect immediately prior to the date of such issuance by a fraction, the
numerator of which shall be the sum of the number of shares of Common Stock
outstanding on the record date mentioned below and the
<PAGE>
number of additional shares of Common Stock which the aggregate offering price
of the total number of shares of Common Stock so offered (or the aggregate
conversion price of the convertible securities so offered) would purchase at
such current market price per share of the Common Stock, and the denominator of
which shall be the sum of the number of shares of Common Stock outstanding on
such record date and the number of additional shares of Common Stock offered for
subscription or purchase (or into which the convertible securities so offered
are convertible) or (ii) in the event the Purchase Price is equal to or higher
than the current market price but is less than the Conversion Price, the price
determined by multiplying the Conversion Price in effect immediately prior to
the date of issuance by a fraction, the numerator of which shall be the sum of
the number of shares outstanding on the record date mentioned above and the
number of additional shares of Common Stock which the aggregate Purchase Price
of the total number of shares of Common Stock so offered (or the aggregate
conversion price of the convertible securities so offered) would purchase at the
Conversion Price in effect immediately prior to the date of such issuance, and
the denominator of which shall be the sum of the number of shares of Common
Stock outstanding on the record date mentioned above and the number of
additional shares of Common Stock offered for subscription or purchase (or into
which the convertible securities so offered are convertible). Such adjustment
shall be made successively whenever such rights or warrants are issued and shall
become effective immediately after the record date for the determination of
shareholders entitled to receive such rights or warrants; and to the extent that
shares of Common Stock are not delivered (or securities convertible into Common
Stock are not delivered) after the expiration of such rights or warrants the
Conversion Price shall be readjusted to the Conversion Price which would then be
in effect had the adjustments made upon the issuance of such rights or warrants
been made upon the basis of delivery of only the number of shares of Common
Stock (or securities convertible into Common Stock) actually delivered.
c. In case the Corporation shall hereafter distribute to the holders of
its Common Stock evidences of its indebtedness or assets (excluding cash
dividends or distributions and dividends or distributions referred to in
Subsection (a) above) or subscription rights or warrants (excluding those
referred to in Subsection (b) above), then in each such case the Conversion
Price in effect thereafter shall be determined by multiplying the Conversion
Price in effect immediately prior thereto by a fraction, the numerator of which
shall be the total number of shares of Common Stock outstanding multiplied by
the current market price per share of Common Stock, less the fair market value
(as determined by the Corporation's Board of Directors) of said assets or
evidences of indebtedness so distributed or of such rights or warrants, and the
denominator of which shall be the total number of shares of Common Stock
outstanding multiplied by such current market price per share of Common Stock.
Such adjustment shall be made successively whenever such a record date is fixed.
Such adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date for the determination of
shareholders entitled to receive such distribution.
d. Subject to the provisions of Section (i) below, in case the
Corporation shall hereafter issue shares of its Common Stock (excluding shares
issued (i) in any of the transactions described in Subsection (a) above, (ii)
upon exercise of options granted to the Corporation's officers, directors,
employees and consultants under a plan or plans adopted by the Corporation's
Board of Directors and approved by its shareholders, if such shares would
otherwise be included in this Subsection (d), (but only to the extent that the
aggregate number of shares excluded hereby and issued after the date hereof,
shall not exceed ten (10%) percent of the Corporation's Common Stock
outstanding, on a fully-diluted basis, at the time of any issuance), (iii) upon
exercise of options, warrants, convertible securities and convertible
<PAGE>
debentures outstanding as of the Issue Date, a Qualified Private Offering,
Qualified Public Offering or exercise of the warrants issued on or prior to the
Issue Date, (iv) to shareholders of any corporation which merges into the
Corporation in proportion to their stock holdings of such corporation
immediately prior to such merger, upon such merger, (v) issued in a private
placement through Commonwealth Associates, L.P. ("Commonwealth"), as placement
agent, or upon exercise or conversion of any securities issued in or in
connection with such a private placement (including agent, consulting or
advisory warrants) or (vi) issued in a bona fide public offering pursuant to a
firm commitment underwriting, but only if no adjustment is required pursuant to
any other specific subsection of this Section 6 (without regard to Subsection
(i) below) with respect to the transaction giving rise to such rights) for a
consideration per share (the "Offering Price") less than the current market
price on the date the Corporation fixes the Offering Price of such additional
shares or less than the Conversion Price, the Conversion Price shall be adjusted
immediately thereafter so that it shall equal the lower of (i) price determined
by multiplying the Conversion Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the sum of the number of shares of
Common Stock outstanding immediately prior to the issuance of such additional
shares and the number of shares of Common Stock which the aggregate
consideration received for the issuance of such additional shares would purchase
at such current market price per share of Common Stock, and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
after the issuance of such additional shares or (ii) in the event the Offering
Price is equal to or higher than the current market price per share but less
than the Conversion Price, the price determined by multiplying the Conversion
Price in effect immediately prior to the date of issuance by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to the issuance of such additional shares and the number of
shares of Common Stock which the aggregate consideration received for the
issuance of such additional shares would purchase at the Conversion Price in
effect immediately prior to the date of such issuance, and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
after the issuance of such additional shares. Such adjustment shall be made
successively whenever such an issuance is made.
e. Subject to the provisions of Section (i) below, in case the
Corporation shall hereafter issue any securities convertible into or
exchangeable for its Common Stock (excluding securities issued in transactions
described in Subsections (b) and (c) above) for a consideration per share of
Common Stock (the "Exchange Price") initially deliverable upon conversion or
exchange of such securities (determined as provided in Subsection (g) below)
less than the current market price in effect immediately prior to the issuance
of such, or less than the Conversion Price, the Conversion Price shall be
adjusted immediately thereafter so that it shall equal the lower of (i) the
price determined by multiplying the Conversion Price in effect immediately prior
thereto by a fraction, the numerator of which shall be the sum of the number of
shares of Common Stock outstanding immediately prior to the issuance of such
securities and the number of shares of Common Stock which the aggregate
consideration received for such securities would purchase at such current market
price per share of Common Stock, and the denominator of which shall be the sum
of the number of shares of Common Stock outstanding immediately prior to such
issuance and the maximum number of shares of Common Stock of the Corporation
deliverable upon conversion of or in exchange for such securities at the initial
conversion or exchange price or rate or (ii) in the event the Exchange Price is
equal to or higher than the current market price per share but less than the
Conversion Price, the price determined by multiplying the Conversion Price in
effect immediately prior to the date of issuance by a fraction, the numerator of
which shall be the sum of the number of shares outstanding immediately prior to
the issuance of such securities and the number of
<PAGE>
shares of Common Stock which the aggregate consideration received for such
securities would purchase at the Conversion Price in effect immediately prior to
the date of such issuance, and the denominator of which shall be the sum of the
number of shares of Common Stock outstanding immediately prior to the issuance
of such securities and the maximum number of shares of Common Stock of the
Corporation deliverable upon conversion of or in exchange for such securities at
the initial conversion or exchange price or rate. Such adjustment shall be made
successively whenever such an issuance is made.
f. Whenever the Conversion Price payable upon conversion of Preferred
Stock is adjusted pursuant to Subsections (a), (b), (c), (d) and (e) above and
(i) below, the number of shares of Common Stock issuable upon conversion of
Preferred Stock shall simultaneously be adjusted by multiplying the number of
shares of Common Stock initially issuable upon conversion of Preferred Stock by
the Conversion Price in effect on the date hereof and dividing the product so
obtained by the Conversion Price, as adjusted.
g. For purposes of any computation respecting consideration received
pursuant to Subsections (d) and (e) above, the following shall apply:
i. in the case of the issuance of shares of Common Stock for
cash, the consideration shall be the amount of such cash, provided that in no
case shall any deduction be made for any commissions, discounts or other
expenses incurred by the Corporation for any underwriting of the issue or
otherwise in connection therewith;
ii. in the case of the issuance of shares of Common Stock for
a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair market value thereof as determined in
good faith by the Board of Directors of the Corporation (irrespective of the
accounting treatment thereof), whose determination shall be conclusive; and
iii. in the case of the issuance of securities convertible
into or exchangeable for shares of Common Stock, the aggregate consideration
received therefor shall be deemed to be the consideration received by the
Corporation for the issuance of such securities plus the additional minimum
consideration, if any, to be received by the Corporation upon the conversion or
exchange thereof (the consideration in each case to be determined in the same
manner as provided in clauses (i) and (ii) of this Subsection (g)).
h. For the purpose of any computation under Subsections (b), (c), (d)
and (e) above, the current market price per share of Common Stock at any date
shall be determined in the manner set forth in Section 10 below.
i. Notwithstanding the provisions of this Section 6, in the event that
the Corporation issues securities under Subsections (b), (d) or (e), prior to
the date which is sixty (60) days after the expiration of any lock-up agreement
entered into by the holders of Preferred Stock in connection with a Qualified
Public Offering, having a Purchase Price, Offering Price or Exchange Price less
than the Conversion Price, then the Conversion Price shall be immediately reset
to equal such lower Purchase Price, Offering Price or Exchange Price.
j. No adjustment in the Conversion Price shall be required unless such
adjustment would require an increase or decrease of at least five ($0.05) cents
in such price; provided, however, that any adjustments which by reason of this
Subsection (j) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment required to be made hereunder. All
calculations under this Section 6 shall be made to the nearest cent or to the
nearest one-hundredth of a share, as the case may be. Anything in this Section 6
to
<PAGE>
the contrary notwithstanding, the Corporation shall be entitled, but shall not
be required, to make such changes in the Conversion Price, in addition to those
required by this Section 6, as it shall determine, in its sole discretion, to be
advisable in order that any dividend or distribution in shares of Common Stock,
or any subdivision, reclassification or combination of Common Stock, hereafter
made by the Corporation shall not result in any Federal Income tax liability to
the holders of Common Stock or securities convertible into Common Stock.
k. Whenever the Conversion Price is adjusted, as herein provided, the
Corporation shall promptly but no later than ten (10) days after any request for
such an adjustment by the holder, cause a notice setting forth the adjusted
Conversion Price and adjusted number of Shares issuable upon conversion of
Preferred Stock, and, if requested, information describing the transactions
giving rise to such adjustments, to be mailed to the holders at their last
addresses appearing on the Corporation's records, and shall cause a certified
copy thereof to be mailed to its transfer agent, if any. The Corporation may
retain a firm of independent certified public accountants selected by the Board
of Directors (who may be the regular accountants employed by the Corporation) to
make any computation required by this Section 6, and a certificate signed by
such firm shall be conclusive evidence of the correctness of such adjustment.
l. In the event that at any time, as a result of an adjustment made
pursuant to Subsection (a) above, the holder of Preferred Stock thereafter shall
become entitled to receive any shares of the Corporation, other than Common
Stock, thereafter the number of such other shares so receivable upon conversion
of Preferred Stock shall be subject to adjustment from time to time in a manner
and on terms as nearly equivalent as practicable to the provisions with respect
to the Common Stock contained in Subsections (a) to (j), inclusive above.
m. Irrespective of any adjustments in the Conversion Price or the
number or kind of shares purchasable upon conversion of Preferred Stock,
Preferred Stock theretofore or thereafter issued may continue to express the
same price and number and kind of shares as are stated in the similar Preferred
Stock initially issuable pursuant to this Certificate of Designation.
7. Reservation of Shares; Costs; Approvals.
a. Reservation of Shares. The Corporation shall reserve at all times so
long as any shares of Preferred Stock remain outstanding, free from preemptive
rights, out of its treasury stock (if applicable) or its authorized but unissued
shares of Common Stock, or both, solely for the purpose of effecting the
conversion of the shares of Preferred Stock, sufficient shares of Common Stock
to provide for the conversion of all outstanding shares of Preferred Stock. All
shares of Common Stock which may be issued upon conversion of the shares of
Preferred Stock will upon issuance by the Corporation be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issuance thereof, and the Corporation shall take no action
which will cause a contrary result (including without limitation, any action
which would cause the Conversion Price to be less than the par value, if any, of
the Common Stock).
b. Costs. The Corporation shall pay all documentary, stamp, transfer or
other transactional taxes attributable to the issuance or delivery of shares of
Common Stock upon conversion of any shares of Preferred Stock; provided that the
Corporation shall not be required to pay any taxes which may be payable in
respect of any transfer involved in the issuance or delivery of any certificate
for such shares in a name other than that of the holder of the shares of
Preferred Stock in respect of which such shares are being issued.
<PAGE>
c. Approvals. If any shares of Common Stock to be reserved for the
purpose of conversion of shares of Preferred Stock require registration with or
approval of any governmental authority under any Federal or state law before
such shares may be validly issued or delivered upon conversion, then the
Corporation will in good faith and as expeditiously as possible endeavor to
secure such registration or approval, as the case may be. If, and so long as,
any Common Stock into which the shares of Preferred Stock are then convertible
is listed on any national securities exchange, the Corporation will, if
permitted by the rules of such exchange, list and keep listed on such exchange,
upon official notice of issuance, all shares of such Common Stock issuable upon
conversion.
8. Voting Rights.
a. The holders of the issued and outstanding shares of Preferred Stock
shall have no voting rights except as set forth herein and as required by law;
provided however that the Corporation may, without the vote or consent of any
holders of the Preferred Stock, file a Certificate of Designation or similar
instrument to issue preferred stock of the Corporation which is Junior Stock.
b. Except as otherwise required by law or as provided herein and
subject to the rights of any class or series of capital stock of the Corporation
that hereafter may be issued in compliance with the terms of this Certificate of
Designation or Section 8(c) hereof, the holders of shares of Preferred Stock
shall be entitled to vote upon all matters upon which holders of the Common
Stock have the right to vote, and shall be entitled to the number of votes equal
to the largest number of full shares of Common Stock into which such shares of
Preferred Stock could be converted pursuant to the provisions of Section 5
hereof at the record date for the determination of the stockholders entitled to
vote on such matters, or, if no such record date is established, at the date
such vote is taken or any written consent of stockholders is solicited, such
votes to be counted together with all other shares of capital stock having
general voting powers and not separately as a class. In all cases where the
holders of shares of Preferred Stock have the right to vote separately as a
class, such holders shall be entitled to one vote for each such share held by
them respectively.
c. In addition to the other voting rights provided, notwithstanding
anything to the contrary, at each annual meeting of the stockholders of the
Corporation, the holders of the Preferred Stock, voting as a single class, shall
be entitled to elect one (1) director, and the number of directors constituting
the board of directors shall be seven (7) directors.
d. Any director elected by the holders of the Preferred Stock may be
removed only by the vote or written consent of the holders of a majority of the
Preferred Stock, and any vacancy occurring by reason of such removal or by
reason of the death, resignation or inability to serve of any such director,
shall be filled by a vote or written consent of the holders of a majority of the
Preferred Stock. Any director so elected shall serve until his or her successor
is duly elected and qualified, or his or her earlier death, resignation or
removal by the holders of a majority of the Preferred Stock.
e. In addition to any other rights provided by law, so long as any
Preferred Stock is outstanding, the Corporation, without first obtaining the
affirmative vote or written consent of the holders of not less than one-third
(1/3) of such outstanding shares of Preferred Stock, will not:
i. authorize or issue shares of any class or series of stock
not expressly authorized herein having any preference or priority as to
dividends, assets or other rights superior to or on a parity with any such
preference or priority of the Preferred Stock, or
<PAGE>
authorize or issue shares of stock of any class or any bonds, debentures, notes
or other obligations convertible into or exchangeable for, or having option
rights to purchase, any shares of stock of the Corporation having any preference
or priority as to dividends, assets or other rights superior to or on a parity
with any such preference or priority of the Preferred Stock; or
ii. reclassify any class or series of any Junior Stock into
Parity Stock or Senior Stock or reclassify any series of Parity Stock into
Senior Stock.
9. Covenants. The Corporation covenants and agrees that, so long as any
Preferred Stock is outstanding, it will perform the obligations set forth in
this Section 9:
a. Taxes and Levies. The Corporation will promptly pay and discharge
all taxes, assessments, and governmental charges or levies imposed upon the
Corporation or upon its income and profits, or upon any of its property, before
the same shall become delinquent, as well as all claims for labor, materials and
supplies which, if unpaid, might become a lien or charge upon such properties or
any part thereof; provided, however, that the Corporation shall not be required
to pay and discharge any such tax, assessment, charge, levy or claim so long as
the validity thereof shall be contested in good faith by appropriate proceedings
and the Corporation shall set aside on its books adequate reserves in accordance
with generally accepted accounting principles ("GAAP") with respect to any such
tax, assessment, charge, levy or claim so contested;
b. Maintenance of Existence. The Corporation will do or cause to be
done all things reasonably necessary to preserve and keep in full force and
effect its corporate existence, rights and franchises and comply with all laws
applicable to the Corporation, except where the failure to comply would not have
a material adverse effect on the Corporation;
c. Maintenance of Property. The Corporation will at all times maintain,
preserve, protect and keep its property used or useful in the conduct of its
business in good repair, working order and conditions, and from time to time
make all needful and proper repairs, renewals, replacements and improvements
thereto as shall be reasonably required in the conduct of its business;
d. Insurance. The Corporation will, to the extent necessary for the
operation of its business, keep adequately insured by financially sound
reputable insurers, all property of a character usually insured by similar
corporations and carry such other insurance as is usually carried by similar
corporations;
e. Books and Records. The Corporation will at all times keep true and
correct books, records and accounts reflecting all of its business affairs and
transactions in accordance with GAAP; and
f. Notice of Certain Events. The Corporation will give prompt written
notice (with a reasonable description in reasonable detail) to the holders of
the Preferred Stock in the event the Corporation shall:
i. become insolvent or generally fail or be unable to pay, or
admit in writing its inability to pay, its debts as they become due;
ii. apply for, consent to, or acquiesce in, the appointment of
a trustee, receiver, sequestrator or other custodian for the Corporation or any
of its property, or make a general assignment for the benefit of creditors;
iii. in the absence of such application, consent to or
acquiesce in, permit or
<PAGE>
suffer to exist the appointment of a trustee, receiver, sequestrator or other
custodian for the Corporation or for any part of its property; or
iv. permit or suffer to exist the commencement of any
bankruptcy, reorganization, debt arrangement or other case or proceeding under
any bankruptcy or insolvency law, or any dissolution, winding up or liquidation
proceeding, in respect of the Corporation, and, if such case or proceeding is
not commenced by the Corporation or controverted to a voluntary case, such case
or proceeding shall be consented to or acquiesced in by the Corporation or shall
result in the entry of an order for relief.
10. Fractional Shares.
a. If the number of shares of Common Stock issuable upon the conversion
of Preferred Stock is adjusted pursuant to Section 6 hereof, the Corporation
shall nevertheless not be required to issue fractions of shares, upon conversion
of the Preferred Stock or otherwise, or to distribute certificates that evidence
fractional shares. With respect to any fraction of a share called for upon any
conversion hereof, the Corporation shall pay to the holder an amount in cash
equal to such fraction multiplied by the current market value of such fractional
share, determined as follows:
i. If the Common Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on such exchange or listed
for trading on the Nasdaq National Market System ("NMS"), the current market
value shall be the average of the last reported sale prices of the Common Stock
on such exchange for the ten (10) trading days prior to the date of conversion
of Preferred Stock; provided that if no such sale is made on a day within such
period or no closing sale price is quoted, that day's market value shall be the
average of the closing bid and asked prices for such day on such exchange or
system; or
ii. If the Common Stock is listed in the over-the-counter
market (other than on NMS) or admitted to unlisted trading privileges, the
current market value shall be the mean the average of the last reported bid and
asked prices reported by the National Quotation Bureau, Inc. for the ten (10)
trading days prior to the date of the conversion of the Preferred Stock; or
iii. If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not so reported, the
current market value shall be an amount determined in a reasonable manner by the
Board of Directors of the Corporation.
11. Exclusion of Other Rights. Except as may otherwise be required by law, the
shares of Preferred Stock shall not have any preferences or relative,
participating, optional or other special rights, other than those specifically
set forth in this resolution (as such resolution may be amended from time to
time) and in the Corporation's Certificate of Incorporation. The shares of
Preferred Stock shall have no preemptive or subscription rights.
12. Headings of Subdivisions. The headings of the various subdivisions hereof
are for convenience of reference only and shall not affect the interpretation of
any of the provisions hereof.
13. Modification of Agreement. The holders of Preferred Stock of the Corporation
may, by supplemental agreement, make changes or corrections in this Certificate
of Designation (i) that it shall deem appropriate to cure any ambiguity or to
correct any defective or inconsistent provision or manifest mistake or error
herein contained; (ii) to reflect an increase in the number of Preferred Stock
which are to be governed by this Certificate of Designation; or (iii) that it
may deem necessary or desirable and which shall not adversely affect the
interests of the
<PAGE>
holders of Preferred Stock; provided, however, that this Certificate of
Designation shall not otherwise be modified, supplemented or altered in any
respect except with the consent in writing of the Corporation, Commonwealth and
a committee to be designated by Commonwealth whose members hold in the aggregate
not less than twenty (20%) percent of the outstanding principal amount of the
Preferred Stock; provided, however, that no such amendment, modification or
waiver which would decrease the number of the securities issuable upon the
conversion of any Preferred Stock, or increase in the Conversion Price therefor
(other than as a result of the waiver or modification of any anti-dilution
provisions contained in Section 6 hereof), shall be made without the consent in
writing of the holders of not less than 50% of the outstanding Preferred Stock.
14. Severability of Provisions. If any right, preference or limitation of the
Preferred Stock set forth in this resolution (as such resolution may be amended
from time to time) is invalid, unlawful or incapable of being enforced by reason
of any rule of law or public policy, all other rights, preferences and
limitations set forth in this resolution (as so amended) which can be given
effect without the invalid, unlawful or unenforceable right, preference or
limitation shall, nevertheless, remain in full force and effect, and no right,
preference or limitation herein set forth shall be deemed dependent upon any
other such right, preference or limitation unless so expressed herein.
15. Status of Reacquired Shares. Shares of Preferred Stock which have been
issued and reacquired in any manner shall (upon compliance with any applicable
provisions of the laws of the State of Delaware) have the status of authorized
and unissued shares of Preferred Stock issuable in series undesignated as to
series and may be redesignated and reissued.
IN WITNESS WHEREOF, the Corporation, by the hands of the President and
Secretary, have caused their hands to be affixed to this certificate on the day
of November, 1999 and affirm under penalty of perjury that the statements
contained herein are true and correct.
By:
----------------------------
Peter Fiorillo
President
Attest:
- ----------------------------
Joseph Bentley
Secretary
<PAGE>
CERTIFICATE OF INCORPORATION
NEWCO
(Pursuant to Section 102 of the General
Corporation Law of the State of Delaware)
=============================================
THE UNDERSIGNED, desiring to form a corporation pursuant to the
provisions of the General Corporation Law of the State of Delaware, hereby
certifies as follows:
1. Name. The name of this corporation is eB2B Commerce, Inc.
2. Address; Registered Agent. Its registered office in the State
of Delaware is located at 15 North Street, in the City of
Dover, County of Kent, 19901. The registered agent in charge
thereof is Nationwide Information Services, Inc.
3. Nature of Business; Purposes. The purpose of the Corporation
is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation
Law of Delaware.
4. Number of Shares. The total number of shares of stock which
the Corporation shall have authority to issues is [ ], of
which [ ] shares shall be Common Stock, $0.001 par value, and
[ ] shares shall be Preferred Stock, $0.001 par value, which
shall be subject to the provisions of Article 6.
5. Name and Address of Incorporator. The name and mailing address
of the sole incorporator is as follows:
Sarah Hewitt
c/o Brown Raysman Millstein Felder & Steiner, LLP
120 West Forty-Fifth Street
New York, NY 10036
6. Issuance and Designation of Preferred Stock. The Board of
Directors is authorized, subject to limitations prescribed
by law and the provisions of Article 4, to provide for the
issuance of shares of Preferred Stock in series, and by
filing a certificate pursuant to the applicable law of the
State of Delaware, to establish from time to time the number
of shares to be included in each such
<PAGE>
series, and to fix the designation, powers, preferences and
rights of the shares of each such series and the
qualifications, limitations or restrictions thereof.
7. Election of Directors. Members of the Board of Directors may
be elected either by written ballot or by voice vote. [The
individuals whose names and addresses are listed on EXHIBIT A
attached hereto shall serve as directors until the first
annual meeting of stockholders or until their successors are
elected and qualified.]
8. Adoption, Amendment and/or Repeal of Bylaws. The directors of
the Company shall have the power to make and to alter or amend
the Bylaws of the Company; to fix the amount to be reserved as
working capital; and to authorize and cause to be executed
mortgages and liens without limit as to the amount upon the
property and franchise of the Company.
9. Liability of Directors. No director of the Corporation shall
have any personal liability to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty
as a director of the Corporation, except (i) for any breach of
the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the General Corporation Law of
the State of Delaware, or (iv) for any transaction from which
the director derived an improper personal benefit.
10. Indemnification. The Corporation shall, to the fullest extent
permitted by Section 145 of the General Corporation Law of the
State of Delaware, as the same may be amended and
supplemented, indemnify any and all persons whom it shall have
the power to indemnify under said section, [including any
person who was an officer or director of a subsidiary or
predecessor corporation to this Corporation,] from and against
any and all of the expenses, liabilities or other matters
referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may
be entitled under any Bylaw, agreement, vote of stockholders
or disinterested directors or otherwise, both as to action in
his official capacity and as to action in another capacity
while holding such office, and shall continue as to a person
who has ceased to be director, officer, employee or agent and
shall inure to the benefit of the heirs, executors and
administrators of such person.
<PAGE>
11. Books of Corporation. The books of the Corporation may be kept
(subject to any provision contained in the General Corporation
Law of the State of Delaware) outside the State of Delaware at
such place as may be designated from time to time by the Board
of Directors or the by-laws of the Corporation.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Incorporation on this ____ day of ______, 2000, and the signature of the
undersigned shall constitute the affirmation and acknowledgment of the
undersigned, under penalties of perjury, that this Certificate is the act and
deed of the undersigned and that the facts stated in this Certificate are true.
-----------------------
Sarah Hewitt
Sole Incorporator
<PAGE>
CERTIFICATE OF DESIGNATION
OF
SERIES A PREFERRED STOCK
OF
NEWCO
eB2B Commerce, Inc. (the "Corporation"), a corporation organized and
existing under the General Corporation Law of the State of Delaware hereby
certifies that the following resolution was adopted by the Board of Directors of
the Corporation as required by Section 151 of the General Corporation Law of
Delaware:
Resolved, that pursuant to the authority granted and vested in the Board
of Directors of the Corporation, in accordance with ARTICLE 6 of the Certificate
of Incorporation of the Corporation, as amended, the Board of Directors hereby
creates a series of Preferred Stock, par value $0.001, of the Corporation and
hereby states the designation and number of shares, and fixes the rights,
limitations and preferences thereof as follows:
SERIES A PREFERRED STOCK:
1. Designation and Amount. The shares of such series shall be designated
as Series A Preferred Stock ("Series A Preferred Stock") and the number of
shares constituting the Series A Preferred Stock shall be [Two Thousand
(2,000)]. Such number of shares may be increased or decreased by resolution of
the Board of Directors; provided that no decrease shall reduce the number of
shares of Series A Preferred Stock to a number less than the number of shares
then outstanding plus the number of shares reserved for issuance upon the
exercise of outstanding options, rights or warrants or upon the conversion of
any outstanding securities issued by the Corporation convertible into Series A
Preferred Stock.
2. Dividends. The holders of Series A Preferred Stock shall not be
entitled to receive dividends in any fixed amount; provided that in the event
that the Corporation shall at any time declare or pay a dividend on the Common
Stock (other than a dividend referred to in Section 4.4.4), it shall, at the
same time, declare and pay to each holder of Series A Preferred Stock a dividend
equal to the dividend which would have been payable to such holder if the shares
of Series A Preferred Stock held by each holder had been converted into Common
Stock on the date of determination of holders of Common Stock entitled to
receive such dividends.
3. Liquidation. Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, before any distribution or
payment is made upon Common Stock, the holders of the shares of Series A
Preferred Stock shall be entitled to be paid an amount equal to One Thousand
Dollars ($1,000) per share, plus, in each case, an amount equal to any dividends
accrued and unpaid, and the holders of Series A Preferred Stock shall not be
entitled to any further payment ("Liquidation Payments"). If, upon such
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, the assets to be distributed among the holders of Series A
Preferred Stock shall be insufficient to permit payment to such holders of the
preferential amounts to which they are entitled, then the entire assets of the
Corporation to be so distributed shall be distributed ratably among the holders
of Series A Preferred Stock. Upon any such liquidation, dissolution or winding
up of the Corporation, after the holders of Series A Preferred Stock shall have
been paid in full the amounts to which they shall be entitled, the remaining net
assets of the Corporation available for distribution to its shareholders shall
be distributed to the holders of Common Stock. Written notice of such
liquidation, dissolution or winding up, stating a payment date, the amount of
the Liquidation
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Payments and the place where said Liquidation Payments shall be payable, shall
be given by mail, postage prepaid, not less than thirty (30) days prior to the
payment date stated therein, to the holders of record of Series A Preferred
Stock, such notice to be addressed to each such holder at its post office
address as shown by the records of the Corporation. Neither the consolidation or
merger of the Corporation into or with any other corporation or corporations,
nor the sale or transfer by the Corporation of all or substantially all its
assets, shall be deemed to be a liquidation, dissolution or winding up of the
Corporation within the meaning of the provisions of this Section 3.
4. Conversion.
4.1 Right to Convert. Subject to the terms and conditions of this
Section 4, the holder of any share or shares of Series A Preferred Stock shall
have the right, at its option at any time, to convert any such shares of Series
A Preferred Stock (except that upon any liquidation, dissolution or winding up
of the Corporation the right of conversion shall terminate at the close of
business on the last full business day next preceding the date fixed for payment
of the amount distributable on the Series A Preferred Stock), into Five Hundred
(500) shares of Common Stock at a conversion price equal to [Two Dollars
($2.00)] per share of Common Stock, or by the conversion price as last adjusted
and in effect at the date any share or shares of such series of Series A
Preferred Stock are surrendered for conversion (such price, or such price as
last adjusted, being referred to herein as the "Series A Conversion Price"). The
rights of conversion contained in this Section 4.1 shall be exercised by the
holder of shares of Series A Preferred Stock by giving written notice that such
holder elects to convert a stated number of shares of Series A Preferred Stock
into Common Stock and by surrender of a certificate or certificates for the
shares so to be converted to the Corporation at its principal office (or such
other office or agency of the Corporation as the Corporation may designate by
notice in writing to the holder of holders of the Series A Preferred Stock) at
any time during its usual business hours on the date set forth in such notice,
together with a statement of the name or names (with address) in which the
certificate or certificates for shares of Common Stock shall be issued.
4.2 Issuance of Certificates; Time Conversion Effected. Promptly after
the receipt of the written notice referred to in Section 4.1 and surrender of
the certificate or certificates for the share or shares of Series A Preferred
Stock to be converted, the Corporation shall issue and deliver, or cause to be
issued and delivered, to the holder, registered in such name or names as such
holder may direct, a certificate or certificates for the number of whole shares
of Common Stock issuable upon the conversion of such share or shares of Series A
Preferred Stock. To the extent permitted by law, such conversion shall be deemed
to have been effected, and the Series A Conversion Price shall be determined, as
of the close of business on the date on which such written notice shall have
been received by the Corporation and the certificate or certificates for such
share or shares shall have been surrendered as aforesaid, and at such time the
rights of the holder of such share or shares of Series A Preferred Stock shall
cease, and the person or persons in whose name or names any certificate or
certificates for shares of Common Stock shall be issuable upon such conversion
shall be deemed to have become the holder or holders of record of the shares
represented thereby.
4.3 Fractional Shares; Dividends; Partial Conversion. No fractional
shares may be issued upon conversion of the Series A Preferred Stock into Common
Stock and no payment or adjustment shall be made upon any conversion on account
of any cash dividends on the Common Stock issued upon such conversion. At the
time of each conversion, the Corporation shall pay in cash an amount equal to
all dividends, if any, accrued and unpaid on the shares surrendered for
conversion to the date upon which such conversion is deemed to take place as
provided in Section 4.2. In case the number of shares of Series A Preferred
Stock represented by the certificate or certificates surrendered pursuant to
Section 4.1 exceeds the number of shares
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converted, the Corporation shall, upon such conversion, execute and deliver to
the holder thereof, at the expense of the Corporation, a new certificate or
certificates for the number of shares of Series A Preferred Stock represented by
the certificate or certificates surrendered which are not to be converted. If
any fractional interest in a share of Common Stock would, except for the
provisions of the first sentence of this Section 4.3, be deliverable upon any
such conversion, the Corporation, in lieu of delivering the fractional share
thereof, shall pay to the holder surrendering the Series A Preferred Stock for
conversion an amount in cash equal to the current market price of such
fractional interest as determined in good faith by the Board of Directors of the
Corporation.
4.4 Adjustment of Price Upon Issuance of Common Stock. Except as
provided in Section 4.6 hereof, if and whenever the Corporation shall issue or
sell, or is in accordance with Sections 4.4.1 through 4.4.7 deemed to have
issued or sold, any shares of its Common Stock for a consideration per share
less than the Series A Conversion Price in effect immediately prior to the time
of such issue or sale, then, forthwith upon such issue or sale, the Series A
Conversion Price shall be determined by dividing (i) an amount equal to the sum
of (a) the number of shares of Common Stock outstanding immediately prior to
such issue or sale (including as outstanding all shares of Common Stock issuable
upon conversion of outstanding Series A Preferred Stock) multiplied by the then
existing Series A Conversion Price, and (b) the consideration, if any, received
by the Corporation upon such issue or sale, by (ii) the total number of shares
of Common Stock outstanding immediately after such issue or sale (including as
outstanding all shares of Common Stock issuable upon conversion of outstanding
Series A Preferred Stock without giving effect to any adjustment in the number
of shares so issuable by reason of such issue and sale).
For purposes of this Section 4.4, the following Sections 4.4.1 to 4.4.7
shall also be applicable:
4.4.1 Issuance of Rights or Options. In case at any time the
Corporation shall in any manner grant (whether directly or by assumption
in a merger or otherwise) any rights to subscribe for or to purchase, or
any options for the purchase of, Common Stock or any stock or securities
convertible into or exchangeable for Common Stock (such rights or
options being herein called "Options" and such convertible or
exchangeable stock or securities being herein called ("Convertible
Securities") whether or not such Options or the right to convert or
exchange any such Convertible Securities are immediately exercisable,
and the price per share for which Common Stock is issuable upon the
exercise of such Options or upon conversion or exchange of such
Convertible Securities (determined by dividing (i) the total amount, if
any, received or receivable by the Corporation as consideration for the
granting of such Options, plus the minimum aggregate amount of
additional considerations payable to the Corporation upon the exercise
of all such Options, plus in the case of such Options which relate to
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the issue or sale of such
Convertible Securities and upon the conversion or exchange thereof, by
(ii) the total maximum number of shares of Common Stock issuable upon
the exercise of such Options) shall be less than the Series A Conversion
Price in effect immediately prior to the time of the granting of such
Options, then the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or upon conversion or
exchange of the total maximum amount of such Convertible Securities
shall be deemed to have been issued for such price per share as of the
date of granting of such Options and thereafter shall be deemed to be
outstanding. Except as otherwise provided in Section 4.4.3, no
adjustment of the Series A Conversion Price shall be made upon the
actual issue of such Common Stock or of such Convertible Securities upon
exercise of such Options or upon the actual issue of such Common Stock
upon conversion or
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exchange of such Convertible Securities.
4.4.2 Issuance of Convertible Securities. In case the Corporation
shall in any manner issue (whether directly or by assumption in a merger
or otherwise) or sell any Convertible Securities, whether or not the
rights to exchange or convert thereunder are immediately exercisable,
and the price per share for which Common Stock is issuable upon such
conversion or exchange (determined by dividing (i) the total amount
received or receivable by the Corporation as consideration for the issue
or sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to the Corporation
upon the conversion or exchange thereof, by (ii) the total maximum
number of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities) shall be less than the
Series A Conversion Price in effect immediately prior to the time of
such issue or sale, then the total maximum number of shares of Common
Stock issuable upon conversion or exchange of all such Convertible
Securities shall be deemed to have been issued for such price per share
as of the date of the issue or sale of such Convertible Securities and
thereafter shall be deemed to be outstanding, provided that (a) except
as otherwise provided in Section 4.4.3 below, no adjustment of the
Series A Conversion Price shall be made upon the actual issue of such
Common Stock upon conversion or exchange of such Convertible Securities,
and (b) if any such issue or sale of such Convertible Securities is made
upon exercise of any Option to purchase any such Convertible Securities
for which adjustments of the Series A Conversion Price have been or are
to be made pursuant to other provisions of this Section 4.4, no further
adjustment of the Series A Conversion Price shall be made by reason of
such issue or sale.
4.4.3 Change in Option Price or Conversion Rate. If (i) the
purchase price provided for in any Option referred to in Section 4.4.1,
(ii) the additional consideration, if any, payable upon the conversion
or exchange of any Convertible Securities referred to in Sections 4.4.1
or 4.4.2 or (iii) the rate at which any Convertible Securities referred
to in Sections 4.4.1 or 4.4.2 are convertible into or exchangeable for
Common Stock shall change at any time (in each case other than under or
by reason of provisions designed to protect against dilution), then the
Series A Conversion Price in effect at the time of such event shall, as
required, forthwith be readjusted to such Series A Conversion Price
which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed
purchase price, additional consideration or conversion rate, as the case
may be, at the time initially granted, issued or sold; and on the
expiration of any such Option or the termination of any such right to
convert or exchange such Convertible Securities, the Series A Conversion
Price then in effect hereunder shall, as required, forthwith be
increased to the Series A Conversion Price which would have been in
effect at the time of such expiration or termination had such Option or
Convertible Securities, to the extent outstanding immediately prior to
such expiration or termination, never been issued, and the Common Stock
issuable thereunder shall no longer be deemed to be outstanding. If the
purchase price provided for in any such Option referred to in Section
4.4.1 or the rate at which any Convertible Securities referred to in
Section 4.4.1 or Section 4.4.2 are convertible into or exchangeable for
Common Stock shall be reduced at any time under or by reason of
provisions with respect thereto designed to protect against dilution,
then, in case of the delivery of Common Stock upon the exercise of any
such Convertible Securities, the Series A Conversion Price then in
effect hereunder shall, as required, forthwith be adjusted to such
respective amount as would have been obtained had such Option or
Convertible Securities
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never been issued as to such Common Stock and had adjustments been made
upon issuance of the shares of Common Stock delivered as aforesaid, but
only if as a result of such adjustment the Series A Conversion Price
then in effect hereunder is thereby reduced.
4.4.4 Stock Dividends. In case the Corporation shall declare a
dividend or make any other distribution upon any stock of the
Corporation payable in Common Stock, Options or Convertible Securities,
any Common Stock, Options or Convertible Securities, as the case may be,
issuable in payment of such dividend or distribution shall be deemed to
have been issued or sold without consideration, and the Series A
Conversion Price shall be reduced as if the Corporation had subdivided
its outstanding shares of Common Stock into a greater number of shares,
as provided in Section 4.5 hereof.
4.4.5 Consideration for Stock. In case any shares of Common
Stock, Options or Convertible Securities shall be issued or sold for
cash, the consideration received therefor shall be deemed to be the
amount received by the Corporation therefor, without deduction therefrom
of any expenses incurred or any underwriting commissions or concessions
paid or allowed by the Corporation in connection therewith. In case any
shares of Common Stock, Options or Convertible Securities shall be
issued or sold for a consideration other than cash, the amount of the
consideration other than cash received by the Corporation shall be
deemed to be the fair value of such consideration as determined in good
faith by the Board of Directors of the Corporation, without deduction
therefrom of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in connection therewith.
In case any Options shall be issued in connection with the issue and
sale of other securities of the Corporation, together comprising one
integral transaction in which no specific consideration is allocated to
such Options by the Corporation, such Options shall be deemed to have
been issued without consideration, and the Series A Conversion Price
shall be reduced as if the Corporation had subdivided its outstanding
shares of Common Stock into a greater number of shares, as provided in
Section 4.5 hereof.
4.4.6 Record Date. In case the Corporation shall take a record of
the holders of its Common Stock for the purpose of entitling them (i) to
receive a dividend or other distribution payable in Common Stock,
Options or Convertible Securities, or (ii) to subscribe for or purchase
Common Stock, Options or Convertible Securities, then such record date
shall be deemed to be the date of the issue or sale of the shares of
Common Stock deemed to have been issued or sold upon the declaration of
such dividend or the making of such other distribution or the date of
the granting of such right or subscription of purchase, as the case may
be.
4.4.7 Treasury Shares. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by
or for the account of the Corporation, and the disposition of any such
shares shall be considered an issue or sale of Common Stock for the
purposes of Section 4.4.
4.5 Subdivision or Combination of Stock. In case the Corporation shall
at any time subdivide its outstanding shares of Common Stock into a greater
number of shares, the Series A Conversion Price in effect immediately prior to
such subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of Common Stock of the Corporation shall be combined into a
smaller number of shares, the Series A Conversion Price in effect immediately
prior to such combination shall be proportionately increased.
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4.6 Certain Issues of Common Stock Excepted. Anything herein to the
contrary notwithstanding, the Corporation shall not be required to make any
adjustment of the Series A Conversion Price upon the occurrence of either of the
following events: (i) the issuance of Common Stock upon conversion of
outstanding shares of Series A Preferred Stock, or (ii) the issuance of Common
Stock upon exercise of options granted to employees, officers, directors,
consultants and/or vendors of the Corporation.
4.7 Reorganization, Reclassification, Consolidation, Merger or Sale. If
any capital reorganization or reclassification of the capital stock of the
Corporation or any consolidation or merger of the Corporation with another
corporation, or the sale of all or substantially all of its assets to another
corporation shall be effected in such a way (including, without limitation, by
way of consolidation or merger) wherein holders of Common Stock shall be
entitled to receive stock, securities or assets with respect to or in exchange
for Common Stock, then, as a condition of such reorganization, reclassification,
consolidation, merger or sale, lawful and adequate provisions shall be made
whereby each holder of a share or shares of Series A Preferred Stock shall
thereafter have the right to receive, upon the basis and upon the terms and
conditions specified herein and in lieu of the shares of Common Stock of the
Corporation immediately theretofore receivable upon the conversion of such
shares or shares of the Series A Preferred Stock, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for a number of outstanding shares of such Common Stock equal to the number of
shares of such stock immediately theretofore so receivable had such
reorganization, reclassification, consolidation, merger or sale not taken place,
and in any such case appropriate provision shall be made with respect to the
rights and interests of such holder to the end that the provisions hereof
(including, without limitation, provisions for adjustment of the Series A
Conversion Price) shall thereafter be applicable, as nearly practicable, in
relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise of such conversion rights (including, if necessary to effect
the adjustments contemplated herein, an immediate adjustment, by reason of such
reorganization, reclassification, consolidation, merger or sale, of the Series A
Conversion Price to the value for the Common Stock reflected by the terms of
such reorganization, reclassification, consolidation, merger or sale if the
value so reflected is less than the Series A Conversion Price in effect
immediately prior to such reorganization, reclassification, consolidation,
merger or sale). In the event of a merger or consolidation of the Corporation as
a result of which a greater or lesser number of shares of common stock of the
surviving corporation is issuable to holders of Common Stock of the Corporation
outstanding immediately prior to such merger or consolidation, the Series A
Conversion Price in effect immediately prior to such merger or consolidation
shall be adjusted in the same manner as though there were a subdivision or
combination of the outstanding shares of Common Stock of the Corporation. The
Corporation will not effect any such consolidation or merger, or any sale of all
or substantially all of its assets and properties, unless prior to the
consummation thereof the successor corporation (if other than the Corporation)
resulting from such consolidation or merger or the corporation purchasing such
assets shall assume by written instrument, executed and mailed or delivered to
each holder of shares of Series A Preferred Stock at the last address of such
holder appearing on the books of the Corporation, the obligation to deliver to
such holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such holders may be entitled to receive.
4.8 Automatic Conversion. In the event that, at any time while any of
the Series A Preferred Stock shall be outstanding, the Corporation shall
complete an underwritten public offering involving the sale by the Corporation
of shares of Common Stock (i) at a per share price to the public of not less
than [Seven Dollars and Fifty Cents ($7.50)] (appropriately adjusted for any
stock splits, combinations or stock dividends) and (ii) providing aggregate
proceeds (after deducting underwriting discounts and commissions) to the
Corporation of not less than [Seven Million Five Hundred Thousand Dollars
($7,500,000)], then all outstanding shares of Series A Preferred Stock shall,
automatically and without further action on the part of the holders of the
Series A Preferred Stock, be converted into shares of Common Stock in accordance
with the
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terms of this Section 4 with the same effect as if the certificates evidencing
such shares had been surrendered for conversion, such conversion to be effective
simultaneously with the closing of such public offering; provided that
certificates evidencing the shares of Common Stock issuable upon such conversion
shall not be issued except on surrender of the certificates for the shares of
the Series A Preferred Stock so converted.
4.9 Notice of Adjustment. Upon any adjustment of the Series A Conversion
Price, then and in each such case the Corporation shall give written notice
thereof, by first class mail, postage prepaid, addressed to each holder of
shares of Series A Preferred Stock at the address of such holder as shown on the
books of the Corporation, which notice shall state the Series A Conversion
Price, resulting from such adjustment, setting forth in reasonable detail the
method of calculation and the facts upon which such calculation is based.
4.10 Other Notices. In case at any time:
4.10.1 the Corporation shall declare any dividend upon its Common
Stock payable in cash or stock or make any other distribution to the
holders of its Common Stock;
4.10.2 the Corporation shall offer for subscription pro rata to
the holders of its Common Stock any additional shares of stock of any
class or other rights;
4.10.3 there shall be any capital reorganization or
reclassification of the capital stock of the Corporation, or a
consolidation or merger of the Corporation with, or a sale of all or
substantially all its assets to, another corporation;
4.10.4 there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation; or
4.10.5 the Corporation shall take any action or there shall be
any event which would result in an automatic conversion of the Series A
Preferred Stock pursuant to Section 4.8, then, in any one or more of
said cases, the Corporation shall give, by first class mail, postage
prepaid, addressed to each holder of any shares of Series A Preferred
Stock at the address of such holder as shown on the books of the
Corporation, (a) at least twenty (20) days prior written notice of the
date on which the books of the Corporation shall close or a record shall
be taken for such dividend, distribution or subscription rights or for
determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation
or winding up, (b) in the case of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation
or winding up, at least twenty (20) days prior written notice of the
date when the same shall take place, and (c) in the case of any event
which would result in an automatic conversion of the Series A Preferred
Stock pursuant to Section 4.8, at least twenty (20) days prior written
notice of the date on which the same is expected to be completed. Such
notice in accordance with the foregoing clause (a) shall also specify,
in the case of any such dividend, distribution or subscription rights,
the date on which the holders of Common Stock shall be entitled thereto,
and such notice in accordance with the foregoing clause (b) shall also
specify the date on which the holders of Common Stock for securities or
other property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, as
the case may be.
4.11 Stock to Be Reserved. The Corporation will at all times reserve and
keep available out of its authorized Common Stock or its treasury shares, solely
for the purpose of issue upon the conversion of the Series A Preferred Stock as
herein provided, such number of shares of Common Stock as shall be then issuable
upon the conversion of all outstanding shares of Series A Preferred Stock. The
Corporation
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covenants that all shares of Common Stock which shall be so issued shall be duly
and validly issued and fully paid and nonassessable and free from all taxes,
liens and charges with respect to the issue thereof and, without limiting the
generality of the foregoing, the Corporation covenants that it will from time to
time take all such action as may be requisite to assure that the par value per
share of the Common Stock is at all times equal to or less than the effective
Series A Conversion Price. The Corporation will take all such action as may be
necessary to assure that all such shares of Common Stock may be so issued
without violation of any applicable law or regulation, or of any requirements of
any national securities exchange upon which the Common Stock of the Corporation
may be listed. The Corporation will not take any action which results in any
adjustment of the Series A Conversion Price if the total number of shares of
Common Stock issued and issuable after such action upon conversion of the Series
A Preferred Stock would exceed the total number of shares of Common Stock then
authorized by the Corporation's Certificate of Incorporation.
4.12 No Reissuance of Series A Preferred Stock. Shares of Series A
Preferred Stock which are converted into shares of Common Stock as provided
herein shall not be reissued.
4.13 Issue Tax. The issuance of certificates for shares of Common Stock
upon conversion of the Series A Preferred Stock shall be made without charge to
the holders thereof for any issuance tax in respect thereof, provided that the
Corporation shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any certificate in a
name other than that of the holder of the Series A Preferred Stock which is
being converted.
4.14 Closing of Books. The Corporation will at no time close its
transfer books against the transfer of any Series A Preferred Stock or of any
shares of Common Stock issued or issuable upon the conversion of any shares of
Series A Preferred Stock in any manner which interferes with the timely
conversion of such Series A Preferred Stock.
4.15 Definition of Common Stock. As used in this Section 4, the term
"Common Stock" shall mean and include the Corporation's authorized Common Stock,
$0.001 par value, as constituted on the date of filing of this Certificate of
Designation and shall also include any capital stock of any class of the
Corporation thereafter authorized which shall not be limited to a fixed sum or
percentage of par value in respect of the rights of the holders thereof to
participate in dividends or in the distribution of assets upon the voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, provided
that the shares of Common Stock receivable upon conversion of shares of the
Series A Preferred Stock of the Corporation, or in case of any reorganization or
reclassification of the outstanding shares thereof, the stock, securities or
assets provided for in Section 4.7, shall include only shares designated as
Common Stock of the Corporation on the date of filing of this Certificate of
Designation.
5. Voting Rights. Except as otherwise provided by law and the
Corporation's Certificate of Incorporation, on all matters submitted to vote by
stockholders of the Company, each share of the Series A Preferred Stock will
entitle the holder thereof to one vote for each share of the Corporation's
Common Stock into which such share of Series A Preferred Stock is then
convertible.
IN WITNESS WHEREOF, the Company, by the hands of the Chief Executive
Officer and Secretary, have caused their hands to be affixed to this certificate
on the _____ day of _________, 2000 and affirm under penalty of perjury that
the statements contained herein are true and correct.
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By:
----------------------------
Steven L. Vanechanos, Jr.
Chief Executive Officer
Attest:
- ------------------------------
Steve Vanechanos, Sr.
Secretary
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CERTIFICATE OF DESIGNATION
OF
SERIES B PREFERRED STOCK
OF
NEWCO
eB2B Commerce, Inc. (the "Corporation"), a corporation organized and
existing under the General Corporation Law of the State of Delaware hereby
certifies that the following resolution was adopted by the Board of Directors of
the Corporation as required by Section 151 of the General Corporation Law of
Delaware:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Corporation by ARTICLE 6 of the Corporation's Certificate of
Incorporation, as amended, a series of preferred stock of the Corporation be,
and it hereby is, created out of the authorized but unissued shares of the
capital stock of the Corporation, such series to be designated Series B
Preferred Stock (the "Preferred Stock"), to consist of [Four Million
(4,000,000)] shares, par value $0.001 per share, of which the preferences,
rights, qualifications, limitations or restrictions thereof, shall be (in
addition to those set forth in the Corporation's Certificate of Incorporation,
as amended) as follows:
SERIES B PREFERRED STOCK:
1. Certain Definitions. Unless the context otherwise requires, the
terms defined in this paragraph 1 shall have, for all purposes of this
resolution, the meanings herein specified.
a. Common Stock. The term "Common Stock" shall mean all shares
now or hereafter authorized of any class of Common Stock of the Corporation and
any other stock of the Corporation, howsoever designated, authorized after the
Issue Date, which has the right (subject always to prior rights of any class or
series of preferred stock) to participate in the distribution of the assets and
earnings of the Corporation without limit as to per share amount.
b. Conversion Date. The term "Conversion Date" shall have the
meaning set forth in Section 5(d) below.
c. Conversion Price. The term "Conversion Price" shall mean
the price per share of Common Stock used to determine the number of shares of
Common Stock deliverable upon conversion of a share of the Preferred Stock,
which price shall initially be Five Dollars and Fifty Cents ($5.50) per share,
subject to adjustment in accordance with the provisions of Section 6 below.
d. Current Market Price. The term "Current Market Price" shall
have the meaning set forth in Section 10 below.
e. Issue Date. The term "Issue Date" shall mean the date that
shares of Preferred Stock are first issued by the Corporation.
f. Junior Stock. The term "Junior Stock" shall mean, for
purposes of Sections 3 and 8 below, the Common Stock and any class or series of
stock of the Corporation issued after the Issue Date not entitled to receive any
assets upon the liquidation, dissolution or winding up of the affairs of the
Corporation until the Preferred Stock shall have received the entire amount to
which such stock is entitled upon such liquidation, dissolution or winding up.
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g. Parity Stock. The term "Parity Stock" shall mean, for
purposes of Sections 3 and 8 below, any other class or series of stock of the
Corporation issued after the Issue Date entitled to receive assets upon the
liquidation, dissolution or winding up of the affairs of the Corporation on a
parity with the Preferred Stock.
h. Qualified Public Offering. The term "Qualified Public
Offering" shall mean an initial public offering of the Corporation's securities
raising gross proceeds in excess of $20,000,000 where the offering price per
share is at least 2.5 times the then Conversion Price.
i. Qualified Private Offering. The term "Qualified Private
Offering" shall mean a private offering of the Corporation's securities raising
gross proceeds of at least $20,000,000 where the pre-money valuation is at least
2.5 times the post-private placement valuation of the Corporation and where the
offering price per share is at least 2.5 times the then Conversion Price.
j. Senior Stock. The term "Senior Stock" shall mean, for
purposes of Sections 3 and 8 below, any class or series of stock of the
Corporation issued after the Issue Date ranking senior to the Preferred Stock in
respect of the right to receive assets upon the liquidation, dissolution or
winding up of the affairs of the Corporation.
k. Subscription Price. The term "Subscription Price" shall
mean Ten Dollars ($10.00) per share.
l. Subsidiary. The term "Subsidiary" shall mean any
corporation of which shares of stock possessing at least a majority of the
general voting power in electing the board of directors are, at the time as of
which any determination in being made, owned by the Corporation, whether
directly or indirectly through one or more Subsidiaries.
2. Ranking. The Preferred Stock shall rank, with respect to
distributions upon a Liquidation (as defined in Section 4), (i) senior to all
classes of Common Stock of the Corporation and to each other class of capital
stock or series of preferred stock established after the Issue Date by the Board
of Directors, the terms of which do not expressly provide that it ranks senior
or on a parity with the Preferred Stock as to distributions upon a Liquidation;
(ii) on a parity with any additional shares of Preferred Stock issued by the
Corporation in the future and any other class of capital stock or series of
preferred stock issued by the Corporation established after the Issue Date by
the Board of Directors, the terms of which expressly provide that such class or
series will rank on a parity with the Preferred Stock as to distributions upon
Liquidation; and (iii) junior to each class of capital stock or series of
preferred stock issued by the Corporation established after the Issue Date by
the Board of Directors, the terms of which expressly provide that such class or
series will rank senior to the Preferred Stock as to distributions upon a
Liquidation.
3. Dividends. The holders of the Preferred Stock shall not be entitled
to receive dividends in any fixed amount; provided that in the event that the
Corporation shall at any time declare or pay a dividend on the Common Stock
(other than a dividend referred to in Section 6(a)), it shall, at the same time,
declare and pay to each holder of the Preferred Stock a dividend equal to the
dividend which would have been payable to such holder if the shares of the
Preferred Stock held by each holder had been converted into Common Stock on the
date of determination of holders of Common Stock entitled to receive such
dividends.
4. Distributions Upon Liquidation, Dissolution or Winding Up. In the
event of any voluntary or involuntary liquidation, dissolution or other winding
up of the affairs of the Corporation, subject to the prior preferences and other
rights of any Senior Stock, but before any distribution or payment shall be made
to the holders of Junior Stock, the holders of the Preferred Stock shall be
entitled to be paid the Subscription Price of all outstanding shares of
Preferred Stock as of the date of such liquidation or dissolution or such
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other winding up, plus any accrued and unpaid dividends thereon to such
date, and no more, in cash or in property taken at its fair value as
determined by the Board of Directors, or both, at the election of the Board
of Directors. If such payment shall have been made in full to the holders
of the Preferred Stock, and if payment shall have been made in full to the
holders of any Senior Stock and Parity Stock of all amounts to which such
holders shall be entitled, the remaining assets and funds of the
Corporation shall be distributed among the holders of Junior Stock,
according to their respective shares and priorities. If, upon any such
liquidation, dissolution or other winding up of the affairs of the
Corporation, the net assets of the Corporation distributable among the
holders of all outstanding shares of the Preferred Stock and of any Parity
Stock shall be insufficient to permit the payment in full to such holders
of the preferential amounts to which they are entitled, then the entire net
assets of the Corporation remaining after the distributions to holders of
any Senior Stock of the full amounts to which they may be entitled shall be
distributed among the holders of the Preferred Stock and of any Parity
Stock ratably in proportion to the full amounts to which they would
otherwise be respectively entitled. Neither the consolidation or merger of
the Corporation into or with another corporation or corporations, nor the
sale of all or substantially all of the assets of the Corporation to
another corporation or corporations shall be deemed a liquidation,
dissolution or winding up of the affairs of the Corporation within the
meaning of this Section 4.
5. Conversion Rights. The Preferred Stock shall be convertible into
Common Stock as follows:
a. Optional Conversion. Subject to and upon compliance with
the provisions of this Section 5, the holder of any shares of Preferred Stock
shall have the right at such holder's option, at any time or from time to time,
to convert any of such shares of Preferred Stock into fully paid and
nonassessable shares of Common Stock at the Conversion Price (as hereinafter
defined) in effect on the Conversion Date (as hereinafter defined) upon the
terms hereinafter set forth.
b. Automatic Conversion. Each outstanding share of Preferred
Stock shall automatically be converted, without any further act of the
Corporation or its stockholders, into fully paid and nonassessable shares of
Common Stock at the Conversion Price then in effect upon the closing of (i) a
Qualified Public Offering or (ii) a Qualified Private Offering.
c. Conversion Price. Each share of Preferred Stock shall be
converted into a number of shares of Common Stock determined by dividing (i) the
sum of the Subscription Price, by (ii) the Conversion Price in effect on the
Conversion Date. The Conversion Price at which shares of Common Stock shall
initially be issuable upon conversion of the shares of Preferred Stock shall be
Five Dollars and Fifty Cents ($5.50). The Conversion Price shall be subject to
adjustment as set forth in Section 6. No payment or adjustment shall be made for
any dividends on the Common Stock issuable upon such conversion.
d. Mechanics of Conversion. The holder of any shares of
Preferred Stock may exercise the conversion right specified in Section 5(a) by
surrendering to the Corporation or any transfer agent of the Corporation the
certificate or certificates for the shares to be converted, accompanied by
written notice specifying the number of shares to be converted. Upon the
occurrence of the event specified in Subsection (b), the outstanding shares of
Preferred Stock shall be converted automatically without any further action by
the holders of such shares and whether or not the certificates representing such
shares are surrendered to the Corporation or its transfer agent; provided that
the Corporation shall not be obligated to issue to any such holder certificates
evidencing the shares of Common Stock issuable upon such conversion unless
certificates evidencing the shares of Preferred Stock are either delivered to
the Corporation or any transfer agent of the Corporation. Conversion shall be
deemed to have been effected on the date when delivery of notice of an election
to convert and certificates for shares is made or on the date of the occurrence
of the event specified in Section 5(b), as the case may be, and such date is
referred to herein as the
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"Conversion Date." Subject to the provisions of Section 6(i), as promptly as
practicable thereafter (and after surrender of the certificate or certificates
representing shares of Preferred Stock to the Corporation or any transfer agent
of the Corporation in the case of conversions pursuant to Section 5(b)) the
Corporation shall issue and deliver to or upon the written order of such holder
a certificate or certificates for the number of full shares of Common Stock to
which such holder is entitled and a check or cash with respect to any fractional
interest in a share of Common Stock as provided in Section 10. Subject to the
provisions of Section 6(i), the person in whose name the certificate or
certificates for Common Stock are to be issued shall be deemed to have become a
holder of record of such Common Stock on the applicable Conversion Date. Upon
conversion of only a portion of the number of shares covered by a certificate
representing shares of Preferred Stock surrendered for conversion (in the case
of conversion pursuant to Section 5(a)), the Corporation shall issue and deliver
to or upon the written order of the holder of the certificate so surrendered for
conversion, at the expense of the Corporation, a new certificate covering the
number of shares of Preferred Stock representing the unconverted portion of the
certificate so surrendered.
e. Conversion Price Adjustments. The Conversion Price shall be
subject to adjustment provisions of Section 6 below.
6. Anti-dilution Provisions. Subject to the provisions of Section 1
hereof, the Conversion Price in effect at any time and the number and kind of
securities issuable upon the conversion of the Preferred Stock shall be subject
to adjustment from time to time upon the happening of certain events as follows:
a. In case the Corporation shall hereafter (i) declare a
dividend or make a distribution on its outstanding shares of Common Stock in
shares of Common Stock, (ii) subdivide or reclassify its outstanding shares of
Common Stock into a greater number of shares, or (iii) combine or reclassify its
outstanding shares of Common Stock into a smaller number of shares, the
Conversion Price in effect at the time of the record date for such dividend or
distribution or of the effective date of such subdivision, combination or
reclassification shall be adjusted so that it shall equal the price determined
by multiplying the Conversion Price by a fraction, the denominator of which
shall be the number of shares of Common Stock outstanding after giving effect to
such action, and the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such action. Such adjustment shall be
made successively whenever any event listed above shall occur.
b. Subject to the provisions of Section (i) below, in case the
Corporation shall fix a record date for the issuance of rights or warrants to
all holders of its Common Stock entitling them to subscribe for or purchase
shares of Common Stock (or securities convertible into Common Stock) at a price
(the "Purchase Price") (or having a conversion price per share) less than the
current market price of the Common Stock on such record date or less than the
Conversion Price, the Conversion Price shall be adjusted so that the same shall
equal the lower of (i) the price determined by multiplying the Conversion Price
in effect immediately prior to the date of such issuance by a fraction, the
numerator of which shall be the sum of the number of shares of Common Stock
outstanding on the record date mentioned below and the number of additional
shares of Common Stock which the aggregate offering price of the total number of
shares of Common Stock so offered (or the aggregate conversion price of the
convertible securities so offered) would purchase at such current market price
per share of the Common Stock, and the denominator of which shall be the sum of
the number of shares of Common Stock outstanding on such record date and the
number of additional shares of Common Stock offered for subscription or purchase
(or into which the convertible securities so offered are convertible) or (ii) in
the event the Purchase Price is equal to or higher than the current market price
but is less than the Conversion Price, the price determined by multiplying the
Conversion Price in effect immediately prior to the date of issuance by a
fraction, the numerator of which shall be the sum of the number of shares
outstanding on the record date mentioned above and the number of additional
shares
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of Common Stock which the aggregate Purchase Price of the total number of
shares of Common Stock so offered (or the aggregate conversion price of the
convertible securities so offered) would purchase at the Conversion Price in
effect immediately prior to the date of such issuance, and the denominator of
which shall be the sum of the number of shares of Common Stock outstanding on
the record date mentioned above and the number of additional shares of Common
Stock offered for subscription or purchase (or into which the convertible
securities so offered are convertible). Such adjustment shall be made
successively whenever such rights or warrants are issued and shall become
effective immediately after the record date for the determination of
shareholders entitled to receive such rights or warrants; and to the extent that
shares of Common Stock are not delivered (or securities convertible into Common
Stock are not delivered) after the expiration of such rights or warrants the
Conversion Price shall be readjusted to the Conversion Price which would then be
in effect had the adjustments made upon the issuance of such rights or warrants
been made upon the basis of delivery of only the number of shares of Common
Stock (or securities convertible into Common Stock) actually delivered.
c. In case the Corporation shall hereafter distribute to the
holders of its Common Stock evidences of its indebtedness or assets (excluding
cash dividends or distributions and dividends or distributions referred to in
Subsection (a) above) or subscription rights or warrants (excluding those
referred to in Subsection (b) above), then in each such case the Conversion
Price in effect thereafter shall be determined by multiplying the Conversion
Price in effect immediately prior thereto by a fraction, the numerator of which
shall be the total number of shares of Common Stock outstanding multiplied by
the current market price per share of Common Stock, less the fair market value
(as determined by the Corporation's Board of Directors) of said assets or
evidences of indebtedness so distributed or of such rights or warrants, and the
denominator of which shall be the total number of shares of Common Stock
outstanding multiplied by such current market price per share of Common Stock.
Such adjustment shall be made successively whenever such a record date is fixed.
Such adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date for the determination of
shareholders entitled to receive such distribution.
d. Subject to the provisions of Section (i) below, in case the
Corporation shall hereafter issue shares of its Common Stock (excluding shares
issued (i) in any of the transactions described in Subsection (a) above, (ii)
upon exercise of options granted to the Corporation's officers, directors,
employees and consultants under a plan or plans adopted by the Corporation's
Board of Directors and approved by its shareholders, if such shares would
otherwise be included in this Subsection (d), (but only to the extent that the
aggregate number of shares excluded hereby and issued after the date hereof,
shall not exceed ten percent (10%) of the Corporation's Common Stock
outstanding, on a fully-diluted basis, at the time of any issuance), (iii) upon
exercise of options, warrants, convertible securities and convertible debentures
outstanding as of the Issue Date, a Qualified Private Offering, Qualified Public
Offering or exercise of the warrants issued on or prior to the Issue Date, (iv)
to shareholders of any corporation which merges into the Corporation in
proportion to their stock holdings of such corporation immediately prior to such
merger, upon such merger, (v) issued in a private placement through Commonwealth
Associates, L.P. ("Commonwealth"), as placement agent, or upon exercise or
conversion of any securities issued in or in connection with such a private
placement (including agent, consulting or advisory warrants) or (vi) issued in a
bona fide public offering pursuant to a firm commitment underwriting, but only
if no adjustment is required pursuant to any other specific subsection of this
Section 6 (without regard to Subsection (i) below) with respect to the
transaction giving rise to such rights) for a consideration per share (the
"Offering Price") less than the current market price on the date the Corporation
fixes the Offering Price of such additional shares or less than the Conversion
Price, the Conversion Price shall be adjusted immediately thereafter so that it
shall equal the lower of (i) the price determined by multiplying the Conversion
Price in effect immediately prior thereto by a
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fraction, the numerator of which shall be the sum of the number of shares of
Common Stock outstanding immediately prior to the issuance of such additional
shares and the number of shares of Common Stock which the aggregate
consideration received for the issuance of such additional shares would
purchase at such current market price per share of Common Stock, and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately after the issuance of such additional shares or (ii) in the event
the Offering Price is equal to or higher than the current market price per
share but less than the Conversion Price, the price determined by multiplying
the Conversion Price in effect immediately prior to the date of issuance by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to the issuance of such additional shares and the
number of shares of Common Stock which the aggregate consideration received for
the issuance of such additional shares would purchase at the Conversion Price
in effect immediately prior to the date of such issuance, and the denominator
of which shall be the number of shares of Common Stock outstanding immediately
after the issuance of such additional shares. Such adjustment shall be made
successively whenever such an issuance is made.
e. Subject to the provisions of Section (i) below, in case the
Corporation shall hereafter issue any securities convertible into or
exchangeable for its Common Stock (excluding securities issued in transactions
described in Subsections (b) and (c) above) for a consideration per share of
Common Stock (the "Exchange Price") initially deliverable upon conversion or
exchange of such securities (determined as provided in Subsection (g) below)
less than the current market price in effect immediately prior to the issuance
of such, or less than the Conversion Price, the Conversion Price shall be
adjusted immediately thereafter so that it shall equal the lower of (i) the
price determined by multiplying the Conversion Price in effect immediately prior
thereto by a fraction, the numerator of which shall be the sum of the number of
shares of Common Stock outstanding immediately prior to the issuance of such
securities and the number of shares of Common Stock which the aggregate
consideration received for such securities would purchase at such current market
price per share of Common Stock, and the denominator of which shall be the sum
of the number of shares of Common Stock outstanding immediately prior to such
issuance and the maximum number of shares of Common Stock of the Corporation
deliverable upon conversion of or in exchange for such securities at the initial
conversion or exchange price or rate or (ii) in the event the Exchange Price is
equal to or higher than the current market price per share but less than the
Conversion Price, the price determined by multiplying the Conversion Price in
effect immediately prior to the date of issuance by a fraction, the numerator of
which shall be the sum of the number of shares outstanding immediately prior to
the issuance of such securities and the number of shares of Common Stock which
the aggregate consideration received for such securities would purchase at the
Conversion Price in effect immediately prior to the date of such issuance, and
the denominator of which shall be the sum of the number of shares of Common
Stock outstanding immediately prior to the issuance of such securities and the
maximum number of shares of Common Stock of the Corporation deliverable upon
conversion of or in exchange for such securities at the initial conversion or
exchange price or rate. Such adjustment shall be made successively whenever such
an issuance is made.
f. Whenever the Conversion Price payable upon conversion of
Preferred Stock is adjusted pursuant to Subsections (a), (b), (c), (d) and (e)
above and (i) below, the number of shares of Common Stock issuable upon
conversion of Preferred Stock shall simultaneously be adjusted by multiplying
the number of shares of Common Stock initially issuable upon conversion of
Preferred Stock by the Conversion Price in effect on the date hereof and
dividing the product so obtained by the Conversion Price, as adjusted.
g. For purposes of any computation respecting consideration
received pursuant to Subsections (d) and (e) above, the following shall apply:
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(i) in the case of the issuance of shares of Common
Stock for cash, the consideration shall be the amount of such cash, provided
that in no case shall any deduction be made for any commissions, discounts or
other expenses incurred by the Corporation for any underwriting of the issue or
otherwise in connection therewith;
(ii) in the case of the issuance of shares of Common
Stock for a consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair market value thereof as
determined in good faith by the Board of Directors of the Corporation
(irrespective of the accounting treatment thereof), whose determination shall be
conclusive; and
(iii) in the case of the issuance of securities
convertible into or exchangeable for shares of Common Stock, the aggregate
consideration received therefor shall be deemed to be the consideration received
by the Corporation for the issuance of such securities plus the additional
minimum consideration, if any, to be received by the Corporation upon the
conversion or exchange thereof (the consideration in each case to be determined
in the same manner as provided in clauses (i) and (ii) of this Subsection (g)).
h. For the purpose of any computation under Subsections (b),
(c), (d) and (e) above, the current market price per share of Common Stock at
any date shall be determined in the manner set forth in Section 10 below.
i. Notwithstanding the provisions of this Section 6, in the
event that the Corporation issues securities under Subsections (b), (d) or (e),
prior to the date which is sixty (60) days after the expiration of any lock-up
agreement entered into by the holders of Preferred Stock in connection with a
Qualified Public Offering, having a Purchase Price, Offering Price or Exchange
Price less than the Conversion Price, then the Conversion Price shall be
immediately reset to equal such lower Purchase Price, Offering Price or Exchange
Price.
j. No adjustment in the Conversion Price shall be required
unless such adjustment would require an increase or decrease of at least Five
Cents ($0.05) in such price; provided that any adjustments which by reason of
this Subsection (j) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment required to be made hereunder.
All calculations under this Section 6 shall be made to the nearest cent or to
the nearest one-hundredth of a share, as the case may be. Anything in this
Section 6 to the contrary notwithstanding, the Corporation shall be entitled,
but shall not be required, to make such changes in the Conversion Price, in
addition to those required by this Section 6, as it shall determine, in its sole
discretion, to be advisable in order that any dividend or distribution in shares
of Common Stock, or any subdivision, reclassification or combination of Common
Stock, hereafter made by the Corporation shall not result in any Federal Income
tax liability to the holders of Common Stock or securities convertible into
Common Stock.
k. Whenever the Conversion Price is adjusted, as herein
provided, the Corporation shall promptly but no later than ten (10) days after
any request for such an adjustment by the holder, cause a notice setting forth
the adjusted Conversion Price and adjusted number of Shares issuable upon
conversion of Preferred Stock, and, if requested, information describing the
transactions giving rise to such adjustments, to be mailed to the holders at
their last addresses appearing on the Corporation's records, and shall cause a
certified copy thereof to be mailed to its transfer agent, if any. The
Corporation may retain a firm of independent certified public accountants
selected by the Board of Directors (who may be the regular accountants employed
by the Corporation) to make any computation required by this Section 6, and a
certificate signed by such firm shall be conclusive evidence of the correctness
of such adjustment.
l. In the event that at any time, as a result of an adjustment
made pursuant to
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Subsection (a) above, the holder of Preferred Stock thereafter shall become
entitled to receive any shares of the Corporation, other than Common Stock,
thereafter the number of such other shares so receivable upon conversion of
Preferred Stock shall be subject to adjustment from time to time in a manner
and on terms as nearly equivalent as practicable to the provisions with respect
to the Common Stock contained in Subsections (a) to (j), inclusive above.
m. Irrespective of any adjustments in the Conversion Price or
the number or kind of shares purchasable upon conversion of Preferred Stock,
Preferred Stock theretofore or thereafter issued may continue to express the
same price and number and kind of shares as are stated in the similar Preferred
Stock initially issuable pursuant to this Certificate of Designation.
7. Reservation of Shares; Costs; Approvals.
a. Reservation of Shares. The Corporation shall reserve at all
times so long as any shares of Preferred Stock remain outstanding, free from
preemptive rights, out of its treasury stock (if applicable) or its authorized
but unissued shares of Common Stock, or both, solely for the purpose of
effecting the conversion of the shares of Preferred Stock, sufficient shares of
Common Stock to provide for the conversion of all outstanding shares of
Preferred Stock. All shares of Common Stock which may be issued upon conversion
of the shares of Preferred Stock will upon issuance by the Corporation be duly
and validly issued, fully paid and nonassessable and free from all taxes, liens
and charges with respect to the issuance thereof, and the Corporation shall take
no action which will cause a contrary result (including without limitation, any
action which would cause the Conversion Price to be less than the par value, if
any, of the Common Stock).
b. Costs. The Corporation shall pay all documentary, stamp,
transfer or other transactional taxes attributable to the issuance or delivery
of shares of Common Stock upon conversion of any shares of Preferred Stock;
provided that the Corporation shall not be required to pay any taxes which may
be payable in respect of any transfer involved in the issuance or delivery of
any certificate for such shares in a name other than that of the holder of the
shares of Preferred Stock in respect of which such shares are being issued.
c. Approvals. If any shares of Common Stock to be reserved for
the purpose of conversion of shares of Preferred Stock require registration with
or approval of any governmental authority under any Federal or state law before
such shares may be validly issued or delivered upon conversion, then the
Corporation will in good faith and as expeditiously as possible endeavor to
secure such registration or approval, as the case may be. If, and so long as,
any Common Stock into which the shares of Preferred Stock are then convertible
is listed on any national securities exchange, the Corporation will, if
permitted by the rules of such exchange, list and keep listed on such exchange,
upon official notice of issuance, all shares of such Common Stock issuable upon
conversion.
8. Voting Rights.
a. The holders of the issued and outstanding shares of
Preferred Stock shall have no voting rights except as set forth herein and as
required by law; provided that the Corporation may, without the vote or consent
of any holders of the Preferred Stock, file a Certificate of Designation or
similar instrument to issue preferred stock of the Corporation which is Junior
Stock.
b. Except as otherwise required by law or as provided herein
and subject to the rights of any class or series of capital stock of the
Corporation that hereafter may be issued in compliance with the terms of this
Certificate of Designation or Section 8(c) hereof, the holders of shares of
Preferred Stock shall be entitled to vote upon all matters upon which holders of
the Common Stock have the right to vote, and shall
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be entitled to the number of votes equal to the largest number of full shares
of Common Stock into which such shares of Preferred Stock could be converted
pursuant to the provisions of Section 5 hereof at the record date for the
determination of the stockholders entitled to vote on such matters, or, if no
such record date is established, at the date such vote is taken or any written
consent of stockholders is solicited, such votes to be counted together with
all other shares of capital stock having general voting powers and not
separately as a class. In all cases where the holders of shares of Preferred
Stock have the right to vote separately as a class, such holders shall be
entitled to one vote for each such share held by them respectively.
c. In addition to the other voting rights provided,
notwithstanding anything to the contrary, at each annual meeting of the
stockholders of the Corporation, the holders of the Preferred Stock, voting as a
single class, shall be entitled to elect one (1) director, and the number of
directors constituting the board of directors shall be [eight (8)] directors.
d. Any director elected by the holders of the Preferred Stock
may be removed only by the vote or written consent of the holders of a majority
of the Preferred Stock, and any vacancy occurring by reason of such removal or
by reason of the death, resignation or inability to serve of any such director,
shall be filled by a vote or written consent of the holders of a majority of the
Preferred Stock. Any director so elected shall serve until his or her successor
is duly elected and qualified, or his or her earlier death, resignation or
removal by the holders of a majority of the Preferred Stock.
e. In addition to any other rights provided by law, so long as
any Preferred Stock is outstanding, the Corporation, without first obtaining the
affirmative vote or written consent of the holders of not less than one-third
(1/3) of such outstanding shares of Preferred Stock, will not:
(i) authorize or issue shares of any class or series
of stock not expressly authorized herein having any preference or priority as to
dividends, assets or other rights superior to or on a parity with any such
preference or priority of the Preferred Stock, or authorize or issue shares of
stock of any class or any bonds, debentures, notes or other obligations
convertible into or exchangeable for, or having option rights to purchase, any
shares of stock of the Corporation having any preference or priority as to
dividends, assets or other rights superior to or on a parity with any such
preference or priority of the Preferred Stock; or
(ii) reclassify any class or series of any Junior
Stock into Parity Stock or Senior Stock or reclassify any series of Parity Stock
into Senior Stock.
9. Covenants. The Corporation covenants and agrees that, so long as any
Preferred Stock is outstanding, it will perform the obligations set forth in
this Section 9:
a. Taxes and Levies. The Corporation will promptly pay and
discharge all taxes, assessments, and governmental charges or levies imposed
upon the Corporation or upon its income and profits, or upon any of its
property, before the same shall become delinquent, as well as all claims for
labor, materials and supplies which, if unpaid, might become a lien or charge
upon such properties or any part thereof; provided that the Corporation shall
not be required to pay and discharge any such tax, assessment, charge, levy or
claim so long as the validity thereof shall be contested in good faith by
appropriate proceedings and the Corporation shall set aside on its books
adequate reserves in accordance with generally accepted accounting principles
("GAAP") with respect to any such tax, assessment, charge, levy or claim so
contested;
b. Maintenance of Existence. The Corporation will do or cause
to be done all things reasonably necessary to preserve and keep in full force
and effect its corporate existence, rights and franchises and comply with all
laws applicable to the Corporation, except where the failure to comply would not
have a material adverse effect on the Corporation;
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c. Maintenance of Property. The Corporation will at all times
maintain, preserve, protect and keep its property used or useful in the conduct
of its business in good repair, working order and conditions, and from time to
time make all needful and proper repairs, renewals, replacements and
improvements thereto as shall be reasonably required in the conduct of its
business;
d. Insurance. The Corporation will, to the extent necessary
for the operation of its business, keep adequately insured by financially sound
reputable insurers, all property of a character usually insured by similar
corporations and carry such other insurance as is usually carried by similar
corporations;
e. Books and Records. The Corporation will at all times keep
true and correct books, records and accounts reflecting all of its business
affairs and transactions in accordance with GAAP; and
f. Notice of Certain Events. The Corporation will give prompt
written notice (with a reasonable description in reasonable detail) to the
holders of the Preferred Stock in the event the Corporation shall:
(i) become insolvent or generally fail or be unable
to pay, or admit in writing its inability to pay, its debts as they become due;
(ii) apply for, consent to, or acquiesce in, the
appointment of a trustee, receiver, sequestrator or other custodian for the
Corporation or any of its property, or make a general assignment for the benefit
of creditors;
(iii) in the absence of such application, consent to
or acquiesce in, permit or suffer to exist the appointment of a trustee,
receiver, sequestrator or other custodian for the Corporation or for any part of
its property; or
(iv) permit or suffer to exist the commencement of
any bankruptcy, reorganization, debt arrangement or other case or proceeding
under any bankruptcy or insolvency law, or any dissolution, winding up or
liquidation proceeding, in respect of the Corporation, and, if such case or
proceeding is not commenced by the Corporation or controverted to a voluntary
case, such case or proceeding shall be consented to or acquiesced in by the
Corporation or shall result in the entry of an order for relief.
10. Fractional Shares.
a. If the number of shares of Common Stock issuable upon the
conversion of Preferred Stock is adjusted pursuant to Section 6 hereof, the
Corporation shall nevertheless not be required to issue fractions of shares,
upon conversion of the Preferred Stock or otherwise, or to distribute
certificates that evidence fractional shares. With respect to any fraction of a
share called for upon any conversion hereof, the Corporation shall pay to the
holder an amount in cash equal to such fraction multiplied by the current market
value of such fractional share, determined as follows:
(i) If the Common Stock is listed on a national
securities exchange or admitted to unlisted trading privileges on such exchange
or listed for trading on the Nasdaq National Market System ("NMS"), the current
market value shall be the average of the last reported sale prices of the Common
Stock on such exchange for the ten (10) trading days prior to the date of
conversion of Preferred Stock; provided that if no such sale is made on a day
within such period or no closing sale price is quoted, that day's market value
shall be the average of the closing bid and asked prices for such day on such
exchange or
system; or
(ii) If the Common Stock is listed in the
over-the-counter market (other than on NMS) or admitted to unlisted trading
privileges, the current market value shall be the mean of the average of the
last reported bid and asked prices reported by the National Quotation Bureau,
Inc. for the ten (10) trading days prior to the date of the conversion of the
Preferred Stock; or
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(iii) If the Common Stock is not so listed or
admitted to unlisted trading privileges and bid and asked prices are not so
reported, the current market value shall be an amount determined in a reasonable
manner by the Board of Directors of the Corporation.
11. Exclusion of Other Rights. Except as may otherwise be required by
law, the shares of Preferred Stock shall not have any preferences or relative,
participating, optional or other special rights, other than those specifically
set forth in this resolution (as such resolution may be amended from time to
time) and in the Corporation's Certificate of Incorporation. The shares of
Preferred Stock shall have no preemptive or subscription rights.
12. Headings of Subdivisions. The headings of the various subdivisions
hereof are for convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.
13. Modification of Agreement. The holders of Preferred Stock of the
Corporation may, by supplemental agreement, make changes or corrections in this
Certificate of Designation (i) that it shall deem appropriate to cure any
ambiguity or to correct any defective or inconsistent provision or manifest
mistake or error herein contained; (ii) to reflect an increase in the number of
Preferred Stock which are to be governed by this Certificate of Designation; or
(iii) that it may deem necessary or desirable and which shall not adversely
affect the interests of the holders of Preferred Stock; provided that this
Certificate of Designation shall not otherwise be modified, supplemented or
altered in any respect except with the consent in writing of the Corporation,
Commonwealth and a committee to be designated by Commonwealth whose members hold
in the aggregate not less than twenty percent (20%) of the outstanding principal
amount of the Preferred Stock; provided that no such amendment, modification or
waiver which would decrease the number of the securities issuable upon the
conversion of any Preferred Stock, or increase in the Conversion Price therefor
(other than as a result of the waiver or modification of any anti-dilution
provisions contained in Section 6 hereof), shall be made without the consent in
writing of the holders of not less than fifty percent (50%) of the outstanding
Preferred Stock.
14. Severability of Provisions. If any right, preference or limitation
of the Preferred Stock set forth in this resolution (as such resolution may be
amended from time to time) is invalid, unlawful or incapable of being enforced
by reason of any rule of law or public policy, all other rights, preferences and
limitations set forth in this resolution (as so amended) which can be given
effect without the invalid, unlawful or unenforceable right, preference or
limitation shall, nevertheless, remain in full force and effect, and no right,
preference or limitation herein set forth shall be deemed dependent upon any
other such right, preference or limitation unless so expressed herein.
15. Status of Reacquired Shares. Shares of Preferred Stock which have
been issued and reacquired in any manner shall (upon compliance with any
applicable provisions of the laws of the State of Delaware) have the status of
authorized and unissued shares of Preferred Stock issuable in series
undesignated as to series and may be redesignated and reissued.
IN WITNESS WHEREOF, the Corporation, by the hands of the Chief
Executive Officer and Secretary, have caused their hands to be affixed to this
certificate on the day of_______, 2000 and affirm under penalty of perjury that
the statements contained herein are true and correct.
By:--------------------------
Steven L. Vanechanos, Jr.
Chief Executive Officer
Attest:
- -----------------------------
Steve Vanechanos, Sr.
Secretary
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EMPLOYMENT AGREEMENT (the "Agreement"), effective as of December 1,
1998 (the "Effective Date"), between eB2B Commerce, Inc., a Delaware corporation
with principal offices at 29 West 38th Street, New York, New York 10018, (the
"Company") and Peter Fiorillo, residing at 236 East Granada, Lindenhurst, New
York, ("Fiorillo"). The Company and Fiorillo may be referred to herein
collectively as the "Parties" or individually as a "Party."
WHEREAS, the Company is engaged in the sales and service of building,
owning and operating electronic commerce networks;
WHEREAS, Fiorillo currently serves as the President and Chief Executive
Officer of the Company; and
WHEREAS, the Company and Fiorillo believe that it is appropriate for
them to memorialize their understandings with respect to Fiorillo's employment,
including confidentiality and non-competition provisions, and agree as to each
other's obligations pursuant to their employer-employee relationship.
NOW, THEREFORE, in consideration of the mutual covenants herein set
forth, the Parties do hereby agree as follows:
1 Employment. The Company hereby employs Fiorillo and Fiorillo accepts
this employment and agrees to render services to the Company on the terms and
conditions set forth in this Agreement. Fiorillo shall serve in the capacity of
President and Chief Executive Officer, perform services for the Company normally
associated with such positions, and use his best efforts to meet the business
requirements and goals set by the board of directors of the Company (the
"Board"). In furtherance thereof, Fiorillo will devote his best efforts,
including his full-time attention, during reasonable business hours, to the
affairs and business of the Company. Fiorillo further agrees to observe and
comply with the rules and regulations of the Company as adopted by the Board
with respect to performance of his duties, and to carry out and perform orders,
directions, and policies enacted by the Board.
2 Term. The term of this Employment Agreement shall be the period from
the Effective Date and terminating on December 31, 2002 (the "Initial Employment
Term"). The Agreement shall thereafter automatically renew for successive one
year terms, until terminated by either Party in accordance with this Agreement
(the "Succeeding Employment Term"), unless either Party provides written notice
of termination to the other party at least ninety (90) days prior to the
expiration of the Initial Employment Term or any Succeeding Employment Term.
3 Compensation.
3.1 Base Salary. The Company will compensate and pay Fiorillo for his
services during the term of this Agreement at a base salary of $195,000 per
year, and the Company agrees that the base salary will increase annually in an
amount no less than five (5%) percent of the previous year's base salary (the
"Base Salary"). The Base Salary shall be payable to Fiorillo in accordance with
the Company's standard payroll policy for similarly situated employees of the
Company. The Company has the right, from the Effective Date to December 31,
1999, to accrue the Base Salary of Fiorillo. At any time thereafter, the
Company's right and conditions to accrue the Base Salary of Fiorillo shall be
mutually agreed upon by the Company and Fiorillo. In the event that the Base
Salary is accrued, Fiorillo has the right to convert the accrued Base Salary
(less applicable withholding taxes and standard payroll deductions) ("Accrued
Salary") to purchase shares of the Company's Common Stock, in accordance with
the Accrued Salary Stock Purchase Agreement executed simultaneously with the
execution of this Agreement.
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3.2 Bonus. Fiorillo may receive, from time to time, bonus compensation
from the Company, as established by the Board following the negotiation of the
terms by the Parties (the "Bonus Compensation"). If at any time hereafter the
Company shall adopt a bonus program, an option program or any other form of
equity participation for senior executives of the Company, Fiorillo shall be
eligible to participate in such program in a manner and capacity commensurate
with his position and duties. Notwithstanding the foregoing, For each calendar
year of this Agreement, commencing with the 1999 calendar year, the Company will
pay Fiorillo a bonus of no less than fifty thousand ($50,000) dollars, payable
by March 15th of the following year.
3.3 Performance Based Options. The parties acknowledge that Fiorillo
and the Company have entered into the 1998 Executive Performance Equity
Agreement (the "Executive Performance Agreement"), to which Fiorillo will be
granted options ("Award") to purchase up to two hundred fifty thousand (250,000)
shares of the Company's Common Stock provided that certain performance goals are
met.
3.4 Stock Options. In addition, and without limiting the foregoing,
during the term of this Agreement, Fiorillo shall be entitled to participate, as
determined by the Board of Directors, in the Company's incentive stock option
plan to the same extent as other employees of the Company. For purposes of this
Agreement, "Options" shall mean any options granted under the Company's
incentive stock option plan and the Executive Performance Agreement.
3.5 Deferred Compensation.
3.6 Amount. Deferred Compensation shall be the amount which is
calculated as the greater of (A) four hundred (400%) percent of the Base Salary
payments Fiorillo would have received had his employment continued for the
remaining term of this Agreement (including yearly increases); or (B) an amount
equal to two hundred fifty (250%) percent of the highest annual compensation
earned by Fiorillo in the past three (3) years (including both Base Salary and
Bonus Compensation). In addition to the Deferred Compensation, Fiorillo shall be
entitled to all of the benefits and personal perquisites otherwise provided in
this Agreement (including the car allowance, as described in Section 4.2 hereof)
during the period of time which is the greater of (X) the remaining term of this
Agreement, or (Y) three (3) years following the date of termination. The
Deferred Compensation herein shall be deemed liquidated damages resulting from
the Company's sole and exclusive remedy for any such termination. Deferred
Compensation shall not be diminished or offset by reason of any earnings by
Fiorillo subsequent to the date of termination.
3.7 Payment of Deferred Compensation. Except as otherwise provided
below, the Deferred Compensation shall be paid in monthly installments over the
twelve (12) months following the event giving rise to the payment of Deferred
Compensation. If employment termination is a result of the death of Fiorillo,
the initial Deferred Compensation payments shall be made within fifteen (15)
days after the personal representative of Fiorillo's estate notifies the Company
that Letters Testamentary have been issued to the estate appointing an
authorized representative of the estate.
3.8 Withholding. All compensation paid to Fiorillo shall be subject to
the applicable withholding taxes and other employment taxes as required with
respect to compensation paid by an employer to an employee.
4 Benefits.
4.1 Health Insurance; Vacation. The Company shall provide Fiorillo with
health insurance coverage, personal time and other benefits during the term of
this Agreement as
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agreed upon by the Board, but in no event will such benefits be less than those
offered to other employees of the Company. Fiorillo shall be entitled to four
(4) weeks paid vacation during each year of this Agreement and an additional
week for each additional year of service thereafter.
4.2 Car Allowance. The Company will pay to Fiorillo a car allowance of
eight hundred fifty ($850) dollars per month.
4.3 Life Insurance. Provided the Company has a net worth (as reflected
on any quarterly or annual financial statements) in excess of one million
($1,000,000) dollars, the Company shall provide, at its own expense, life
insurance coverage on Fiorillo's life for one million ($1,000,000) dollars.
Fiorillo shall have full discretion to name the beneficiary of this insurance.
The Company shall have the right at its own expense and for its own benefit to
purchase additional insurance on Fiorillo's life for the benefit of the Company,
and Fiorillo shall cooperate by providing necessary information, submitting to
required medical examinations, and otherwise complying with the insurance
carrier's requirements.
5 Expenses. The Company shall reimburse Fiorillo or otherwise provide for
or pay for all reasonable expenses incurred by Fiorillo in furtherance of or in
connection with the business of the Company, including, but not by way of
limitation, (i) all reasonable expenses incurred by Fiorillo in accordance with
the Company's travel policy, as established by the Board; and (ii) all
reasonable expenses in connection with Fiorillo's attendance at trade and
professional conferences, which are in furtherance of the business of the
Company. Fiorillo agrees that he will furnish the Company with adequate records
and other documents for the substantiation of each such business expense.
6 Employment Termination.
6.1 Resignation of Fiorillo. The Parties agree that Fiorillo has the
right to voluntarily terminate his employment with the Company by providing the
Company with a minimum of sixty (60) days' notice. Upon the termination date
specified in the notice, Fiorillo will cease to have any of the powers
associated with the offices he held with the Company. In such event, all of the
Company's obligations under this Agreement will terminate immediately upon the
date of such termination of employment, and the Company will not be required to
pay Fiorillo the Deferred Compensation.
6.2 Termination by the Company for Convenience. The Parties agree that
the Board has the right to terminate Fiorillo's employment for convenience
during the term of this Agreement upon notice to Fiorillo. In such event, the
Company will pay Fiorillo the Deferred Compensation. The date of termination
will be the date specified in a notice from the Board, and Fiorillo will cease
to have any power of his office as of such date.
6.3 Termination by the Company for Cause. The Parties agree that the
Board has the right to terminate Fiorillo's employment during the term of this
Agreement for "Cause." For the purposes of this Agreement, the term "Cause" will
mean:
6.3.1 Conduct on Fiorillo's part willfully intended to or likely to
injure the Company's business or reputation;
6.3.2 Actions by Fiorillo intentionally furnishing materially
false, misleading, or omissive information to the Board;
6.3.3 Fiorillo is convicted of any felony or other serious offense;
6.3.4 Abusive use of drugs or alcohol by Fiorillo;
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6.3.5 Any fraud, embezzlement or misappropriation by Fiorillo of
the "assets" of the Company. For the purposes of this provision, the Parties
acknowledge that "asset" includes, but is not limited to the "Confidential
Information" (as defined in Section 7 of this Agreement); or
6.3.6 The willful and significant failure by Fiorillo to perform
duties and obligations as set forth in this Agreement, resulting in substantial
damage to the Company, but not encompassing illness, physical or mental
incapacity.
In the event that Fiorillo's employment is terminated by the Company
for Cause, the date of employment termination will be as specified in a notice
to Fiorillo from the Company, and Fiorillo will cease to have any authority to
act on behalf of the Company as of such date. The Company will pay Fiorillo the
Base Salary and any Bonus Compensation due him as of such date, and all benefits
provided by the Company to Fiorillo will cease as of such date except as
otherwise required by law. In such event, the Company will not be required to
pay Fiorillo the Deferred Compensation.
6.4 Termination by the Company for Death or Disability. The Parties
agree that Fiorillo's employment will terminate upon Fiorillo's death or
Disability. The term "Disability" shall be defined as Fiorillo's inability,
through physical or mental illness or other cause, to perform the majority of
his usual duties for a period of at least three (3) continuous months. If
Fiorillo's employment is terminated due to Fiorillo's death or Disability, the
Company will pay Fiorillo the Deferred Compensation.
6.5 Good Reason. Fiorillo may terminate his employment for Good Reason
("Good Reason") upon sixty (60) days' notice to the Company if (i) Fiorillo's
duties are materially diminished or altered so as to be inconsistent with
Fiorillo's position, authority or responsibilities as the President and Chief
Executive Officer of the Company; (ii) any change of either of Fiorillo's two
titles; (iii) any substantial adverse change in Fiorillo's position, authority
or responsibilities as the President and Chief Executive Officer; (iv) the
material failure by the Company to comply with the terms of this Agreement; (v)
the Company requires Fiorillo to be based or perform services at any location
more than fifty (50) miles from New York, NY (except normal travel requirements
associated with Fiorillo's position and titles); or (vi) Fiorillo's Base Salary
is materially diminished. In the event Fiorillo's employment relationship with
the Company is terminated for "Good Reason," the Company will pay Fiorillo the
Deferred Compensation. In the event that Fiorillo shall in good faith give a
"Notice of Termination," as hereinafter defined in Section 6.7 hereof, for Good
Reason and it shall thereafter be determined that Good Reason did not exist, the
employment of Fiorillo shall, unless the Company and Fiorillo shall otherwise
mutually agree, be deemed to have terminated, at the date of the giving of such
purported Notice of Termination. In such event Fiorillo shall be deemed to have
elected to voluntarily resign and shall be entitled to receive only those
payments and benefits which he would have been entitled to receive at such date
under Section 6.1 of this Agreement.
6.6 Change of Control. Provided that the Company is a public company,
Fiorillo may terminate this Agreement upon thirty (30) days' notice to the
Company at any time within the one hundred eighty (180) day period following the
date of the occurrence of a "Change of Control." For the purposes of this
Agreement, a "Change of Control" shall be deemed to have occurred if: the
Company has a net worth of at least one million ($1,000,000) dollars (as
reflected on any quarterly or annual financial statement), and either (i) a
third person, including an entity or a "group" as defined in Article 13(d) or
14(d) of the Securities Exchange Act of 1934, as amended (other than an entity
or "group" which includes Fiorillo), becomes the beneficial owner of shares of
the Company having thirty (30%) percent or more of the total number of votes
that may be cast for the election of directors of the Company in the year 2000
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and thereafter; or (ii) as the result of, or in connection with, any cash tender
or exchange offer, merger of other business combination, sale of assets or
contested election, or any combination of the foregoing transactions (a
"Transaction"), the persons who were directors of the Company before the
Transaction shall cease to constitute a majority of the Board of the Company or
any successor to the Company. In the event Fiorillo's employment relationship
with the Company is terminated for a Change of Control, the Company will pay
Fiorillo the Deferred Compensation.
6.7 Notice of Termination. Any termination by the Company for Cause, or
by Fiorillo for Good Reason shall be communicated by Notice of Termination to
the other Party hereto given in accordance with Section 18 hereof. For purposes
of this Agreement, a "Notice of Termination" means a written notice which (i)
indicates the specific termination provision in this Agreement relied upon, (ii)
sets forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of Fiorillo's employment under the provision so indicated
and (iii) if the termination date is other than the date of receipt of such
notice, specifies the termination date of this Agreement which date shall be in
accordance with the specific termination provision of this Agreement relied
upon.
6.8 Obligations of the Company Upon Certain Terminations.
6.8.1 Options. In the event that Fiorillo's employment with the
Company is terminated pursuant to Sections 6.2, 6.4, 6.5 and 6.6 of this
Agreement, all Options granted to Fiorillo by the Company shall immediately vest
upon such termination and remain exercisable until the scheduled expiration date
of each such Option. The Options shall be subject to the provisions of the
specific option agreement currently in effect with regard to each Option grant,
provided that, to the extent the provisions of the option agreements are
inconsistent with this Section 6.8.1, the Section shall control.
6.8.2 Other Services. In the event that Fiorillo's employment with
the Company is terminated pursuant to Sections 6.2, 6.5 and 6.6 of this
Agreement, the Company shall, for a period of two (2) years following his
termination, provide Fiorillo with (i) office space of no less than one thousand
(1,000) square feet located in a reputable office building in midtown Manhattan
(New York, New York) or such other location as Fiorillo may choose, at a lease
cost not to exceed six thousand ($6,000) dollars per month; and (ii) a full-time
secretary that is acceptable to Fiorillo, and whose salary and benefits shall
not to exceed sixty thousand ($60,000) dollars a year.
6.9 Survival of Agreement Upon Termination. In the event that
Fiorillo's employment is terminated pursuant to any provision set forth in this
Section 6, the rights and obligations of the Parties which are set forth in
Sections 7 through 17 of this Agreement shall survive the employment termination
for a period from the date of such employment termination through the third
(3rd) anniversary of such date.
7 Confidential Information. Fiorillo hereby agrees and acknowledges that
the following information and materials, whether in written, oral, magnetic,
photographic, optical or other form and whether now existing or developed or
created during the period of Fiorillo's employment or engagement with the
Company, excepting information obtained by Fiorillo from general or public
sources, are proprietary to the Company and are highly confidential in nature
(the "Confidential Information"):
7.1 Business Records, Marketing Plans and Customer Information. All
books, records, documents, memoranda and materials, and the information
contained therein directly relating to the business and finances of the Company
including, but not limited to: (i) marketing and development plans, forecasts,
forecast assumptions, forecast volumes, future plans and potential strategies of
the Company; (ii) cost objectives, pricing policies and procedures,
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quoting policies and procedures, and unpublished price lists; (iii) licensing
policies, strategies and techniques; (iv) customer lists, names of past, present
and prospective customers and their representatives; (v) data and other business
information about or provided by past, present and prospective customers; (vi)
names of past, present and prospective vendors and their representatives, data
and other Information about or provided by past, present and prospective
vendors; (vii) purchasing information, orders, invoices, billings, and payment
of billings; (viii) past, present and prospective licenses and licensees, the
terms and conditions of any licenses or prospective licenses, contracts or
prospective contracts; (ix) types of products, supplies, materials and services
purchased, leased, licensed and/or sold by the Company; (x) past, present and
future research and development arrangements; (xi) customer service information;
(xii) joint ventures, mergers and/or acquisitions; (xiii) the Company personnel
policies and procedures, the Company personnel files, and the compensation of
officers, directors and employees of the Company; and (xiv) all other
confidential business records and trade secrets of the Company.
7.2 Technology and Manufacturing Procedures. All books, records,
documents, memoranda and materials, and the information contained therein,
relating to the technology of the Company (whether or not patentable, whether or
not protected by copyright, whether developed by or for the Company) including,
but not limited to: (i) ideas and concepts for existing and new products,
processes and services; (ii) specifications for products, equipment and
processes, whether technical or financial; (iii) manufacturing and performance
specifications and procedures; (iv) engineering drawings, flow charts, and
graphs; (v) technical, research and engineering data; (vi) formulations,
materials, and material specifications; (vii) laboratory studies and benchmark
tests; (viii) laboratory notebooks; (ix) plant layout and equipment; (x)
manuals, including service manuals and operation manuals; (xi) quality assurance
policies, procedures and specifications; (xii) validation studies; and (xiii)
all other know-how, methodology, procedures, techniques and trade secrets
related to the research, engineering and development affairs of the Company.
7.3 Third Party Information. Any and all other information and
materials in the Company's possession or under its control from any other person
or entity which the Company is obligated to treat as confidential or proprietary
("Third Party Information").
7.4 Not Generally Known. Any and all Confidential Information not
generally known to the public or within the industries or trades in which the
Company competes.
8 General Skills and Knowledge. The general skills and experience gained
by Fiorillo during Fiorillo's employment with the Company, and information
publicly available or generally known within the industries or trades in which
the Company competes, is not considered Confidential Information.
9 Fiorillo's Obligations as to Confidential Information and Materials.
During Fiorillo's employment by the Company, Fiorillo will have access to
Confidential Information and will occupy a position of trust and confidence with
respect to the Company's affairs and business. Fiorillo agrees to take the
following steps to preserve the confidential and proprietary nature of the
Confidential Information:
9.1 Non-Disclosure. During and for a period of three (3) years after
Fiorillo's employment with the Company, Fiorillo will not use, disclose or
otherwise permit any person or entity access to any of the Confidential
Information other than as required in the performance of Fiorillo's duties with
the Company.
9.2 Prevent Disclosure. Fiorillo will take all reasonable precautions
to prevent disclosure of the Confidential Information in accordance with the
Company's reasonable
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instructions to Fiorillo.
9.3 Return all Materials. Upon termination of Fiorillo's employment
with the Company, for any reason whatsoever, Fiorillo will deliver to the
Company all tangible materials embodying the Confidential Information,
including, without limitation, any documentation, records, listings, notes,
data, sketches, drawings, memoranda, models, accounts, reference materials,
samples, machine-readable media and equipment which in any way relate to the
Confidential Information.
10 Ideas and Inventions. Fiorillo agrees that all right, title and
interest in or to any and all Inventions are the property of the Company. For
the purposes of this Agreement, "Inventions" shall mean all ideas, concepts,
know-how, techniques, processes, methods, inventions, discoveries, developments,
innovations and improvements (i) conceived or made by Fiorillo, whether alone or
with others, in the course of Fiorillo's employment by the Company, or (ii)
conceived or made by Fiorillo, whether alone or with others, in the course of
Fiorillo's employment, but which reach fruition within the period from the date
of termination of Fiorillo's employment through the second (2nd) anniversary of
such date, and which either (a) involve or are reasonably related to the
business of the Company or to the Company's actual or demonstrably anticipated
research or development; or (b) incorporate or are derived from, in whole or in
part, any of the Confidential Information. Fiorillo agrees to promptly disclose
all Inventions to the Company, and to provide all assistance reasonably
requested by the Company in the preservation of its interests in the Inventions,
such as by executing documents, testifying, etc. Fiorillo agrees to execute,
acknowledge and deliver any instruments confirming the complete ownership by the
Company of such Inventions. Such assistance shall be provided at the Company's
expense without any additional compensation to Fiorillo.
11 Post-Employment Procedures. Fiorillo agrees that, upon the termination
of his employment with the Company, he will (i) participate in good faith in the
Company's exit interview process; and (ii) enter into an appropriate Employment
Termination Agreement, in which, among other things, Fiorillo will represent to
the Company that he has fully complied with the terms of this Agreement and that
he will fulfill the then-executory obligations contained in this Agreement.
12 Copyrights. Fiorillo agrees that any work prepared for the Company
which is protected under United States Copyright laws or under the universal
Copyright Convention, the Berne Copyright convention and/or the Buenos Aires
Copyright Convention shall be a work made for hire and ownership of all
copyrights (including all renewals and extensions) therein shall vest in the
Company. In the event any such work is deemed not to be a work made for hire for
any reason, Fiorillo hereby grants, transfers and assigns all right, title and
interest in such work and all copyrights in such work and all renewals and
extensions thereof to the Company, and agrees to provide all assistance
reasonably requested by the Company in the establishment, preservation and
enforcement of its copyright in such work, such assistance to be provided at the
Company's expense but without any additional compensation to Fiorillo. Fiorillo
hereby agrees to and does hereby waive all moral rights with respect to the work
developed or produced hereunder, including, without limitation any and all
rights of identification of authorship and any and all rights of approval,
restriction, or limitation on use or subsequent modifications.
13 Conflicting Obligations and Rights. Before (i) performing any
obligations Fiorillo may have to preserve the confidentiality of another's
proprietary information or materials, or (ii) exercising any rights Fiorillo may
claim to any patent or copyrights trade secrets, or other discoveries,
inventions, ideas, know-how, techniques methods, processes or other proprietary
information or materials before performing that work, Fiorillo shall inform the
Company in writing of any apparent conflict between Fiorillo's work for the
Company and such other obligations
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and/or rights. In the absence of such written notice, the Company may conclude
that no such conflict exists and Fiorillo agrees thereafter to make no such
claim against the Company. The Company shall hold such disclosures by Fiorillo
in strict confidence.
14 Restrictive Covenants.
14.1 Fiorillo acknowledges that (i) the Company's business is all
aspects of business-to-business electronic commerce, but not limited to,
building, owning and operating electronic commerce networks; and providing
systems integration and consulting services relating thereto, and that (ii)
fulfillment of the obligations hereunder will result in Fiorillo becoming
familiar with the business affairs of the Company and any present or future
parent, subsidiary and/or affiliate.
14.2 Covenant Not to Compete. In consideration for the Compensation,
and as a condition to the performance by the Company of all obligations under
this Agreement, Fiorillo agrees that during the Initial Employment Term or any
Succeeding Employment Terms of this Agreement and for the period from the date
of termination of Fiorillo's employment pursuant to either Section 6.1 or 6.3
hereof through the second (2nd) anniversary of such date, Fiorillo shall not
directly or indirectly through any other person, firm or corporation compete
with or be engaged in the same business or "participate in" any other business
or organization which during such period competes with or is engaged in the same
business as the Company. The term "participate in" shall mean: "directly or
indirectly, for his own benefit or for, with, or through any other person, firm,
or corporation, own, manage, operate, control, loan money to, or participate in
the ownership, management, operation, or control of, or be connected as a
director, officer, employee, partner, consultant, agent, independent contractor,
or otherwise with, or acquiesce in the use of his name." Notwithstanding the
foregoing, it shall not be a breach of the provisions of this Section 14 if,
after the term of this Agreement, Fiorillo is a passive investor in any publicly
held entity and Fiorillo owns three (3%) percent or less of the equity interests
therein.
14.3 Restrictive Covenants Necessary and Reasonable. Fiorillo agrees
that the provisions of this Section 14 are necessary and reasonable to protect
the Company in the conduct of its business. If any restriction contained in this
Section 14 shall be deemed to be invalid, illegal, or unenforceable by reason of
the extent, duration or geographical scope thereof, or otherwise, then the court
making such determination shall have the right to reduce such extent, duration,
geographical scope, or other provisions hereof and in its reduced form such
restriction shall then be enforceable in the manner contemplated hereby.
15 Injunctive Relief. Fiorillo, recognizing that irreparable injury shall
result to the Company in the event of Fiorillo's breach of the terms and
conditions of this Agreement, agrees that in the event of his breach or
threatened breach, the Company shall be entitled to injunctive relief
restraining Fiorillo, and any and all persons or entities acting for or with
him, from such breach or threatened breach. Nothing herein contained, however,
shall be construed as prohibiting the Company from pursuing any other remedies
available to it by reason of such breach or threatened breach.
16 Indemnification.
16.1 To the full extent allowed by law, the Company shall hold harmless
and indemnify Fiorillo, his executors, administrators or assigns, against any
and all judgments, penalties (including excise and similar taxes), fines,
settlements and reasonable expenses (including attorneys' fees) actually
incurred by Fiorillo (net of any related insurance proceeds or other amounts
received by Fiorillo or paid by or on behalf of the Company on Fiorillo's behalf
in compensation of such judgments, penalties, fines, settlements or expenses) in
connection with
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any threatened, actual or completed action, suit or proceeding, whether civil,
criminal, arbitral, administrative or investigative, or any appeal in such
action, suit or proceeding, to which Fiorillo was, is or is threatened to be
made a named defendant or respondent (a "Proceeding"), because Fiorillo is or
was a director or officer of the Company, or was serving at the request of the
Company as a director, officer, partner, venturer, proprietor, trustee,
employee, agent or similar functionary (an "Affiliate Executive") of another
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan or other enterprise (each, a "Company Affiliate"). Upon
authorization of indemnification of Fiorillo by the Board in accordance with the
applicable provisions of the Delaware General Corporation Law (the "DGCL"),
Fiorillo shall be presumed to be entitled to such indemnification under this
Agreement upon submission of a Claim (as hereinafter defined). Thereafter, the
Company shall have the burden of proof to overcome the presumption that Fiorillo
is so entitled. Such presumption shall only be overcome by a judgment or other
final adjudication, after all appeals and all time for appeals have expired
("Final Determination"), adverse to Fiorillo establishing that such
indemnification is not permitted hereunder or by law. An actual determination by
the Company (including its Board, legal counsel, or its stockholders) that
Fiorillo has not met the applicable standard of conduct for indemnification
shall not be a defense to the action or create a presumption that Fiorillo has
not met the applicable standard of conduct. The purchase, establishment or
maintenance of any Indemnification Arrangement shall not in any way diminish,
restrict, limit or affect the rights and obligations of the Company or of
Fiorillo under this Agreement except as expressly provided herein, and the
execution and delivery of this Agreement by the Company and Fiorillo shall not
in any way diminish, restrict, limit or affect Fiorillo's right to
indemnification from the Company or any other Party or Parties under any other
indemnification arrangement, the Certificate of Incorporation or Bylaws of the
Company, or the DGCL.
16.2 Subject only to the provisions of this Section 16.2, as long as
Fiorillo shall continue to serve as a director and/or officer of the Company (or
shall continue at the request of the Company to serve as an Affiliate Executive)
and, thereafter, as long as Fiorillo shall be subject to any possible Proceeding
by reason of the fact that Fiorillo was or is a director and/or officer of the
Company (or served in any of said other capacities), the Company shall, unless
no such policies are available in any market, purchase and maintain in effect
for the benefit of Fiorillo one or more valid, binding and enforceable policies
(the "Insurance Policies") of directors' and officers' liability insurance ("D&O
Insurance") providing adequate liability coverage for Fiorillo's acts as a
director and/or officer of the Company or as an Affiliate Executive. The Company
may promptly notify Fiorillo of any lapse, amendment or failure to renew said
policy or policies or any provision thereof relating to the extent or nature of
coverage provided thereunder. In the event the Company does not purchase and
maintain in effect said policy or policies of D&O Insurance pursuant to the
provisions of this Section 16.2, the Company shall, to the full extent permitted
by law, in addition to and not in limitation of the other rights granted
Fiorillo under this Agreement, hold harmless and indemnify Fiorillo to the full
extent of coverage which would otherwise have been provided for the benefit of
Fiorillo pursuant to the Insurance Policies.
16.3 Fiorillo shall have the right to receive from the Company on
demand, or at his Option to have the Company pay promptly on his behalf, in
advance of a Final Determination of a Proceeding all expenses payable by the
Company pursuant to the terms of this Agreement as corresponding amounts are
expended or incurred by Fiorillo in connection with such Proceeding or otherwise
expended or incurred by Fiorillo (such amounts so expended or incurred being
referred to as "Advanced Amounts"). In making any claim for payment by the
Company of any expenses, including any Advanced Amount, pursuant to this
Agreement, Fiorillo shall submit to the Company a written request for payment (a
"Claim"), which includes a schedule setting forth
9
<PAGE>
in reasonable detail the dollar amount expended (or incurred or expected to be
expended or incurred). Each item on such schedule shall be supported by the
bill, agreement or other documentation relating thereto, a copy of which shall
be appended to the schedule as an exhibit. Where Fiorillo is requesting Advanced
Amounts, Fiorillo must also provide (i) written affirmation of such Fiorillo's
good faith belief that he has met the standard of conduct required by law for
indemnification, and (ii) a written undertaking to repay such Advanced Amounts
if a Final Determination is made that Fiorillo is not entitled to
indemnification hereunder.
16.4 The Company shall not be liable under this Agreement to make any
payment in connection with any claim made against Fiorillo for an accounting of
profits made from the purchase or sale by Fiorillo of securities of the Company
within the meaning of Section 16(b) of the Exchange Act or similar provisions of
any state statutory law or common law.
16.5 All agreements and obligations of the Company contained herein
shall continue during the period Fiorillo is a director and/or officer of the
Company (or is serving at the request of the Company as an Affiliate Executive)
and shall continue thereafter so long as Fiorillo shall be subject to any
possible Proceeding by reason of the fact that Fiorillo was a director or
officer of the Company or was serving as such an Affiliate Executive.
16.6 Promptly after receipt by Fiorillo of notice of the commencement
of any Proceeding, Fiorillo shall, if a claim in respect thereof is to be made
against the Company under this Agreement, notify the Company of the commencement
thereof, but failure to so notify the Company will not relieve the Company from
any liability which it may have to Fiorillo. With respect to any such
Proceeding: (i) the Company shall be entitled to participate therein at its own
expense; (ii) except with prior written consent of Fiorillo, the Company shall
not be entitled to assume the defense of any Proceeding; and (iii) the Company
shall not settle any Proceeding in any manner which would impose any penalty or
limitation on Fiorillo without Fiorillo's prior written consent.
17 Dispute Resolution. The Company and Fiorillo agree that any dispute or
controversy arising between any of the Parties to this Agreement, or any person
or entity in privity therewith, out of the transactions effected and
relationships created in connection herewith, including any dispute or
controversy involving the formation, terms or construction of this Agreement,
regardless of kind or character, will be resolved through binding arbitration
held in New York, NY. The only disputes not subject to mandatory, binding
arbitration are requests for injunctive relief. With respect to the arbitration
of any dispute or controversy, each Party understands that: (i) arbitration is
final and binding on the Parties; (ii) each Party is waiving its right to seek
certain remedies in court, including to right to a jury trial; (iii) discovery
in arbitration is different and more limited than discovery in litigation; and
(iv) an arbitrators' award need not include factual findings or legal reasoning,
and any Party's right to appeal or to seek modification of a ruling by the
arbitrator is strictly limited.
17.1 Each Party to this Agreement will submit any dispute or
controversy to arbitration before the American Arbitration Association ("AAA")
within five (5) days after receiving a written request to do so from the other
Party. If any Party fails to submit a dispute or controversy to arbitration as
requested, then the requesting Party may commence the arbitration proceeding.
The Federal Arbitration Act will govern the proceeding and all issues raised by
this Agreement to be arbitrated. Each Party to this Agreement will be bound by
the determination of an arbitration panel of three members empaneled by the AAA
to adjudicate the dispute. Judgment on any arbitration award may be entered in
any court of competent jurisdiction.
17.2 Any Party to this Agreement may bring an action including a
summary or expedited proceeding of any such dispute or controversy in a court of
competent jurisdiction
10
<PAGE>
and, further, may seek provision or ancillary remedies, including temporary or
injunctive relief in connection with such dispute or controversy in a court of
competent jurisdiction, provided that the dispute or controversy is ultimately
resolved through binding arbitration conducted in accordance with the terms and
conditions of Section 17. If any Party institutes legal proceedings in an effort
to resist arbitration and is unsuccessful in doing so, the prevailing Party is
entitled to recover, from the losing Party, its legal fees and out-of-pocket
expenses incurred in connection with the defense of such legal proceedings.
18 Miscellaneous.
18.1 Notices. Any and all notices, demands, requests or other
communication required or permitted by this Agreement or by law to be served on,
given to, or delivered to any Party hereto by any other Party to this Agreement
shall be in writing and shall be deemed duly served, given, or delivered when
personally delivered to the Party to be notified, or in lieu of such personal
delivery, when deposited in the United States mail, registered or certified
mail, return receipt requested, or when confirmed as received if delivered by
overnight courier, addressed to the to the Party to be notified, at the address
of the Company at its principal office, as first set forth above, or to Fiorillo
at the address as first set forth above. The Company or Fiorillo may change the
address in the manner required by law for purposes of this paragraph by giving
notice of the change, in the manner required by this paragraph, to the
respective Parties.
18.2 Amendment. This Agreement may not be modified, changed, amended,
or altered except in writing signed by Fiorillo or his duly authorized
representative, and by a member of the Board.
18.3 Governing Law. This Agreement shall be interpreted in accordance
with the laws of the State of New York. It shall inure to the benefit of and be
binding upon the Company, and its successors and assigns.
18.4 Attorney's Fees. Should any litigation or arbitration be commenced
between the Parties to this Agreement concerning any provision of this
Agreement, the expense of all attorneys' fees and other costs incurred in
connection therewith shall be paid by the losing Party.
18.5 Severability. Should any provision or portion of this Agreement be
held unenforceable or invalid for any reason, the remaining provisions and
portions of this Agreement shall be unaffected by such holding.
18.6 Entire Agreement. This Agreement constitutes the sole and only
agreement of the Parties hereto respecting the subject matter hereof. Any prior
agreements, promises, negotiations, or representations concerning its subject
matter not expressly set forth in this Agreement, are of no force and effect.
18.7 Counterparts. This Agreement and any certificates made pursuant
hereto, may be executed in any number of counterparts and when so executed all
of such counterparts shall constitute a single instrument binding upon all
Parties hereto notwithstanding the fact that all Parties are not signatory to
the original or to the same counterpart.
18.8 Section Headings. The Article and Section headings used in this
Agreement are for reference purposes only, and should not be used in construing
this Agreement.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
day and year set forth below.
11
<PAGE>
eB2B COMMERCE, INC
By: By:
--------------------------------- -------------------------
Peter Fiorillo
Date: Date:
------------------------------- ------------------------
12
<PAGE>
Accrued Salary Stock Purchase Agreement (the "Agreement") effective as
of December 1, 1998 ("Effective Date") by and between eB2B Commerce Inc., a
Delaware corporation (the "Company") and Peter J.
Fiorillo ("Fiorillo").
WHEREAS, the Company and Fiorillo have executed and entered into an
Employment Agreement simultaneously with the execution of this Agreement;
WHEREAS, pursuant to the Employment Agreement, the Company has the
right to accrue Fiorillo's Base Salary (the "Accrued Salary");
WHEREAS, the purpose of this Agreement is to set forth the terms of the
agreement between the Company and Fiorillo regarding Fiorillo's right to apply
the Accrued Salary to the purchase of shares of the Company's Common Stock; and
WHEREAS, the capitalized terms used but not defined herein shall have
the meaning set forth in the Employment Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein set
forth, the Parties do hereby agree as follows:
1 Accrued Salary. In accordance with the Employment Agreement, the Parties
acknowledge that the Company has the right to accrue Fiorillo's Base Salary for
the 1999 calender year. The Parties agree that interest shall not accrue on the
Accrued Salary.
2 Right to Purchase Subject Shares. The Company hereby grants to Fiorillo the
right to apply the Accrued Salary to purchase from the Company shares of the
Company's Common Stock ("Subject Shares"). The number of Subject Shares
available for purchase shall be determined by multiplying a fraction the
numerator of which is the Accrued Salary (less applicable withholding a payroll
deductions) and the denominator of which is the Purchase Price of the Company's
Common Stock (as defined in Section 3.3 below).
3 Common Stock Purchase. Fiorillo shall be entitled to purchase the Subject
Shares at any time during the period January 1, 1999 through December 31, 2002
(the "Exercise Period").
3.1 Number of Shares Purchased. Fiorillo may exercise the rights set
forth in this Agreement at any time, and from time to time, during the Exercise
Period, and he may apply all or a part of the Accrued Salary to such purchase.
3.2 Notice of Purchase. Fiorillo shall exercise his right to purchase
the Subject Shares by completing, signing and delivering to the Company a notice
of purchase ("Notice of Purchase"), attached hereto as Exhibit A.
3.3 Purchase Price. The purchase price (the "Purchase Price") per share
of the Subject Shares purchased with the Accrued Salary shall be the Fair Market
Value (as defined below) of the Subject Shares on the earlier of the date on
which the Company receives a Notice of Purchase or December 31, 1999.
3.4 Payment of Accrued Salary. At any time during the Exercise Period
and provided the Company has received third party investment (in the form of
debt or equity) totaling a minimum of $1.5 million, Fiorillo shall have the
right to terminate this Agreement by providing notice thereof to the Company,
and the Company shall thereafter immediately pay Fiorillo the balance of the
Accrued Salary.
3.5 Record Owner; Delivery. The Company agrees that Fiorillo shall be
deemed the record owner of the Subject Shares as of the date on which the Notice
Of Purchase is presented to the Company. Certificates for the Subject Shares so
purchased shall be delivered to Fiorillo within a reasonable time after the
presentation of the Notice of Purchase to the Company.
<PAGE>
3.6 Withholding Taxes. Any application of the Accrued Salary pursuant
to this Agreement shall be subject to the applicable withholding taxes and other
standard payroll deductions.
4 Adjustments. Subject and pursuant to the provisions of this Section 4, the
Purchase Price and number of Common Shares shall be subject to adjustment from
time to time as set forth hereinafter. If the Company shall, at any time,
subdivide its outstanding Common Shares by recapitalization, reclassification,
split up thereof, the Purchase Price shall be proportionately decreased, and if
the Company shall at any time combine the outstanding Common Shares by
recapitalization, reclassification or combination thereof, the Purchase Price
shall be proportionately increased. Any such adjustment to the Purchase Price
shall become effective at the close of business on the record date for such
subdivision or combination.
5 Representations and Warranties of the Company. The Company represents and
warrants to Fiorillo as follows, in each case as of the date this Agreement is
executed by the Company.
5.1 The Company is a corporation duly organized, validly existing, and
in good standing under the laws of the state of Delaware.
5.2 The Company has full power and authority to execute and deliver
this Agreement and upon the exercise of Fiorillo's right, issue the Subject
Shares. Without limiting the generality of the foregoing, the Board of Directors
has duly authorized the execution, delivery, and performance of this Agreement
by the Company. This Agreement constitutes the valid and legally binding
obligation of the Company, enforceable in accordance with its terms and
conditions.
5.3 The authorized capital stock of the Company consists of 19,800,000
shares of common stock, par value $0.001, and 200,000 shares of preferred stock,
par value $0.001. Each outstanding share of common stock and preferred stock is
duly authorized, validly issued, fully paid and non-assessable.
5.4 Neither the execution and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which the Company is subject or any provision of the charter or bylaws
of the Company. The Company need not give any notice to, make any filing with,
or obtain any authorization, consent, or approval of any government or
governmental agency in order for the parties to consummate the transactions
contemplated by this Agreement (except such filings and consents as may be
required and have been or will timely be made or obtained under federal and
state securities laws).
5.5 There is no litigation, arbitration, claim, governmental or other
proceeding (formal or informal), or investigation pending or, to the best
knowledge of the Company, threatened (or any basis therefor) with respect to the
Company or the Company's operations, businesses, properties or assets. The
Company is not in violation of, nor in default with respect to, any law, rule,
regulation, order, judgment or decree, nor is the Company required to take any
action in order to avoid any such violation or default.
5.6 The shares of Common Stock issuable upon the exercise of Fiorillo's
right under this Agreement have been duly reserved for such issuance. Such
shares of Common Stock are duly authorized and, if and when issued, will be
validly issued, fully paid and nonassessable, and will not be issued in
violation of any preemptive or other rights of stockholders.
6 Representations and Warranties of Fiorillo.
<PAGE>
6.1 Fiorillo is a bona fide resident of the state indicated in the
address set forth above, is at least 21 years of age, and is legally competent
to execute this Agreement. This Agreement constitutes the legal, valid and
binding obligation of Fiorillo enforceable against Fiorillo in accordance with
its terms.
6.2 Fiorillo has such knowledge and experience in finance, securities,
investments and other business matters so as to be able to evaluate the merits
and risks of his investment in the Company.
6.3 Fiorillo has adequate means of providing for his current and
foreseeable future needs and has no need for liquidity of his investment in the
Company. Fiorillo recognizes and is fully cognizant of the fact that his
investment in the Company involves a high degree of risk, and Fiorillo
represents that he can afford to bear such risk, including, without limitation,
the risk of losing the entire investment.
6.4 Fiorillo has been advised by the Company that (i) none of the
Subject Shares have been registered under the Securities Act, and that the
Subject Shares will be issued on the basis of the statutory exemption provided
by Section 4(2) of the Securities Act or Regulation D promulgated thereunder, or
both, relating to transactions by an issuer not involving any public offering,
and under similar exemptions under applicable state securities laws; (ii) none
of the Subject Shares have been registered or qualified with any federal or
state agency or self_regulatory organization, and (iii) the Company's reliance
on exemptions from federal and state registration or qualification requirements
is based in part upon the representations made by Fiorillo contained in this
Agreement.
6.5 Fiorillo has been advised by the Company of, and/or he is otherwise
familiar with, the nature of the limitations on the transfer of the Subject
Shares imposed by the Securities Act and the Rules and Regulations promulgated
thereunder. In particular, Fiorillo agrees that no sale, assignment or transfer
of any of the Subject Shares shall be valid or effective (and agrees to not so
sell, assign or transfer any of the Subject Shares), and the Company shall not
be required to give any effect to such a sale, assignment or transfer, unless
the sale, assignment or transfer is (i) registered under the Securities Act, it
being understood that none of the Subject Shares are currently registered for
sale; or (ii) made in accordance with all the requirements and limitations of
Rule 144 under the Securities Act. Fiorillo acknowledges that the Subject Shares
shall be subject to a stop transfer order and that the certificate or
certificates evidencing the Securities shall bear the following legend, or a
legend substantially similar (and such other legends as may be required by state
blue sky laws):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). SUCH
SECURITIES MAY NOT BE TRANSFERRED, SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED UNLESS (1) A REGISTRATION STATEMENT
UNDER THE ACT IS IN EFFECT WITH RESPECT TO THE SECURITIES OR
(2) THERE IS AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER
THAT SUCH REGISTRATION IS NOT REQUIRED OR THAT SUCH TRANSFER
MAY BE MADE PURSUANT TO RULE 144 OR RULE 144A OF THE ACT.
THE SECURITIES REPRESENTED HEREBY WERE ISSUED IN ACCORDANCE
WITH A CERTAIN ACCRUED SALARY STOCK CONVERSION AGREEMENT
BETWEEN THE HOLDER AND THE ISSUER
<PAGE>
HEREOF, AND MAY NOT BE TRANSFERRED, SOLD, ENCUMBERED OR
OTHERWISE DISPOSED EXCEPT PURSUANT TO THE TERMS OF SUCH
AGREEMENT.
6.6 Fiorillo is acquiring the Subject Shares for his own account for
investment and not with a view to the sale or distribution thereof or the
granting of any participation therein. Fiorillo has no present intention of
distributing or selling to others any of such interest or granting any
participation therein.
6.7 It never has been represented, guaranteed or warranted by the
Company, the Company's officers, directors, stockholders, employees or agents,
or any other person, whether expressly or by implication, that (i) the Company
or Fiorillo will realize any given percentage of profits and/or amount or type
of consideration, profit or loss as a result of the Company's activities or
Fiorillo's investment; or (ii) the past performance or experience of the
management of the Company, or of any other person, will in any way indicate the
predictable results of the Company's activities or the ownership of the Subject
Shares.
6.8 Fiorillo is not acquiring the Subject Shares as a result of or
subsequent to any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media or broadcast over
television or radio, or presented at any seminar or meeting, or any solicitation
of a share exchange by a person other than a representative of the Company with
whom Fiorillo had a pre-existing relationship.
6.9 Fiorillo covenants that in no event will he dispose of any Subject
Shares except in compliance with the Securities Act and any applicable state
securities laws.
6.10 Fiorillo is not relying on the Company with respect to the tax or
other economic considerations of an investment.
6.11 Fiorillo acknowledges that the representations and agreements made
by Fiorillo herein shall survive the execution and delivery of this Agreement
and the receipt of the Subject Shares.
6.12 Fiorillo agrees to notify the Company promptly of any changes in
the information provided herein by Fiorillo which may occur subsequent to the
execution and delivery of this Agreement by Fiorillo.
7 Indemnification. Fiorillo acknowledges that Fiorillo understands the meaning
and legal consequences of the representations contained in Section 5 hereof, and
agrees to indemnify and hold harmless the Company and its incorporators,
officers, directors, employees, agents, including their respective attorneys and
controlling persons, past, present or future, from and against any and all loss,
damage or liability due to or arising out of a breach of any such
representation.
8 Nonassignability. The right to purchase the Subject Shares under this
Agreement may not be assigned, transferred, pledged or otherwise disposed of in
any way (other than by will, the laws of descent and distribution) by Fiorillo.
Any such attempt at assignment, transfer, pledge or other disposition shall be
void and without effect.
9 Restrictions on Transfer; Company's Right of First Refusal.
9.1 If Fiorillo receives from an unaffiliated person or entity a bona
fide offer (for the purpose of this Section 5, an "Offer") to purchase all or
any portion of the Subject Shares which Offer Fiorillo desires to accept,
Fiorillo shall deliver written notice (for the purpose of this Section 5,
<PAGE>
the "Offer Notice") to the Company setting forth all the terms and conditions of
the Offer, including the aggregate purchase price, proposed closing date,
payment terms and the name and address of the proposed purchaser. No Offer
Notice will be effective under this Section 5 if it is received by the Company
on a date fewer than thirty (30) days prior to the proposed closing date of the
proposed sale. For the purpose of verifying the contents of an Offer Notice,
Fiorillo hereby authorizes the Company's representatives to directly contact any
person identified in any Offer Notice.
9.2 Within twenty-five (25) days after receiving the Offer Notice, the
Company may, by written notice to Fiorillo, elect to purchase, at the price and
time and on terms and conditions not less favorable to Fiorillo than those
contained in the Offer, not less than all of the Subject Shares proposed in the
Offer to be purchased.
9.3 If the Company fails to elect to exercise its rights under Section
5.2, Fiorillo may, at any time within (but not after) forty (40) days after the
expiration of the twenty-five (25) day exercise period referred to in Section
5.2, sell not less than all the Shares proposed in the Offer to be purchased to
the proposed purchaser at the price, and on the terms and conditions, contained
in the Offer.
9.4 The Company shall not be obligated to recognize or give effect to
any sale of any of the Subject Shares under this Section 5 unless and until a
proposed transferee has delivered to the Company a written instrument, in a form
reasonably acceptable to the Company, evidencing the proposed transferee's
consent and agreement to perform and be bound by all of the obligations
originally binding on Fiorillo under this Agreement.
10 Fair Market Value Defined. The "Fair Market Value" of corporate stock will
mean the price at which one could reasonably expect such stock to be sold in an
arm's length transaction, for cash, other than on an installment basis, to a
person not employed by, controlled by, in control of or under common control
with the issuer of such stock. Such Fair Market Value will be that which has
currently or most recently been determined for this purpose by the Board, or at
the sole discretion of the Board by an independent appraiser or appraisers
selected by the Board, in either case giving due consideration to recent
transactions involving shares of such stock, if any, the issuer's net worth,
prospective earning power and dividend-paying capacity, the goodwill of the
issuer's business, the issuer's industry position and its management, that
industry's economic outlook, the values of securities of issuers whose stock is
Publicly Traded and which are engaged in similar businesses, the effect of
transfer restrictions to which such stock may be subject under law and under the
applicable terms of any contract governing such stock, the absence of a public
market for such stock and such other matters as the Board or its appraiser or
appraisers deem pertinent. The determination by the Board or its appraiser or
appraisers of the Fair Market Value will, if not unreasonable, be conclusive and
binding notwithstanding the possibility that other persons might make a
different, and also reasonable, determination. If the Fair Market Value to be
used was thus fixed more than sixteen (16) months prior to the day as of which
Fair Market Value is being determined, it will in any event be no less than the
book value of the stock being valued at the end of the most recent period for
which financial statements of the issuer are available.
If the Common Stock is listed on an established stock exchange or
exchanges, such Fair Market Value shall be deemed to be the highest closing
price of the Common Stock on such stock exchange or exchanges on the day the
Option is awarded or if no sale of the Company's Common Stock occurs that day or
the Common Stock is not listed on an established stock exchange, the Fair Market
Value per share shall be the mean between dealer "bid" and "ask" prices of the
Common Stock in the New York over-the-counter market on the day the Option is
awarded, as reported by the National Association Securities Dealers, Inc., or if
not reported by said association, by the National Quotation Service, Inc.
Subject to the foregoing, the Board of Directors and the Committee in fixing the
Option price shall have full authority and discretion and be fully protected in
<PAGE>
doing so.
11 Miscellaneous.
11.1 Notices. Any and all notices, demands, requests or other
communication required or permitted by this Agreement or by law to be served on,
given to, or delivered to any Party hereto by any other Party to this Agreement
shall be in writing and shall be deemed duly served, given, or delivered when
personally delivered to the Party to be notified, or in lieu of such personal
delivery, when deposited in the United States mail, registered or certified
mail, return receipt requested, or when confirmed as received if delivered by
overnight courier, addressed to the to the Party to be notified, at the address
of the Company at its principal office, as first set forth above, or to Fiorillo
at the address as first set forth above. The Company or Fiorillo may change the
address in the manner required by law for purposes of this paragraph by giving
notice of the change, in the manner required by this paragraph, to the
respective Parties.
11.2 Amendment. This Agreement may not be modified, changed, amended,
or altered except in writing signed by Fiorillo or his duly authorized
representative, and by a member of the Board.
11.3 Governing Law. This Agreement shall be interpreted in accordance
with the laws of the State of New York. It shall inure to the benefit of and be
binding upon the Company, and its successors and assigns.
11.4 Attorney's Fees. Should any litigation or arbitration be commenced
between the Parties to this Agreement concerning any provision of this
Agreement, the expense of all attorneys' fees and other costs incurred in
connection therewith shall be paid by the losing Party.
11.5 Severability. Should any provision or portion of this Agreement be
held unenforceable or invalid for any reason, the remaining provisions and
portions of this Agreement shall be unaffected by such holding.
11.6 Entire Agreement. This Agreement, together with the Employment
Agreement constitutes the sole and understandings of the Parties hereto
respecting the subject matter hereof. Any conflict between this Agreement and
the Employment Agreement shall be resolved in favor of this Agreement.
11.7 Counterparts. This Agreement and any certificates made pursuant
hereto, may be executed in any number of counterparts and when so executed all
of such counterparts shall constitute a single instrument binding upon all
Parties hereto notwithstanding the fact that all Parties are not signatory to
the original or to the same counterpart.
11.8 Section Headings. The Article and Section headings used in this
Agreement are for reference purposes only, and should not be used in construing
this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Accrued Salary Stock Purchase Agreement as of the date set forth below.
eB2B Commerce, Inc.
By:___________________________ ______________________________
Peter J. Fiorillo
Date: __________________ , 1999 Date:____________________, 1999
<PAGE>
PURCHASE FORM
To Be Executed
Upon Exercise of Right to Purchase Common Stock
The undersigned hereby exercises the right to purchase ____ Common Shares (a
minimum of one Common Share) evidenced by the attached Agreement, according to
the terms and conditions thereof, and herewith desires to apply his Accrued
Salary to the purchase price. The undersigned requests that certificates for
such shares shall be issued in the name set forth below.
Dated: ,
--------------------------
Signature
--------------------------
Print Name of Signatory
--------------------------
Name to whom certificates are to be issued
if different from above
Address: ____________________
____________________
Social Security No. _________________
or other identifying number
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eB2B COMMERCE, INC.
1998 EXECUTIVE PERFORMANCE EQUITY AGREEMENT
This Executive Performance Equity Agreement (the "Agreement") made
effective as of December 1, 1998 (the "Effective Date") by and between eB2B
Commerce Inc., a Delaware corporation (the "Company") and Peter J. Fiorillo
("Optionee").
WHEREAS, the Optionee is the Chief Executive Officer and President of
the Company; and
WHEREAS, the Company desires to provide additional incentives to, and
rewards for, sustained performance by Optionee to promote the Company's long
term growth and financial success.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth and for good and valuable consideration, the parties hereto agree as
follows:
1. Grant of Award. Pursuant to the terms of this Agreement, the Company shall
award options to purchase two hundred fifty thousand (250,000) shares of the
Company's Common Stock, par value $.001, ("Options") for achieving certain
performance goals ("Award"). For purposes of this Agreement, "Shares" shall mean
the Common Stock of the Company issuable upon exercise of the Options.
2. Performance Goals. The Optionee shall receive the Award provided that during
the calendar year ending December 31, 1999, the Company commences business
operations and begins processing transactions between manufacturers and
retailers on two (2) or more Network Trading Channels.
a. Network Trading Channel Defined. For purposes of this Agreement,
"Network Trading Channel" shall mean an extranet established and maintained by
the Company that enables manufacturers and retailers within a specific industry
or industry segment to conduct transactions over the Internet.
3. Administration. The Board of Directors of the Company shall have the sole
authority to determine whether the performance goals described above have been
met. On or prior to the sixtieth (60th) day following such approval by the Board
of Directors, the Company shall deliver to Optionee notice of the Award he is
entitled to receive.
4. Option Terms.
a. Exercise Price. The exercise price of the Shares covered by the
Options shall be fifty ($0.50) cents per share ("Purchase Price"). The Company
does not make any representation or warranty to Optionee regarding the Federal
or State income tax consequences or effects of the Options.
b. Vesting of Options. The Options awarded under this Agreement shall
be fully exercisable as of the date awarded.
c. Duration. The Options awarded herein will be exercisable, in full or
in part, for a period of five (5) years commencing on the date such Options are
awarded, or such shorter term as provided in this Agreement ("Exercise Period").
d. Payment. Payment for Shares purchased upon any exercise of Options
granted under this Agreement will be made in full in cash (including payment by
check) concurrently with such exercise.
5. Exercise of Options. The purchase rights represented by the Options may be
exercised by the Optionee, in whole or in part at any time, and from time to
time, during the Exercise
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Period, by the presentation of the purchase form attached, duly executed, at the
Company's office, and upon payment, in accordance with Section 4.4 above, by the
Optionee of the Purchase Price for the Shares. The Company agrees that the
Optionee hereof shall be deemed the record owner of the Shares as of the close
of business on the date on which the Options shall have been presented and
payment made for such Shares as aforesaid. Certificates for the Shares so
purchased shall be delivered to the Optionee hereof within a reasonable time,
not exceeding five (5) days, after the rights represented by this Option shall
have been so exercised. If this Option shall be exercised in part only, the
Company shall deliver an amended Agreement evidencing the rights of the Optionee
hereof to purchase the balance of the Shares which such Optionee is entitled to
purchase hereunder. Exercise in full of the rights represented by this Option
shall not extinguish the rights and obligations granted and imposed under
Section 11 hereof.
6. Adjustments. In the event the Common Stock is changed into or exchanged for a
different number or kind of shares of stock or other securities of the Company
or of another corporation (whether by reason of merger, consolidation,
reorganization or otherwise), or if the number of outstanding shares of Common
Stock are increased through a stock split or the payment of a stock dividend,
then there will be substituted for or added to each share of Common Stock which
is subject to an Option, the number and kind of Shares of securities into which
each outstanding share of Common Stock is changed. Outstanding Options will also
be amended as to price and other terms if necessary to reflect the foregoing
events. No right to purchase fractional Shares will result from any adjustment
in Options pursuant to this Section 6. In case of any such adjustment, the
Shares subject to the Option will be rounded down to the nearest whole share.
Notice of any adjustment will be given by the Company to Optionee, which will
have been so adjusted and such adjustment (whether or not notice is given) will
be effective and binding for all purposes of this Agreement. Any other provision
hereof to the contrary notwithstanding, in the event the Company is a party to a
merger or other reorganization, outstanding Options will be subject to the
agreement of merger or reorganization. Such agreement may provide, without
limitation, for the assumption of outstanding Options by the surviving company
or its parent, for the continuation by the Company (if the Company is a
surviving entity), for accelerated vesting and accelerated expiration, or for
settlement in cash.
7. Amendment and Termination. The Board may alter, amend, suspend or terminate
this Agreement, provided that no such action will deprive any of the Optionee's
rights under an Option without the Optionee's consent. Except as herein
provided, no such action of the Board, unless taken with the approval of the
stockholders of the Company, may:
(i) increase the maximum number of Shares for which Options
awarded under this Agreement may be exercised;
(ii) reduce the minimum permissible exercise price; or
(iv) amend this Agreement in any other manner which the Board,
in its discretion, determines should become effective only if
approved by the stockholders even though such stockholder
approval is not expressly required by this Agreement.
8. Investment Purpose. Each Option under this Agreement shall be awarded on the
condition that the purchase of stock thereunder shall be for investment
purposes, and not with a view to resale or distribution except that in the event
the stock subject to such Option is registered under the Securities Act of 1933,
as amended, or in the event a resale or distribution of such stock without such
registration would otherwise be permissible, such condition shall be inoperative
if in the opinion of counsel for the Company such condition is not required
under the Securities Act of 1933 or any other applicable law, regulation, or
rule of any governmental agency.
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9. Limitations of Rights of Optionee.
a. Rights as a Stockholder. Optionee or a permitted transferee of an
Option shall have no rights as a stockholder with respect to any Shares covered
by his Option until the date of the issuance of a stock certificate to him for
such Shares. No adjustment shall be made for dividend (ordinary or
extraordinary, whether in cash, securities or other property) or distributions
or other rights for which the record date is prior to the date such stock
certificate is issued, except as provided in Section 6 hereof.
b. No Violations. No Shares of stock issuable under this Agreement will
be issued and no certificate therefor delivered unless and until, in the opinion
of legal counsel for the Company, such securities may be issued and delivered
without causing the Company to be in violation of or to incur any liability
under any federal, state or other securities law, or any other requirement of
law or of any regulatory body having jurisdiction over the Company.
c. No Right to Employment. The receipt of an Option does not give the
Optionee any right to continued employment by the Company for any period, nor
will the awarding of the Option or the issuance of Shares on exercise thereof
give the Company any right to the continued services of the Optionee for any
period.
d. Express Award. Nothing contained in this Agreement will constitute
the awarding of an Option hereunder, which will occur only pursuant to such
performance goals contained in this Agreement.
10. Taxes. Optionee agrees, no later than the date as of which the value of any
Option awarded or Shares acquired pursuant to this Agreement first becomes
includible in the gross income of the Optionee for federal income tax purposes,
to pay to the Company, or make arrangements satisfactory to the Company
regarding payment of, any federal, state or local taxes of any kind required by
law to be withheld with respect to the Option or such Shares. The obligations of
the Company under this Agreement are conditioned on such payment or
arrangements, and the Company will, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to
Optionee.
11. Restrictions on Transfer; Company's Right of First Refusal.
a. Until such time as the Common Stock of the Company is Publicly
Traded, if Optionee receives from an unaffiliated person or entity a bona fide
offer (for the purpose of this Section 11, an "Offer") to purchase all or any
portion of the Shares which Offer Optionee desires to accept, Optionee shall
deliver written notice (for the purpose of this Section 11, the "Offer Notice")
to the Company setting forth all the terms and conditions of the Offer,
including the aggregate purchase price, proposed closing date, payment terms and
the name and address of the proposed purchaser. No Offer Notice will be
effective under this Section 11 if it is received by the Company on a date fewer
than thirty (30) days prior to the proposed closing date of the proposed sale.
For the purpose of verifying the contents of an Offer Notice, Optionee hereby
authorizes the Company's representatives to directly contact any person
identified in any Offer Notice.
b. Within twenty-five (25) days after receiving the Offer Notice, the
Company may, by written notice to Optionee, elect to purchase, at the price and
time and on terms and conditions not less favorable to Optionee than those
contained in the Offer, not less than all of the Shares proposed in the Offer to
be purchased.
c. If the Company fails to elect to exercise its rights under Section
11.2, Optionee may, at any time within (but not after) forty (40) days after the
expiration of the twenty-five (25) day exercise period referred to in Section
11.2, sell not less than all the Shares proposed in the Offer to be purchased to
the proposed purchaser at the price, and on the terms and conditions, contained
in the Offer.
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d. The Company shall not be obligated to recognize or give effect to
any sale of any of the Shares under this Section 11 unless and until a proposed
transferee has delivered to the Company a written instrument, in a form
reasonably acceptable to the Company, evidencing the proposed transferee's
consent and agreement to perform and be bound by all of the obligations
originally binding on Optionee under this Agreement.
12. Stock Certificates. The certificates for such Shares will be registered in
the name of the Optionee; if Optionee requests in the Notice, the certificate
will be registered in the name of the Optionee and another person jointly, as
joint tenants with right of survivorship. If the Option is exercised by the
legal representative of Optionee's estate, or by any person or persons who
acquires the Option directly from Optionee as a result of Optionee's death,
whether by bequest, inheritance, or otherwise or pursuant to a qualified
domestic relations order, the Notice will be accompanied by appropriate proof of
the right of such person or persons to exercise the Option.
13. Legends on Share Certificates.
a. For so long as the Common Stock is not Publicly Traded, in addition
to any other legends which may be prescribed by law, the following legend (or
substantially the following legend) will appear on each certificate representing
the Shares issued upon the exercise of each Option:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ISSUED AND ARE BEING HELD PURSUANT TO THIS 1998 EXECUTIVE
PERFORMANCE EQUITY AGREEMENT OF EB2B COMMERCE, INC., AND MAY
ONLY BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF PURSUANT TO
THE TERMS THEREOF."
b. For so long as the Common Stock is not Publicly Traded, the
certificates representing the Shares may, at the absolute discretion of the
Company, be subject to a stop transfer order, and bear the following or
substantially similar legend and such other legends as may be required by the
Company:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY STATE SECURITIES LAWS AND NEITHER SUCH
SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD,
PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER
THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR (2) THE
COMPANY RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF SUCH
SECURITIES, WHICH COUNSEL AND OPINION ARE REASONABLY
SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE
OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER
CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT OR APPLICABLE STATE SECURITIES LAWS."
14. Publicly Traded Defined. Corporate stock is "Publicly Traded" if stock of
that class is listed or admitted to unlisted trading privileges on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc. ("NASD") or if sales or bid and offer quotations are reported for that
class of stock in the automated quotation system ("NASDAQ") operated by the
NASD.
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15. Nontransferability. Each Option granted under this Agreement is
nontransferable by the Optionee other than by will or the laws of descent and
distribution, and is exercisable only in accordance with the provisions of this
Agreement.
16. Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of New York.
17. Entire Agreement. This Agreement and the Employment Agreement constitute the
agreement of the Parties hereto respecting the subject matter hereof. Any
conflict between this Agreement and the Employment Agreement shall be resolved
in favor of the Employment Agreement.
18. Binding Effect. This Agreement is binding upon, and will inure to
the benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns.
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement
effective as of the date set forth below.
eB2B Commerce, Inc.
By:____________________________ By: /s/ Peter J. Fiorillo
--------------------------
Peter J. Fiorillo
Date:_______________________ Date:_______________________
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EMPLOYMENT AGREEMENT (the "Agreement"), effective as of December 1,
1998 (the "Effective Date"), between eB2B Commerce, Inc., a Delaware corporation
with principal offices at 29 West 38th Street, New York, New York 10018, (the
"Company") and Kevin Hayes, residing at 535 Forestdale Drive, Atlanta, Georgia,
("Hayes"). The Company and Hayes may be referred to herein collectively as the
"Parties" or individually as a "Party."
WHEREAS, the Company is engaged in the sales and service of building,
owning and operating electronic commerce networks;
WHEREAS, Hayes currently serves as the Chief Technology Officer of the
Company; and
WHEREAS, the Company and Hayes believe that it is appropriate for them
to memorialize their understandings with respect to Hayes's employment,
including confidentiality and non-competition provisions, and agree as to each
other's obligations pursuant to their employer-employee relationship.
NOW, THEREFORE, in consideration of the mutual covenants herein set
forth, the Parties do hereby agree as follows:
1 Employment. The Company hereby employs Hayes and Hayes accepts this
employment and agrees to render services to the Company on the terms and
conditions set forth in this Agreement. Hayes shall serve in the capacity of
Chief Technology Officer, perform services for the Company normally associated
with such position, and use his best efforts to meet the business requirements
and goals set by the board of directors of the Company (the "Board"). In
furtherance thereof, Hayes will devote his best efforts, including his full-time
attention, during reasonable business hours, to the affairs and business of the
Company. Hayes further agrees to observe and comply with the rules and
regulations of the Company as adopted by the Board with respect to performance
of his duties, and to carry out and perform orders, directions, and policies
enacted by the Board.
2 Term. The term of this Employment Agreement shall be the period from
the Effective Date and terminating on December 31, 2001 (the "Initial Employment
Term"). The Agreement shall thereafter automatically renew for successive one
year terms, until terminated by either Party in accordance with this Agreement
(the "Succeeding Employment Term"), unless either Party provides written notice
of termination to the other party at least ninety (90) days prior to the
expiration of the Initial Employment Term or any Succeeding Employment Term.
3 Compensation.
3.1 Base Salary. The Company will compensate and pay Hayes for his
services during the term of this Agreement at a base salary of $125,000 per
year, and the Company agrees that the base salary will increase annually in an
amount no less than five (5%) percent of the previous year's base salary (the
"Base Salary"). The Base Salary shall be payable to Hayes in accordance with the
Company's standard payroll policy for similarly situated employees of the
Company. The Company has the right, from the Effective Date to December 31,
1999, to accrue the Base Salary of Hayes. At any time thereafter, the Company's
right and conditions to accrue the Base Salary of Hayes shall be mutually agreed
upon by the Company and Hayes. In the event that the Base Salary is accrued,
Hayes has the right to convert the accrued Base Salary (less applicable
withholding taxes and standard payroll deductions) ("Accrued Salary") to
purchase shares of the Company's Common Stock, in accordance with the Accrued
Salary Stock Purchase Agreement executed simultaneously with the execution of
this Agreement.
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3.2 Bonus. Hayes may receive, from time to time, bonus compensation
from the Company, as established by the Board following the negotiation of the
terms by the Parties (the "Bonus Compensation"). If at any time hereafter the
Company shall adopt a bonus program, an option program or any other form of
equity participation for senior executives of the Company, Hayes shall be
eligible to participate in such program in a manner and capacity commensurate
with his position and duties. Notwithstanding the foregoing, for each calendar
year of this Agreement, commencing with the 1999 calendar year, the Company will
pay Hayes a bonus of no less than twenty-five thousand ($25,000) dollars,
payable by March 15th of the following year.
3.3 Performance Based Options. The parties acknowledge that Hayes and
the Company have entered into the 1998 Executive Performance Equity Agreement
(the "Executive Performance Agreement"), to which Hayes will be granted options
("Award") to purchase up to one hundred thousand (100,000) shares of the
Company's Common Stock provided that certain performance goals are met.
3.4 Stock Options. In addition, and without limiting the foregoing,
during the term of this Agreement, Hayes shall be entitled to participate, as
determined by the Board of Directors, in the Company's incentive stock option
plan to the same extent as other employees of the Company. For purposes of this
Agreement, "Options" shall mean any options granted under the Company's
incentive stock option plan and the Executive Performance Agreement.
3.5 Deferred Compensation.
3.6 Amount. Deferred Compensation shall be the amount which is
calculated as the greater of (A) three hundred (300%) percent of the Base Salary
payments Hayes would have received had his employment continued for the
remaining term of this Agreement (including yearly increases); or (B) an amount
equal to two hundred (200%) percent of the highest annual compensation earned by
Hayes in the past three (3) years (including both Base Salary and Bonus
Compensation). In addition to the Deferred Compensation, Hayes shall be entitled
to all of the benefits and personal perquisites otherwise provided in this
Agreement (including the car allowance, as described in Section 4.2 hereof)
during the period of time which is the greater of (X) the remaining term of this
Agreement, or (Y) two (2) years following the date of termination. The Deferred
Compensation herein shall be deemed liquidated damages resulting from the
Company's sole and exclusive remedy for any such termination. Deferred
Compensation shall not be diminished or offset by reason of any earnings by
Hayes subsequent to the date of termination.
3.7 Payment of Deferred Compensation. Except as otherwise provided
below, the Deferred Compensation shall be paid in monthly installments over the
twelve (12) months following the event giving rise to the payment of Deferred
Compensation. If employment termination is a result of the death of Hayes, the
initial Deferred Compensation payments shall be made within fifteen (15) days
after the personal representative of Hayes's estate notifies the Company that
Letters Testamentary have been issued to the estate appointing an authorized
representative of the estate.
3.8 Withholding. All compensation paid to Hayes shall be subject to the
applicable withholding taxes and other employment taxes as required with respect
to compensation paid by an employer to an employee.
4 Benefits.
4.1 Health Insurance; Vacation. The Company shall provide Hayes with
health
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insurance coverage, personal time and other benefits during the term of this
Agreement as agreed upon by the Board, but in no event will such benefits be
less than those offered to other employees of the Company. Hayes shall be
entitled to four (4) weeks paid vacation during each year of this Agreement.
4.2 Car Allowance. The Company will pay to Hayes a car allowance of
seven hundred ($700) dollars per month.
4.3 Life Insurance. Provided the Company has a net worth (as reflected
on any quarterly or annual financial statements) in excess of one million
($1,000,000) dollars, the Company shall provide, at its own expense, life
insurance coverage on Hayes's life for five hundred thousand ($500,000) dollars.
Hayes shall have full discretion to name the beneficiary of this insurance. The
Company shall have the right at its own expense and for its own benefit to
purchase additional insurance on Hayes's life for the benefit of the Company,
and Hayes shall cooperate by providing necessary information, submitting to
required medical examinations, and otherwise complying with the insurance
carrier's requirements.
4.4 Travel Expenses. Commencing January 1, 2000, the Company shall
reimburse Hayes or otherwise provide for or pay up to ten thousand ($10,000)
dollars a year for all reasonable expenses incurred by Hayes in connection with
traveling from his residence in Atlanta, GA to the Company's offices currently
located in New York, NY or to such other location as the Board of Directors may
direct from time to time ("Corporate Headquarters"). In the event Hayes
relocates to the New York City Area, the Company will cease paying Hayes's
travel expenses pursuant to this Section 4.4.
4.5 Moving Expenses. In the event Hayes desires to relocate his
permanent residence from Atlanta, GA to New York, NY or an area within a fifty
(50) mile circumference of New York, NY ("New York City Area"), the Company
shall reimburse Hayes or otherwise provide for or pay up to twenty-five thousand
($25,000) dollars for reasonable expenses incurred in relocating him and his
family to the New York City Area.
5 Expenses. The Company shall reimburse Hayes or otherwise provide for or
pay for all reasonable expenses incurred by Hayes in furtherance of or in
connection with the business of the Company, including, but not by way of
limitation, (i) all reasonable expenses incurred by Hayes in accordance with the
Company's travel policy, as established by the Board; and (ii) all reasonable
expenses in connection with Hayes's attendance at trade and professional
conferences, which are in furtherance of the business of the Company. Hayes
agrees that he will furnish the Company with adequate records and other
documents for the substantiation of each such business expense.
6 Employment Termination.
6.1 Resignation of Hayes. The Parties agree that Hayes has the right to
voluntarily terminate his employment with the Company by providing the Company
with a minimum of sixty (60) days' notice. Upon the termination date specified
in the notice, Hayes will cease to have any of the powers associated with the
offices he held with the Company. In such event, all of the Company's
obligations under this Agreement will terminate immediately upon the date of
such termination of employment, and the Company will not be required to pay
Hayes the Deferred Compensation.
6.2 Termination by the Company for Convenience. The Parties agree that
the Board has the right to terminate Hayes's employment for convenience during
the term of this Agreement upon notice to Hayes. In such event, the Company will
pay Hayes the Deferred
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Compensation. The date of termination will be the date specified in a notice
from the Board, and Hayes will cease to have any power of his office as of such
date.
6.3 Termination by the Company for Cause. The Parties agree that the
Board has the right to terminate Hayes's employment during the term of this
Agreement for "Cause." For the purposes of this Agreement, the term "Cause" will
mean:
6.3.1 Conduct on Hayes's part willfully intended to or likely to
injure the Company's business or reputation;
6.3.2 Actions by Hayes intentionally furnishing materially false,
misleading, or omissive information to the Board;
6.3.3 Hayes is convicted of any felony or other serious offense;
6.3.4 Abusive use of drugs or alcohol by Hayes;
6.3.5 Any fraud, embezzlement or misappropriation by Hayes of the
"assets" of the Company. For the purposes of this provision, the Parties
acknowledge that "asset" includes, but is not limited to the "Confidential
Information" (as defined in Section 7 of this Agreement); or
6.3.6 The willful and significant failure by Hayes to perform
duties and obligations as set forth in this Agreement, resulting in substantial
damage to the Company, but not encompassing illness, physical or mental
incapacity.
In the event that Hayes's employment is terminated by the Company for
Cause, the date of employment termination will be as specified in a notice to
Hayes from the Company, and Hayes will cease to have any authority to act on
behalf of the Company as of such date. The Company will pay Hayes the Base
Salary and any Bonus Compensation due him as of such date, and all benefits
provided by the Company to Hayes will cease as of such date except as otherwise
required by law. In such event, the Company will not be required to pay Hayes
the Deferred Compensation.
6.4 Termination by the Company for Death or Disability. The Parties
agree that Hayes's employment will terminate upon Hayes's death or Disability.
The term "Disability" shall be defined as Hayes's inability, through physical or
mental illness or other cause, to perform the majority of his usual duties for a
period of at least three (3) continuous months. If Hayes's employment is
terminated due to Hayes's death or Disability, the Company will pay Hayes the
Deferred Compensation.
6.5 Good Reason. Hayes may terminate his employment for Good Reason
("Good Reason") upon sixty (60) days' notice to the Company if (i) Hayes's
duties are materially diminished or altered so as to be inconsistent with
Hayes's position, authority or responsibilities as the Chief Technology Officer
of the Company; (ii) any change of Hayes's title; (iii) any substantial adverse
change in Hayes's position, authority or responsibilities as the Chief
Technology Officer; (iv) the material failure by the Company to comply with the
terms of this Agreement; (v) the Company requires Hayes to be based or perform
services at any location more than fifty (50) miles from New York, NY (except
normal travel requirements associated with Hayes's position and title); or (vi)
Hayes's Base Salary is materially diminished. In the event Hayes's employment
relationship with the Company is terminated for "Good Reason," the Company will
pay Hayes the Deferred Compensation. In the event that Hayes shall in good faith
give a "Notice of Termination," as hereinafter defined in Section 6.7 hereof,
for Good Reason and it shall thereafter be determined that Good Reason did not
exist, the employment of Hayes shall, unless the Company and Hayes shall
otherwise mutually agree, be deemed to
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have terminated, at the date of the giving of such purported Notice of
Termination. In such event Hayes shall be deemed to have elected to voluntarily
resign and shall be entitled to receive only those payments and benefits which
he would have been entitled to receive at such date under Section 6.1 of this
Agreement.
6.6 Change of Control. Provided that the Company is a public company,
Hayes may terminate this Agreement upon thirty (30) days' notice to the Company
at any time within the one hundred eighty (180) day period following the date of
the occurrence of a "Change of Control." For the purposes of this Agreement, a
"Change of Control" shall be deemed to have occurred if: the Company has a net
worth of at least one million ($1,000,000) dollars (as reflected on any
quarterly or annual financial statement), and either (i) a third person,
including an entity or a "group" as defined in Article 13(d) or 14(d) of the
Securities Exchange Act of 1934, as amended (other than an entity or "group"
which includes Hayes), becomes the beneficial owner of shares of the Company
having thirty (30%) percent or more of the total number of votes that may be
cast for the election of directors of the Company in the year 2000 and
thereafter; or (ii) as the result of, or in connection with, any cash tender or
exchange offer, merger of other business combination, sale of assets or
contested election, or any combination of the foregoing transactions (a
"Transaction"), the persons who were directors of the Company before the
Transaction shall cease to constitute a majority of the Board of the Company or
any successor to the Company. In the event Hayes's employment relationship with
the Company is terminated for a Change of Control, the Company will pay Hayes
the Deferred Compensation.
6.7 Termination by the Company for Lack of Presence. The Parties agree
that, commencing on January 1, 2000, Hayes must be present, at a minimum of four
(4) business days a week, at the Corporate Headquarters ("Minimum Time"). In the
event that Hayes fails to spend the Minimum Time, the Company may terminate
Hayes's employment relationship with the Company. In such an event, the Company
will not be required to pay Hayes the Deferred Compensation.
6.8 Notice of Termination. Any termination by the Company for Cause, or
by Hayes for Good Reason shall be communicated by Notice of Termination to the
other Party hereto given in accordance with Section 18 hereof. For purposes of
this Agreement, a "Notice of Termination" means a written notice which (i)
indicates the specific termination provision in this Agreement relied upon, (ii)
sets forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of Hayes's employment under the provision so indicated and
(iii) if the termination date is other than the date of receipt of such notice,
specifies the termination date of this Agreement which date shall be in
accordance with the specific termination provision of this Agreement relied
upon.
6.9 Obligations of the Company Upon Certain Terminations. In the event
that Hayes's employment with the Company is terminated pursuant to Sections 6.2,
6.4, 6.5 and 6.6 of this Agreement, all Options granted to Hayes by the Company
shall immediately vest upon such termination and remain exercisable until the
scheduled expiration date of each such Option. The Options shall be subject to
the provisions of the specific option agreement currently in effect with regard
to each Option grant, provided that, to the extent the provisions of the option
agreements are inconsistent with this Section 6.8.1, the Section shall control.
6.10 Survival of Agreement Upon Termination. In the event that Hayes's
employment is terminated pursuant to any provision set forth in this Section 6,
the rights and obligations of the Parties which are set forth in Sections 7
through 17 of this Agreement shall survive the employment termination for a
period from the date of such employment termination through the third (3rd)
anniversary of such date.
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7 Confidential Information. Hayes hereby agrees and acknowledges that the
following information and materials, whether in written, oral, magnetic,
photographic, optical or other form and whether now existing or developed or
created during the period of Hayes's employment or engagement with the Company,
excepting information obtained by Hayes from general or public sources, are
proprietary to the Company and are highly confidential in nature (the
"Confidential Information"):
7.1 Business Records, Marketing Plans and Customer Information. All
books, records, documents, memoranda and materials, and the information
contained therein directly relating to the business and finances of the Company
including, but not limited to: (i) marketing and development plans, forecasts,
forecast assumptions, forecast volumes, future plans and potential strategies of
the Company; (ii) cost objectives, pricing policies and procedures, quoting
policies and procedures, and unpublished price lists; (iii) licensing policies,
strategies and techniques; (iv) customer lists, names of past, present and
prospective customers and their representatives; (v) data and other business
information about or provided by past, present and prospective customers; (vi)
names of past, present and prospective vendors and their representatives, data
and other Information about or provided by past, present and prospective
vendors; (vii) purchasing information, orders, invoices, billings, and payment
of billings; (viii) past, present and prospective licenses and licensees, the
terms and conditions of any licenses or prospective licenses, contracts or
prospective contracts; (ix) types of products, supplies, materials and services
purchased, leased, licensed and/or sold by the Company; (x) past, present and
future research and development arrangements; (xi) customer service information;
(xii) joint ventures, mergers and/or acquisitions; (xiii) the Company personnel
policies and procedures, the Company personnel files, and the compensation of
officers, directors and employees of the Company; and (xiv) all other
confidential business records and trade secrets of the Company.
7.2 Technology and Manufacturing Procedures. All books, records,
documents, memoranda and materials, and the information contained therein,
relating to the technology of the Company (whether or not patentable, whether or
not protected by copyright, whether developed by or for the Company) including,
but not limited to: (i) ideas and concepts for existing and new products,
processes and services; (ii) specifications for products, equipment and
processes, whether technical or financial; (iii) manufacturing and performance
specifications and procedures; (iv) engineering drawings, flow charts, and
graphs; (v) technical, research and engineering data; (vi) formulations,
materials, and material specifications; (vii) laboratory studies and benchmark
tests; (viii) laboratory notebooks; (ix) plant layout and equipment; (x)
manuals, including service manuals and operation manuals; (xi) quality assurance
policies, procedures and specifications; (xii) validation studies; and (xiii)
all other know-how, methodology, procedures, techniques and trade secrets
related to the research, engineering and development affairs of the Company.
7.3 Third Party Information. Any and all other information and
materials in the Company's possession or under its control from any other person
or entity which the Company is obligated to treat as confidential or proprietary
("Third Party Information").
7.4 Not Generally Known. Any and all Confidential Information not
generally known to the public or within the industries or trades in which the
Company competes.
8 General Skills and Knowledge. The general skills and experience gained
by Hayes during Hayes's employment with the Company, and information publicly
available or generally known within the industries or trades in which the
Company competes, is not considered Confidential Information.
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9 Hayes's Obligations as to Confidential Information and Materials.
During Hayes's employment by the Company, Hayes will have access to Confidential
Information and will occupy a position of trust and confidence with respect to
the Company's affairs and business. Hayes agrees to take the following steps to
preserve the confidential and proprietary nature of the Confidential
Information:
9.1 Non-Disclosure. During and for a period of three (3) years after
Hayes's employment with the Company, Hayes will not use, disclose or otherwise
permit any person or entity access to any of the Confidential Information other
than as required in the performance of Hayes's duties with the Company.
9.2 Prevent Disclosure. Hayes will take all reasonable precautions to
prevent disclosure of the Confidential Information in accordance with the
Company's reasonable instructions to Hayes.
9.3 Return all Materials. Upon termination of Hayes's employment with
the Company, for any reason whatsoever, Hayes will deliver to the Company all
tangible materials embodying the Confidential Information, including, without
limitation, any documentation, records, listings, notes, data, sketches,
drawings, memoranda, models, accounts, reference materials, samples,
machine-readable media and equipment which in any way relate to the Confidential
Information.
10 Ideas and Inventions. Hayes agrees that all right, title and interest
in or to any and all Inventions are the property of the Company. For the
purposes of this Agreement, "Inventions" shall mean all ideas, concepts,
know-how, techniques, processes, methods, inventions, discoveries, developments,
innovations and improvements (i) conceived or made by Hayes, whether alone or
with others, in the course of Hayes's employment by the Company, or (ii)
conceived or made by Hayes, whether alone or with others, in the course of
Hayes's employment, but which reach fruition within the period from the date of
termination of Hayes's employment through the second (2nd) anniversary of such
date, and which either (a) involve or are reasonably related to the business of
the Company or to the Company's actual or demonstrably anticipated research or
development; or (b) incorporate or are derived from, in whole or in part, any of
the Confidential Information. Hayes agrees to promptly disclose all Inventions
to the Company, and to provide all assistance reasonably requested by the
Company in the preservation of its interests in the Inventions, such as by
executing documents, testifying, etc. Hayes agrees to execute, acknowledge and
deliver any instruments confirming the complete ownership by the Company of such
Inventions. Such assistance shall be provided at the Company's expense without
any additional compensation to Hayes.
11 Post-Employment Procedures. Hayes agrees that, upon the termination of
his employment with the Company, he will (i) participate in good faith in the
Company's exit interview process; and (ii) enter into an appropriate Employment
Termination Agreement, in which, among other things, Hayes will represent to the
Company that he has fully complied with the terms of this Agreement and that he
will fulfill the then-executory obligations contained in this Agreement.
12 Copyrights. Hayes agrees that any work prepared for the Company which
is protected under United States Copyright laws or under the universal Copyright
Convention, the Berne Copyright convention and/or the Buenos Aires Copyright
Convention shall be a work made for hire and ownership of all copyrights
(including all renewals and extensions) therein shall vest in the Company. In
the event any such work is deemed not to be a work made for hire for any reason,
Hayes hereby grants, transfers and assigns all right, title and interest in such
work and
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all copyrights in such work and all renewals and extensions thereof to the
Company, and agrees to provide all assistance reasonably requested by the
Company in the establishment, preservation and enforcement of its copyright in
such work, such assistance to be provided at the Company's expense but without
any additional compensation to Hayes. Hayes hereby agrees to and does hereby
waive all moral rights with respect to the work developed or produced hereunder,
including, without limitation any and all rights of identification of authorship
and any and all rights of approval, restriction, or limitation on use or
subsequent modifications.
13 Conflicting Obligations and Rights. Before (i) performing any
obligations Hayes may have to preserve the confidentiality of another's
proprietary information or materials, or (ii) exercising any rights Hayes may
claim to any patent or copyrights trade secrets, or other discoveries,
inventions, ideas, know-how, techniques methods, processes or other proprietary
information or materials before performing that work, Hayes shall inform the
Company in writing of any apparent conflict between Hayes's work for the Company
and such other obligations and/or rights. In the absence of such written notice,
the Company may conclude that no such conflict exists and Hayes agrees
thereafter to make no such claim against the Company. The Company shall hold
such disclosures by Hayes in strict confidence.
14 Restrictive Covenants.
14.1 Hayes acknowledges that (i) the Company's business is all aspects
of business-to-business electronic commerce, but not limited to, building,
owning and operating electronic commerce networks; and providing systems
integration and consulting services relating thereto, and that (ii) fulfillment
of the obligations hereunder will result in Hayes becoming familiar with the
business affairs of the Company and any present or future parent, subsidiary
and/or affiliate.
14.2 Covenant Not to Compete. In consideration for the Compensation,
and as a condition to the performance by the Company of all obligations under
this Agreement, Hayes agrees that during the Initial Employment Term or any
Succeeding Employment Terms of this Agreement and for the period from the date
of termination of Hayes's employment pursuant to either Section 6.1 or 6.3
hereof through the second (2nd) anniversary of such date, Hayes shall not
directly or indirectly through any other person, firm or corporation compete
with or be engaged in the same business or "participate in" any other business
or organization which during such period competes with or is engaged in the same
business as the Company. The term "participate in" shall mean: "directly or
indirectly, for his own benefit or for, with, or through any other person, firm,
or corporation, own, manage, operate, control, loan money to, or participate in
the ownership, management, operation, or control of, or be connected as a
director, officer, employee, partner, consultant, agent, independent contractor,
or otherwise with, or acquiesce in the use of his name." Notwithstanding the
foregoing, it shall not be a breach of the provisions of this Section 14 if,
after the term of this Agreement, Hayes is a passive investor in any publicly
held entity and Hayes owns three (3%) percent or less of the equity interests
therein.
14.3 Restrictive Covenants Necessary and Reasonable. Hayes agrees that
the provisions of this Section 14 are necessary and reasonable to protect the
Company in the conduct of its business. If any restriction contained in this
Section 14 shall be deemed to be invalid, illegal, or unenforceable by reason of
the extent, duration or geographical scope thereof, or otherwise, then the court
making such determination shall have the right to reduce such extent, duration,
geographical scope, or other provisions hereof and in its reduced form such
restriction shall then be enforceable in the manner contemplated hereby.
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15 Injunctive Relief. Hayes, recognizing that irreparable injury shall
result to the Company in the event of Hayes's breach of the terms and conditions
of this Agreement, agrees that in the event of his breach or threatened breach,
the Company shall be entitled to injunctive relief restraining Hayes, and any
and all persons or entities acting for or with him, from such breach or
threatened breach. Nothing herein contained, however, shall be construed as
prohibiting the Company from pursuing any other remedies available to it by
reason of such breach or threatened breach.
16 Indemnification.
16.1 To the full extent allowed by law, the Company shall hold harmless
and indemnify Hayes, his executors, administrators or assigns, against any and
all judgments, penalties (including excise and similar taxes), fines,
settlements and reasonable expenses (including attorneys' fees) actually
incurred by Hayes (net of any related insurance proceeds or other amounts
received by Hayes or paid by or on behalf of the Company on Hayes's behalf in
compensation of such judgments, penalties, fines, settlements or expenses) in
connection with any threatened, actual or completed action, suit or proceeding,
whether civil, criminal, arbitral, administrative or investigative, or any
appeal in such action, suit or proceeding, to which Hayes was, is or is
threatened to be made a named defendant or respondent (a "Proceeding"), because
Hayes is or was a director or officer of the Company, or was serving at the
request of the Company as a director, officer, partner, venturer, proprietor,
trustee, employee, agent or similar functionary (an "Affiliate Executive") of
another corporation, partnership, joint venture, sole proprietorship, trust,
employee benefit plan or other enterprise (each, a "Company Affiliate"). Upon
authorization of indemnification of Hayes by the Board in accordance with the
applicable provisions of the Delaware General Corporation Law (the "DGCL"),
Hayes shall be presumed to be entitled to such indemnification under this
Agreement upon submission of a Claim (as hereinafter defined). Thereafter, the
Company shall have the burden of proof to overcome the presumption that Hayes is
so entitled. Such presumption shall only be overcome by a judgment or other
final adjudication, after all appeals and all time for appeals have expired
("Final Determination"), adverse to Hayes establishing that such indemnification
is not permitted hereunder or by law. An actual determination by the Company
(including its Board, legal counsel, or its stockholders) that Hayes has not met
the applicable standard of conduct for indemnification shall not be a defense to
the action or create a presumption that Hayes has not met the applicable
standard of conduct. The purchase, establishment or maintenance of any
Indemnification Arrangement shall not in any way diminish, restrict, limit or
affect the rights and obligations of the Company or of Hayes under this
Agreement except as expressly provided herein, and the execution and delivery of
this Agreement by the Company and Hayes shall not in any way diminish, restrict,
limit or affect Hayes's right to indemnification from the Company or any other
Party or Parties under any other indemnification arrangement, the Certificate of
Incorporation or Bylaws of the Company, or the DGCL.
16.2 Subject only to the provisions of this Section 16.2, as long as
Hayes shall continue to serve as a director and/or officer of the Company (or
shall continue at the request of the Company to serve as an Affiliate Executive)
and, thereafter, as long as Hayes shall be subject to any possible Proceeding by
reason of the fact that Hayes was or is a director and/or officer of the Company
(or served in any of said other capacities), the Company shall, unless no such
policies are available in any market, purchase and maintain in effect for the
benefit of Hayes one or more valid, binding and enforceable policies (the
"Insurance Policies") of directors' and officers' liability insurance ("D&O
Insurance") providing adequate liability coverage for Hayes's acts as a director
and/or officer of the Company or as an Affiliate Executive. The Company may
promptly notify Hayes of any lapse, amendment or failure to
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renew said policy or policies or any provision thereof relating to the extent or
nature of coverage provided thereunder. In the event the Company does not
purchase and maintain in effect said policy or policies of D&O Insurance
pursuant to the provisions of this Section 16.2, the Company shall, to the full
extent permitted by law, in addition to and not in limitation of the other
rights granted Hayes under this Agreement, hold harmless and indemnify Hayes to
the full extent of coverage which would otherwise have been provided for the
benefit of Hayes pursuant to the Insurance Policies.
16.3 Hayes shall have the right to receive from the Company on demand,
or at his Option to have the Company pay promptly on his behalf, in advance of a
Final Determination of a Proceeding all expenses payable by the Company pursuant
to the terms of this Agreement as corresponding amounts are expended or incurred
by Hayes in connection with such Proceeding or otherwise expended or incurred by
Hayes (such amounts so expended or incurred being referred to as "Advanced
Amounts"). In making any claim for payment by the Company of any expenses,
including any Advanced Amount, pursuant to this Agreement, Hayes shall submit to
the Company a written request for payment (a "Claim"), which includes a schedule
setting forth in reasonable detail the dollar amount expended (or incurred or
expected to be expended or incurred). Each item on such schedule shall be
supported by the bill, agreement or other documentation relating thereto, a copy
of which shall be appended to the schedule as an exhibit. Where Hayes is
requesting Advanced Amounts, Hayes must also provide (i) written affirmation of
such Hayes's good faith belief that he has met the standard of conduct required
by law for indemnification, and (ii) a written undertaking to repay such
Advanced Amounts if a Final Determination is made that Hayes is not entitled to
indemnification hereunder.
16.4 The Company shall not be liable under this Agreement to make any
payment in connection with any claim made against Hayes for an accounting of
profits made from the purchase or sale by Hayes of securities of the Company
within the meaning of Section 16(b) of the Exchange Act or similar provisions of
any state statutory law or common law.
16.5 All agreements and obligations of the Company contained herein
shall continue during the period Hayes is a director and/or officer of the
Company (or is serving at the request of the Company as an Affiliate Executive)
and shall continue thereafter so long as Hayes shall be subject to any possible
Proceeding by reason of the fact that Hayes was a director or officer of the
Company or was serving as such an Affiliate Executive.
16.6 Promptly after receipt by Hayes of notice of the commencement of
any Proceeding, Hayes shall, if a claim in respect thereof is to be made against
the Company under this Agreement, notify the Company of the commencement
thereof, but failure to so notify the Company will not relieve the Company from
any liability which it may have to Hayes. With respect to any such Proceeding:
(i) the Company shall be entitled to participate therein at its own expense;
(ii) except with prior written consent of Hayes, the Company shall not be
entitled to assume the defense of any Proceeding; and (iii) the Company shall
not settle any Proceeding in any manner which would impose any penalty or
limitation on Hayes without Hayes's prior written consent.
17 Dispute Resolution. The Company and Hayes agree that any dispute or
controversy arising between any of the Parties to this Agreement, or any person
or entity in privity therewith, out of the transactions effected and
relationships created in connection herewith, including any dispute or
controversy involving the formation, terms or construction of this Agreement,
regardless of kind or character, will be resolved through binding arbitration
held in New York, NY. The only disputes not subject to mandatory, binding
arbitration are requests for injunctive relief. With respect to the arbitration
of any dispute or controversy, each Party understands that:
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(i) arbitration is final and binding on the Parties; (ii) each Party is waiving
its right to seek certain remedies in court, including to right to a jury trial;
(iii) discovery in arbitration is different and more limited than discovery in
litigation; and (iv) an arbitrators' award need not include factual findings or
legal reasoning, and any Party's right to appeal or to seek modification of a
ruling by the arbitrator is strictly limited.
17.1 Each Party to this Agreement will submit any dispute or
controversy to arbitration before the American Arbitration Association ("AAA")
within five (5) days after receiving a written request to do so from the other
Party. If any Party fails to submit a dispute or controversy to arbitration as
requested, then the requesting Party may commence the arbitration proceeding.
The Federal Arbitration Act will govern the proceeding and all issues raised by
this Agreement to be arbitrated. Each Party to this Agreement will be bound by
the determination of an arbitration panel of three members empaneled by the AAA
to adjudicate the dispute. Judgment on any arbitration award may be entered in
any court of competent jurisdiction.
17.2 Any Party to this Agreement may bring an action including a
summary or expedited proceeding of any such dispute or controversy in a court of
competent jurisdiction and, further, may seek provision or ancillary remedies,
including temporary or injunctive relief in connection with such dispute or
controversy in a court of competent jurisdiction, provided that the dispute or
controversy is ultimately resolved through binding arbitration conducted in
accordance with the terms and conditions of Section 17. If any Party institutes
legal proceedings in an effort to resist arbitration and is unsuccessful in
doing so, the prevailing Party is entitled to recover, from the losing Party,
its legal fees and out-of-pocket expenses incurred in connection with the
defense of such legal proceedings.
18 Miscellaneous.
18.1 Notices. Any and all notices, demands, requests or other
communication required or permitted by this Agreement or by law to be served on,
given to, or delivered to any Party hereto by any other Party to this Agreement
shall be in writing and shall be deemed duly served, given, or delivered when
personally delivered to the Party to be notified, or in lieu of such personal
delivery, when deposited in the United States mail, registered or certified
mail, return receipt requested, or when confirmed as received if delivered by
overnight courier, addressed to the to the Party to be notified, at the address
of the Company at its principal office, as first set forth above, or to Hayes at
the address as first set forth above. The Company or Hayes may change the
address in the manner required by law for purposes of this paragraph by giving
notice of the change, in the manner required by this paragraph, to the
respective Parties.
18.2 Amendment. This Agreement may not be modified, changed, amended,
or altered except in writing signed by Hayes or his duly authorized
representative, and by a member of the Board.
18.3 Governing Law. This Agreement shall be interpreted in accordance
with the laws of the State of New York. It shall inure to the benefit of and be
binding upon the Company, and its successors and assigns.
18.4 Attorney's Fees. Should any litigation or arbitration be commenced
between the Parties to this Agreement concerning any provision of this
Agreement, the expense of all attorneys' fees and other costs incurred in
connection therewith shall be paid by the losing Party.
18.5 Severability. Should any provision or portion of this Agreement be
held
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unenforceable or invalid for any reason, the remaining provisions and portions
of this Agreement shall be unaffected by such holding.
18.6 Entire Agreement. This Agreement constitutes the sole and only
agreement of the Parties hereto respecting the subject matter hereof. Any prior
agreements, promises, negotiations, or representations concerning its subject
matter not expressly set forth in this Agreement, are of no force and effect.
18.7 Counterparts. This Agreement and any certificates made pursuant
hereto, may be executed in any number of counterparts and when so executed all
of such counterparts shall constitute a single instrument binding upon all
Parties hereto notwithstanding the fact that all Parties are not signatory to
the original or to the same counterpart.
18.8 Section Headings. The Article and Section headings used in this
Agreement are for reference purposes only, and should not be used in construing
this Agreement.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
day and year set forth below.
eB2B COMMERCE, INC
By:______________________ By: _______________________
Kevin Hayes
Date:_____________________ Date:______________________
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Accrued Salary Stock Purchase Agreement (the "Agreement") effective as
of December 1, 1998 ("Effective Date") by and between eB2B Commerce Inc., a
Delaware corporation (the "Company") and Kevin Hayes ("Hayes").
WHEREAS, the Company and Hayes have executed and entered into an
Employment Agreement simultaneously with the execution of this Agreement;
WHEREAS, pursuant to the Employment Agreement, the Company has the
right to accrue Hayes's Base Salary (the "Accrued Salary");
WHEREAS, the purpose of this Agreement is to set forth the terms of the
agreement between the Company and Hayes regarding Hayes's right to apply the
Accrued Salary to the purchase of shares of the Company's Common Stock; and
WHEREAS, the capitalized terms used but not defined herein shall have
the meaning set forth in the Employment Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein set
forth, the Parties do hereby agree as follows:
1 Accrued Salary. In accordance with the Employment Agreement, the Parties
acknowledge that the Company has the right to accrue Hayes's Base Salary for the
1999 calender year. The Parties agree that interest shall not accrue on the
Accrued Salary.
2 Right to Purchase Subject Shares. The Company hereby grants to Hayes the right
to apply the Accrued Salary to purchase from the Company shares of the Company's
Common Stock ("Subject Shares"). The number of Subject Shares available for
purchase shall be determined by multiplying a fraction the numerator of which is
the Accrued Salary (less applicable withholding a payroll deductions) and the
denominator of which is the Purchase Price of the Company's Common Stock ( as
defined in Section 3.3 below).
3 Common Stock Purchase. Hayes shall be entitled to purchase the Subject Shares
at any time during the period January 1, 1999 through December 31, 2001 (the
"Exercise Period").
3.1 Number of Shares Purchased. Hayes may exercise the rights set forth
in this Agreement at any time, and from time to time, during the Exercise
Period, and he may apply all or a part of the Accrued Salary to such purchase.
3.2 Notice of Purchase. Hayes shall exercise his right to purchase the
Subject Shares by completing, signing and delivering to the Company a notice of
purchase ("Notice of Purchase"), attached hereto as Exhibit A.
3.3 Purchase Price. The purchase price (the "Purchase Price") per share
of the Subject Shares purchased with the Accrued Salary shall be the Fair Market
Value (as defined below) of the Subject Shares on the earlier of the date on
which the Company receives a Notice of Purchase or December 31, 1999.
3.4 Payment of Accrued Salary. At any time during the Exercise Period
and provided the Company has received third party investment (in the form of
debt or equity) totaling a minimum of $1.5 million, Hayes shall have the right
to terminate this Agreement by providing notice thereof to the Company, and the
Company shall thereafter immediately pay Hayes the balance of the Accrued
Salary.
3.5 Record Owner; Delivery. The Company agrees that Hayes shall be
deemed the record owner of the Subject Shares as of the date on which the Notice
Of Purchase is presented to the Company. Certificates for the Subject Shares so
purchased shall be delivered to Hayes within a reasonable time after the
presentation of the Notice of Purchase to the Company.
3.6 Withholding Taxes. Any application of the Accrued Salary pursuant
to this
<PAGE>
Agreement shall be subject to the applicable withholding taxes and other
standard payroll deductions.
4 Adjustments. Subject and pursuant to the provisions of this Section 4, the
Purchase Price and number of Common Shares shall be subject to adjustment from
time to time as set forth hereinafter. If the Company shall, at any time,
subdivide its outstanding Common Shares by recapitalization, reclassification,
split up thereof, the Purchase Price shall be proportionately decreased, and if
the Company shall at any time combine the outstanding Common Shares by
recapitalization, reclassification or combination thereof, the Purchase Price
shall be proportionately increased. Any such adjustment to the Purchase Price
shall become effective at the close of business on the record date for such
subdivision or combination.
5 Representations and Warranties of the Company. The Company represents and
warrants to Hayes as follows, in each case as of the date this Agreement is
executed by the Company.
5.1 The Company is a corporation duly organized, validly existing, and
in good standing under the laws of the state of Delaware.
5.2 The Company has full power and authority to execute and deliver
this Agreement and upon the exercise of Hayes's right, issue the Subject Shares.
Without limiting the generality of the foregoing, the Board of Directors has
duly authorized the execution, delivery, and performance of this Agreement by
the Company. This Agreement constitutes the valid and legally binding obligation
of the Company, enforceable in accordance with its terms and conditions.
5.3 The authorized capital stock of the Company consists of 19,800,000
shares of common stock, par value $0.001, and 200,000 shares of preferred stock,
par value $0.001. Each outstanding share of common stock and preferred stock is
duly authorized, validly issued, fully paid and non-assessable.
5.4 Neither the execution and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which the Company is subject or any provision of the charter or bylaws
of the Company. The Company need not give any notice to, make any filing with,
or obtain any authorization, consent, or approval of any government or
governmental agency in order for the parties to consummate the transactions
contemplated by this Agreement (except such filings and consents as may be
required and have been or will timely be made or obtained under federal and
state securities laws).
5.5 There is no litigation, arbitration, claim, governmental or other
proceeding (formal or informal), or investigation pending or, to the best
knowledge of the Company, threatened (or any basis therefor) with respect to the
Company or the Company's operations, businesses, properties or assets. The
Company is not in violation of, nor in default with respect to, any law, rule,
regulation, order, judgment or decree, nor is the Company required to take any
action in order to avoid any such violation or default.
5.6 The shares of Common Stock issuable upon the exercise of Hayes's
right under this Agreement have been duly reserved for such issuance. Such
shares of Common Stock are duly authorized and, if and when issued, will be
validly issued, fully paid and nonassessable, and will not be issued in
violation of any preemptive or other rights of stockholders.
6 Representations and Warranties of Hayes.
<PAGE>
6.1 Hayes is a bona fide resident of the state indicated in the address
set forth above, is at least 21 years of age, and is legally competent to
execute this Agreement. This Agreement constitutes the legal, valid and binding
obligation of Hayes enforceable against Hayes in accordance with its terms.
6.2 Hayes has such knowledge and experience in finance, securities,
investments and other business matters so as to be able to evaluate the merits
and risks of his investment in the Company.
6.3 Hayes has adequate means of providing for his current and
foreseeable future needs and has no need for liquidity of his investment in the
Company. Hayes recognizes and is fully cognizant of the fact that his investment
in the Company involves a high degree of risk, and Hayes represents that he can
afford to bear such risk, including, without limitation, the risk of losing the
entire investment.
6.4 Hayes has been advised by the Company that (i) none of the Subject
Shares have been registered under the Securities Act, and that the Subject
Shares will be issued on the basis of the statutory exemption provided by
Section 4(2) of the Securities Act or Regulation D promulgated thereunder, or
both, relating to transactions by an issuer not involving any public offering,
and under similar exemptions under applicable state securities laws; (ii) none
of the Subject Shares have been registered or qualified with any federal or
state agency or self-regulatory organization, and (iii) the Company's reliance
on exemptions from federal and state registration or qualification requirements
is based in part upon the representations made by Hayes contained in this
Agreement.
6.5 Hayes has been advised by the Company of, and/or he is otherwise
familiar with, the nature of the limitations on the transfer of the Subject
Shares imposed by the Securities Act and the Rules and Regulations promulgated
thereunder. In particular, Hayes agrees that no sale, assignment or transfer of
any of the Subject Shares shall be valid or effective (and agrees to not so
sell, assign or transfer any of the Subject Shares), and the Company shall not
be required to give any effect to such a sale, assignment or transfer, unless
the sale, assignment or transfer is (i) registered under the Securities Act, it
being understood that none of the Subject Shares are currently registered for
sale; or (ii) made in accordance with all the requirements and limitations of
Rule 144 under the Securities Act. Hayes acknowledges that the Subject Shares
shall be subject to a stop transfer order and that the certificate or
certificates evidencing the Securities shall bear the following legend, or a
legend substantially similar (and such other legends as may be required by state
blue sky laws):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). SUCH
SECURITIES MAY NOT BE TRANSFERRED, SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED UNLESS (1) A REGISTRATION STATEMENT
UNDER THE ACT IS IN EFFECT WITH RESPECT TO THE SECURITIES OR
(2) THERE IS AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER
THAT SUCH REGISTRATION IS NOT REQUIRED OR THAT SUCH TRANSFER
MAY BE MADE PURSUANT TO RULE 144 OR RULE 144A OF THE ACT.
THE SECURITIES REPRESENTED HEREBY WERE ISSUED IN ACCORDANCE
WITH A CERTAIN ACCRUED SALARY STOCK CONVERSION AGREEMENT
BETWEEN THE HOLDER AND THE ISSUER
<PAGE>
HEREOF, AND MAY NOT BE TRANSFERRED, SOLD, ENCUMBERED OR
OTHERWISE DISPOSED EXCEPT PURSUANT TO THE TERMS OF SUCH
AGREEMENT.
6.6 Hayes is acquiring the Subject Shares for his own account for
investment and not with a view to the sale or distribution thereof or the
granting of any participation therein. Hayes has no present intention of
distributing or selling to others any of such interest or granting any
participation therein.
6.7 It never has been represented, guaranteed or warranted by the
Company, the Company's officers, directors, stockholders, employees or agents,
or any other person, whether expressly or by implication, that (i) the Company
or Hayes will realize any given percentage of profits and/or amount or type of
consideration, profit or loss as a result of the Company's activities or Hayes's
investment; or (ii) the past performance or experience of the management of the
Company, or of any other person, will in any way indicate the predictable
results of the Company's activities or the ownership of the Subject Shares.
6.8 Hayes is not acquiring the Subject Shares as a result of or
subsequent to any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media or broadcast over
television or radio, or presented at any seminar or meeting, or any solicitation
of a share exchange by a person other than a representative of the Company with
whom Hayes had a pre-existing relationship.
6.9 Hayes covenants that in no event will he dispose of any Subject
Shares except in compliance with the Securities Act and any applicable state
securities laws.
6.10 Hayes is not relying on the Company with respect to the tax or
other economic considerations of an investment.
6.11 Hayes acknowledges that the representations and agreements made by
Hayes herein shall survive the execution and delivery of this Agreement and the
receipt of the Subject Shares.
6.12 Hayes agrees to notify the Company promptly of any changes in the
information provided herein by Hayes which may occur subsequent to the execution
and delivery of this Agreement by Hayes.
7 Indemnification. Hayes acknowledges that Hayes understands the meaning and
legal consequences of the representations contained in Section 5 hereof, and
agrees to indemnify and hold harmless the Company and its incorporators,
officers, directors, employees, agents, including their respective attorneys and
controlling persons, past, present or future, from and against any and all loss,
damage or liability due to or arising out of a breach of any such
representation.
8 Nonassignability. The right to purchase the Subject Shares under this
Agreement may not be assigned, transferred, pledged or otherwise disposed of in
any way (other than by will, the laws of descent and distribution) by Hayes. Any
such attempt at assignment, transfer, pledge or other disposition shall be void
and without effect.
9 Restrictions on Transfer; Company's Right of First Refusal.
9.1 If Hayes receives from an unaffiliated person or entity a bona fide
offer (for the purpose of this Section 9, an "Offer") to purchase all or any
portion of the Subject Shares which Offer Hayes desires to accept, Hayes shall
deliver written notice (for the purpose of this Section 9,
<PAGE>
the "Offer Notice") to the Company setting forth all the terms and conditions of
the Offer, including the aggregate purchase price, proposed closing date,
payment terms and the name and address of the proposed purchaser. No Offer
Notice will be effective under this Section 9 if it is received by the Company
on a date fewer than thirty (30) days prior to the proposed closing date of the
proposed sale. For the purpose of verifying the contents of an Offer Notice,
Hayes hereby authorizes the Company's representatives to directly contact any
person identified in any Offer Notice.
9.2 Within twenty-five (25) days after receiving the Offer Notice, the
Company may, by written notice to Hayes, elect to purchase, at the price and
time and on terms and conditions not less favorable to Hayes than those
contained in the Offer, not less than all of the Subject Shares proposed in the
Offer to be purchased.
9.3 If the Company fails to elect to exercise its rights under Section
9.2, Hayes may, at any time within (but not after) forty (40) days after the
expiration of the twenty-five (25) day exercise period referred to in Section
9.2, sell not less than all the Shares proposed in the Offer to be purchased to
the proposed purchaser at the price, and on the terms and conditions, contained
in the Offer.
9.4 The Company shall not be obligated to recognize or give effect to
any sale of any of the Subject Shares under this Section 9 unless and until a
proposed transferee has delivered to the Company a written instrument, in a form
reasonably acceptable to the Company, evidencing the proposed transferee's
consent and agreement to perform and be bound by all of the obligations
originally binding on Hayes under this Agreement.
10 Fair Market Value Defined. The "Fair Market Value" of corporate stock will
mean the price at which one could reasonably expect such stock to be sold in an
arm's length transaction, for cash, other than on an installment basis, to a
person not employed by, controlled by, in control of or under common control
with the issuer of such stock. Such Fair Market Value will be that which has
currently or most recently been determined for this purpose by the Board, or at
the sole discretion of the Board by an independent appraiser or appraisers
selected by the Board, in either case giving due consideration to recent
transactions involving shares of such stock, if any, the issuer's net worth,
prospective earning power and dividend-paying capacity, the goodwill of the
issuer's business, the issuer's industry position and its management, that
industry's economic outlook, the values of securities of issuers whose stock is
Publicly Traded and which are engaged in similar businesses, the effect of
transfer restrictions to which such stock may be subject under law and under the
applicable terms of any contract governing such stock, the absence of a public
market for such stock and such other matters as the Board or its appraiser or
appraisers deem pertinent. The determination by the Board or its appraiser or
appraisers of the Fair Market Value will, if not unreasonable, be conclusive and
binding notwithstanding the possibility that other persons might make a
different, and also reasonable, determination. If the Fair Market Value to be
used was thus fixed more than sixteen (16) months prior to the day as of which
Fair Market Value is being determined, it will in any event be no less than the
book value of the stock being valued at the end of the most recent period for
which financial statements of the issuer are available.
If the Common Stock is listed on an established stock exchange or
exchanges, such Fair Market Value shall be deemed to be the highest closing
price of the Common Stock on such stock exchange or exchanges on the day the
Option is awarded or if no sale of the Company's Common Stock occurs that day or
the Common Stock is not listed on an established stock exchange, the Fair Market
Value per share shall be the mean between dealer "bid" and "ask" prices of the
Common Stock in the New York over-the-counter market on the day the Option is
awarded, as reported by the National Association Securities Dealers, Inc., or if
not reported by said association,
<PAGE>
by the National Quotation Service, Inc. Subject to the foregoing, the Board of
Directors and the Committee in fixing the Option price shall have full authority
and discretion and be fully protected in doing so.
11 Miscellaneous.
11.1 Notices. Any and all notices, demands, requests or other
communication required or permitted by this Agreement or by law to be served on,
given to, or delivered to any Party hereto by any other Party to this Agreement
shall be in writing and shall be deemed duly served, given, or delivered when
personally delivered to the Party to be notified, or in lieu of such personal
delivery, when deposited in the United States mail, registered or certified
mail, return receipt requested, or when confirmed as received if delivered by
overnight courier, addressed to the to the Party to be notified, at the address
of the Company at its principal office, as first set forth above, or to Hayes at
the address as first set forth above. The Company or Hayes may change the
address in the manner required by law for purposes of this paragraph by giving
notice of the change, in the manner required by this paragraph, to the
respective Parties.
11.2 Amendment. This Agreement may not be modified, changed, amended,
or altered except in writing signed by Hayes or his duly authorized
representative, and by a member of the Board.
11.3 Governing Law. This Agreement shall be interpreted in accordance
with the laws of the State of New York. It shall inure to the benefit of and be
binding upon the Company, and its successors and assigns.
11.4 Attorney's Fees. Should any litigation or arbitration be commenced
between the Parties to this Agreement concerning any provision of this
Agreement, the expense of all attorneys' fees and other costs incurred in
connection therewith shall be paid by the losing Party.
11.5 Severability. Should any provision or portion of this Agreement be
held unenforceable or invalid for any reason, the remaining provisions and
portions of this Agreement shall be unaffected by such holding.
11.6 Entire Agreement. This Agreement, together with the Employment
Agreement constitutes the sole and understandings of the Parties hereto
respecting the subject matter hereof. Any conflict between this Agreement and
the Employment Agreement shall be resolved in favor of the Employment Agreement.
11.7 Counterparts. This Agreement and any certificates made pursuant
hereto, may be executed in any number of counterparts and when so executed all
of such counterparts shall constitute a single instrument binding upon all
Parties hereto notwithstanding the fact that all Parties are not signatory to
the original or to the same counterpart.
11.8 Section Headings. The Article and Section headings used in this
Agreement are for reference purposes only, and should not be used in construing
this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Accrued Salary Stock Purchase Agreement as of the date set forth below.
eB2B Commerce, Inc.
By:___________________________ ______________________________
Kevin Hayes
Date: __________________ , 1999 Date:____________________, 1999
<PAGE>
PURCHASE FORM
To Be Executed
Upon Exercise of Right to Purchase Common Stock
The undersigned hereby exercises the right to purchase ____ Common Shares (a
minimum of one Common Share) evidenced by the attached Agreement, according to
the terms and conditions thereof, and herewith desires to apply his Accrued
Salary to the purchase price. The undersigned requests that certificates for
such shares shall be issued in the name set forth below.
Dated: ,
--------------------------
Signature
--------------------------
Print Name of Signatory
--------------------------
Name to whom certificates are to be issued if
different from above
Address: ____________________
--------------------
Social Security No. _________________
or other identifying number
<PAGE>
eB2B COMMERCE, INC.
1998 EXECUTIVE PERFORMANCE EQUITY AGREEMENT
This EXECUTIVE PERFORMANCE EQUITY AGREEMENT (the "Agreement") made
effective as of December 1, 1998 (the "Effective Date") by and between eB2B
Commerce Inc., a Delaware corporation (the "Company") and Kevin Hayes
("Optionee").
WHEREAS, the Optionee is the Chief Technology Officer of the Company;
and
WHEREAS, the Company desires to provide additional incentives to, and
rewards for, sustained performance by Optionee to promote the Company's long
term growth and financial success.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth and for good and valuable consideration, the parties hereto agree as
follows:
1. Grant of Award. Pursuant to the terms of this Agreement, the Company
shall award options to purchase one hundred thousand (100,000) shares of the
Company's Common Stock, par value $.001, ("Options") for achieving certain
performance goals ("Award"). For purposes of this Agreement, "Shares" shall mean
the Common Stock of the Company issuable upon exercise of the Options.
2. Performance Goals. The Optionee shall receive the Award provided that
during the calendar year ending December 31, 1999, the Company commences
business operations and begins processing transactions between manufacturers and
retailers on two (2) or more Network Trading Channels.
a. Network Trading Channel Defined. For purposes of this Agreement,
"Network Trading Channel" shall mean an extranet established and maintained by
the Company that enables manufacturers and retailers within a specific industry
or industry segment to conduct transactions over the Internet.
3. Administration. The Board of Directors of the Company shall have the
sole authority to determine whether the performance goals described above have
been met. On or prior to the sixtieth (60th) day following such approval by the
Board of Directors, the Company shall deliver to Optionee notice of the Award he
is entitled to receive.
4. Option Terms.
a. Exercise Price. The exercise price of the Shares covered by the
Options shall be fifty ($0.50) cents per share ("Purchase Price"). The Company
does not make any representation or warranty to Optionee regarding the Federal
or State income tax consequences or effects of the Options.
b. Vesting of Options. The Options awarded under this Agreement shall
be fully exercisable as of the date awarded.
c. Duration. The Options awarded herein will be exercisable, in full or
in part, for a period of five (5) years commencing on the date such Options are
awarded, or such shorter term as provided in this Agreement ("Exercise Period").
d. Payment. Payment for Shares purchased upon any exercise of Options
granted under this Agreement will be made in full in cash (including payment by
check) concurrently with such exercise.
5. Exercise of Options. The purchase rights represented by the Options may
be exercised by the Optionee, in whole or in part at any time, and from time to
time, during the Exercise Period, by the presentation of the purchase form
attached, duly executed, at the Company's
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<PAGE>
office, and upon payment, in accordance with Section 4.4 above, by the Optionee
of the Purchase Price for the Shares. The Company agrees that the Optionee
hereof shall be deemed the record owner of the Shares as of the close of
business on the date on which the Options shall have been presented and payment
made for such Shares as aforesaid. Certificates for the Shares so purchased
shall be delivered to the Optionee hereof within a reasonable time, not
exceeding five (5) days, after the rights represented by this Option shall have
been so exercised. If this Option shall be exercised in part only, the Company
shall deliver an amended Agreement evidencing the rights of the Optionee hereof
to purchase the balance of the Shares which such Optionee is entitled to
purchase hereunder. Exercise in full of the rights represented by this Option
shall not extinguish the rights and obligations granted and imposed under
Section 11 hereof.
6. Adjustments. In the event the Common Stock is changed into or exchanged
for a different number or kind of shares of stock or other securities of the
Company or of another corporation (whether by reason of merger, consolidation,
reorganization or otherwise), or if the number of outstanding shares of Common
Stock are increased through a stock split or the payment of a stock dividend,
then there will be substituted for or added to each share of Common Stock which
is subject to an Option, the number and kind of Shares of securities into which
each outstanding share of Common Stock is changed. Outstanding Options will also
be amended as to price and other terms if necessary to reflect the foregoing
events. No right to purchase fractional Shares will result from any adjustment
in Options pursuant to this Section 6. In case of any such adjustment, the
Shares subject to the Option will be rounded down to the nearest whole share.
Notice of any adjustment will be given by the Company to Optionee, which will
have been so adjusted and such adjustment (whether or not notice is given) will
be effective and binding for all purposes of this Agreement. Any other provision
hereof to the contrary notwithstanding, in the event the Company is a party to a
merger or other reorganization, outstanding Options will be subject to the
agreement of merger or reorganization. Such agreement may provide, without
limitation, for the assumption of outstanding Options by the surviving company
or its parent, for the continuation by the Company (if the Company is a
surviving entity), for accelerated vesting and accelerated expiration, or for
settlement in cash.
7. Amendment and Termination. The Board may alter, amend, suspend or
terminate this Agreement, provided that no such action will deprive any of the
Optionee's rights under an Option without the Optionee's consent. Except as
herein provided, no such action of the Board, unless taken with the approval of
the stockholders of the Company, may:
(i) increase the maximum number of Shares for which Options awarded
under this Agreement may be exercised;
(ii) reduce the minimum permissible exercise price; or
(iv) amend this Agreement in any other manner which the Board, in its
discretion, determines should become effective only if approved by
the stockholders even though such stockholder approval is not
expressly required by this Agreement.
8. Investment Purpose. Each Option under this Agreement shall be awarded
on the condition that the purchase of stock thereunder shall be for investment
purposes, and not with a view to resale or distribution except that in the event
the stock subject to such Option is registered under the Securities Act of 1933,
as amended, or in the event a resale or distribution of such stock without such
registration would otherwise be permissible, such condition shall be inoperative
if in the opinion of counsel for the Company such condition is not required
under the Securities Act of 1933 or any other applicable law, regulation, or
rule of any governmental agency.
9. Limitations of Rights of Optionee.
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<PAGE>
a. Rights as a Stockholder. Optionee or a permitted transferee of an
Option shall have no rights as a stockholder with respect to any Shares covered
by his Option until the date of the issuance of a stock certificate to him for
such Shares. No adjustment shall be made for dividend (ordinary or
extraordinary, whether in cash, securities or other property) or distributions
or other rights for which the record date is prior to the date such stock
certificate is issued, except as provided in Section 6 hereof.
b. No Violations. No Shares of stock issuable under this Agreement will
be issued and no certificate therefor delivered unless and until, in the opinion
of legal counsel for the Company, such securities may be issued and delivered
without causing the Company to be in violation of or to incur any liability
under any federal, state or other securities law, or any other requirement of
law or of any regulatory body having jurisdiction over the Company.
c. No Right to Employment. The receipt of an Option does not give the
Optionee any right to continued employment by the Company for any period, nor
will the awarding of the Option or the issuance of Shares on exercise thereof
give the Company any right to the continued services of the Optionee for any
period.
d. Express Award. Nothing contained in this Agreement will constitute
the awarding of an Option hereunder, which will occur only pursuant to such
performance goals contained in this Agreement.
10. Taxes. Optionee agrees, no later than the date as of which the value of
any Option awarded or Shares acquired pursuant to this Agreement first becomes
includible in the gross income of the Optionee for federal income tax purposes,
to pay to the Company, or make arrangements satisfactory to the Company
regarding payment of, any federal, state or local taxes of any kind required by
law to be withheld with respect to the Option or such Shares. The obligations of
the Company under this Agreement are conditioned on such payment or
arrangements, and the Company will, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to
Optionee.
11. Restrictions on Transfer; Company's Right of First Refusal.
a. Until such time as the Common Stock of the Company is Publicly
Traded, if Optionee receives from an unaffiliated person or entity a bona fide
offer (for the purpose of this Section 11, an "Offer") to purchase all or any
portion of the Shares which Offer Optionee desires to accept, Optionee shall
deliver written notice (for the purpose of this Section 11, the "Offer Notice")
to the Company setting forth all the terms and conditions of the Offer,
including the aggregate purchase price, proposed closing date, payment terms and
the name and address of the proposed purchaser. No Offer Notice will be
effective under this Section 11 if it is received by the Company on a date fewer
than thirty (30) days prior to the proposed closing date of the proposed sale.
For the purpose of verifying the contents of an Offer Notice, Optionee hereby
authorizes the Company's representatives to directly contact any person
identified in any Offer Notice.
b. Within twenty-five (25) days after receiving the Offer Notice, the
Company may, by written notice to Optionee, elect to purchase, at the price and
time and on terms and conditions not less favorable to Optionee than those
contained in the Offer, not less than all of the Shares proposed in the Offer to
be purchased.
c. If the Company fails to elect to exercise its rights under Section
11.2, Optionee may, at any time within (but not after) forty (40) days after the
expiration of the twenty-five (25) day exercise period referred to in Section
11.2, sell not less than all the Shares proposed in the Offer to be purchased to
the proposed purchaser at the price, and on the terms and conditions, contained
in the Offer.
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<PAGE>
d. The Company shall not be obligated to recognize or give effect to
any sale of any of the Shares under this Section 11 unless and until a proposed
transferee has delivered to the Company a written instrument, in a form
reasonably acceptable to the Company, evidencing the proposed transferee's
consent and agreement to perform and be bound by all of the obligations
originally binding on Optionee under this Agreement.
12. Stock Certificates. The certificates for such Shares will be registered
in the name of the Optionee; if Optionee requests in the Notice, the certificate
will be registered in the name of the Optionee and another person jointly, as
joint tenants with right of survivorship. If the Option is exercised by the
legal representative of Optionee's estate, or by any person or persons who
acquires the Option directly from Optionee as a result of Optionee's death,
whether by bequest, inheritance, or otherwise or pursuant to a qualified
domestic relations order, the Notice will be accompanied by appropriate proof of
the right of such person or persons to exercise the Option.
13. Legends on Share Certificates.
a. For so long as the Common Stock is not Publicly Traded, in addition
to any other legends which may be prescribed by law, the following legend (or
substantially the following legend) will appear on each certificate representing
the Shares issued upon the exercise of each Option:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ISSUED AND ARE BEING HELD PURSUANT TO THIS 1998 EXECUTIVE
PERFORMANCE EQUITY AGREEMENT OF EB2B COMMERCE, INC., AND MAY
ONLY BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF PURSUANT TO
THE TERMS THEREOF."
b. For so long as the Common Stock is not Publicly Traded, the
certificates representing the Shares may, at the absolute discretion of the
Company, be subject to a stop transfer order, and bear the following or
substantially similar legend and such other legends as may be required by the
Company:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY STATE SECURITIES LAWS AND NEITHER SUCH
SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD,
PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER
THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR (2) THE
COMPANY RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF SUCH
SECURITIES, WHICH COUNSEL AND OPINION ARE REASONABLY
SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE
OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER
CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT OR APPLICABLE STATE SECURITIES LAWS."
14. Publicly Traded Defined. Corporate stock is "Publicly Traded" if stock
of that class is listed or admitted to unlisted trading privileges on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc. ("NASD") or if sales or bid and offer quotations are reported for that
class of stock in the automated quotation system ("NASDAQ") operated by the
NASD.
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<PAGE>
15. Nontransferability. Each Option granted under this Agreement is
nontransferable by the Optionee other than by will or the laws of descent and
distribution, and is exercisable only in accordance with the provisions of this
Agreement.
16. Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of New York.
17. Entire Agreement. This Agreement and the Employment Agreement
constitute the agreement of the Parties hereto respecting the subject matter
hereof. Any conflict between this Agreement and the Employment Agreement shall
be resolved in favor of the Employment Agreement.
18. Binding Effect. This Agreement is binding upon, and will inure to the
benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns.
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement
effective as of the date set forth below.
eB2B Commerce, Inc.
By: By:
-------------------------------- ----------------------------
Kevin Hayes
Date: Date:
--------------------------- -----------------------
5
<PAGE>
Employment Agreement (the "Agreement"), effective as of December 1,
1998 (the "Effective Date"), between eB2B Commerce, Inc., a Delaware corporation
with principal offices at 29 West 38th Street, New York, New York 10018, (the
"Company") and Joseph Bentley, residing at 9 Cedar Ridge Road, Bay Shore, New
York, ("Bentley"). The Company and Bentley may be referred to herein
collectively as the "Parties" or individually as a "Party."
WHEREAS, the Company is engaged in the sales and service of building,
owning and operating electronic commerce networks;
WHEREAS, Bentley currently serves as the Chief Financial Officer and
Secretary of the Company; and
WHEREAS, the Company and Bentley believe that it is appropriate for
them to memorialize their understandings with respect to Bentley's employment,
including confidentiality and non-competition provisions, and agree as to each
other's obligations pursuant to their employer-employee relationship.
NOW, THEREFORE, in consideration of the mutual covenants herein set
forth, the Parties do hereby agree as follows:
1 Employment. The Company hereby employs Bentley and Bentley accepts this
employment and agrees to render services to the Company on the terms and
conditions set forth in this Agreement. Bentley shall serve in the capacity of
Chief Financial Officer and Secretary, perform services for the Company normally
associated with such positions, and use his best efforts to meet the business
requirements and goals set by the board of directors of the Company (the
"Board"). In furtherance thereof, Bentley will devote his best efforts,
including his full-time attention, during reasonable business hours, to the
affairs and business of the Company. Bentley further agrees to observe and
comply with the rules and regulations of the Company as adopted by the Board
with respect to performance of his duties, and to carry out and perform orders,
directions, and policies enacted by the Board.
2 Term. The term of this Employment Agreement shall be the period from
the Effective Date and terminating on December 31, 2001 (the "Initial Employment
Term"). The Agreement shall thereafter automatically renew for successive one
year terms, until terminated by either Party in accordance with this Agreement
(the "Succeeding Employment Term"), unless either Party provides written notice
of termination to the other party at least ninety (90) days prior to the
expiration of the Initial Employment Term or any Succeeding Employment Term.
3 Compensation.
3.1 Base Salary. The Company will compensate and pay Bentley for his
services during the term of this Agreement at a base salary of $115,000 per
year, and the Company agrees that the base salary will increase annually in an
amount no less than five (5%) percent of the previous year's base salary (the
"Base Salary"). The Base Salary shall be payable to Bentley in accordance with
the Company's standard payroll policy for similarly situated employees of the
Company. The Company has the right, from the Effective Date to December 31,
1999, to accrue the Base Salary of Bentley. At any time thereafter, the
Company's right and conditions to accrue the Base Salary of Bentley shall be
mutually agreed upon by the Company and Bentley. In the event that the Base
Salary is accrued, Bentley has the right to convert the accrued Base Salary
(less applicable withholding taxes and standard payroll deductions) ("Accrued
Salary") to purchase shares of the Company's Common Stock, in accordance with
the Accrued Salary Stock Purchase Agreement executed simultaneously with the
execution of this Agreement.
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3.2 Bonus. Bentley may receive, from time to time, bonus compensation
from the Company, as established by the Board following the negotiation of the
terms by the Parties (the "Bonus Compensation"). If at any time hereafter the
Company shall adopt a bonus program, an option program or any other form of
equity participation for senior executives of the Company, Bentley shall be
eligible to participate in such program in a manner and capacity commensurate
with his position and duties. Notwithstanding the foregoing, For each calendar
year of this Agreement, commencing with the 1999 calendar year, the Company will
pay Bentley a bonus of no less than twenty thousand ($20,000) dollars, payable
by March 15th of the following year.
3.3 Performance Based Options. The parties acknowledge that Bentley and
the Company have entered into the 1998 Executive Performance Equity Agreement
(the "Executive Performance Agreement"), to which Bentley will be granted
options ("Award") to purchase up to one hundred thousand (100,000) shares of the
Company's Common Stock provided that certain performance goals are met.
3.4 Stock Options. In addition, and without limiting the foregoing,
during the term of this Agreement, Bentley shall be entitled to participate, as
determined by the Board of Directors, in the Company's incentive stock option
plan to the same extent as other employees of the Company. For purposes of this
Agreement, "Options" shall mean any options granted under the Company's
incentive stock option plan and the Executive Performance Agreement.
3.5 Deferred Compensation.
3.6 Amount. Deferred Compensation shall be the amount which is
calculated as the greater of (A) three hundred (300%) percent of the Base Salary
payments Bentley would have received had his employment continued for the
remaining term of this Agreement (including yearly increases); or (B) an amount
equal to two hundred (200%) percent of the highest annual compensation earned by
Bentley in the past three (3) years (including both Base Salary and Bonus
Compensation). In addition to the Deferred Compensation, Bentley shall be
entitled to all of the benefits and personal perquisites otherwise provided in
this Agreement (including the car allowance, as described in Section 4.2 hereof)
during the period of time which is the greater of (X) the remaining term of this
Agreement, or (Y) two (2) years following the date of termination. The Deferred
Compensation herein shall be deemed liquidated damages resulting from the
Company's sole and exclusive remedy for any such termination. Deferred
Compensation shall not be diminished or offset by reason of any earnings by
Bentley subsequent to the date of termination.
3.7 Payment of Deferred Compensation. Except as otherwise provided
below, the Deferred Compensation shall be paid in monthly installments over the
twelve (12) months following the event giving rise to the payment of Deferred
Compensation. If employment termination is a result of the death of Bentley, the
initial Deferred Compensation payments shall be made within fifteen (15) days
after the personal representative of Bentley's estate notifies the Company that
Letters Testamentary have been issued to the estate appointing an authorized
representative of the estate.
3.8 Withholding. All compensation paid to Bentley shall be subject to
the applicable withholding taxes and other employment taxes as required with
respect to compensation paid by an employer to an employee.
4 Benefits.
4.1 Health Insurance; Vacation. The Company shall provide Bentley with
health insurance coverage, personal time and other benefits during the term of
this Agreement as
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agreed upon by the Board, but in no event will such benefits be less than those
offered to other employees of the Company. Bentley shall be entitled to four (4)
weeks paid vacation during each year of this Agreement.
4.2 Car Allowance. The Company will pay to Bentley a car allowance of
six hundred fifty ($650) dollars per month.
5 Expenses. The Company shall reimburse Bentley or otherwise provide for
or pay for all reasonable expenses incurred by Bentley in furtherance of or in
connection with the business of the Company, including, but not by way of
limitation, (i) all reasonable expenses incurred by Bentley in accordance with
the Company's travel policy, as established by the Board; and (ii) all
reasonable expenses in connection with Bentley's attendance at trade and
professional conferences, which are in furtherance of the business of the
Company. Bentley agrees that he will furnish the Company with adequate records
and other documents for the substantiation of each such business expense.
6 Employment Termination.
6.1 Resignation of Bentley. The Parties agree that Bentley has the
right to voluntarily terminate his employment with the Company by providing the
Company with a minimum of sixty (60) days' notice. Upon the termination date
specified in the notice, Bentley will cease to have any of the powers associated
with the offices he held with the Company. In such event, all of the Company's
obligations under this Agreement will terminate immediately upon the date of
such termination of employment, and the Company will not be required to pay
Bentley the Deferred Compensation.
6.2 Termination by the Company for Convenience. The Parties agree that
the Board has the right to terminate Bentley's employment for convenience during
the term of this Agreement upon notice to Bentley. In such event, the Company
will pay Bentley the Deferred Compensation. The date of termination will be the
date specified in a notice from the Board, and Bentley will cease to have any
power of his office as of such date.
6.3 Termination by the Company for Cause. The Parties agree that the
Board has the right to terminate Bentley's employment during the term of this
Agreement for "Cause." For the purposes of this Agreement, the term "Cause" will
mean:
6.3.1 Conduct on Bentley's part willfully intended to or likely to
injure the Company's business or reputation;
6.3.2 Actions by Bentley intentionally furnishing materially false,
misleading, or omissive information to the Board;
6.3.3 Bentley is convicted of any felony or other serious offense;
6.3.4 Abusive use of drugs or alcohol by Bentley;
6.3.5 Any fraud, embezzlement or misappropriation by Bentley of the
"assets" of the Company. For the purposes of this provision, the Parties
acknowledge that "asset" includes, but is not limited to the "Confidential
Information" (as defined in Section 7 of this Agreement); or
6.3.6 The willful and significant failure by Bentley to perform
duties and obligations as set forth in this Agreement, resulting in substantial
damage to the Company, but not encompassing illness, physical or mental
incapacity.
In the event that Bentley's employment is terminated by the Company for
Cause, the
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date of employment termination will be as specified in a notice to Bentley from
the Company, and Bentley will cease to have any authority to act on behalf of
the Company as of such date. The Company will pay Bentley the Base Salary and
any Bonus Compensation due him as of such date, and all benefits provided by the
Company to Bentley will cease as of such date except as otherwise required by
law. In such event, the Company will not be required to pay Bentley the Deferred
Compensation.
6.4 Termination by the Company for Death or Disability. The Parties
agree that Bentley's employment will terminate upon Bentley's death or
Disability. The term "Disability" shall be defined as Bentley's inability,
through physical or mental illness or other cause, to perform the majority of
his usual duties for a period of at least three (3) continuous months. If
Bentley's employment is terminated due to Bentley's death or Disability, the
Company will pay Bentley the Deferred Compensation.
6.5 Good Reason. Bentley may terminate his employment for Good Reason
("Good Reason") upon sixty (60) days' notice to the Company if (i) Bentley's
duties are materially diminished or altered so as to be inconsistent with
Bentley's position, authority or responsibilities as the Chief Financial Officer
and Secretary of the Company; (ii) any change of either of Bentley's two titles;
(iii) any substantial adverse change in Bentley's position, authority or
responsibilities as the Chief Financial Officer and Secretary; (iv) the material
failure by the Company to comply with the terms of this Agreement; (v) the
Company requires Bentley to be based or perform services at any location more
than fifty (50) miles from New York, NY (except normal travel requirements
associated with Bentley's position and titles); or (vi) Bentley's Base Salary is
materially diminished. In the event Bentley's employment relationship with the
Company is terminated for "Good Reason," the Company will pay Bentley the
Deferred Compensation. In the event that Bentley shall in good faith give a
"Notice of Termination," as hereinafter defined in Section 6.7 hereof, for Good
Reason and it shall thereafter be determined that Good Reason did not exist, the
employment of Bentley shall, unless the Company and Bentley shall otherwise
mutually agree, be deemed to have terminated, at the date of the giving of such
purported Notice of Termination. In such event Bentley shall be deemed to have
elected to voluntarily resign and shall be entitled to receive only those
payments and benefits which he would have been entitled to receive at such date
under Section 6.1 of this Agreement.
6.6 Change of Control. Provided that the Company is a public company,
Bentley may terminate this Agreement upon thirty (30) days' notice to the
Company at any time within the one hundred eighty (180) day period following the
date of the occurrence of a "Change of Control." For the purposes of this
Agreement, a "Change of Control" shall be deemed to have occurred if: the
Company has a net worth of at least one million ($1,000,000) dollars (as
reflected on any quarterly or annual financial statement), and either (i) a
third person, including an entity or a "group" as defined in Article 13(d) or
14(d) of the Securities Exchange Act of 1934, as amended (other than an entity
or "group" which includes Bentley), becomes the beneficial owner of shares of
the Company having thirty (30%) percent or more of the total number of votes
that may be cast for the election of directors of the Company in the year 2000
and thereafter; or (ii) as the result of, or in connection with, any cash tender
or exchange offer, merger of other business combination, sale of assets or
contested election, or any combination of the foregoing transactions (a
"Transaction"), the persons who were directors of the Company before the
Transaction shall cease to constitute a majority of the Board of the Company or
any successor to the Company. In the event Bentley's employment relationship
with the Company is terminated for a Change of Control, the Company will pay
Bentley the Deferred Compensation.
6.7 Notice of Termination. Any termination by the Company for Cause, or
by
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Bentley for Good Reason shall be communicated by Notice of Termination to the
other Party hereto given in accordance with Section 18 hereof. For purposes of
this Agreement, a "Notice of Termination" means a written notice which (i)
indicates the specific termination provision in this Agreement relied upon, (ii)
sets forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of Bentley's employment under the provision so indicated
and (iii) if the termination date is other than the date of receipt of such
notice, specifies the termination date of this Agreement which date shall be in
accordance with the specific termination provision of this Agreement relied
upon.
6.8 Obligations of the Company Upon Certain Terminations. In the event
that Bentley's employment with the Company is terminated pursuant to Sections
6.2, 6.4, 6.5 and 6.6 of this Agreement, all Options granted to Bentley by the
Company shall immediately vest upon such termination and remain exercisable
until the scheduled expiration date of each such Option. The Options shall be
subject to the provisions of the specific option agreement currently in effect
with regard to each Option grant, provided that, to the extent the provisions of
the option agreements are inconsistent with this Section 6.8.1, the Section
shall control.
6.9 Survival of Agreement Upon Termination. In the event that Bentley's
employment is terminated pursuant to any provision set forth in this Section 6,
the rights and obligations of the Parties which are set forth in Sections 7
through 17 of this Agreement shall survive the employment termination for a
period from the date of such employment termination through the third (3rd)
anniversary of such date.
7 Confidential Information. Bentley hereby agrees and acknowledges that
the following information and materials, whether in written, oral, magnetic,
photographic, optical or other form and whether now existing or developed or
created during the period of Bentley's employment or engagement with the
Company, excepting information obtained by Bentley from general or public
sources, are proprietary to the Company and are highly confidential in nature
(the "Confidential Information"):
7.1 Business Records, Marketing Plans and Customer Information. All
books, records, documents, memoranda and materials, and the information
contained therein directly relating to the business and finances of the Company
including, but not limited to: (i) marketing and development plans, forecasts,
forecast assumptions, forecast volumes, future plans and potential strategies of
the Company; (ii) cost objectives, pricing policies and procedures, quoting
policies and procedures, and unpublished price lists; (iii) licensing policies,
strategies and techniques; (iv) customer lists, names of past, present and
prospective customers and their representatives; (v) data and other business
information about or provided by past, present and prospective customers; (vi)
names of past, present and prospective vendors and their representatives, data
and other Information about or provided by past, present and prospective
vendors; (vii) purchasing information, orders, invoices, billings, and payment
of billings; (viii) past, present and prospective licenses and licensees, the
terms and conditions of any licenses or prospective licenses, contracts or
prospective contracts; (ix) types of products, supplies, materials and services
purchased, leased, licensed and/or sold by the Company; (x) past, present and
future research and development arrangements; (xi) customer service information;
(xii) joint ventures, mergers and/or acquisitions; (xiii) the Company personnel
policies and procedures, the Company personnel files, and the compensation of
officers, directors and employees of the Company; and (xiv) all other
confidential business records and trade secrets of the Company.
7.2 Technology and Manufacturing Procedures. All books, records,
documents, memoranda and materials, and the information contained therein,
relating to the technology of
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the Company (whether or not patentable, whether or not protected by copyright,
whether developed by or for the Company) including, but not limited to: (i)
ideas and concepts for existing and new products, processes and services; (ii)
specifications for products, equipment and processes, whether technical or
financial; (iii) manufacturing and performance specifications and procedures;
(iv) engineering drawings, flow charts, and graphs; (v) technical, research and
engineering data; (vi) formulations, materials, and material specifications;
(vii) laboratory studies and benchmark tests; (viii) laboratory notebooks; (ix)
plant layout and equipment; (x) manuals, including service manuals and operation
manuals; (xi) quality assurance policies, procedures and specifications; (xii)
validation studies; and (xiii) all other know-how, methodology, procedures,
techniques and trade secrets related to the research, engineering and
development affairs of the Company.
7.3 Third Party Information. Any and all other information and
materials in the Company's possession or under its control from any other person
or entity which the Company is obligated to treat as confidential or proprietary
("Third Party Information").
7.4 Not Generally Known. Any and all Confidential Information not
generally known to the public or within the industries or trades in which the
Company competes.
8 General Skills and Knowledge. The general skills and experience gained
by Bentley during Bentley's employment with the Company, and information
publicly available or generally known within the industries or trades in which
the Company competes, is not considered Confidential Information.
9 Bentley's Obligations as to Confidential Information and Materials.
During Bentley's employment by the Company, Bentley will have access to
Confidential Information and will occupy a position of trust and confidence with
respect to the Company's affairs and business. Bentley agrees to take the
following steps to preserve the confidential and proprietary nature of the
Confidential Information:
9.1 Non-Disclosure. During and for a period of three (3) years after
Bentley's employment with the Company, Bentley will not use, disclose or
otherwise permit any person or entity access to any of the Confidential
Information other than as required in the performance of Bentley's duties with
the Company.
9.2 Prevent Disclosure. Bentley will take all reasonable precautions to
prevent disclosure of the Confidential Information in accordance with the
Company's reasonable instructions to Bentley.
9.3 Return all Materials. Upon termination of Bentley's employment with
the Company, for any reason whatsoever, Bentley will deliver to the Company all
tangible materials embodying the Confidential Information, including, without
limitation, any documentation, records, listings, notes, data, sketches,
drawings, memoranda, models, accounts, reference materials, samples,
machine-readable media and equipment which in any way relate to the Confidential
Information.
10 Ideas and Inventions. Bentley agrees that all right, title and interest
in or to any and all Inventions are the property of the Company. For the
purposes of this Agreement, "Inventions" shall mean all ideas, concepts,
know-how, techniques, processes, methods, inventions, discoveries, developments,
innovations and improvements (i) conceived or made by Bentley, whether alone or
with others, in the course of Bentley's employment by the Company, or (ii)
conceived or made by Bentley, whether alone or with others, in the course of
Bentley's employment, but which reach fruition within the period from the date
of termination of Bentley's
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employment through the second (2nd) anniversary of such date, and which either
(a) involve or are reasonably related to the business of the Company or to the
Company's actual or demonstrably anticipated research or development; or (b)
incorporate or are derived from, in whole or in part, any of the Confidential
Information. Bentley agrees to promptly disclose all Inventions to the Company,
and to provide all assistance reasonably requested by the Company in the
preservation of its interests in the Inventions, such as by executing documents,
testifying, etc. Bentley agrees to execute, acknowledge and deliver any
instruments confirming the complete ownership by the Company of such Inventions.
Such assistance shall be provided at the Company's expense without any
additional compensation to Bentley.
11 Post-Employment Procedures. Bentley agrees that, upon the termination
of his employment with the Company, he will (i) participate in good faith in the
Company's exit interview process; and (ii) enter into an appropriate Employment
Termination Agreement, in which, among other things, Bentley will represent to
the Company that he has fully complied with the terms of this Agreement and that
he will fulfill the then-executory obligations contained in this Agreement.
12 Copyrights. Bentley agrees that any work prepared for the Company which
is protected under United States Copyright laws or under the universal Copyright
Convention, the Berne Copyright convention and/or the Buenos Aires Copyright
Convention shall be a work made for hire and ownership of all copyrights
(including all renewals and extensions) therein shall vest in the Company. In
the event any such work is deemed not to be a work made for hire for any reason,
Bentley hereby grants, transfers and assigns all right, title and interest in
such work and all copyrights in such work and all renewals and extensions
thereof to the Company, and agrees to provide all assistance reasonably
requested by the Company in the establishment, preservation and enforcement of
its copyright in such work, such assistance to be provided at the Company's
expense but without any additional compensation to Bentley. Bentley hereby
agrees to and does hereby waive all moral rights with respect to the work
developed or produced hereunder, including, without limitation any and all
rights of identification of authorship and any and all rights of approval,
restriction, or limitation on use or subsequent modifications.
13 Conflicting Obligations and Rights. Before (i) performing any
obligations Bentley may have to preserve the confidentiality of another's
proprietary information or materials, or (ii) exercising any rights Bentley may
claim to any patent or copyrights trade secrets, or other discoveries,
inventions, ideas, know-how, techniques methods, processes or other proprietary
information or materials before performing that work, Bentley shall inform the
Company in writing of any apparent conflict between Bentley's work for the
Company and such other obligations and/or rights. In the absence of such written
notice, the Company may conclude that no such conflict exists and Bentley agrees
thereafter to make no such claim against the Company. The Company shall hold
such disclosures by Bentley in strict confidence.
14 Restrictive Covenants.
14.1 Bentley acknowledges that (i) the Company's business is all
aspects of business-to-business electronic commerce, but not limited to,
building, owning and operating electronic commerce networks; and providing
systems integration and consulting services relating thereto, and that (ii)
fulfillment of the obligations hereunder will result in Bentley becoming
familiar with the business affairs of the Company and any present or future
parent, subsidiary and/or affiliate.
14.2 Covenant Not to Compete. In consideration for the Compensation,
and as a condition to the performance by the Company of all obligations under
this Agreement, Bentley
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agrees that during the Initial Employment Term or any Succeeding Employment
Terms of this Agreement and for the period from the date of termination of
Bentley's employment pursuant to either Section 6.1 or 6.3 hereof through the
second (2nd) anniversary of such date, Bentley shall not directly or indirectly
through any other person, firm or corporation compete with or be engaged in the
same business or "participate in" any other business or organization which
during such period competes with or is engaged in the same business as the
Company. The term "participate in" shall mean: "directly or indirectly, for his
own benefit or for, with, or through any other person, firm, or corporation,
own, manage, operate, control, loan money to, or participate in the ownership,
management, operation, or control of, or be connected as a director, officer,
employee, partner, consultant, agent, independent contractor, or otherwise with,
or acquiesce in the use of his name." Notwithstanding the foregoing, it shall
not be a breach of the provisions of this Section 14 if, after the term of this
Agreement, Bentley is a passive investor in any publicly held entity and Bentley
owns three (3%) percent or less of the equity interests therein.
14.3 Restrictive Covenants Necessary and Reasonable. Bentley agrees
that the provisions of this Section 14 are necessary and reasonable to protect
the Company in the conduct of its business. If any restriction contained in this
Section 14 shall be deemed to be invalid, illegal, or unenforceable by reason of
the extent, duration or geographical scope thereof, or otherwise, then the court
making such determination shall have the right to reduce such extent, duration,
geographical scope, or other provisions hereof and in its reduced form such
restriction shall then be enforceable in the manner contemplated hereby.
15 Injunctive Relief. Bentley, recognizing that irreparable injury shall
result to the Company in the event of Bentley's breach of the terms and
conditions of this Agreement, agrees that in the event of his breach or
threatened breach, the Company shall be entitled to injunctive relief
restraining Bentley, and any and all persons or entities acting for or with him,
from such breach or threatened breach. Nothing herein contained, however, shall
be construed as prohibiting the Company from pursuing any other remedies
available to it by reason of such breach or threatened breach.
16 Indemnification.
16.1 To the full extent allowed by law, the Company shall hold harmless
and indemnify Bentley, his executors, administrators or assigns, against any and
all judgments, penalties (including excise and similar taxes), fines,
settlements and reasonable expenses (including attorneys' fees) actually
incurred by Bentley (net of any related insurance proceeds or other amounts
received by Bentley or paid by or on behalf of the Company on Bentley's behalf
in compensation of such judgments, penalties, fines, settlements or expenses) in
connection with any threatened, actual or completed action, suit or proceeding,
whether civil, criminal, arbitral, administrative or investigative, or any
appeal in such action, suit or proceeding, to which Bentley was, is or is
threatened to be made a named defendant or respondent (a "Proceeding"), because
Bentley is or was a director or officer of the Company, or was serving at the
request of the Company as a director, officer, partner, venturer, proprietor,
trustee, employee, agent or similar functionary (an "Affiliate Executive") of
another corporation, partnership, joint venture, sole proprietorship, trust,
employee benefit plan or other enterprise (each, a "Company Affiliate"). Upon
authorization of indemnification of Bentley by the Board in accordance with the
applicable provisions of the Delaware General Corporation Law (the "DGCL"),
Bentley shall be presumed to be entitled to such indemnification under this
Agreement upon submission of a Claim (as hereinafter defined). Thereafter, the
Company shall have the burden of proof to overcome the presumption that Bentley
is so entitled. Such
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presumption shall only be overcome by a judgment or other final adjudication,
after all appeals and all time for appeals have expired ("Final Determination"),
adverse to Bentley establishing that such indemnification is not permitted
hereunder or by law. An actual determination by the Company (including its
Board, legal counsel, or its stockholders) that Bentley has not met the
applicable standard of conduct for indemnification shall not be a defense to the
action or create a presumption that Bentley has not met the applicable standard
of conduct. The purchase, establishment or maintenance of any Indemnification
Arrangement shall not in any way diminish, restrict, limit or affect the rights
and obligations of the Company or of Bentley under this Agreement except as
expressly provided herein, and the execution and delivery of this Agreement by
the Company and Bentley shall not in any way diminish, restrict, limit or affect
Bentley's right to indemnification from the Company or any other Party or
Parties under any other indemnification arrangement, the Certificate of
Incorporation or Bylaws of the Company, or the DGCL.
16.2 Subject only to the provisions of this Section 16.2, as long as
Bentley shall continue to serve as a director and/or officer of the Company (or
shall continue at the request of the Company to serve as an Affiliate Executive)
and, thereafter, as long as Bentley shall be subject to any possible Proceeding
by reason of the fact that Bentley was or is a director and/or officer of the
Company (or served in any of said other capacities), the Company shall, unless
no such policies are available in any market, purchase and maintain in effect
for the benefit of Bentley one or more valid, binding and enforceable policies
(the "Insurance Policies") of directors' and officers' liability insurance ("D&O
Insurance") providing adequate liability coverage for Bentley's acts as a
director and/or officer of the Company or as an Affiliate Executive. The Company
may promptly notify Bentley of any lapse, amendment or failure to renew said
policy or policies or any provision thereof relating to the extent or nature of
coverage provided thereunder. In the event the Company does not purchase and
maintain in effect said policy or policies of D&O Insurance pursuant to the
provisions of this Section 16.2, the Company shall, to the full extent permitted
by law, in addition to and not in limitation of the other rights granted Bentley
under this Agreement, hold harmless and indemnify Bentley to the full extent of
coverage which would otherwise have been provided for the benefit of Bentley
pursuant to the Insurance Policies.
16.3 Bentley shall have the right to receive from the Company on
demand, or at his Option to have the Company pay promptly on his behalf, in
advance of a Final Determination of a Proceeding all expenses payable by the
Company pursuant to the terms of this Agreement as corresponding amounts are
expended or incurred by Bentley in connection with such Proceeding or otherwise
expended or incurred by Bentley (such amounts so expended or incurred being
referred to as "Advanced Amounts"). In making any claim for payment by the
Company of any expenses, including any Advanced Amount, pursuant to this
Agreement, Bentley shall submit to the Company a written request for payment (a
"Claim"), which includes a schedule setting forth in reasonable detail the
dollar amount expended (or incurred or expected to be expended or incurred).
Each item on such schedule shall be supported by the bill, agreement or other
documentation relating thereto, a copy of which shall be appended to the
schedule as an exhibit. Where Bentley is requesting Advanced Amounts, Bentley
must also provide (i) written affirmation of such Bentley's good faith belief
that he has met the standard of conduct required by law for indemnification, and
(ii) a written undertaking to repay such Advanced Amounts if a Final
Determination is made that Bentley is not entitled to indemnification hereunder.
16.4 The Company shall not be liable under this Agreement to make any payment in
connection with any claim made against Bentley for an accounting of profits made
from the
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purchase or sale by Bentley of securities of the Company within the meaning of
Section 16(b) of the Exchange Act or similar provisions of any state statutory
law or common law.
16.5 All agreements and obligations of the Company contained herein
shall continue during the period Bentley is a director and/or officer of the
Company (or is serving at the request of the Company as an Affiliate Executive)
and shall continue thereafter so long as Bentley shall be subject to any
possible Proceeding by reason of the fact that Bentley was a director or officer
of the Company or was serving as such an Affiliate Executive.
16.6 Promptly after receipt by Bentley of notice of the commencement of
any Proceeding, Bentley shall, if a claim in respect thereof is to be made
against the Company under this Agreement, notify the Company of the commencement
thereof, but failure to so notify the Company will not relieve the Company from
any liability which it may have to Bentley. With respect to any such Proceeding:
(i) the Company shall be entitled to participate therein at its own expense;
(ii) except with prior written consent of Bentley, the Company shall not be
entitled to assume the defense of any Proceeding; and (iii) the Company shall
not settle any Proceeding in any manner which would impose any penalty or
limitation on Bentley without Bentley's prior written consent.
17 Dispute Resolution. The Company and Bentley agree that any dispute or
controversy arising between any of the Parties to this Agreement, or any person
or entity in privity therewith, out of the transactions effected and
relationships created in connection herewith, including any dispute or
controversy involving the formation, terms or construction of this Agreement,
regardless of kind or character, will be resolved through binding arbitration
held in New York, NY. The only disputes not subject to mandatory, binding
arbitration are requests for injunctive relief. With respect to the arbitration
of any dispute or controversy, each Party understands that: (i) arbitration is
final and binding on the Parties; (ii) each Party is waiving its right to seek
certain remedies in court, including to right to a jury trial; (iii) discovery
in arbitration is different and more limited than discovery in litigation; and
(iv) an arbitrators' award need not include factual findings or legal reasoning,
and any Party's right to appeal or to seek modification of a ruling by the
arbitrator is strictly limited.
17.1 Each Party to this Agreement will submit any dispute or
controversy to arbitration before the American Arbitration Association ("AAA")
within five (5) days after receiving a written request to do so from the other
Party. If any Party fails to submit a dispute or controversy to arbitration as
requested, then the requesting Party may commence the arbitration proceeding.
The Federal Arbitration Act will govern the proceeding and all issues raised by
this Agreement to be arbitrated. Each Party to this Agreement will be bound by
the determination of an arbitration panel of three members empaneled by the AAA
to adjudicate the dispute. Judgment on any arbitration award may be entered in
any court of competent jurisdiction.
17.2 Any Party to this Agreement may bring an action including a
summary or expedited proceeding of any such dispute or controversy in a court of
competent jurisdiction and, further, may seek provision or ancillary remedies,
including temporary or injunctive relief in connection with such dispute or
controversy in a court of competent jurisdiction, provided that the dispute or
controversy is ultimately resolved through binding arbitration conducted in
accordance with the terms and conditions of Section 17. If any Party institutes
legal proceedings in an effort to resist arbitration and is unsuccessful in
doing so, the prevailing Party is entitled to recover, from the losing Party,
its legal fees and out-of-pocket expenses incurred in connection with the
defense of such legal proceedings.
18 Miscellaneous.
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18.1 Notices. Any and all notices, demands, requests or other
communication required or permitted by this Agreement or by law to be served on,
given to, or delivered to any Party hereto by any other Party to this Agreement
shall be in writing and shall be deemed duly served, given, or delivered when
personally delivered to the Party to be notified, or in lieu of such personal
delivery, when deposited in the United States mail, registered or certified
mail, return receipt requested, or when confirmed as received if delivered by
overnight courier, addressed to the to the Party to be notified, at the address
of the Company at its principal office, as first set forth above, or to Bentley
at the address as first set forth above. The Company or Bentley may change the
address in the manner required by law for purposes of this paragraph by giving
notice of the change, in the manner required by this paragraph, to the
respective Parties.
18.2 Amendment. This Agreement may not be modified, changed, amended,
or altered except in writing signed by Bentley or his duly authorized
representative, and by a member of the Board.
18.3 Governing Law. This Agreement shall be interpreted in accordance
with the laws of the State of New York. It shall inure to the benefit of and be
binding upon the Company, and its successors and assigns.
18.4 Attorney's Fees. Should any litigation or arbitration be commenced
between the Parties to this Agreement concerning any provision of this
Agreement, the expense of all attorneys' fees and other costs incurred in
connection therewith shall be paid by the losing Party.
18.5 Severability. Should any provision or portion of this Agreement be
held unenforceable or invalid for any reason, the remaining provisions and
portions of this Agreement shall be unaffected by such holding.
18.6 Entire Agreement. This Agreement constitutes the sole and only
agreement of the Parties hereto respecting the subject matter hereof. Any prior
agreements, promises, negotiations, or representations concerning its subject
matter not expressly set forth in this Agreement, are of no force and effect.
18.7 Counterparts. This Agreement and any certificates made pursuant
hereto, may be executed in any number of counterparts and when so executed all
of such counterparts shall constitute a single instrument binding upon all
Parties hereto notwithstanding the fact that all Parties are not signatory to
the original or to the same counterpart.
18.8 Section Headings. The Article and Section headings used in this
Agreement are for reference purposes only, and should not be used in construing
this Agreement.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
day and year set forth below.
eB2B Commerce, Inc
By:_____________________ By:_________________________
Joseph Bentley
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Date:_____________________ Date:_____________________
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ACCRUED SALARY STOCK PURCHASE AGREEMENT (the "Agreement") effective as
of December 1, 1998 ("Effective Date") by and between eB2B Commerce Inc., a
Delaware corporation (the "Company") and Joseph Bentley ("Bentley").
WHEREAS, the Company and Bentley have executed and entered into an
Employment Agreement simultaneously with the execution of this Agreement;
WHEREAS, pursuant to the Employment Agreement, the Company has the
right to accrue Bentley's Base Salary (the "Accrued Salary");
WHEREAS, the purpose of this Agreement is to set forth the terms of the
agreement between the Company and Bentley regarding Bentley's right to apply the
Accrued Salary to the purchase of shares of the Company's Common Stock; and
WHEREAS, the capitalized terms used but not defined herein shall have
the meaning set forth in the Employment Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein set
forth, the Parties do hereby agree as follows:
1 Accrued Salary. In accordance with the Employment Agreement, the Parties
acknowledge that the Company has the right to accrue Bentley's Base Salary for
the 1999 calender year. The Parties agree that interest shall not accrue on the
Accrued Salary.
2 Right to Purchase Subject Shares. The Company hereby grants to Bentley the
right to apply the Accrued Salary to purchase from the Company shares of the
Company's Common Stock ("Subject Shares"). The number of Subject Shares
available for purchase shall be determined by multiplying a fraction the
numerator of which is the Accrued Salary (less applicable withholding a payroll
deductions) and the denominator of which is the Purchase Price of the Company's
Common Stock (as defined in Section 3.3 below).
3 Common Stock Purchase. Bentley shall be entitled to purchase the Subject
Shares at any time during the period January 1, 1999 through December 31, 2001
(the "Exercise Period").
3.1 Number of Shares Purchased. Bentley may exercise the rights set
forth in this Agreement at any time, and from time to time, during the Exercise
Period, and he may apply all or a part of the Accrued Salary to such purchase.
3.2 Notice of Purchase. Bentley shall exercise his right to purchase
the Subject Shares by completing, signing and delivering to the Company a notice
of purchase ("Notice of Purchase"), attached hereto as Exhibit A.
3.3 Purchase Price. The purchase price (the "Purchase Price") per share
of the Subject Shares purchased with the Accrued Salary shall be the Fair Market
Value (as defined below) of the Subject Shares on the earlier of the date on
which the Company receives a Notice of Purchase or December 31, 1999.
3.4 Payment of Accrued Salary. At any time during the Exercise Period
and provided the Company has received third party investment (in the form of
debt or equity) totaling a minimum of $1.5 million, Bentley shall have the right
to terminate this Agreement by providing notice thereof to the Company, and the
Company shall thereafter immediately pay Bentley the balance of the Accrued
Salary.
3.5 Record Owner; Delivery. The Company agrees that Bentley shall be
deemed the record owner of the Subject Shares as of the date on which the Notice
Of Purchase is presented to the Company. Certificates for the Subject Shares so
purchased shall be delivered to Bentley within a reasonable time after the
presentation of the Notice of Purchase to the Company.
3.6 Withholding Taxes. Any application of the Accrued Salary pursuant
to this
<PAGE>
Agreement shall be subject to the applicable withholding taxes and other
standard payroll deductions.
4 Adjustments. Subject and pursuant to the provisions of this Section 4, the
Purchase Price and number of Common Shares shall be subject to adjustment from
time to time as set forth hereinafter. If the Company shall, at any time,
subdivide its outstanding Common Shares by recapitalization, reclassification,
split up thereof, the Purchase Price shall be proportionately decreased, and if
the Company shall at any time combine the outstanding Common Shares by
recapitalization, reclassification or combination thereof, the Purchase Price
shall be proportionately increased. Any such adjustment to the Purchase Price
shall become effective at the close of business on the record date for such
subdivision or combination.
5 Representations and Warranties of the Company. The Company represents and
warrants to Bentley as follows, in each case as of the date this Agreement is
executed by the Company.
5.1 The Company is a corporation duly organized, validly existing, and
in good standing under the laws of the state of Delaware.
5.2 The Company has full power and authority to execute and deliver
this Agreement and upon the exercise of Bentley's right, issue the Subject
Shares. Without limiting the generality of the foregoing, the Board of Directors
has duly authorized the execution, delivery, and performance of this Agreement
by the Company. This Agreement constitutes the valid and legally binding
obligation of the Company, enforceable in accordance with its terms and
conditions.
5.3 The authorized capital stock of the Company consists of 19,800,000
shares of common stock, par value $0.001, and 200,000 shares of preferred stock,
par value $0.001. Each outstanding share of common stock and preferred stock is
duly authorized, validly issued, fully paid and non-assessable.
5.4 Neither the execution and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which the Company is subject or any provision of the charter or bylaws
of the Company. The Company need not give any notice to, make any filing with,
or obtain any authorization, consent, or approval of any government or
governmental agency in order for the parties to consummate the transactions
contemplated by this Agreement (except such filings and consents as may be
required and have been or will timely be made or obtained under federal and
state securities laws).
5.5 There is no litigation, arbitration, claim, governmental or other
proceeding (formal or informal), or investigation pending or, to the best
knowledge of the Company, threatened (or any basis therefor) with respect to the
Company or the Company's operations, businesses, properties or assets. The
Company is not in violation of, nor in default with respect to, any law, rule,
regulation, order, judgment or decree, nor is the Company required to take any
action in order to avoid any such violation or default.
5.6 The shares of Common Stock issuable upon the exercise of Bentley's
right under this Agreement have been duly reserved for such issuance. Such
shares of Common Stock are duly authorized and, if and when issued, will be
validly issued, fully paid and nonassessable, and will not be issued in
violation of any preemptive or other rights of stockholders.
6 Representations and Warranties of Bentley.
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6.1 Bentley is a bona fide resident of the state indicated in the
address set forth above, is at least 21 years of age, and is legally competent
to execute this Agreement. This Agreement constitutes the legal, valid and
binding obligation of Bentley enforceable against Bentley in accordance with its
terms.
6.2 Bentley has such knowledge and experience in finance, securities,
investments and other business matters so as to be able to evaluate the merits
and risks of his investment in the Company.
6.3 Bentley has adequate means of providing for his current and
foreseeable future needs and has no need for liquidity of his investment in the
Company. Bentley recognizes and is fully cognizant of the fact that his
investment in the Company involves a high degree of risk, and Bentley represents
that he can afford to bear such risk, including, without limitation, the risk of
losing the entire investment.
6.4 Bentley has been advised by the Company that (i) none of the
Subject Shares have been registered under the Securities Act, and that the
Subject Shares will be issued on the basis of the statutory exemption provided
by Section 4(2) of the Securities Act or Regulation D promulgated thereunder, or
both, relating to transactions by an issuer not involving any public offering,
and under similar exemptions under applicable state securities laws; (ii) none
of the Subject Shares have been registered or qualified with any federal or
state agency or self-regulatory organization, and (iii) the Company's reliance
on exemptions from federal and state registration or qualification requirements
is based in part upon the representations made by Bentley contained in this
Agreement.
6.5 Bentley has been advised by the Company of, and/or he is otherwise
familiar with, the nature of the limitations on the transfer of the Subject
Shares imposed by the Securities Act and the Rules and Regulations promulgated
thereunder. In particular, Bentley agrees that no sale, assignment or transfer
of any of the Subject Shares shall be valid or effective (and agrees to not so
sell, assign or transfer any of the Subject Shares), and the Company shall not
be required to give any effect to such a sale, assignment or transfer, unless
the sale, assignment or transfer is (i) registered under the Securities Act, it
being understood that none of the Subject Shares are currently registered for
sale; or (ii) made in accordance with all the requirements and limitations of
Rule 144 under the Securities Act. Bentley acknowledges that the Subject Shares
shall be subject to a stop transfer order and that the certificate or
certificates evidencing the Securities shall bear the following legend, or a
legend substantially similar (and such other legends as may be required by state
blue sky laws):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). SUCH
SECURITIES MAY NOT BE TRANSFERRED, SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED UNLESS (1) A REGISTRATION STATEMENT UNDER
THE ACT IS IN EFFECT WITH RESPECT TO THE SECURITIES OR (2) THERE
IS AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH
REGISTRATION IS NOT REQUIRED OR THAT SUCH TRANSFER MAY BE MADE
PURSUANT TO RULE 144 OR RULE 144A OF THE ACT.
THE SECURITIES REPRESENTED HEREBY WERE ISSUED IN ACCORDANCE WITH
A CERTAIN ACCRUED SALARY STOCK CONVERSION AGREEMENT BETWEEN THE
HOLDER AND THE ISSUER
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HEREOF, AND MAY NOT BE TRANSFERRED, SOLD, ENCUMBERED OR OTHERWISE
DISPOSED EXCEPT PURSUANT TO THE TERMS OF SUCH AGREEMENT.
6.6 Bentley is acquiring the Subject Shares for his own account for
investment and not with a view to the sale or distribution thereof or the
granting of any participation therein. Bentley has no present intention of
distributing or selling to others any of such interest or granting any
participation therein.
6.7 It never has been represented, guaranteed or warranted by the
Company, the Company's officers, directors, stockholders, employees or agents,
or any other person, whether expressly or by implication, that (i) the Company
or Bentley will realize any given percentage of profits and/or amount or type of
consideration, profit or loss as a result of the Company's activities or
Bentley's investment; or (ii) the past performance or experience of the
management of the Company, or of any other person, will in any way indicate the
predictable results of the Company's activities or the ownership of the Subject
Shares.
6.8 Bentley is not acquiring the Subject Shares as a result of or
subsequent to any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media or broadcast over
television or radio, or presented at any seminar or meeting, or any solicitation
of a share exchange by a person other than a representative of the Company with
whom Bentley had a pre-existing relationship.
6.9 Bentley covenants that in no event will he dispose of any Subject
Shares except in compliance with the Securities Act and any applicable state
securities laws.
6.10 Bentley is not relying on the Company with respect to the tax or
other economic considerations of an investment.
6.11 Bentley acknowledges that the representations and agreements made
by Bentley herein shall survive the execution and delivery of this Agreement and
the receipt of the Subject Shares.
6.12 Bentley agrees to notify the Company promptly of any changes in
the information provided herein by Bentley which may occur subsequent to the
execution and delivery of this Agreement by Bentley.
7 Indemnification. Bentley acknowledges that Bentley understands the meaning and
legal consequences of the representations contained in Section 5 hereof, and
agrees to indemnify and hold harmless the Company and its incorporators,
officers, directors, employees, agents, including their respective attorneys and
controlling persons, past, present or future, from and against any and all loss,
damage or liability due to or arising out of a breach of any such
representation.
8 Nonassignability. The right to purchase the Subject Shares under this
Agreement may not be assigned, transferred, pledged or otherwise disposed of in
any way (other than by will, the laws of descent and distribution) by Bentley.
Any such attempt at assignment, transfer, pledge or other disposition shall be
void and without effect.
9 Restrictions on Transfer; Company's Right of First Refusal.
9.1 If Bentley receives from an unaffiliated person or entity a bona
fide offer (for the purpose of this Section 9, an "Offer") to purchase all or
any portion of the Subject Shares which Offer Bentley desires to accept, Bentley
shall deliver written notice (for the purpose of this Section
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9, the "Offer Notice") to the Company setting forth all the terms and conditions
of the Offer, including the aggregate purchase price, proposed closing date,
payment terms and the name and address of the proposed purchaser. No Offer
Notice will be effective under this Section 9 if it is received by the Company
on a date fewer than thirty (30) days prior to the proposed closing date of the
proposed sale. For the purpose of verifying the contents of an Offer Notice,
Bentley hereby authorizes the Company's representatives to directly contact any
person identified in any Offer Notice.
9.2 Within twenty-five (25) days after receiving the Offer Notice, the
Company may, by written notice to Bentley, elect to purchase, at the price and
time and on terms and conditions not less favorable to Bentley than those
contained in the Offer, not less than all of the Subject Shares proposed in the
Offer to be purchased.
9.3 If the Company fails to elect to exercise its rights under Section
9.2, Bentley may, at any time within (but not after) forty (40) days after the
expiration of the twenty-five (25) day exercise period referred to in Section
9.2, sell not less than all the Shares proposed in the Offer to be purchased to
the proposed purchaser at the price, and on the terms and conditions, contained
in the Offer.
9.4 The Company shall not be obligated to recognize or give effect to
any sale of any of the Subject Shares under this Section 9 unless and until a
proposed transferee has delivered to the Company a written instrument, in a form
reasonably acceptable to the Company, evidencing the proposed transferee's
consent and agreement to perform and be bound by all of the obligations
originally binding on Bentley under this Agreement.
10 Fair Market Value Defined. The "Fair Market Value" of corporate stock will
mean the price at which one could reasonably expect such stock to be sold in an
arm's length transaction, for cash, other than on an installment basis, to a
person not employed by, controlled by, in control of or under common control
with the issuer of such stock. Such Fair Market Value will be that which has
currently or most recently been determined for this purpose by the Board, or at
the sole discretion of the Board by an independent appraiser or appraisers
selected by the Board, in either case giving due consideration to recent
transactions involving shares of such stock, if any, the issuer's net worth,
prospective earning power and dividend-paying capacity, the goodwill of the
issuer's business, the issuer's industry position and its management, that
industry's economic outlook, the values of securities of issuers whose stock is
Publicly Traded and which are engaged in similar businesses, the effect of
transfer restrictions to which such stock may be subject under law and under the
applicable terms of any contract governing such stock, the absence of a public
market for such stock and such other matters as the Board or its appraiser or
appraisers deem pertinent. The determination by the Board or its appraiser or
appraisers of the Fair Market Value will, if not unreasonable, be conclusive and
binding notwithstanding the possibility that other persons might make a
different, and also reasonable, determination. If the Fair Market Value to be
used was thus fixed more than sixteen (16) months prior to the day as of which
Fair Market Value is being determined, it will in any event be no less than the
book value of the stock being valued at the end of the most recent period for
which financial statements of the issuer are available.
If the Common Stock is listed on an established stock exchange or
exchanges, such Fair Market Value shall be deemed to be the highest closing
price of the Common Stock on such stock exchange or exchanges on the day the
Option is awarded or if no sale of the Company's Common Stock occurs that day or
the Common Stock is not listed on an established stock exchange, the Fair Market
Value per share shall be the mean between dealer "bid" and "ask" prices of the
Common Stock in the New York over-the-counter market on the day the Option is
awarded, as reported by the National Association Securities Dealers, Inc., or if
not reported by said association,
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by the National Quotation Service, Inc. Subject to the foregoing, the Board of
Directors and the Committee in fixing the Option price shall have full authority
and discretion and be fully protected in doing so.
11 Miscellaneous.
11.1 Notices. Any and all notices, demands, requests or other
communication required or permitted by this Agreement or by law to be served on,
given to, or delivered to any Party hereto by any other Party to this Agreement
shall be in writing and shall be deemed duly served, given, or delivered when
personally delivered to the Party to be notified, or in lieu of such personal
delivery, when deposited in the United States mail, registered or certified
mail, return receipt requested, or when confirmed as received if delivered by
overnight courier, addressed to the to the Party to be notified, at the address
of the Company at its principal office, as first set forth above, or to Bentley
at the address as first set forth above. The Company or Bentley may change the
address in the manner required by law for purposes of this paragraph by giving
notice of the change, in the manner required by this paragraph, to the
respective Parties.
11.2 Amendment. This Agreement may not be modified, changed, amended,
or altered except in writing signed by Bentley or his duly authorized
representative, and by a member of the Board.
11.3 Governing Law. This Agreement shall be interpreted in accordance
with the laws of the State of New York. It shall inure to the benefit of and be
binding upon the Company, and its successors and assigns.
11.4 Attorney's Fees. Should any litigation or arbitration be commenced
between the Parties to this Agreement concerning any provision of this
Agreement, the expense of all attorneys' fees and other costs incurred in
connection therewith shall be paid by the losing Party.
11.5 Severability. Should any provision or portion of this Agreement be
held unenforceable or invalid for any reason, the remaining provisions and
portions of this Agreement shall be unaffected by such holding.
11.6 Entire Agreement. This Agreement, together with the Employment
Agreement constitutes the sole and understandings of the Parties hereto
respecting the subject matter hereof. Any conflict between this Agreement and
the Employment Agreement shall be resolved in favor of the Employment Agreement.
11.7 Counterparts. This Agreement and any certificates made pursuant
hereto, may be executed in any number of counterparts and when so executed all
of such counterparts shall constitute a single instrument binding upon all
Parties hereto notwithstanding the fact that all Parties are not signatory to
the original or to the same counterpart.
11.8 Section Headings. The Article and Section headings used in this
Agreement are for reference purposes only, and should not be used in construing
this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Accrued Salary Stock Purchase Agreement as of the date set forth below.
eB2B COMMERCE, INC.
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<PAGE>
By:___________________________ _______________________________
/s/ Joseph Bentley
Date: _______________ , 1999 Date: _______________, 1999
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<PAGE>
PURCHASE FORM
To Be Executed
Upon Exercise of Right to Purchase Common Stock
The undersigned hereby exercises the right to purchase ____ Common Shares (a
minimum of one Common Share) evidenced by the attached Agreement, according to
the terms and conditions thereof, and herewith desires to apply his Accrued
Salary to the purchase price. The undersigned requests that certificates for
such shares shall be issued in the name set forth below.
Dated: , ______________________________
Signature
______________________________
Print Name of Signatory
______________________________
Name to whom certificates are to be issued
if different from above
Address: ____________________
____________________
Social Security No. _________________
or other identifying number
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<PAGE>
EB2B COMMERCE, INC.
1998 EXECUTIVE PERFORMANCE EQUITY AGREEMENT
This EXECUTIVE PERFORMANCE EQUITY AGREEMENT (the "Agreement") made
effective as of December 1, 1998 (the "Effective Date") by and between eB2B
Commerce Inc., a Delaware corporation (the "Company") and Joseph Bentley
("Optionee").
WHEREAS, the Optionee is the Chief Financial Officer and Secretary of
the Company; and
WHEREAS, the Company desires to provide additional incentives to, and
rewards for, sustained performance by Optionee to promote the Company's long
term growth and financial success.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth and for good and valuable consideration, the parties hereto agree as
follows:
1. Grant of Award. Pursuant to the terms of this Agreement, the Company
shall award options to purchase one hundred thousand (100,000) shares of the
Company's Common Stock, par value $.001, ("Options") for achieving certain
performance goals ("Award"). For purposes of this Agreement, "Shares" shall mean
the Common Stock of the Company issuable upon exercise of the Options.
2. Performance Goals. The Optionee shall receive the Award provided that
during the calendar year ending December 31, 1999, the Company commences
business operations and begins processing transactions between manufacturers and
retailers on two (2) or more Network Trading Channels.
a. Network Trading Channel Defined. For purposes of this Agreement,
"Network Trading Channel" shall mean an extranet established and maintained by
the Company that enables manufacturers and retailers within a specific industry
or industry segment to conduct transactions over the Internet.
3. Administration. The Board of Directors of the Company shall have the
sole authority to determine whether the performance goals described above have
been met. On or prior to the sixtieth (60th) day following such approval by the
Board of Directors, the Company shall deliver to Optionee notice of the Award he
is entitled to receive.
4. Option Terms.
a. Exercise Price. The exercise price of the Shares covered by the
Options shall be fifty ($0.50) cents per share ("Purchase Price"). The Company
does not make any representation or warranty to Optionee regarding the Federal
or State income tax consequences or effects of the Options.
b. Vesting of Options. The Options awarded under this Agreement shall
be fully exercisable as of the date awarded.
c. Duration. The Options awarded herein will be exercisable, in full or
in part, for a period of five (5) years commencing on the date such Options are
awarded, or such shorter term as provided in this Agreement ("Exercise Period").
d. Payment. Payment for Shares purchased upon any exercise of Options
granted under this Agreement will be made in full in cash (including payment by
check) concurrently with such exercise.
5. Exercise of Options. The purchase rights represented by the Options may
be exercised by the Optionee, in whole or in part at any time, and from time to
time, during the Exercise
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Period, by the presentation of the purchase form attached, duly executed, at the
Company's office, and upon payment, in accordance with Section 4.4 above, by the
Optionee of the Purchase Price for the Shares. The Company agrees that the
Optionee hereof shall be deemed the record owner of the Shares as of the close
of business on the date on which the Options shall have been presented and
payment made for such Shares as aforesaid. Certificates for the Shares so
purchased shall be delivered to the Optionee hereof within a reasonable time,
not exceeding five (5) days, after the rights represented by this Option shall
have been so exercised. If this Option shall be exercised in part only, the
Company shall deliver an amended Agreement evidencing the rights of the Optionee
hereof to purchase the balance of the Shares which such Optionee is entitled to
purchase hereunder. Exercise in full of the rights represented by this Option
shall not extinguish the rights and obligations granted and imposed under
Section 11 hereof.
6. Adjustments. In the event the Common Stock is changed into or exchanged
for a different number or kind of shares of stock or other securities of the
Company or of another corporation (whether by reason of merger, consolidation,
reorganization or otherwise), or if the number of outstanding shares of Common
Stock are increased through a stock split or the payment of a stock dividend,
then there will be substituted for or added to each share of Common Stock which
is subject to an Option, the number and kind of Shares of securities into which
each outstanding share of Common Stock is changed. Outstanding Options will also
be amended as to price and other terms if necessary to reflect the foregoing
events. No right to purchase fractional Shares will result from any adjustment
in Options pursuant to this Section 6. In case of any such adjustment, the
Shares subject to the Option will be rounded down to the nearest whole share.
Notice of any adjustment will be given by the Company to Optionee, which will
have been so adjusted and such adjustment (whether or not notice is given) will
be effective and binding for all purposes of this Agreement. Any other provision
hereof to the contrary notwithstanding, in the event the Company is a party to a
merger or other reorganization, outstanding Options will be subject to the
agreement of merger or reorganization. Such agreement may provide, without
limitation, for the assumption of outstanding Options by the surviving company
or its parent, for the continuation by the Company (if the Company is a
surviving entity), for accelerated vesting and accelerated expiration, or for
settlement in cash.
7. Amendment and Termination. The Board may alter, amend, suspend or
terminate this Agreement, provided that no such action will deprive any of the
Optionee's rights under an Option without the Optionee's consent. Except as
herein provided, no such action of the Board, unless taken with the approval of
the stockholders of the Company, may:
(i) increase the maximum number of Shares for which Options awarded
under this Agreement may be exercised;
(ii) reduce the minimum permissible exercise price; or
(iv) amend this Agreement in any other manner which the Board, in its
discretion, determines should become effective only if approved by
the stockholders even though such stockholder approval is not
expressly required by this Agreement.
8. Investment Purpose. Each Option under this Agreement shall be awarded
on the condition that the purchase of stock thereunder shall be for investment
purposes, and not with a view to resale or distribution except that in the event
the stock subject to such Option is registered under the Securities Act of 1933,
as amended, or in the event a resale or distribution of such stock without such
registration would otherwise be permissible, such condition shall be inoperative
if in the opinion of counsel for the Company such condition is not required
under the Securities Act of 1933 or any other applicable law, regulation, or
rule of any governmental agency.
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9. Limitations of Rights of Optionee.
a. Rights as a Stockholder. Optionee or a permitted transferee of an
Option shall have no rights as a stockholder with respect to any Shares covered
by his Option until the date of the issuance of a stock certificate to him for
such Shares. No adjustment shall be made for dividend (ordinary or
extraordinary, whether in cash, securities or other property) or distributions
or other rights for which the record date is prior to the date such stock
certificate is issued, except as provided in Section 6 hereof.
b. No Violations. No Shares of stock issuable under this Agreement will
be issued and no certificate therefor delivered unless and until, in the opinion
of legal counsel for the Company, such securities may be issued and delivered
without causing the Company to be in violation of or to incur any liability
under any federal, state or other securities law, or any other requirement of
law or of any regulatory body having jurisdiction over the Company.
c. No Right to Employment. The receipt of an Option does not give the
Optionee any right to continued employment by the Company for any period, nor
will the awarding of the Option or the issuance of Shares on exercise thereof
give the Company any right to the continued services of the Optionee for any
period.
d. Express Award. Nothing contained in this Agreement will constitute
the awarding of an Option hereunder, which will occur only pursuant to such
performance goals contained in this Agreement.
10. Taxes. Optionee agrees, no later than the date as of which the value of
any Option awarded or Shares acquired pursuant to this Agreement first becomes
includible in the gross income of the Optionee for federal income tax purposes,
to pay to the Company, or make arrangements satisfactory to the Company
regarding payment of, any federal, state or local taxes of any kind required by
law to be withheld with respect to the Option or such Shares. The obligations of
the Company under this Agreement are conditioned on such payment or
arrangements, and the Company will, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to
Optionee.
11. Restrictions on Transfer; Company's Right of First Refusal.
a. Until such time as the Common Stock of the Company is Publicly
Traded, if Optionee receives from an unaffiliated person or entity a bona fide
offer (for the purpose of this Section 11, an "Offer") to purchase all or any
portion of the Shares which Offer Optionee desires to accept, Optionee shall
deliver written notice (for the purpose of this Section 11, the "Offer Notice")
to the Company setting forth all the terms and conditions of the Offer,
including the aggregate purchase price, proposed closing date, payment terms and
the name and address of the proposed purchaser. No Offer Notice will be
effective under this Section 11 if it is received by the Company on a date fewer
than thirty (30) days prior to the proposed closing date of the proposed sale.
For the purpose of verifying the contents of an Offer Notice, Optionee hereby
authorizes the Company's representatives to directly contact any person
identified in any Offer Notice.
b. Within twenty-five (25) days after receiving the Offer Notice, the
Company may, by written notice to Optionee, elect to purchase, at the price and
time and on terms and conditions not less favorable to Optionee than those
contained in the Offer, not less than all of the Shares proposed in the Offer to
be purchased.
c. If the Company fails to elect to exercise its rights under Section
11.2, Optionee may, at any time within (but not after) forty (40) days after the
expiration of the twenty-five (25) day exercise period referred to in Section
11.2, sell not less than all the Shares proposed in the Offer to be purchased to
the proposed purchaser at the price, and on the terms and conditions, contained
in the Offer.
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d. The Company shall not be obligated to recognize or give effect to
any sale of any of the Shares under this Section 11 unless and until a proposed
transferee has delivered to the Company a written instrument, in a form
reasonably acceptable to the Company, evidencing the proposed transferee's
consent and agreement to perform and be bound by all of the obligations
originally binding on Optionee under this Agreement.
12. Stock Certificates. The certificates for such Shares will be registered
in the name of the Optionee; if Optionee requests in the Notice, the certificate
will be registered in the name of the Optionee and another person jointly, as
joint tenants with right of survivorship. If the Option is exercised by the
legal representative of Optionee's estate, or by any person or persons who
acquires the Option directly from Optionee as a result of Optionee's death,
whether by bequest, inheritance, or otherwise or pursuant to a qualified
domestic relations order, the Notice will be accompanied by appropriate proof of
the right of such person or persons to exercise the Option.
13. Legends on Share Certificates.
a. For so long as the Common Stock is not Publicly Traded, in addition
to any other legends which may be prescribed by law, the following legend (or
substantially the following legend) will appear on each certificate representing
the Shares issued upon the exercise of each Option:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED
AND ARE BEING HELD PURSUANT TO THIS 1998 EXECUTIVE PERFORMANCE
EQUITY AGREEMENT OF EB2B COMMERCE, INC., AND MAY ONLY BE
TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF PURSUANT TO THE TERMS
THEREOF."
b. For so long as the Common Stock is not Publicly Traded, the
certificates representing the Shares may, at the absolute discretion of the
Company, be subject to a stop transfer order, and bear the following or
substantially similar legend and such other legends as may be required by the
Company:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY STATE SECURITIES LAWS AND NEITHER SUCH SECURITIES
NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED
OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH
RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE
STATE SECURITIES LAWS OR (2) THE COMPANY RECEIVES AN OPINION OF
COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL AND
OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED
IN THE MANNER CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR APPLICABLE STATE SECURITIES LAWS."
14. Publicly Traded Defined. Corporate stock is "Publicly Traded" if stock
of that class is listed or admitted to unlisted trading privileges on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc. ("NASD") or if sales or bid and offer quotations are reported for that
class of stock in the automated quotation system ("NASDAQ") operated by the
NASD.
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15. Nontransferability. Each Option granted under this Agreement is
nontransferable by the Optionee other than by will or the laws of descent and
distribution, and is exercisable only in accordance with the provisions of this
Agreement.
16. Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of New York.
17. Entire Agreement. This Agreement and the Employment Agreement
constitute the agreement of the Parties hereto respecting the subject matter
hereof. Any conflict between this Agreement and the Employment Agreement shall
be resolved in favor of the Employment Agreement.
18. Binding Effect. This Agreement is binding upon, and will inure to the
benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns.
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement
effective as of the date set forth below.
eB2B Commerce, Inc.
By: By:
-------------------------------- ------------------------------
Joseph Bentley
Date: Date:
-------------------------- -----------------------
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eB2B COMMERCE, INC.
AGENCY AGREEMENT
Commonwealth Associates, L.P.
830 Third Avenue
New York, New York 10022
October 4, 1999
Gentlemen:
eB2B Commerce, Inc., a Delaware corporation (the "Company"), proposes to
offer for sale to "accredited investors," in a private placement (the "Bridge
Financing"), 10 units ("Bridge Units") at $100,000 per Bridge Unit, each Bridge
Unit consisting of (i) $100,000 principal amount of 8% promissory notes (the
"Notes") and (ii) seven-year warrants (the "Bridge Warrants") to purchase 35,000
shares of the Company's common stock, $.001 par value (the "Common Stock") at an
exercise price of $4.00 per share. The Bridge Financing will be made on a "best
efforts" basis, with subscriptions for no less than five Bridge Units ($500,000)
(inclusive of the conversion of $375,000 of notes held by ComVest Capital
Management, LLC ("ComVest") and Michael Falk, affiliates of Commonwealth
Associates, L.P. (the "Pre-Bridge Notes")) to be received by the Company on or
prior to October 6, 1999. If the Bridge Financing has not been completed by the
close of business on October 6, 1999, the Company may choose to repay the
Pre-Bridge Notes by the close of business on October 7, 1999 and have no further
obligation hereunder.
After completion of the Bridge Financing, the Company proposes to offer
for sale to "accredited investors," in a private placement (the "Offering"),
units (the "Offering Units") each Offering Unit consisting of (i) 25,000 shares
(the "Preferred Shares") of Series B Convertible Preferred Stock (the "Preferred
Stock") having the rights and preferences set forth in the Certificate of
Designation of Preferred Stock attached hereto as Appendix A and incorporated by
reference herein (the "Designation") and (ii) seven-year warrants (the "Offering
Warrants") to purchase 11,364 shares of Common Stock at $250,000 per Offering
Unit. A minimum of 16 Offering Units or $4,000,000 ("Minimum Offering") and a
maximum of 24 Offering Units or $6,000,000 ("Maximum Offering") will be sold in
the Offering. In the event 12 Offering Units ($3,000,000) are subscribed for,
then four Offering Units ($1,000,000), representing the balance of the Minimum
Offering, will be purchased by investors in the Bridge Financing upon automatic
cancellation of the Notes in payment therefore. The Maximum Offering may be
increased by up to four Offering Units ($1,000,000) at the discretion of the
Company and the Placement Agent (as defined below) in the event of
over-subscription (the "Over-Allotment Option"). The Offering Units will be
offered pursuant to those terms and conditions acceptable to you as reflected in
a Confidential Private Placement Memorandum prepared by the Company in form and
substance satisfactory to you and your counsel (the "Memorandum"). The Minimum
Offering will be made on a "best efforts - all-or-none" basis and the balance of
the Offering will
<PAGE>
be offered on a "best efforts" basis. The Bridge Units and the Offering Units
are being offered in accordance with Section 4(2) of the Securities Act of 1933,
as amended (the "Securities Act") and Regulation D promulgated thereunder.
Commonwealth Associates, L.P. will serve as placement agent (the
"Placement Agent") in connection with the Bridge Financing and the Offering.
The Bridge Financing and the Offering are sometimes collectively
referred to herein as the "Placements." The Bridge Units and the Offering Units
are sometimes collectively referred to herein as the "Units." The Memorandum
(including the exhibits thereto), as it may be amended or supplemented from time
to time, and the form of proposed subscription agreement between the Company and
each subscriber for the Placements (the "Subscription Agreement") and the
exhibits which are part of the Memorandum and/or Subscription Agreement are
collectively referred to herein as the "Offering Documents."
The Company will prepare and deliver to the Placement Agent a reasonable
number of copies of the Offering Documents in form and substance satisfactory to
counsel to the Placement Agent.
Each prospective investor subscribing to purchase Units ("Subscriber")
will be required to deliver, among other things, a Subscription Agreement and a
confidential purchaser questionnaire ("Questionnaire") in the form to be
provided to offerees. Capitalized terms used herein, unless otherwise defined or
unless the context otherwise indicates, shall have the same meanings provided in
the Offering Documents.
1. Appointment of Placement Agent.
(a) You are hereby appointed exclusive Placement Agent of the
Company (subject to your right to have selected dealers participate in the
Placements) during the respective offering periods for the Placements herein
specified for the purposes of assisting the Company in finding qualified
Subscribers. The offering period for the Bridge Financing (the "Bridge Offering
Period") shall commence on the day the Offering Documents are first made
available to you by the Company for delivery in connection with the offering for
sale of the Bridge Units and shall continue until the earlier to occur of (i)
the sale of all of the Bridge Units or (ii) October 15, 1999. The day that the
Bridge Offering Period terminates is hereinafter referred to as the "Bridge
Termination Date."
The offering period for the Offering (the "Preferred Offering Period")
shall commence after completion of the Bridge Financing and on the day the
Offering Documents are first made available to you by the Company for delivery
in connection with the offering for sale of the Offering Units and shall
continue until the earlier to occur of (i) the sale of the Maximum Offering or
(ii) November 30, 1999. If the Minimum Offering is not sold prior to the end of
the Preferred Offering Period, the Offering will be terminated and all funds
received from Subscribers will be returned, without interest and without any
deduction. The day that the Preferred Offering Period terminates is hereinafter
referred to as the "Preferred Termination
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<PAGE>
Date." The Preferred Termination Date may be extended for up to 30 days at the
option of the Company and the Placement Agent.
(b) Subject to the performance by the Company of all of its
obligations to be performed under this Agreement and to the completeness and
accuracy of all representations and warranties of the Company contained in this
Agreement, the Placement Agent hereby accepts such agency and agrees to use its
best efforts to assist the Company in finding qualified subscribers pursuant to
the Bridge Financing and the Offering described in the Offering Documents. It is
understood that the Placement Agent has no commitment to sell the Bridge Units
or the Offering Units. Your agency hereunder is not terminable by the Company
except upon termination of the Preferred Offering Period or earlier in the event
that any of the Bridge Financing has not been completed on or prior to the
Bridge Termination Date.
(c) Subscriptions for Units shall be evidenced by the execution
by Subscribers of a Subscription Agreement. No Subscription Agreement shall be
effective unless and until it is accepted by the Company. The Placement Agent
shall not have any obligation to independently verify the accuracy or
completeness of any information contained in any Subscription Agreement or the
authenticity, sufficiency, or validity of any check delivered by any prospective
investor in payment for Units.
(d) The Placement Agent and its affiliates will be investors in
the Placements.
2. Representations and Warranties of the Company. The Company represents
and warrants to the Placement Agent and each Selected Dealer, if any, as
follows:
(a) Securities Law Compliance. The Offering Documents for the
Bridge Financing conform, and the Offering Documents for the Offering when
delivered to Subscribers will conform, in all respects with the requirements of
Section 4(2) of the Securities Act and Regulation D promulgated thereunder and
with the requirements of all other published rules and regulations of the
Securities and Exchange Commission (the "Commission") currently in effect
relating to "private offerings" to "accredited investors" of the type
contemplated by the Company. The Offering Documents will not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances in which
they were made, not misleading. If at any time prior to the completion of the
Offering or other termination of this Agreement any event shall occur as a
result of which it might become necessary to amend or supplement the Offering
Documents so that they do not include any untrue statement of any material fact
or omit to state any material fact necessary in order to make the statements
therein, in the light of the circumstances then existing, not misleading, the
Company will promptly notify you and will supply you with amendments or
supplements correcting such statement or omission. The Company will also provide
the Placement Agent for delivery to all offerees and purchasers and their
representatives, if any, any information, documents and instruments which the
Placement Agent deems reasonably necessary to comply with applicable state and
federal law.
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<PAGE>
(b) Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all requisite corporate power and authority to own and lease its
properties, to carry on its business as currently conducted and as proposed to
be conducted, to execute and deliver this Agreement and to carry out the
transactions contemplated by this Agreement, as appropriate, and is duly
licensed or qualified to do business as a foreign corporation in New York and in
each other jurisdiction in which the conduct of its business or ownership or
leasing of its properties requires it to be so qualified, except where the
failure to be so licensed or qualified would not, in the aggregate, have a
material adverse effect on the business or financial condition of the Company (a
"Material Adverse Effect").
(c) Capitalization. The authorized, issued and outstanding
capital stock of the Company prior to the consummation of the transactions
contemplated hereby is as set forth in Schedule 2(c) to this Agreement. All
issued and outstanding shares of the Company are validly issued, fully paid and
nonassessable and such shares have not been issued in violation of the
preemptive rights of any stockholder of the Company. All prior sales of
securities of the Company were either registered under the Securities Act and
applicable state securities laws or exempt from such registration, and no
security holder has any rescission rights with respect thereto.
(d) Warrants, Preemptive Rights, Etc. Except as set forth in or
contemplated by Schedule 2(d) to this Agreement, there are not, nor will there
be immediately after the Closing (as hereinafter defined), any outstanding
warrants, options, agreements, convertible securities, preemptive rights to
subscribe for or other commitments pursuant to which the Company is, or may
become, obligated to issue any shares of its capital stock or other securities
of the Company and neither of the Placements will cause any anti-dilution
adjustments to such securities or commitments except as set forth in Schedule
2(d) to this Agreement.
(e) Subsidiaries and Investments. Other than as set forth in
Schedule 2(e) to this Agreement, the Company has no subsidiaries and the Company
does not own, directly or indirectly, any capital stock or other equity
ownership or proprietary interests in any other corporation, association, trust,
partnership, joint venture or other entity.
(f) Financial Statements. The financial information contained in
the Offering Documents is accurate in all material respects. The financial
statements attached to the Offering Documents are hereinafter referred to
collectively as the "Financial Statements". The Financial Statements have been
prepared in conformity with generally accepted accounting principles ("GAAP")
consistently applied and show all material liabilities, absolute or contingent,
of the Company required to be recorded thereon and present fairly the financial
position and results of operations of the Company as of the dates and for the
periods indicated.
(g) Absence of Changes. Since the date of the Financial
Statements, except with respect to matters of which the Company has notified you
in writing, the Company has not incurred any liabilities or obligations, direct
or contingent, not in the ordinary course of business, or entered into any
transaction not in the ordinary course of business, which is material to the
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<PAGE>
business of the Company, and, except as set forth in Schedule 2(g) to this
Agreement there has not been any change in the capital stock of, or any
incurrence of long-term debt by, the Company, or any issuance of options,
warrants or other rights to purchase the capital stock of the Company, or any
adverse change or any development involving, so far as the Company can now
reasonably foresee, a prospective adverse change in the condition (financial or
otherwise), net worth, results of operations, business, key personnel or
properties which would be material to the business or financial condition of the
Company, and the Company has not become a party to, and neither the business nor
the property of the Company has become the subject of, any material litigation
whether or not in the ordinary course of business.
(h) Title. The Company has good and marketable title to all
properties and assets, owned by it, free and clear of all liens, charges,
encumbrances or restrictions, except such as are not significant or important in
relation to the Company's business; all of the material leases and subleases
under which the Company is the lessor or sublessor of properties or assets or
under which the Company holds properties or assets as lessee or sublessee are in
full force and effect, and the Company is not in default in any material respect
with respect to any of the terms or provisions of any of such leases or
subleases, and no material claim has been asserted by anyone adverse to rights
of the Company as lessor, sublessor, lessee or sublessee under any of the leases
or subleases mentioned above, or affecting or questioning the right of the
Company to continued possession of the leased or subleased premises or assets
under any such lease or sublease. The Company owns or leases all such properties
as are necessary to its operations as now conducted.
(i) Proprietary Rights. The Company owns or possesses adequate
and enforceable rights to use all patents, patent applications, trademarks,
service marks, copyrights, trade secrets, processes, formulations, technology or
know-how used in the conduct of its business (the "Proprietary Rights"). The
Company has not received any notice of any claims, nor does it have any
knowledge of any threatened claims, and knows of no facts which would form the
basis of any claim, asserted by any person to the effect that the sale or use of
any product or process now used or offered by the Company or proposed to be used
or offered by the Company infringes on any patents or infringes upon the use of
any such Proprietary Rights of another person and, to the best of the Company's
knowledge, no others have infringed the Company's Proprietary Rights.
(j) Litigation. There is no material action, suit, investigation,
customer complaint, claim or proceeding at law or in equity by or before any
arbitrator, governmental instrumentality or other agency now pending or, to the
knowledge of the Company, threatened against the Company (or basis therefor
known to the Company) the adverse outcome of which would have a Material Adverse
Effect. The Company is not subject to any judgment, order, writ, injunction or
decree of any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign which
have a Material Adverse Effect.
(k) Non-Defaults; Non-Contravention. The Company is not in
violation of or default under, nor will the execution and delivery of this
Agreement or any of the Offering Documents, the Notes, the Bridge Warrants, the
Offering Warrants, the Warrant Agreement, the
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<PAGE>
Fund Escrow Agreement or the Finder's Agreement (all as defined herein) or
consummation of the transactions contemplated herein or therein or the issuance
of the Agent's Warrants (as defined herein) result in a violation of or
constitute a default in the performance or observance of any obligation under
(i) its Articles of Incorporation, or its By-laws, or (ii) any indenture,
mortgage, contract, material purchase order or other agreement or instrument to
which the Company is a party or by which it or its property is bound or
affected, where such violation or default would have a Material Adverse Effect,
or (iii) any material order, writ, injunction or decree of any court of any
Federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, where such violation or
default would have a Material Adverse Effect, and there exists no condition,
event or act which constitutes, nor which after notice, the lapse of time or
both, could constitute a default under any of the foregoing, which in either
case would have a Material Adverse Effect.
(l) Taxes. The Company has filed all Federal, state, local and
foreign tax returns which are required to be filed by it or otherwise met its
disclosure obligations to the relevant agencies and all such returns are true
and correct in all material respects. The Company has paid all taxes pursuant to
such returns or pursuant to any assessments received by it or which it is
obligated to withhold from amounts owing to any employee, creditor or third
party. The Company has properly accrued all taxes required to be accrued by GAAP
consistently applied. The tax returns of the Company have never been audited by
any state, local or Federal authorities. The Company has not waived any statute
of limitations with respect to taxes or agreed to any extension of time with
respect to any tax assessment or deficiency.
(m) Compliance With Laws; Licenses, Etc. The Company has not
received notice of any violation of or noncompliance with any Federal, state,
local or foreign, laws, ordinances, regulations and orders applicable to its
business which has not been cured, the violation of, or noncompliance with
which, would have a Material Adverse Effect. The Company has all licenses and
permits and other governmental certificates, authorizations and permits and
approvals (collectively, "Licenses") required by every Federal, state and local
government or regulatory body for the operation of its business as currently
conducted and the use of its properties, except where the failure to be licensed
would not have a Material Adverse Effect. The Licenses are in full force and
effect and to the Company's knowledge no violations currently exist in respect
of any License and no proceeding is pending or threatened to revoke or limit any
thereof.
(n) Authorization of Agreement, Etc. This Agreement has been duly
and validly authorized, executed and delivered by the Company and the execution,
delivery and performance by the Company of this Agreement, the Subscription
Agreement, the Warrant Agreement, the Fund Escrow Agreement and the Finder's
Agreement have been duly authorized by all requisite corporate action by the
Company and when delivered, constitute or will constitute the legal, valid and
binding obligations of the Company, enforceable in accordance with their
respective terms, subject to applicable laws regarding insolvency and to
principles of equity.
(o) Authorization of Notes, Warrants Etc. The issuance, sale and
delivery of the Pre-Bridge Notes, the Pre-Bridge Warrants, the Notes, the Bridge
Warrants, the Offering
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<PAGE>
Warrants, the Preferred Shares and the Agent's Warrants have been duly
authorized by all requisite corporate action of the Company. When so issued,
sold and delivered, such securities will be duly executed, issued and delivered
and will constitute valid and legal obligations of the Company enforceable in
accordance with their respective terms and, in each case, will not be subject to
preemptive or any other similar rights of the stockholders of the Company or
others which rights shall not have been waived prior to the initial closing of
the Bridge Financing (the "Initial Bridge Closing").
(p) Authorization of Reserved Shares. The issuance, sale and
delivery by the Company of (i) the shares of Common Stock issuable upon exercise
of the Pre-Bridge Warrants, the Bridge Warrants, the Offering Warrants and the
Agent's Warrants and conversion of the Preferred Shares and the Notes
(collectively, the "Reserved Shares") have been duly authorized by all requisite
corporate action of the Company, and the Reserved Shares have been duly reserved
for issuance and when so issued, sold, paid for and delivered, the Reserved
Shares will be validly issued and outstanding, fully paid and nonassessable, and
not subject to preemptive or any other similar rights of the stockholders of the
Company or others which rights shall not have been waived prior to the Initial
Bridge Closing.
(q) Exemption from Registration. Assuming (i) the accuracy of the
information provided by the respective Subscribers in the Subscription Documents
and (ii) that the Placement Agent has complied in all material respects with the
provisions of Regulation D promulgated under the Securities Act, the offer and
sale of the securities comprising the Bridge Units and the Offering Units
pursuant to the terms of this Agreement are exempt from the registration
requirements of the Securities Act and the rules and regulations promulgated
thereunder (the "Regulations"). The Company is not disqualified from the
exemption under Regulation D by virtue of the disqualifications contained in
Rule 505(b)(2)(iii) or Rule 507 promulgated thereunder.
(r) Registration Rights. Except with respect to holders of the
Pre-Bridge Warrants, the Bridge Units, the Offering Units and the Agent's
Warrants and except as set forth in Schedule 2(r) hereto, no person has any
right to cause the Company to effect the registration under the Securities Act
of any securities of the Company. The Company shall grant registration rights
under the Securities Act to the investors in the Placements and/or their
transferees as more fully described in the Bridge Warrants (with respect to the
Bridge Financing) and the Subscription Agreement (with respect to the Offering).
(s) Brokers. Neither the Company nor any of its officers,
directors, employees or stockholders has employed any broker or finder in
connection with the transactions contemplated by this Agreement other than the
Placement Agent.
(t) Title to Securities. When certificates representing the Notes
and Bridge Warrants and certificates representing the Preferred Shares and
Offering Warrants have been duly delivered to the purchasers participating in
the Bridge Financing and Offering, respectively, and payment shall have been
made therefor, the several purchasers shall have good and marketable title to
such securities free and clear of all liens, encumbrances and claims
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<PAGE>
whatsoever (with the exception of claims arising through the acts or omissions
of the purchasers and except as arising from applicable Federal and state
securities laws), and the Company shall have paid all taxes, if any, in respect
of the original issuance thereof.
(u) Right of First Refusal. Except for the right of first refusal
granted to the Placement Agent herein, no person, firm or other business entity
is a party to any agreement, contract or understanding, written or oral
entitling such party to a right of first refusal with respect to offerings by
the Company.
3. Closing; Placement and Fees.
(a) Closing of the Placements.
(i) Bridge Financing. The Initial Bridge Closing shall take
place at the offices of the Placement Agent, 830 Third Avenue, New York, New
York no later than three business after the date hereof. Provided additional
Bridge Units shall have been subscribed for and funds representing the sale
thereof shall have cleared, a final Bridge Closing shall take place at the
offices of the Placement Agent, 830 Third Avenue, New York, New York no later
than three business days following the Bridge Termination Date, which closing
date may be accelerated or adjourned by agreement between the Company and the
Placement Agent. At each Bridge Closing, payment for the Bridge Units issued and
sold by the Company shall be made against delivery of the Notes and Bridge
Warrants comprising such Bridge Units.
(ii) Offering. Provided the Minimum Offering shall have been
subscribed for (including four Offering Units ($1,000,000) to be purchased by
holders of Bridge Units) and funds representing the sale thereof shall have
cleared, a closing (the "Initial Preferred Closing") shall take place at the
offices of the Placement Agent, 830 Third Avenue, New York, New York within
three business days thereafter (but in no event later than five days following
the Preferred Termination Date), which closing date may be accelerated or
adjourned by agreement between the Company and the Placement Agent. At the
Initial Preferred Closing, payment for the Offering Units issued and sold by the
Company shall be made against delivery of the Preferred Shares and Offering
Warrants. In addition, subsequent closings of the Offering (if applicable) may
be scheduled at the discretion of the Company and Placement Agent, each of which
shall be deemed a "Preferred Closing" hereunder.
(b) Conditions to Placement Agent's Obligations. The obligations
of the Placement Agent hereunder will be subject to the accuracy of the
representations and warranties of the Company herein contained as of the date
hereof and as of each closing date of the Placements, to the performance by the
Company of its obligations hereunder and to the following additional conditions:
(i) Due Qualification or Exemption. (A) The Placements will
become qualified or be exempt from qualification under the securities laws of
the several states pursuant to paragraph 4(e) below not later than the Closing
Date, and (B) at the Closing Date no stop
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<PAGE>
order suspending the sale of the Units shall have been issued, and no proceeding
for that purpose shall have been initiated or threatened;
(ii) No Material Misstatements. Neither the Blue Sky
qualification materials nor the Offering Documents, nor any supplement thereto,
will contain any untrue statement of a fact which in the opinion of the
Placement Agent is material, or omits to state a fact, which in the opinion of
the Placement Agent is material and is required to be stated therein, or is
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading;
(iii) Compliance with Agreements. The Company will have
complied with all agreements and satisfied all conditions on its part to be
performed or satisfied hereunder at or prior to each Closing;
(iv) Corporate Action. The Company will have taken all
necessary corporate action, including, without limitation, obtaining the
approval of the Company's board of directors, for the execution and delivery of
this Agreement, the performance by the Company of its obligations hereunder and
the Placements contemplated hereby;
(v) Opinion of Counsel. The Placement Agent shall receive
the opinion of Moskowitz, Altman & Hughes LLP, counsel to the Company,
substantially to the effect that:
(A) the Company is validly existing and in good standing
under the laws of the State of Delaware, has all requisite corporate
power and authority necessary to own or hold its respective properties
and conduct its business and is duly qualified or licensed to do
business as a foreign corporation and is in good standing in New York
and in each other jurisdiction in which the ownership or leasing of its
properties or conduct of its business requires such qualification,
except where the failure to so qualify or be licensed would not have a
Material Adverse Effect;
(B) each of this Agreement, the Notes, the Bridge
Warrants, the Offering Warrants, the Agent's Warrants, the Fund Escrow
Agreement, the Subscription Agreements, the Warrant Agreement and the
Finder's Agreement has been duly and validly authorized, executed and
delivered by the Company, and is the valid and binding obligation of the
Company, enforceable against it in accordance with its terms, subject to
any applicable bankruptcy, insolvency or other laws affecting the rights
of creditors generally and to general equitable principles;
(C) the authorized, issued and outstanding capital stock
of the Company as of the date hereof (before giving effect to the
transactions contemplated by this Agreement) is as set forth in Schedule
2(c) hereto. To such counsel's knowledge, there are no outstanding
warrants, options, agreements, convertible securities, preemptive rights
or other commitments pursuant to which the Company is, or may become,
obligated to issue any shares of its capital stock or other securities
of the Company other
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than as set forth in Schedule 2(d). All of the issued shares of capital
stock of the Company have been duly and validly authorized and issued,
are fully paid and nonassessable and to such counsel's knowledge have
not been issued in violation of the preemptive rights of any
securityholder of the Company. The offers and sales of such securities
were either registered under the Securities Act and applicable state
securities laws or exempt from such registration requirements;
(D) assuming (i) the accuracy of the information provided
by the Subscribers in the Subscription Documents and (ii) that the
Placement Agent has complied with the requirements of section 4(2) of
the Securities Act (and the provisions of Regulation D promulgated
thereunder), the issuance and sale of the [Bridge Units in the Bridge
Financing][Offering Units in the Offering] is exempt from registration
under the Securities Act and Regulation D promulgated thereunder;
(E) neither the execution and delivery of this Agreement,
the Subscription Agreement , the Warrant Agreement or the Finder's
Agreement, nor compliance with the terms hereof or thereof, nor the
consummation of the transactions herein or therein contemplated, nor the
issuance of the Notes, the Bridge Warrants, the Offering Warrants, the
Preferred Shares or the Agent's Warrants, has, nor will, conflict with,
result in a breach of, or constitute a default under the Articles of
Incorporation or By-laws of the Company, or any material contract,
instrument or document known to such counsel to which the Company is a
party, or by which it or any of its properties is bound or violate any
applicable law, rule, regulation, judgment, order or decree known to us
of any governmental agency or court having jurisdiction over the Company
or any of its properties or business;
(F) to the best of such counsel's knowledge, there are no
claims, actions, suits, investigations or proceedings before or by any
arbitrator, court, governmental authority or instrumentality pending or,
to such counsel's knowledge, threatened against or affecting the Company
or involving the properties of the Company which might materially and
adversely affect the business, properties or financial condition of the
Company or which might materially adversely affect the transactions or
other acts contemplated by this Agreement or the validity or
enforceability of this Agreement, except as set forth in or contemplated
by the Offering Documents; and
(G) [for the Offering only] such counsel has reviewed the
Offering Documents and nothing has come to the attention of such counsel
to cause them to have reason to believe that the Offering Documents
contained any untrue statement of a material fact required to be stated
therein or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading
(except for the financial statements, notes thereto and other financial
information and statistical data contained therein, as to which such
counsel need express no opinion).
(vi) Officers' Certificate. The Placement Agent shall
receive a certificate of the Company, signed by the Chief Executive Officer and
Chief Financial Officer
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thereof, that the representations and warranties contained in Section 2 hereof
are true and accurate in all material respects at such closing with the same
effect as though expressly made at such closing.
(vii) Conversion of Debt. The Company will have entered
into agreements pursuant to which (i) the $80,000 loan payable to Joseph
Bentley, (ii) accrued salary in excess of $60,000 owed to Peter Fiorillo, and
(iii) accrued salary in the aggregate amount of $312,500 owed to other employees
will have converted to Common Stock at a conversion price of $.50 per share for
the Bentley loan and $5.50 per share for the rest.
(viii) Board of Directors. The Placement Agent shall have
the right to designate one member of the Board of Directors, which designee is
not expected to be appointed to the Board until completion of the Offering.
The obligation of the Placement Agent to consummate the Offering is
subject to the following additional conditions:
(ix) By-Laws. The Company's By-Laws shall contain a
provision stating that meetings of the Board of Directors may be called by any
two directors acting in concert.
(x) Budgets. The Placement Agent shall receive two-year
quarterly operating budgets which have been reviewed and approved by the
Company's Board of Directors and the Placement Agent.
(xi) Fund Escrow Agreement. The Placement Agent shall
receive a copy of a duly executed escrow agreement in the form previously
delivered to you regarding the deposit of funds pending the closing(s) of the
respective Placements with a bank or trust company acceptable to the Placement
Agent (each, a "Fund Escrow Agreement").
(xii) Finder's Agreement. The Company shall execute and
deliver to the Placement Agent an agreement with the Placement Agent providing
for a finder's fee to the Placement Agent in the event the Company consummates
certain transactions (the "Finder's Agreement").
(xiii) Lock-Up Agreements. The Placement Agent shall
receive agreements from each officer, director and principal stockholder of the
Company to the effect that such individual shall not sell, assign or transfer
any of their securities of the Company for the period of 12 months from the
final closing of the Offering (the "Final Preferred Closing").
(xiv) Board of Directors. The Company's Board of Directors
shall be acceptable to the Placement Agent (the existing members being so
acceptable) and shall include one member appointed by the Placement Agent and
one member designated by the Offering investors.
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(xv) Key-Man Insurance. The Company shall have obtained a
"key-man" life insurance policy in the amount of at least $1,000,000 on the
life of Peter J. Fiorillo and shall keep such policy in effect for at least
three years after the Initial Preferred Closing.
(c) Blue Sky. Counsel to the Placement Agent will prepare and
file the necessary documents so that offers and sales of the securities to be
offered in the Offering may be made in certain jurisdictions. It is understood
that such filings may be based on or rely upon (i) the representations of each
Subscriber set forth in the Subscription Agreement delivered by such Subscriber,
(ii) the representations, warranties and agreements of the Company set forth in
Section 2 of this Agreement, (iii) the representations and warranties of the
Placement Agent, and (iv) the representations of the Company set forth in the
certificate to be delivered at each closing pursuant to paragraph (vi) of
Section 3(b).
(d) Placement Fee and Expenses.
(i) Bridge Financing. Simultaneously with payment for and
delivery of the Bridge Units at the Initial Bridge Closing, the Company shall
pay to the Placement Agent $15,000, which non-refundable payment shall be
credited against reimbursable expenses as set forth in subsection (ii)(C) below.
ComVest and Michael Falk will have previously received seven-year warrants to
purchase an aggregate of 498,659 shares of the Company's Common Stock
substantially identical to the Warrants included in the Units (the "Pre-Bridge
Warrants") in consideration of the Pre-Bridge Notes, which notes will be
converted into Notes in the Bridge Financing. Portions of the Pre-Bridge
Warrants are subject to forfeiture as set forth therein. The Company shall also
pay all expenses in connection with the qualification of the Bridge Units under
the securities or Blue Sky laws of the states which the Placement Agent shall
designate, including legal fees and filing fees.
(ii) Offering. Simultaneously with payment for and
delivery of the Preferred Shares at each closing of the Offering, the Company
will (A) pay to the Placement Agent a sales concession equal to 7% of the
aggregate purchase price of the Offering Units sold in the Offering, except for
up to $500,000 of Offering Units purchased by investors introduced by the
Company or its officers or directors; (B) pay to the Placement Agent a
structuring fee equal to 3% of the aggregate purchase price of the Offering
Units sold in the Offering, except for up to $500,000 of Offering Units
purchased by investors introduced by the Company or its officers or directors;
(C) reimburse the Placement Agent for up to $50,000 of accountable expenses
(including expenses incurred in connection with the Bridge Financing), and (D)
issue to the Placement Agent or its designees seven-year warrants in the form
attached hereto as Appendix A to purchase that number of shares of Common Stock
as equals 18.723% of the shares of Common Stock underlying the Preferred Shares
and the Offering Warrants (the "Agent's Warrants") sold in the Offering,
including by investors introduced by the Company or its officers or directors.
The Company shall also pay all expenses in connection with the qualification of
the Preferred Shares under the securities or Blue Sky laws of the states which
the Placement Agent shall designate, including legal fees and filing fees.
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<PAGE>
(e) Bring-Down Opinions and Certificates. If there is more than
one Closing, then at each such Closing there shall be delivered to the Placement
Agent updated opinion and certificate as described in (v) and (vi) of Section
3(b) above, respectively.
(f) No Adverse Changes. There shall not have occurred, at any
time prior to the applicable closing (i) any domestic or international event,
act or occurrence which has materially disrupted, or in the Placement Agent's
opinion will in the immediate future materially disrupt, the securities markets;
(ii) a general suspension of, or a general limitation on prices for, trading in
securities on the New York Stock Exchange or the American Stock Exchange or in
the over-the-counter market; (iii) any outbreak of major hostilities or other
national or international calamity; (iv) any banking moratorium declared by a
state or federal authority; (v) any moratorium declared in foreign exchange
trading by major international banks or other persons; (vi) any material
interruption in the mail service or other means of communication within the
United States; (vii) any material adverse change in the business, properties,
assets, results of operations, or financial condition of the Company; or (viii)
any change in the market for securities in general or in political, financial,
or economic conditions which, in the Placement Agent's reasonable judgment,
makes it inadvisable to proceed with the applicable Placement.
4. Covenants of the Company.
(a) Use of Proceeds. Up to $60,000 of the net proceeds of the
Bridge Financing may be used to pay accrued salary to Peter Fiorillo. The
balance of the net proceeds of the Bridge Financing will be used for general
working capital purposes. The net proceeds of the Offering will be used by the
Company substantially as set forth in the Memorandum. Except as set forth on
Schedule 4(a) to this Agreement, the Company shall not use any of the proceeds
from the Placements to repay any indebtedness of the Company (other than trade
payables in the ordinary course), including but not limited to indebtedness to
any current executive officers, directors or principal stockholders of the
Company.
(b) Expenses of Offering. The Company shall be responsible for,
and shall bear all expenses directly incurred in connection with, the proposed
Placements including, but not limited to, (i) legal fees of the Company's
counsel relating to the costs of preparing the Offering Documents and all
amendments, supplements and exhibits thereto and preparing and delivering all
placement agent and selling documents; Note, Bridge Warrant, Preferred Share and
Offering Warrant certificates; (ii) blue sky fees, filing fees and the fees and
disbursements of Placement Agent's counsel in connection with blue sky matters
(the "Company Expenses"). The Company shall also reimburse the Placement Agent
for up to $50,000 of its expenses (including the Bridge Financing), including
the cost of the Placement Agent's printing, mailing, reproduction, word
processing, travel and lodging, reasonable fees and disbursements of the
Placement Agent's counsel, and fees and disbursements of other consultants and
advisors retained by the Placement Agent (with the Company's consent) or other
similar expenses.
(c) Notification. The Company shall notify the Placement Agent
immediately, and in writing, (i) when any event shall have occurred during the
period commencing on the date hereof and ending on the later of the last Closing
or the Termination
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Date as a result of which the Offering Documents would include any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
(ii) of the receipt of any notification with respect to the modification,
rescission, withdrawal or suspension of the qualification or registration of the
Units, or of any exemption from such registration or qualification, in any
jurisdiction. The Company will use its best efforts to prevent the issuance of
any such modification, rescission, withdrawal or suspension and, if any such
modification, rescission, withdrawal or suspension is issued and you so request,
to obtain the lifting thereof as promptly as possible.
(d) Blue Sky. The Company will use its best efforts to qualify or
register the securities to be offered in the Placements for offering and sale
under, or establish an exemption from such qualification or registration under,
the securities or "blue sky" laws of such jurisdictions as you may reasonably
request; provided however, that the Company will not be obligated to qualify as
a dealer in securities in any jurisdiction in which it is not so qualified. The
Company will not consummate any sale of securities pursuant to the Placements in
any jurisdiction in which it is not so qualified or in any manner in which such
sale may not be lawfully made.
(e) Form D Filing. The Company shall file five copies of a Notice
of Sales of Securities on Form D with the Securities and Exchange Commission
(the "Commission") no later than 15 days after the sale of the Bridge Units and
no later than 15 days after the first sale of the Offering Units. The Company
shall file promptly such amendments to such Notices on Form D as shall become
necessary and shall also comply with any filing requirement imposed by the laws
of any state or jurisdiction in which offers and sales are made. The Company
shall furnish the Placement Agent with copies of all such filings.
(f) Press Releases, Etc. The Company shall not, during the period
commencing on the date hereof and ending on the last to occur of (i) the final
Bridge Closing, (ii) the Bridge Termination Date; (iii) the Final Closing and
(iv) the Preferred Termination Date, issue any press release or other
communication, or hold any press conference with respect to the Company, its
financial condition, results of operations, business, properties, assets, or
liabilities, or the Placements, without the prior consent of the Placement
Agent, which consent shall not be unreasonably withheld.
(g) Executive Compensation. The compensation of the Company's
executive officers shall not increase during the three-year period following the
Initial Preferred Closing (other than as set forth in employment agreements in
existence on the date hereof) without the approval of a majority of the Board of
Directors.
(h) Restrictions on Issuances of Securities. During the period
commencing on the date hereof and ending on the later of (i) the Final Closing
or (ii) the Preferred Termination Date, the Company will not, without the prior
written consent of the Placement Agent, issue additional shares of Common Stock,
other than pursuant to the exercise of options or warrants outstanding on the
date hereof, or grant any warrants, options or other securities of the Company.
If the Minimum Offering is sold, the Company agrees that it will not, without
approval of a
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<PAGE>
majority of the Board, issue additional shares of Common Stock, other than
pursuant to the exercise of options or warrants outstanding on the date hereof,
or grant any warrants, options or other securities of the Company.
(i) Budgets; Financial Statements. During the two-year period
after the Initial Preferred Closing, any expenditures in excess of 5% within a
particular budget category (i.e., sales and marketing, general and
administrative) outside the budgets previously delivered to the Placement Agent
pursuant to Section 3(b)(ix) hereof must be approved by a majority of the Board
of Directors. During the two-year period after the Initial Preferred Closing,
the Company will deliver to the Placement Agent monthly financial statements
within 15 days after the end of each month.
(j) D&O Insurance. Commencing on the Initial Preferred Closing,
the Company shall maintain officers and directors liability insurance in the
amount of $2,000,000.
(k) Right of First Refusal. If during the one-year period after
the final Bridge Closing, provided the Bridge Notes are outstanding(other than
as a result of converting into the Offering), the Company proposes to use a
manager, placement agent or investment banker or persons performing similar
services for a fee, the Placement Agent shall have the right of first refusal
(the "Right of First Refusal") to purchase for the account of the Placement
Agent or to act as an underwriter or agent for any and all public or private
offerings (including pursuant to Rule 144A) of the securities of the Company
(exclusive of any senior secured bank financing or equipment leases), or any
successor to or subsidiary of the Company or other entity in which the Company
has a controlling equity interest (collectively referred to herein as the
"Company"), up to $25,000,000 (the "Subsequent Offering"). Accordingly, if
during such period the Company intends to make a Subsequent Offering, the
Company shall notify you in writing of such intention and of the proposed terms
of the offering. The Company shall thereafter promptly furnish you with such
information concerning the business, condition and prospects of the Company as
you may reasonably request. If within 10 business days of the mailing by
registered mail addressed to the Placement Agent with respect to a Subsequent
Offering of such notice of intention and statement of terms you do not accept in
writing such offer to act as underwriter or agent with respect to such offering
or investment banker with respect to such transaction, upon the terms proposed,
the Company shall be free to negotiate terms with other underwriters or agents
with respect to such offering or investment banker with respect to such
transaction, and to effect such offering or transaction on such proposed terms.
Before the Company shall accept any proposal less favorable to the Company from
such underwriter or agent or investment banker or if such Subsequent Offering is
not consummated within five (5) months, your preferential right shall be
reinstated and the same procedure with respect to such modified proposal as
provided above shall be adopted; provided, however, that your preferential right
shall not be reinstated later than one year after the Initial Closing Date. The
failure by you to exercise your Right of First Refusal in any particular
instance shall not affect in any way such right with respect to any other
Subsequent Offering.
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(l) Independent Auditors. Within three months following the
Initial Preferred Closing, the Company will retain as its independent auditors
an accounting firm acceptable to the Placement Agent.
(m) Sale Fee Agreement. In the event the Company is sold for cash
or stock during the five-year period following the date hereof, the Company will
pay to the Placement Agent a fee equal to one percent (1.0%) of the total
consideration paid in such sale transaction, payable upon consummation of the
transaction. The determination of "total consideration" shall be made in
accordance with the provisions therefor set forth in the form of Finder's
Agreement. The fee due to Commonwealth hereunder and under the Finder's
Agreement; however, shall not exceed, in the aggregate, 3% of the total
consideration in any sale transaction.
(n) Board Designees; Irrevocable Proxy. During the three-year
period following the Initial Preferred Closing, the Company agrees to nominate
one designee of the Placement Agent and one designee of the Preferred
Shareholders to the Company's Board of Directors. The Placement Agent shall
receive, at the Initial Preferred Closing, an irrevocable proxy (which by its
terms will expire on an initial public offering) from each of the officers and
directors of the Company granting the Placement Agent a proxy to vote their
shares for the election of directors solely for the purpose of enforcing the
Placement Agent's rights described in this Section 4(n). The Designation shall
contain a provision setting forth the Preferred Shareholders' right described
herein.
(o) Transmittal Letters. Within five days after each closing of
the Placements, the Placement Agent shall receive copies of all letters from the
Company to the investors transmitting the securities sold in such Placement and
shall receive a letter from the Company confirming transmittal of the securities
to the investors.
(p) Delivery of Memorandum. The Company shall deliver the
Memorandum in final form reasonably acceptable to the Placement Agent no later
than October 29, 1999.
5. Indemnification.
(a) The Company agrees to indemnify and hold harmless the
Placement Agent and each selected dealer, if any, and their respective
shareholders, directors, officers, agents and controlling persons (an
"Indemnified Party") against any and all loss, liability, claim, damage and
expense whatsoever (and all actions in respect thereof), and to reimburse the
Placement Agent for reasonable legal fees and related expenses as incurred
(including, but not limited to the costs of investigating, preparing or
defending any such action or claim whether or not in connection with litigation
in which the Placement Agent is a party and the costs of giving testimony or
furnishing documents in response to a subpoena or otherwise), arising out of any
untrue statement or alleged untrue statement of a material fact contained in the
Offering Documents or the omission or alleged omission therefrom of a material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading;
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(b) The Company agrees to indemnify and hold harmless an
Indemnified Party to the same extent as the foregoing indemnity, against any and
all loss, liability, claim, damage and expense whatsoever directly arising out
of the exercise by any person of any right under the Securities Act or the
Exchange Act or the securities or Blue Sky laws of any state on account of
violations of the representations, warranties or agreements set forth in Section
2 hereof.
(c) The Placement Agent agrees to indemnify and hold harmless the
Company against any and all loss, liability, claim, damage and expense
whatsoever directly arising out of any untrue statement or alleged untrue
statement of a material fact contained in the Offering Documents provided to the
Company in writing by the Placement Agent specifically for use in the Offering
Documents.
(d) Promptly after receipt by an Indemnified Party under this
Section of notice of the commencement of any action, the indemnified party will,
if a claim in respect thereof is to be made against the Company under this
Section, notify in writing the Company of the commencement thereof; but the
omission so to notify the Company will not relieve it from any liability which
it may have to the Indemnified Party otherwise than under this Section except to
the extent the defense of the claim is prejudiced. In case any such action is
brought against an Indemnified Party, and it notifies the Company of the
commencement thereof, the Company will be entitled to participate in, and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, subject to the provisions herein
stated, with counsel reasonably satisfactory to the Indemnified Party, and after
notice from the Company to the Indemnified Party of its election so to assume
the defense thereof, the Company will not be liable to the Indemnified Party
under this Section for any legal or other expenses subsequently incurred by the
Indemnified Party in connection with the defense thereof other than reasonable
costs of investigation (provided the Company has been advised in writing that
such investigation is being undertaken). The Indemnified Party shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall not be at the
expense of the Company if the Company has assumed the defense of the action with
counsel reasonably satisfactory to the Indemnified Party; provided that the fees
and expenses of such counsel shall be at the expense of the Company if (i) the
employment of such counsel has been specifically authorized in writing by the
Company or (ii) the named parties to any such action (including any impleaded
parties) include both the Indemnified Party or Parties and the Company and, in
the reasonable judgment of counsel for the Indemnified Party, it is advisable
for the Indemnified Party or Parties to be represented by separate counsel due
to an actual conflict of interest (in which case the Company shall not have the
right to assume the defense of such action on behalf of the an Indemnified Party
or Parties), it being understood, however, that the Company shall not, in
connection with any one such action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys for all the Indemnified Parties. No
settlement of any action against an Indemnified Party shall be made unless such
an Indemnified Party is fully and completely released in connection therewith.
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6. Contribution.
To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section (5) but
it is found in a final judicial determination, not subject to further appeal,
that such indemnification may not be enforced in such case, even though this
Agreement expressly provides for indemnification in such case, or (ii) any
indemnified or indemnifying party seeks contribution under the Securities Act,
the Exchange Act, or otherwise, then the Company (including for this purpose any
contribution made by or on behalf of any officer, director, employee or agent
for the Company, or any controlling person of the Company), on the one hand, and
the Placement Agent and any selected dealers (including for this purpose any
contribution by or on behalf of an indemnified party), on the other hand, shall
contribute to the losses, liabilities, claims, damages, and expenses whatsoever
to which any of them may be subject, in such proportions as are appropriate to
reflect the relative benefits received by the Company, on the one hand, and the
Placement Agent and the selected dealers, on the other hand; provided, however,
that if applicable law does not permit such allocation, then other relevant
equitable considerations such as the relative fault of the Company and the
Placement Agent and the selected dealers in connection with the facts which
resulted in such losses, liabilities, claims, damages, and expenses shall also
be considered. In no case shall the Placement Agent or a selected dealer be
responsible for a portion of the contribution obligation in excess of the
compensation received by it pursuant to Section 3 hereof or any selected dealer
Agreement, as the case may be. No person guilty of a fraudulent
misrepresentation shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation. For purposes of this Section 6,
each person, if any, who controls the Placement Agent or a selected dealer
within the meaning of Section 15 of the Securities Act or Section 20(a) of the
Exchange Act and each officer, director, stockholder, employee and agent of the
Placement Agent or a selected dealer, shall have the same rights to contribution
as the Placement Agent or the selected dealer, and each person, if any who
controls the Company within the meaning of Section 15 of the Securities Act or
Section 20(a) of the Exchange Act and each officer, director, employee and agent
of the Company, shall have the same rights to contribution as the Company,
subject in each case to the provisions of this Section 6. Anything in this
Section 6 to the contrary notwithstanding, no party shall be liable for
contribution with respect to the settlement of any claim or action effected
without its written consent. This Section 6 is intended to supersede any right
to contribution under the Securities Act, the Exchange Act, or otherwise.
7. Miscellaneous.
(a) Survival. Any termination of the Placements without
consummation thereof shall be without obligation on the part of any party except
that the indemnification provided in Section 5 hereof and the contribution
provided in Section 6 hereof shall survive any termination and shall survive the
Final Closing for a period of five years.
(b) Representations, Warranties and Covenants to Survive
Delivery. The respective representations, warranties, indemnities, agreements,
covenants and other statements of the Company as of the date hereof shall
survive execution of this Agreement and delivery of
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the Units and the termination of this Agreement for a period of one year after
such respective event.
(c) No Other Beneficiaries. This Agreement is intended for the
sole and exclusive benefit of the parties hereto and their respective successors
and controlling persons, and no other person, firm or corporation shall have any
third-party beneficiary or other rights hereunder.
(d) Governing Law; Resolution of Disputes. This Agreement shall
be governed by and construed in accordance with the law of the State of New York
without regard to conflict of law provisions. The Placement Agent and the
Company will attempt to settle any claim or controversy arising out of this
Agreement through consultation and negotiation in good faith and a spirit of
mutual cooperation. Should such attempts fail, then the dispute will be mediated
by a mutually acceptable mediator to be chosen by the Placement Agent and the
Company within 15 days after written notice from either party demanding
mediation. Neither party may unreasonably withhold consent to the selection of a
mediator, and the parties will share the costs of the mediation equally. Any
dispute which the parties cannot resolve through negotiation or mediation within
six months of the date of the initial demand for it by one of the parties may
then be submitted to the courts for resolution. The use of mediation will not be
construed under the doctrine of latches, waiver or estoppel to affect adversely
the rights of either party. Nothing in this paragraph will prevent either party
from resorting to judicial proceedings if (a) good faith efforts to resolve the
dispute under these procedures have been unsuccessful or (b) interim relief from
a court is necessary to prevent serious and irreparable injury.
(e) Counterparts. This Agreement may be signed in counterparts
with the same effect as if both parties had signed one and the same instrument.
(f) Notices. Any communications specifically required hereunder
to be in writing, if sent to the Placement Agent, will be sent by overnight
courier providing a receipt of delivery or by certified or registered mail to it
at Commonwealth Associates, 830 Third Avenue, New York, New York 10022, Att:
Carl Kleidman with a copy to Bachner Tally & Polevoy LLP, 380 Madison Avenue,
New York, New York 10017, Att: Fran Stoller and if sent to the Company, will be
sent by overnight courier providing a receipt of delivery or by certified or
registered mail to it at 29 West 38th Street, New York, New York 10018, Att:
Peter J. Fiorillo, with a copy to Moskowitz Altman & Hughes LLP, 11 East 44th
Street, New York, New York 10017, Att: John Hughes.
(g) Entire Agreement. This Agreement constitutes the entire
agreement of the parties with respect to the matters herein referred and
supersedes all prior agreements and understandings, written and oral, between
the parties with respect to the subject matter hereof. Neither this Agreement
nor any term hereof may be changed, waived or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver or termination is sought.
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If you find the foregoing is in accordance with our understanding,
kindly sign and return to us a counterpart hereof, whereupon this instrument
along with all counterparts will become a binding agreement between us.
Very truly yours,
eB2B COMMERCE, INC.
By: \s\ Peter J. Fiorillo
--------------------------------------------
Name: Peter J. Fiorillo
Title: Chief Executive Officer
Agreed:
COMMONWEALTH ASSOCIATES, L.P.
a New York limited partnership
By: Commonwealth Associates Management Corp., Inc.
a New York corporation, its general partner
By: \s\ Joseph Wynne
---------------------------------------------------
Name: Joseph Wynne
Title: Chief Financial Officer
<PAGE>
AMENDMENT TO AGENCY AGREEMENT
This amendment dated December 1, 1999 (the "Amendment") to the Agency
Agreement dated as of October 4, 1999 (the "Agreement"), is made by and between
Commonwealth Associates, L.P., and eB2B Commerce, Inc. Capitalized terms used in
this Amendment shall have the same meanings set forth in the Agreement, except
as otherwise set forth herein.
WHEREAS, the parties hereto wish to amend the terms of the Agreement to
reflect the increase in the size of the Offering, as well as certain other
modifications to the terms and conditions of the Offering.
NOW, THEREFORE, the parties hereto agree as follows:
1. Increase in the Offering. The Agreement is hereby amended by changing
the following defined terms:
"Minimum Offering" shall mean 40 Units for $10,000,000.
"Maximum Offering" shall mean 100 Units for $25,000,000.
"Over-Allotment Option" shall mean 32 Units for $8,000,000.
"Preferred Termination Date" shall mean December 30, 1999.
2. Placement Fees. Section 3(d)(ii) of the Agreement is hereby amended as
follows:
The definition of "Agent's Warrants" is changed to mean that number of
shares of Common Stock as equals 20% of the shares of Common Stock underlying
the Preferred Shares and the Offering Warrants minus 17,409, so that in the
event of the Minimum Offering such percentage shall be 19.23% and in the event
of the maximum Offering such percentage shall be 19.69%.
The reference to $50,000 in subsection (C) is changed to $150,000.
3. Lock-Up Agreement. Section 3(b)(xiii) of the Agreement is hereby deleted
in its entirety and replaced with the following new subsection:
(xiii) Lock-Up Agreements. The Placement Agent shall receive
agreements from each officer, director and principal stockholder of the
Company to the effect that such individual will not, without the prior
written consent of the Placement Agent, sell, transfer or otherwise
dispose of any of the Company's securities for one year after the
Initial Closing and thereafter will not dispose of more than 25% of the
securities on a cumulative basis during each subsequent 90 day period
thereafter (the "Lock-Up Period"); provided, however, that if the
Company undertakes a Qualified Private Offering or any public offering
(as defined in the Memorandum") within the first 12 months of the
Lock-Up Period, such individual will not sell, transfer or otherwise
dispose of the securities for such period of time after such offering
(not to exceed one year) as the managing underwriter or placement agent
may request in writing and the Placement Agent may agree to. This
restriction on transfer will apply to any securities issued in exchange
for the Securities in any merger.
4. Additional Closing Conditions. Section 3(b)(x) of the Agreement
relating to the delivery of
<PAGE>
budgets and Section 3(b)(xv) of the Agreement relating to key-man insurance are
waived as conditions to the Initial Closing; however, each remains a condition
of the Placement Agent to the Final Closing.
5. O & D Insurance. Section 4(j) of the Agreement is amended to read in its
entirety as follows:
(j) D&O Insurance. Commencing on the Final Closing, the Company
shall maintain officers and directors liability insurance in the amount
of $2,000,000.
6. Effectiveness. This Amendment shall be deemed effective as of the date
hereof.
7. Miscellaneous.
(a) Agreement Amended. Subject to the provisions of this Section
7, this Amendment shall be deemed to be an amendment to the Agreement. All
references to the Agreement in any other document, instrument agreement or
writing hereafter shall be deemed to refer to the Agreement as amended hereby.
(b) Successors and Assigns. This Amendment shall be binding upon
and inure to the benefit of the Company, the Placement Agent and their
respective successors and assigns.
(c) Governing Law. This Amendment and the rights and obligation
of the parties hereunder shall be construed in accordance with and governed by
the law of the State of New York, without regard to conflict of laws principles.
(d) Counterparts. This Amendment may be executed simultaneously
in two or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have each caused this Amendment
to be duly executed and delivered by their proper and duly authorized officers
as of the day and year first above written.
eB2B COMMERCE, INC.
\s\ Peter J. Fiorillo
-------------------------------------------------
By: Name: Peter J. Fiorillo
Title: Chief Executive Officer
Agreed:
COMMONWEALTH ASSOCIATES, L.P.
By: Commonwealth Associates Management Corp., Inc.
By: \s\ Joseph Wynne
--------------------------------------------------
Name: Joseph Wynne
Title: Chief Financial Officer
<PAGE>
WARRANT AGREEMENT
AGREEMENT, dated as of this 2nd day of December, 1999, by and among
EB2B COMMERCE, INC., a Delaware corporation (the "Company"), AMERICAN STOCK
TRANSFER & TRUST COMPANY (the "Warrant Agent"), and COMMONWEALTH ASSOCIATES,
L.P., a New York limited partnership ("Commonwealth").
W I T N E S S E T H
WHEREAS, in connection with a private placement (the "Private
Placement") of up to 120 units ("Units"), each Unit consisting of (i) 25,000
shares of Series B Convertible Preferred Stock notes (the "Preferred Shares")
and (ii) 11,364 redeemable common stock purchase warrants (the "Warrants"), each
Warrant exercisable to purchase one share of the Company's common stock, $.001
par value (the "Common Stock"), the Company will issue up to 1,363,680 Warrants;
and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the holders thereof;
NOW THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
SECTION 1. DEFINITIONS. As used herein, the following terms shall have
the following meanings, unless the context shall otherwise require:
(a) "Common Stock" shall mean stock of the Company of any
class, whether now or hereafter authorized, which has the right to
participate in the distributions of earnings and assets of the Company
without limit as to amount or percentage, which at the date hereof
consists of 90,000,000 authorized shares of Common Stock, $.001 value.
(b) "Corporate Office" shall mean the office of the Warrant
Agent (or its successor) at which at any particular time its principal
business shall be administered, which office is located at the date
hereof at 40 Wall Street, New York, New York 10005.
(c) "Exercise Date" shall mean, as to any Warrant, the date on
which the Warrant Agent shall have received both (a) the Warrant
Certificate representing such Warrant, with the exercise form thereon
duly executed by the Registered Holder thereof
<PAGE>
or his attorney duly authorized in writing, and (b) payment in cash, or
by official bank or certified check made payable to the Company, of an
amount in lawful money of the United States of America equal to the
Exercise Price.
(d) "Exercise Price" shall mean the purchase price to be paid
upon exercise of each Warrant in accordance with the terms hereof,
which price shall be $5.50 per share subject to adjustment from time to
time pursuant to the provisions of Section 8 hereof, subject to the
Company's right to reduce the Exercise Price upon notice to all
warrantholders and subject to reduction in the event the Company fails
to file the registration statement required by Section 4.1 of Article
IV of the Subscription Agreement between the Company and each of the
investors in the Private Placement. In such event, the Exercise Price
shall be reduced by 10% for each month after the required date that the
registration statement has not been filed (i.e. the Exercise Price
shall be $4.95 during the month commencing on the first day it should
have been filed, $4.46 the following month, $4.01 the third month,
etc).
(e) "Initial Warrant Exercise Date" shall mean December 2,
1999.
(f) "Qualified Public Offering" shall mean an initial public
offering of the Company's securities raising gross proceeds in excess
of $20,000,000 where the offering price per share is at least 2.5 times
the then Preferred Share conversion price.
(g) "Qualified Private Offering" shall mean a private offering
of the Company's securities raising gross proceeds of at least
$20,000,000 where the pre-money valuation is at least 2.5 times the
post-Private Placement valuation of the Company and where the offering
price per share is at least 2.5 times the then Preferred Share
conversion price.
(h) "Registered Holder" shall mean the person in whose name
any certificate representing Warrants shall be registered on the books
maintained by the Warrant Agent pursuant to Section 6.
(i) "Redemption Price" shall mean the price at which the
Company may, at its option in accordance with the terms hereof, redeem
the Warrants, which price shall be $0.05 per Warrant.
(j) "Transfer Agent" shall mean American Stock Transfer &
Trust Company, as the Company's transfer agent, or its authorized
successor, as such.
(k) "Warrant Expiration Date" shall mean 5:00 P.M. (New York
time) on December 2, 2006 or, with respect to Warrants which are
outstanding as of the applicable Redemption Date (as defined in Section
9), the Redemption Date, whichever is earlier;
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<PAGE>
provided that if such date shall in the State of New York be a holiday
or a day on which banks are authorized to close, then 5:00 P.M. (New
York time) on the next following day which in the State of New York is
not a holiday or a day on which banks are authorized to close. Upon
notice to all warrantholders the Company shall have the right to extend
the Warrant Expiration Date.
(l) "Warrant Shares" shall mean the shares of Common Stock
deliverable upon exercise of the Warrants, as adjusted from time to
time.
SECTION 2. WARRANTS AND ISSUANCE OF WARRANT CERTIFICATES.
(a) A Warrant shall initially entitle the Registered Holder of
the Warrant Certificate representing such Warrant to purchase one share
of Common Stock upon the exercise thereof, in accordance with the terms
hereof, subject to modification and adjustment as provided in Section
8.
(b) From time to time, up to the Warrant Expiration Date, the
Transfer Agent shall execute and deliver stock certificates in required
whole number denominations representing up to an aggregate of 1,363,680
shares of Common Stock, subject to adjustment as described herein, upon
the exercise of Warrants in accordance with this Agreement.
(c) From time to time, up to the Warrant Expiration Date, the
Warrant Agent shall execute and deliver Warrant Certificates in
required whole number denominations to the persons entitled thereto in
connection with any transfer or exchange permitted under this
Agreement; provided that no Warrant Certificates shall be issued except
(i) those initially issued hereunder, (ii) those issued on or after the
Initial Warrant Exercise Date, upon the exercise of fewer than all
Warrants represented by any Warrant Certificate, to evidence any
unexercised Warrants held by the exercising Registered Holder, (iii)
those issued upon any transfer or exchange pursuant to Section 6; (iv)
those issued in replacement of lost, stolen, destroyed or mutilated
Warrant Certificates pursuant to Section 7; and (v) at the option of
the Company, in such form as may be approved by the its Board of
Directors, to reflect (a) any adjustment or change in the Exercise
Price or the number of shares of Common Stock purchasable upon exercise
of the Warrants, made pursuant to Section 8 hereof and (b) other
modifications approved in accordance with Section 17 hereof.
SECTION 3. FORM AND EXECUTION OF WARRANT CERTIFICATES.
(a) The Warrant Certificates shall be substantially in the
form annexed hereto as Exhibit A (the provisions of which are hereby
incorporated herein) and may have such letters, numbers or other marks
of identification or designation and such legends,
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<PAGE>
summaries or endorsements printed, lithographed, engraved or typed
thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply
with any law or with any rule or regulation made pursuant thereto or
with any rule or regulation of any stock exchange on which the Warrants
may be listed, or to conform to usage. The Warrant Certificates shall
be dated the date of issuance thereof (whether upon initial issuance,
transfer, exchange or in lieu of mutilated, lost, stolen, or destroyed
Warrant Certificates) and issued in registered form. Warrants shall be
numbered serially with the letters PW.
(b) Warrant Certificates shall be executed on behalf of the
Company by its Chairman of the Board, Chief Executive Officer,
President or any Vice President and by its Chief Financial Officer,
Secretary or an Assistant Secretary, by manual signatures or by
facsimile signatures printed thereon, and shall have imprinted thereon
a facsimile of the Company's seal. In case any officer of the Company
who shall have signed any of the Warrant Certificates shall cease to be
such officer of the Company before the date of issuance of the Warrant
Certificates and issue and delivery thereof, such Warrant Certificates
may nevertheless be issued and delivered with the same force and effect
as though the person who signed such Warrant Certificates had not
ceased to be such officer of the Company. After execution by the
Company, Warrant Certificates shall be delivered by the Warrant Agent
to the Registered Holder.
SECTION 4. EXERCISE.
(a) Each Warrant may be exercised by the Registered Holder
thereof at any time on or after the Initial Exercise Date, but not
after the Warrant Expiration Date, upon the terms and subject to the
conditions set forth herein and in the applicable Warrant Certificate.
A Warrant shall be deemed to have been exercised immediately prior to
the close of business on the Exercise Date and the person entitled to
receive the securities deliverable upon such exercise shall be treated
for all purposes as the holder upon exercise thereof as of the close of
business on the Exercise Date. As soon as practicable on or after the
Exercise Date the Warrant Agent shall deposit the proceeds received
from the exercise of a Warrant, and promptly after clearance of checks
received in payment of the Exercise Price pursuant to such Warrants,
cause to be issued and delivered by the Transfer Agent, to the person
or persons entitled to receive the same, a certificate or certificates
for the securities deliverable upon such exercise, (plus a certificate
for any remaining unexercised Warrants of the Registered Holder).
Notwithstanding the foregoing, in the case of payment made in the form
of a check drawn on an account of Commonwealth or such other investment
banks and brokerage houses as the Company shall approve, certificates
shall immediately be issued without any delay. Upon the exercise of any
Warrant and clearance of the funds received, the Warrant Agent shall
promptly remit the payment received for the Warrant to the Company or
as the Company may direct in writing.
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<PAGE>
(b) The Registered Holder may, at its option, exchange this
Warrant, in whole or in part (a "Warrant Exchange"), into the number of
Warrant Shares determined in accordance with this Section (4)(c), by
surrendering the Warrant Certificate at the principal office of the
Company or at the office of its stock transfer agent, accompanied by a
notice stating such Registered Holder's intent to effect such exchange,
the number of Warrant Shares to be exchanged and the date on which the
Registered Holder requests that such Warrant Exchange occur (the
"Notice of Exchange"). The Warrant Exchange shall take place on the
date specified in the Notice of Exchange or, if later, the date the
Notice of Exchange is received by the Company (the "Exchange Date").
Certificates for the shares issuable upon such Warrant Exchange and, if
applicable, a new warrant of like tenor evidencing the balance of the
shares remaining subject to such Warrant, shall be issued as of the
Exchange Date and delivered to the Registered Holder within seven (7)
days following the Exchange Date. In connection with any Warrant
Exchange, a Warrant shall represent the right to subscribe for and
acquire the number of Warrant Shares (rounded to the next highest
integer) equal to (i) the number of Warrant Shares specified by the
Registered Holder in its Notice of Exchange (the "Total Number") less
(ii) the number of Warrant Shares equal to the quotient obtained by
dividing (A) the product of the Total Number and the existing Exercise
Price by (B) the current market value of a share of Common Stock.
Current market value shall have the meaning set forth Section 10(a)
hereof, except that for purposes hereof, the date of exercise, as used
in such Section 10(a) hereof, shall mean the Exchange Date.
SECTION 5. RESERVATION OF SHARES; LISTING; PAYMENT OF TAXES; ETC.
(a) The Company covenants that it will at all times reserve
and keep available out of its authorized Common Stock, solely for the
purpose of issue upon exercise of Warrants, such number of shares of
Common Stock as shall then be issuable upon the exercise of all
outstanding Warrants. The Company covenants that all shares of Common
Stock which shall be issuable upon exercise of the Warrants and payment
of the Exercise Price shall, at the time of delivery, be duly and
validly issued, fully paid, nonassessable and free from all taxes,
liens and charges with respect to the issue thereof (other than those
which the Company shall promptly pay or discharge).
(b) The Company will use reasonable efforts to obtain
appropriate approvals or registrations under state "blue sky"
securities laws with respect to the exercise of the Warrants; provided,
however, that the Company shall not be obligated to file any general
consent to service of process or qualify as a foreign corporation in
any jurisdiction. With respect to any such securities laws, however,
Warrants may not be exercised by, or shares of Common Stock issued to,
any Registered Holder in any state in which such exercise would be
unlawful.
-5-
<PAGE>
(c) The Company shall pay all documentary, stamp or similar
taxes and other governmental charges that may be imposed with respect
to the issuance of Warrants, or the issuance, or delivery of any shares
upon exercise of the Warrants; provided, however, that if the shares of
Common Stock are to be delivered in a name other than the name of the
Registered Holder of the Warrant Certificate representing any Warrant
being exercised, then no such delivery shall be made unless the person
requesting the same has paid to the Warrant Agent the amount of
transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized to
requisition the Company's Transfer Agent from time to time for
certificates representing shares of Common Stock required upon exercise
of the Warrants, and the Company will authorize the Transfer Agent to
comply with all such proper requisitions.
SECTION 6. EXCHANGE AND REGISTRATION OF TRANSFER. Subject to the
restrictions on transfer contained in the Warrant Certificates and the
Subscription Agreements between the Company and the purchasers of Units:
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the
same class or may be transferred in whole or in part. Warrant
Certificates to be exchanged shall be surrendered to the Warrant Agent
at its Corporate Office, and upon satisfaction of the terms and
provisions hereof, the Company shall execute, and the Warrant Agent
shall countersign, issue and deliver in exchange therefor the Warrant
Certificate or Certificates which the Registered Holder making the
exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in which,
subject to such reasonable regulations as it may prescribe, it shall
register Warrant Certificates and the transfer thereof in accordance
with its regular practice. Upon due presentment for registration of
transfer of any Warrant Certificate at its office, the Company shall
execute and the Warrant Agent shall issue and deliver to the transferee
or transferees a new Warrant Certificate or Certificates representing
an equal aggregate number of Warrants.
(c) With respect to all Warrant Certificates presented for
registration of transfer, or for exchange or exercise, the subscription
form on the reverse thereof shall be duly endorsed, or be accompanied
by a written instrument or instruments of transfer and subscription, in
form satisfactory to the Company, duly executed by the Registered
Holder or his attorney-in-fact duly authorized in writing.
(d) The Company may require payment by such holder of a sum
sufficient to cover any tax or other governmental charge that may be
imposed in connection therewith.
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<PAGE>
(e) All Warrant Certificates surrendered for exercise or for
exchange in case of mutilated Warrant Certificates shall be promptly
canceled by the Warrant Agent and thereafter retained by the Warrant
Agent until termination of this Agreement or resignation of the Warrant
Agent, or, with the prior written consent of Commonwealth, disposed of
or destroyed, at the direction of the Company.
(f) Prior to due presentment for registration of transfer
thereof, the Company and the Warrant Agent may deem and treat the
Registered Holder of any Warrant Certificate as the absolute owner
thereof and of each Warrant represented thereby (notwithstanding any
notations of ownership or writing thereon made by anyone other than a
duly authorized officer of the Company or the Warrant Agent) for all
purposes and shall not be affected by any notice to the contrary.
SECTION 7. LOSS OR MUTILATION. Upon receipt by the Company and the
Warrant Agent of evidence satisfactory to them of the ownership of and loss,
theft, destruction or mutilation of any Warrant Certificate and (in case of
loss, theft or destruction) of indemnity satisfactory to them, and (in the case
of mutilation) upon surrender and cancellation thereof, the Company shall
execute and the Warrant Agent shall (in the absence of notice to the Company
and/or Warrant Agent that the Warrant Certificate has been acquired by a
bonafide purchaser) countersign and deliver to the Registered Holder in lieu
thereof a new Warrant Certificate of like tenor representing an equal aggregate
number of Warrants. Applicants for a substitute Warrant Certificate shall comply
with such other reasonable regulations and pay such other reasonable charges as
the Warrant Agent may prescribe.
SECTION 8. ANTI-DILUTION PROVISIONS. Subject to the provisions of
Section l hereof, the Exercise Price in effect at any time and the number and
kind of securities purchasable upon the exercise of the Warrants shall be
subject to adjustment from time to time upon the happening of certain events as
follows:
(a) In case the Company shall hereafter (i) declare a dividend
or make a distribution on its outstanding shares of Common Stock in
shares of Common Stock, (ii) subdivide or reclassify its outstanding
shares of Common Stock into a greater number of shares, or (iii)
combine or reclassify its outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price in effect at the time of
the record date for such dividend or distribution or of the effective
date of such subdivision, combination or reclassification shall be
adjusted so that it shall equal the price determined by multiplying the
Exercise Price by a fraction, the denominator of which shall be the
number of shares of Common Stock outstanding after giving effect to
such action, and the numerator of which shall be the number of shares
of Common Stock outstanding immediately prior to such action. Such
adjustment shall be made successively whenever any event listed above
shall occur.
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<PAGE>
(b) Subject to the provisions of Section (i) below, in case
the Company shall fix a record date for the issuance of rights or
warrants to all holders of its Common Stock entitling them to subscribe
for or purchase shares of Common Stock (or securities convertible into
Common Stock) at a price (the "Subscription Price") (or having a
conversion price per share) less than the current market price on such
record date or less than the Exercise Price, the Exercise Price shall
be adjusted so that the same shall equal the lower of (i) the price
determined by multiplying the Exercise Price in effect immediately
prior to the date of such issuance by a fraction, the numerator of
which shall be the sum of the number of shares of Common Stock
outstanding on the record date mentioned below and the number of
additional shares of Common Stock which the aggregate offering price of
the total number of shares of Common Stock so offered (or the aggregate
conversion price of the convertible securities so offered) would
purchase at such current market price per share of the Common Stock,
and the denominator of which shall be the sum of the number of shares
of Common Stock outstanding on such record date and the number of
additional shares of Common Stock offered for subscription or purchase
(or into which the convertible securities so offered are convertible)
or (ii) in the event the Subscription Price is equal to or higher than
the current market price but is less than the Exercise Price, the price
determined by multiplying the Exercise Price in effect immediately
prior to the date of issuance by a fraction, the numerator of which
shall be the sum of the number of shares outstanding on the record date
mentioned below and the number of additional shares of Common Stock
which the aggregate offering price of the total number of shares of
Common Stock so offered (or the aggregate conversion price of the
convertible securities so offered) would purchase at the Exercise Price
in effect immediately prior to the date of such issuance, and the
denominator of which shall be the sum of the number of shares of Common
Stock outstanding on the record date mentioned below and the number of
additional shares of Common Stock offered for subscription or purchase
(or into which the convertible securities so offered are convertible).
Such adjustment shall be made successively whenever such rights or
warrants are issued and shall become effective immediately after the
record date for the determination of shareholders entitled to receive
such rights or warrants; and to the extent that shares of Common Stock
are not delivered (or securities convertible into Common Stock are not
delivered) after the expiration of such rights or warrants the Exercise
Price shall be readjusted to the Exercise Price which would then be in
effect had the adjustments made upon the issuance of such rights or
warrants been made upon the basis of delivery of only the number of
shares of Common Stock (or securities convertible into Common Stock)
actually delivered.
(c) In case the Company shall hereafter distribute to the
holders of its Common Stock evidences of its indebtedness or assets
(excluding cash dividends or distributions and dividends or
distributions referred to in Subsection (a) above) or subscription
rights or warrants (excluding those referred to in Subsection (b)
above), then in each such case the Exercise Price in effect thereafter
shall be determined by
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<PAGE>
multiplying the Exercise Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the total number of shares of
Common Stock outstanding multiplied by the current market price per
share of Common Stock, less the fair market value (as determined by the
Company's Board of Directors) of said assets or evidences of
indebtedness so distributed or of such rights or warrants, and the
denominator of which shall be the total number of shares of Common
Stock outstanding multiplied by such current market price per share of
Common Stock. Such adjustment shall be made successively whenever such
a record date is fixed. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the
record date for the determination of shareholders entitled to receive
such distribution.
(d) Subject to the provisions of Section (i) below, in case
the Company shall hereafter issue shares of its Common Stock (excluding
shares issued (i) in any of the transactions described in Subsection
(a) above, (ii) upon exercise of options granted to the Company's
officers, directors, employees and consultants under a plan or plans
adopted by the Company's Board of Directors and approved by its
shareholders, if such shares would otherwise be included in this
Subsection (d), (but only to the extent that the aggregate number of
shares excluded hereby and issued after the date hereof, shall not
exceed 10% of the Company's Common Stock outstanding, on a fully
diluted basis, at the time of any issuance), (iii) upon exercise of
options, warrants, convertible securities and convertible debentures
outstanding as of the final closing of the Private Placement, a
Qualified Private Offering, or exercise of the Warrants, (iv) to
shareholders of any corporation which merges into the Company in
proportion to their stock holdings of such corporation immediately
prior to such merger, upon such merger, (v) issued in a private
placement through Commonwealth, as placement agent, or upon exercise or
conversion of any securities issued in or in connection with such a
private placement (including agent, consulting or advisory warrants) or
(vi) issued in a bona fide public offering pursuant to a firm
commitment underwriting, but only if no adjustment is required pursuant
to any other specific subsection of this Section 8 (without regard to
Subsection (i) below) with respect to the transaction giving rise to
such rights) for a consideration per share (the "Offering Price") less
than the current market price on the date the Company fixes the
offering price of such additional shares or less than the Exercise
Price, the Exercise Price shall be adjusted immediately thereafter so
that it shall equal (i) the price determined by multiplying the
Exercise Price in effect immediately prior thereto by a fraction, the
numerator of which shall be the sum of the number of shares of Common
Stock outstanding immediately prior to the issuance of such additional
shares and the number of shares of Common Stock which the aggregate
consideration received for the issuance of such additional shares would
purchase at such current market price per share of Common Stock, and
the denominator of which shall be the number of shares of Common Stock
outstanding immediately after the issuance of such additional shares or
(ii) in the event the Offering Price is equal to or higher than the
current market price per share but less than the Exercise Price, the
price determined by multiplying the
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<PAGE>
Exercise Price in effect immediately prior to the date of issuance by a
fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to the issuance of such
additional shares and the number of shares of Common Stock which the
aggregate consideration received for the issuance of such additional
shares would purchase at the Exercise Price in effect immediately prior
to the date of such issuance, and the denominator of which shall be the
number of shares of Common Stock outstanding immediately after the
issuance of such additional shares. Such adjustment shall be made
successively whenever such an issuance is made.
(e) Subject to the provisions of Section (i) below, in case
the Company shall hereafter issue any securities convertible into or
exchangeable for its Common Stock (excluding securities issued in
transactions described in Subsections (b) and (c) above) for a
consideration per share of Common Stock (the "Exchange Price")
initially deliverable upon conversion or exchange of such securities
(determined as provided in Subsection (g) below) less than the current
market price in effect immediately prior to the issuance of such, or
less than the Exercise Price, the Exercise Price shall be adjusted
immediately thereafter so that it shall equal lower of (i) the price
determined by multiplying the Exercise Price in effect immediately
prior thereto by a fraction, the numerator of which shall be the sum of
the number of shares of Common Stock outstanding immediately prior to
the issuance of such securities and the number of shares of Common
Stock which the aggregate consideration received for such securities
would purchase at such current market price per share of Common Stock,
and the denominator of which shall be the sum of the number of shares
of Common Stock outstanding immediately prior to such issuance and the
maximum number of shares of Common Stock of the Company deliverable
upon conversion of or in exchange for such securities at the initial
conversion or exchange price or rate or (ii) in the event the Exchange
Price is equal to or higher than the current market price per share but
less than the Exercise Price, the price determined by multiplying the
Exercise Price in effect immediately prior to the date of issuance by a
fraction, the numerator of which shall be the sum of the number of
shares outstanding immediately prior to the issuance of such securities
and the number of shares of Common Stock which the aggregate
consideration received for such securities would purchase at the
Exercise Price in effect immediately prior to the date of such
issuance, and the denominator of which shall be the sum of the number
of shares of Common Stock outstanding immediately prior to the issuance
of such securities and the maximum number of shares of Common Stock of
the Company deliverable upon conversion of or in exchange for such
securities at the initial conversion or exchange price or rate. Such
adjustment shall be made successively whenever such an issuance is
made.
(f) Whenever the Exercise Price payable upon exercise of each
Warrant is adjusted pursuant to Subsections (a), (b), (c), (d) and (e)
above and (i) below or pursuant to the last sentence of Section 1(d)
hereof, the number of Shares purchasable upon
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<PAGE>
exercise of this Warrant shall simultaneously be adjusted by
multiplying the number of Shares initially issuable upon exercise of
this Warrant by the Exercise Price in effect on the date hereof and
dividing the product so obtained by the Exercise Price, as adjusted.
(g) For purposes of any computation respecting consideration
received pursuant to Subsections (d) and (e) above, the following shall
apply:
(A) in the case of the issuance of shares of Common
Stock for cash, the consideration shall be the amount of such
cash, provided that in no case shall any deduction be made for
any commissions, discounts or other expenses incurred by the
Company for any underwriting of the issue or otherwise in
connection therewith;
(B) in the case of the issuance of shares of Common
Stock for a consideration in whole or in part other than cash,
the consideration other than cash shall be deemed to be the
fair market value thereof as determined in good faith by the
Board of Directors of the Company (irrespective of the
accounting treatment thereof), whose determination shall be
conclusive; and
(C) in the case of the issuance of securities
convertible into or exchangeable for shares of Common Stock,
the aggregate consideration received therefor shall be deemed
to be the consideration received by the Company for the
issuance of such securities plus the additional minimum
consideration, if any, to be received by the Company upon the
conversion or exchange thereof (the consideration in each case
to be determined in the same manner as provided in clauses (A)
and (B) of this Subsection (g)).
(h) For the purpose of any computation under Subsections (b),
(c), (d) and (e) above, the current market price per share of Common
Stock at any date shall be determined in the manner set forth in
Section 11.
(i) Notwithstanding the provisions of this Section 8, in the
event that the Company issues securities under Subsections (b), (d) or
(e) prior to the date which is 60 days after the expiration of any
lock-up agreement entered into by the Private Placement investors in
connection with a Qualified Public Offering having an Offering Price,
Subscription Price or Conversion Price less than the Exercise Price,
then the Exercise Price shall be immediately reset to equal such lower
Offering Price, Subscription Price or Conversion Price.
(j) No adjustment in the Exercise Price shall be required
unless such adjustment would require an increase or decrease of at
least five cents ($0.05) in such price; provided, however, that any
adjustments which by reason of this Subsection (i) are
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<PAGE>
not required to be made shall be carried forward and taken into account
in any subsequent adjustment required to be made hereunder. All
calculations under this Section 8 shall be made to the nearest cent or
to the nearest one-hundredth of a share, as the case may be. Anything
in this Section 8 to the contrary notwithstanding, the Company shall be
entitled, but shall not be required, to make such changes in the
Exercise Price, in addition to those required by this Section 8, as it
shall determine, in its sole discretion, to be advisable in order that
any dividend or distribution in shares of Common Stock, or any
subdivision, reclassification or combination of Common Stock, hereafter
made by the Company shall not result in any Federal Income tax
liability to the holders of Common Stock or securities convertible into
Common Stock (including Warrants).
(k) Whenever the Exercise Price is adjusted, as herein
provided, the Company shall promptly but no later than 10 days after
any request for such an adjustment by the Holder, cause a notice
setting forth the adjusted Exercise Price and adjusted number of Shares
issuable upon exercise of each Warrant, and, if requested, information
describing the transactions giving rise to such adjustments, to be
mailed to the Holders at their last addresses appearing in the Warrant
Register, and shall cause a certified copy thereof to be mailed to its
transfer agent, if any. The Company may retain a firm of independent
certified public accountants selected by the Board of Directors (who
may be the regular accountants employed by the Company) to make any
computation required by this Section 8, and a certificate signed by
such firm shall be conclusive evidence of the correctness of such
adjustment.
(l) In the event that at any time, as a result of an
adjustment made pursuant to Subsection (a) above, the Holder of this
Warrant thereafter shall become entitled to receive any shares of the
Company, other than Common Stock, thereafter the number of such other
shares so receivable upon exercise of this Warrant shall be subject to
adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Common
Stock contained in Subsections (a) to (j), inclusive above.
(m) Irrespective of any adjustments in the Exercise Price or
the number or kind of shares purchasable upon exercise of this Warrant,
Warrants theretofore or thereafter issued may continue to express the
same price and number and kind of shares as are stated in the similar
Warrants initially issuable pursuant to this Agreement.
SECTION 9. REDEMPTION.
(a) On not less than 30 days' written notice (the "Redemption
Notice") to Registered Holders of the Warrants being redeemed, the
Warrants may be redeemed, at the option of the Company, at a redemption
price of $0.05 per Warrant, provided (i) the market price (determined
in accordance with Section 11 hereof) shall exceed 300% of the
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then current Exercise Price for the 20 consecutive trading days ending
on the fifth trading day prior to the date of the Redemption Notice
(the "Target Price"), subject to adjustment as set forth in Section
9(f) hereof and (ii) a registration statement covering the Warrant
Shares filed under the Securities Act of 1933, as amended (the "Act")
has been declared effective and remains effective on the date fixed for
redemption of the Warrants (the "Redemption Date").
(b) If the conditions set forth in Section 9(a) are met, and
the Company desires to exercise its right to redeem the Warrants, it
shall mail a Redemption Notice to each of the Registered Holders of the
Warrants to be redeemed, first class, postage prepaid, not later than
the thirtieth day before the date fixed for redemption, at their last
address as shall appear on the records maintained pursuant to Section
6(b). Any notice mailed in the manner provided herein shall be
conclusively presumed to have been duly given whether or not the
Registered Holder receives such notice.
(c) The Redemption Notice shall specify (i) the redemption
price, (ii) the Redemption Date, (iii) the place where the Warrant
Certificates shall be delivered and the redemption price paid, and (iv)
that the right to exercise the Warrant shall terminate at 5:00 P.M.
(New York time) on the business day immediately preceding the
Redemption Date. No failure to mail such notice nor any defect therein
or in the mailing thereof shall affect the validity of the proceedings
for such redemption except as to a Registered Holder (a) to whom notice
was not mailed or (b) whose notice was defective. An affidavit of the
Warrant Agent or of the Secretary or an Assistant Secretary of the
Company that notice of redemption has been mailed shall, in the absence
of fraud, be prima facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00
P.M. (New York time) on the business day immediately preceding the
Redemption Date. On and after the Redemption Date, Registered Holders
of the Warrants shall have no further rights except to receive, upon
surrender of the Warrant, the Redemption Price.
(e) From and after the Redemption Date, the Company shall, at
the place specified in the Redemption Notice, upon presentation and
surrender to the Company by or on behalf of the Registered Holder
thereof of one or more Warrant Certificates evidencing Warrants to be
redeemed, deliver or cause to be delivered to or upon the written order
of such Registered Holder a sum in cash equal to the Redemption Price
of each such Warrant. From and after the Redemption Date and upon the
deposit or setting aside by the Company of a sum sufficient to redeem
all the Warrants called for redemption, such Warrants shall expire and
become void and all rights hereunder and under the Warrant
Certificates, except the right to receive payment of the Redemption
Price, shall cease.
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<PAGE>
(f) If the shares of the Company's Common Stock are subdivided
or combined into a greater or smaller number of shares of Common Stock,
the Target Price shall be proportionally adjusted by the ratio which
the total number of shares of Common Stock outstanding immediately
prior to such event bears to the total number of shares of Common Stock
to be outstanding immediately after such event.
SECTION 10. REGISTRATION UNDER THE SECURITIES ACT OF 1933. The Company
agrees to register the Warrant Shares for resale under the Securities Act of
1933, as amended (the "Act") on the terms and subject to the conditions set
forth in Article IV of the Subscription Agreement between the Company and each
of the investors in the Private Placement.
SECTION 11. FRACTIONAL WARRANTS AND FRACTIONAL SHARES.
(a) If the number of shares of Common Stock purchasable upon
the exercise of each Warrant is adjusted pursuant to Section 8 hereof,
the Company shall nevertheless not be required to issue fractions of
shares, upon exercise of the Warrants or otherwise, or to distribute
certificates that evidence fractional shares. With respect to any
fraction of a share called for upon any exercise hereof, the Company
shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of such fractional share,
determined as follows:
(A) If the Common Stock is listed on a national
securities exchange or admitted to unlisted trading privileges
on such exchange or listed for trading on the Nasdaq National
Market System ("NMS"), the current market value shall be the
average of the last reported sale prices of the Common Stock
on such exchange for the 10 trading days prior to the date of
exercise of this Warrant; provided that if no such sale is
made on a day within such period or no closing sale price is
quoted, that day's market value shall be the average of the
closing bid and asked prices for such day on such exchange or
system; or
(B) If the Common Stock is listed in the
over-the-counter market (other than on NMS) or admitted to
unlisted trading privileges, the current market value shall be
the mean of the last reported bid and asked prices reported by
the National Quotation Bureau, Inc. for the 10 trading days
prior to the date of the exercise of this Warrant; or
(C) If the Common Stock is not so listed or admitted
to unlisted trading privileges and bid and asked prices are
not so reported, the current market value shall be an amount
determined in a reasonable manner by the Board of Directors of
the Company.
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<PAGE>
SECTION 12. WARRANT HOLDERS NOT DEEMED STOCKHOLDERS. No holder of
Warrants shall, as such, be entitled to vote or to receive dividends or be
deemed the holder of Common Stock that may at any time be issuable upon exercise
of such Warrants for any purpose whatsoever, nor shall anything contained herein
be construed to confer upon the holder of Warrants, as such, any of the rights
of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issue or reclassification of stock, change of par value or
change of stock to no par value, consolidation, merger or conveyance or
otherwise), or to receive notice of meetings, or to receive dividends or
subscription rights, until such Holder shall have exercised such Warrants and
been issued shares of Common Stock in accordance with the provisions hereof.
SECTION 13. RIGHTS OF ACTION. All rights of action with respect to this
Agreement are vested in the respective Registered Holders of the Warrants, and
any Registered Holder of a Warrant, without consent of the Warrant Agent or of
the holder of any other Warrant, may, on his own behalf and for his own benefit,
enforce against the Company his right to exercise his Warrants for the purchase
of shares of Common Stock in the manner provided in the Warrant Certificate and
this Agreement.
SECTION 14. AGREEMENT OF WARRANT HOLDERS. Every holder of a Warrant, by
his acceptance thereof, consents and agrees with the Company, the Warrant Agent
and every other holder of a Warrant that:
(a) The Warrants are transferable only on the registry books
of the Warrant Agent by the Registered Holder thereof in person or by
his attorney duly authorized in writing and only if the Warrant
Certificates representing such Warrants are surrendered at the office
of the Warrant Agent, duly endorsed or accompanied by a proper
instrument of transfer satisfactory to the Warrant Agent and the
Company in their sole discretion, together with payment of any
applicable transfer taxes; and
(b) The Company may deem and treat the person in whose name
the Warrant Certificate is registered as the holder and as the
absolute, true and lawful owner of the Warrants represented thereby for
all purposes, and the Company shall not be affected by any notice or
knowledge to the contrary, except as otherwise expressly provided in
Section 7 hereof.
SECTION 15. CANCELLATION OF WARRANT CERTIFICATES. If the Company shall
purchase or acquire any Warrant or Warrants, the Warrant Certificate or Warrant
Certificates evidencing the same shall thereupon be canceled by it and retired.
The Warrant Agent shall also cancel Common Stock following exercise of any or
all of the Warrants represented thereby or delivered to it for transfer,
splitup, combination or exchange.
SECTION 16. CONCERNING THE WARRANT AGENT.
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<PAGE>
(a) The Warrant Agent acts hereunder as agent and in a
ministerial capacity for the Company, and its duties shall be
determined solely by the provisions hereof. The Warrant Agent shall
not, by issuing and delivering Warrant Certificates or by any other act
hereunder be deemed to make any representations as to the validity,
value or authorization of the Warrant Certificates or the Warrants
represented thereby or of any securities or other property delivered
upon exercise of any Warrant or whether any stock issued upon exercise
of any Warrant is fully paid and nonassessable.
(b) The Warrant Agent shall account promptly to the Company
with respect to Warrants exercised and concurrently pay the Company, as
provided in Section 4, all moneys received by the Warrant Agent upon
the exercise of such Warrants. The Warrant Agent shall, upon request of
the Company from time to time, deliver to the Company such complete
reports of registered ownership of the Warrants and such complete
records of transactions with respect to the Warrants and the shares of
Common Stock as the Company may request. The Warrant Agent shall also
make available to the Company and Commonwealth for inspection by their
agents or employees, from time to time as either of them may request,
such original books of accounts and record (including original Warrant
Certificates surrendered to the Warrant Agent upon exercise of
Warrants) as may be maintained by the Warrant Agent in connection with
the issuance and exercise of Warrants hereunder, such inspections to
occur at the Warrant Agent's office as specified in Section 18, during
normal business hours.
(c) The Warrant Agent shall not at any time be under any duty
or responsibility to any holder of Warrant Certificates to make or
cause to be made any adjustment of the Exercise Price provided in this
Agreement, or to determine whether any fact exists which may require
any such adjustments, or with respect to the nature or extent of any
such adjustment, when made, or with respect to the method employed in
making the same. It shall not (i) be liable for any recital or
statement of facts contained herein or for any action taken, suffered
or omitted by it in reliance on any Warrant Certificate or other
document or instrument believed by it in good faith to be genuine and
to have been signed or presented by the proper party or parties, (ii)
be responsible for any failure on the part of the Company to comply
with any of its covenants and obligations contained in this Agreement
or in any Warrant Certificate, or (iii) be liable for any act or
omission in connection with this Agreement except for its own
negligence or wilful misconduct.
The Warrant Agent may at any time consult with counsel satisfactory to
it (who may be counsel for the Company) and shall incur no liability or
responsibility for any action taken, suffered or omitted by it in good
faith in accordance with the opinion or advice of such counsel.
(d) Any notice, statement, instruction, request, direction,
order or demand of the Company shall be sufficiently evidenced by an
instrument signed by the Chairman of the Board, Chief Executive
Officer, President, any Vice President, its Secretary, or
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<PAGE>
Assistant Secretary, (unless other evidence in respect thereof is
herein specifically prescribed). The Warrant Agent shall not be liable
for any action taken, suffered or omitted by it in accordance with such
notice, statement, instruction, request, direction, order or demand
believed by it to be genuine.
(e) The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse it for its
reasonable expenses hereunder; it further agrees to indemnify the
Warrant Agent and save it harmless against any and all losses, expenses
and liabilities, including judgments, costs and counsel fees, for
anything done or omitted by the Warrant Agent in the execution of its
duties and powers hereunder except losses, expenses and liabilities
arising as a result of the Warrant Agent's negligence or wilful
misconduct.
(f) The Warrant Agent may resign its duties and be discharged
from all further duties and liabilities hereunder (except liabilities
arising as a result of the Warrant Agent's own negligence or wilful
misconduct), after giving 30 days' prior written notice to the Company.
At least 15 days prior to the date such resignation is to become
effective, the Warrant Agent shall cause a copy of such notice of
resignation to be mailed to the Registered Holder of each Warrant
Certificate at the Company's expense. Upon such resignation, or any
inability of the Warrant Agent to act as such hereunder, the Company
shall appoint a new warrant agent in writing. If the Company shall fail
to make such appointment within a period of 15 days after it has been
notified in writing of such resignation by the resigning Warrant Agent,
then the Registered Holder of any Warrant Certificate may apply to any
court of competent jurisdiction for the appointment of a new warrant
agent. Any new warrant agent, whether appointed by the Company or by
such a court, shall be a bank or trust company having a capital and
surplus, as shown by its last published report to its stockholders, of
not less than $10,000,000 or a stock transfer company. After acceptance
in writing of such appointment by the new warrant agent is received by
the Company, such new warrant agent shall be vested with the same
powers, rights, duties and responsibilities as if it had been
originally named herein as the Warrant Agent, without any further
assurance, conveyance, act or deed; but if for any reason it shall be
necessary or expedient to execute and deliver any further assurance,
conveyance, act or deed, the same shall be done at the expense of the
Company and shall be legally and validly executed and delivered by the
resigning Warrant Agent. Not later than the effective date of any such
appointment the Company shall file notice thereof with the resigning
Warrant Agent and shall forthwith cause a copy of such notice to be
mailed to the Registered Holder of each Warrant Certificate.
(g) Any corporation into which the Warrant Agent or any new
warrant agent may be converted or merged or any corporation resulting
from any consolidation to which the Warrant Agent or any new warrant
agent shall be a party or any corporation succeeding to the trust
business of the Warrant Agent shall be a successor warrant agent under
this Agreement without any further act, provided that such corporation
is eligible
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<PAGE>
for appointment as successor to the Warrant Agent under the provisions
of the preceding paragraph. Any such successor warrant agent shall
promptly cause notice of its succession as warrant agent to be mailed
to the Company and to the Registered Holder of each Warrant
Certificate.
(h) The Warrant Agent, its subsidiaries and affiliates, and
any of its or their officers or directors, may buy and hold or sell
Warrants or other securities of the Company and otherwise deal with the
Company in the same manner and to the same extent and with like effects
as though it were not Warrant Agent. Nothing herein shall preclude the
Warrant Agent from acting in any other capacity for the Company or for
any other legal entity.
SECTION 17. MODIFICATION OF AGREEMENT. Subject to the provisions of
Section 4(b), the parties hereto may by supplemental agreement make any changes
or corrections in this Agreement (i) that it shall deem appropriate to cure any
ambiguity or to correct any defective or inconsistent provision or manifest
mistake or error herein contained; (ii) to reflect an increase in the number of
Warrants which are to be governed by this Agreement resulting from an increase
in the size of the Private Placement; (iii) to reflect an increase in the number
of Warrants which are to be governed by this Agreement resulting from the
conversion of warrants issued to Commonwealth or its designees in connection
with the Private Placement; or (iv) that it may deem necessary or desirable and
which shall not adversely affect the interests of the holders of Warrant
Certificates; provided, however, that this Agreement shall not otherwise be
modified, supplemented or altered in any respect except with the consent in
writing of the Company, Commonwealth and a committee to be designated by
Commonwealth whose members hold in the aggregate not less than 20% of the
outstanding principal amount of the Preferred Shares or 20% of the outstanding
Warrants; provided, however, that no such amendment, modification or waiver
which would decrease the number of the securities purchasable upon the exercise
of any Warrant, or increase in the Exercise Price therefor (other than as a
result of the waiver or modification of any anti-dilution provisions contained
in Section 8 hereof), shall be made without the consent in writing of the
holders of not less than 50% of the outstanding Warrants.
SECTION 18. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
made when delivered or mailed first class registered or certified mail, postage
prepaid as follows: if to the Registered Holder of a Warrant Certificate, at the
address of such holder as shown on the registry books maintained by the Warrant
Agent; if to the Company, 29 West 38th Street, New York, New York 10018, Att:
Peter J. Fiorillo; if to the Warrant Agent, at its Corporate Office and if to
Commonwealth, at Commonwealth Associates, 830 Third Avenue, New York, New York
10022, Attention: Carl Kleidman.
SECTION 19. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without
reference to principles of conflict of laws.
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<PAGE>
SECTION 20. BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the Company and the Warrant Agent (and their respective
successors and assigns) and the holders from time to time of Warrant
Certificates. Nothing in this Agreement is intended or shall be construed to
confer upon any other person any right, remedy or claim, in equity or at law, or
to impose upon any other person any duty, liability or obligation.
SECTION 21. TERMINATION. This Agreement shall terminate on the earlier
to occur of (i) the close of business on the Expiration Date of all the
Warrants; or (ii) the date upon which all Warrants have been exercised or
redeemed.
SECTION 22. COUNTERPARTS. This Agreement may be executed in several
counterparts, which taken together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
EB2B COMMERCE, INC.
By: \s\ Peter J. Fiorillo
------------------------------------------
Name: Peter J. Fiorillo
Title: Chief Executive Officer
COMMONWEALTH ASSOCIATES, L.P.
By: Commonwealth Associates Management Company,
Inc., its general partner
By: \s\ Joseph Wynne
-------------------------------------------
Name: Joseph Wynne
Title: Chief Financial Officer
AMERICAN STOCK TRANSFER & TRUST
COMPANY
By: \s\ Herbert J. Lemmer
-------------------------------------------
Name: Herbert J. Lemmer
Title: Vice President
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<PAGE>
THIS WARRANT AND ANY SHARES OF COMMON STOCK ISSUABLE UPON ITS EXERCISE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED
UNTIL (1) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (THE "ACT")
SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO, OR (2) RECEIPT BY THE ISSUER
OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER TO THE EFFECT
THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED
TRANSFER NOR IS SUCH TRANSFER IN VIOLATION OF ANY APPLICABLE STATE SECURITIES
LAWS.
No. PW _____ ________ Warrants
VOID AFTER NOVEMBER _, 2006
WARRANT CERTIFICATE FOR PURCHASE
OF COMMON STOCK
EB2B COMMERCE, INC.
This certifies that FOR VALUE RECEIVED ____________________ or
registered assigns (the "Registered Holder") is the owner of the number of
Warrants ("Warrants") specified above. Each Warrant initially entitles the
Registered Holder to purchase, subject to the terms and conditions set forth in
this Certificate and the Warrant Agreement (as hereinafter defined), one fully
paid and nonassessable share of Common Stock, $.001 par value ("Common Stock")
of eB2B Commerce, Inc., a Delaware corporation (the "Company") at any time
commencing on the Initial Exercise Date and prior to the Expiration Date (both
as hereinafter defined), upon the presentation and surrender of this Warrant
Certificate with the Subscription Form on the reverse hereof duly executed, at
the corporate office of American Stock Transfer & Trust Company, as Warrant
Agent, or its successor (the "Warrant Agent"), accompanied by payment of an
amount equal to $5.50 for each Warrant (the "Exercise Price") in lawful money of
the United States of America in cash or by official bank or certified check made
payable to eB2B Commerce, Inc. The Company may, at its election, reduce the
Exercise Price.
This Warrant Certificate and each Warrant represented hereby
are issued pursuant to and are subject in all respects to the terms and
conditions set forth in the Warrant Agreement (the "Warrant Agreement"), dated
November _, 1999 by and among the Company, the Warrant Agent and Commonwealth
Associates, L.P.
In the event of certain contingencies provided for in the
Warrant Agreement, the Exercise Price or the number of shares of Common Stock
subject to purchase upon the exercise of each Warrant represented hereby are
subject to modification or adjustment.
A-1
<PAGE>
Each Warrant represented hereby is exercisable at the option
of the Registered Holder, but no fractional shares of Common Stock will be
issued. In the case of the exercise of less than all the Warrants represented
hereby, the Company shall cancel this Warrant Certificate upon the surrender
hereof and shall execute and deliver a new Warrant Certificate or arrant
Certificates of like tenor, which the Warrant Agent shall countersign, for the
balance of such Warrants.
The term "Initial Exercise Date" shall mean November __, 1999.
The term "Expiration Date" shall mean 5:00 P.M. (New York
time) on November _, 2006. If such date shall in the State of New York be a
holiday or a day on which the banks are authorized to close, then the Expiration
Date shall mean 5:00 P.M. (New York time) the next following day which in the
State of New York is not a holiday or a day on which banks are authorized to
close. The Company may, at its election, extend the Expiration Date.
This Warrant Certificate is exchangeable, upon the surrender
hereof by the Registered Holder at the corporate office of the Warrant Agent,
for a new Warrant Certificate or Warrant Certificates of like tenor representing
an equal aggregate number of Warrants, each of such new Warrant Certificates to
represent such number of Warrants as shall be designated by such Registered
Holder at the time of such surrender. Upon due presentment with any tax or other
governmental charge imposed in connection therewith, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any of the rights of a stockholder of
the Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
The Warrants represented hereby may be redeemed at the option
of the Company, at a redemption price of $.05 per Warrant at any time, provided
the Market Price (as defined in the Warrant Agreement) for the Common Stock
shall exceed 300% of the then current Exercise Price for the 20 consecutive
trading days ending on the fifth trading day prior to the date of the notice of
redemption and subject to adjustment as set forth in the Warrant Agreement and a
registration statement covering the Warrant Shares filed under the Securities
Act of 1933, as amended, has been declared effective and remains effective on
the date fixed for redemption of the Warrants. Notice of redemption shall be
given not later than the thirtieth day before the date fixed for redemption, all
as provided in the Warrant Agreement. On and after the date fixed for
redemption, the Registered Holder shall have no rights with respect to the
Warrants represented hereby except to receive the $.05 per Warrant upon
surrender of this Warrant Certificate.
A-2
<PAGE>
Prior to due presentment for registration of transfer hereof,
the Company may deem and treat the Registered Holder as the absolute owner
hereof and of each Warrant represented hereby (notwithstanding any notations of
ownership or writing hereon made by anyone other than a duly authorized officer
of the Company) for all purposes and shall not be affected by any notice to the
contrary.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or in facsimile by two of its officers
thereunto duly authorized and a facsimile of its corporate seal to be imprinted
hereon.
EB2B COMMERCE, INC.
Dated: November __, 1999
By:_____________________________
By:_____________________________
[seal]
AMERICAN STOCK TRANSFER & TRUST
COMPANY
By:_____________________________
A-3
<PAGE>
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to
exercise ____ Warrants represented by this Warrant Certificate, and to purchase
the securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
-----------------------------
-----------------------------
-----------------------------
-----------------------------
[please print or type name and address]
and be delivered to
-----------------------------
-----------------------------
-----------------------------
-----------------------------
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
Dated: _____________________
X______________________
-----------------
------------------
Address
----------------------
Taxpayer Identification Number
- --------------------------
Signature Guaranteed
A-4
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, __________________ hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
-----------------------------
-----------------------------
-----------------------------
-----------------------------
[please print or type name and address]
_______________________ of the Warrants represented by this Warrant Certificate,
and hereby irrevocably constitutes and appoints_________________________________
_______________________________ Attorney to transfer this Warrant Certificate
on the books of the Company, with full power of substitution in the premises.
Dated: ____________________
X________________________
Signature Guaranteed
- -------------------------
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
A-5
<PAGE>
January 14, 2000
Board of Directors
DynamicWeb Enterprises, Inc.
271 Rt 46 West
Building F
Fairfield NJ 07004
Ladies and Gentlemen:
DynamicWeb Enterprises, Inc., a New Jersey company ("Dweb"), and eB2B Commerce,
Inc. ("eCom"), a Delaware company, have entered into an agreement and plan of
merger (the "Agreement") providing for the merger (the "Merger") of eCom into
Dweb. The Merger is expected to take place on or around April 15, 2000.
Capitalized terms used herein without definition have the meanings set forth in
the Agreement.
In accordance with the Agreement, the proposed Merger will be accomplished by:
Common Stock Conversion. At the Effective Time, each outstanding share of
eCom Common Stock shall be converted into the right to receive a number of
shares of Dweb Common Stock equal to one share of eCom Common Stock
multiplied by the Exchange Ratio.
The Exchange Ratio means the ratio determined by calculating a fraction,
the numerator of which shall be equal to the sum of (i) 25,000,000, plus
(ii) 5 multiplied by (A) the number of shares of Existing Common Stock (and
Existing Preferred Stock, and warrants, options and other securities
convertible into Existing Common Stock, all on an as-converted, fully
diluted basis) outstanding immediately prior to the Effective Time, minus
(B) 5,000,000, and the denominator of which shall be the number of shares
of eCom Common Stock (and eCom Preferred Stock and eCom Options and other
securities convertible into eCom Common Stock, all on an as-converted,
fully diluted basis) outstanding immediately prior to the Effective Time.
In addition, to the extent eCom raises capital in excess of $15 million
(which it did of approximately $18 million, for a total of approximately
$33 million) through its financing represented by a private placement
memorandum dated November 1, 1999 and subsequently amended and updated,
each such additional share of eCom Common Stock (on an as-converted, fully
diluted basis) will be converted into the right to receive a number of
shares of Dweb Common Stock equal to one share of eCom Common Stock
multiplied by the Exchange Ratio.
Preferred Stock and Other Securities Conversion. At the Effective Time,
each share of eCom Preferred Stock, and each eCom Option and other security
convertible into eCom Common Stock outstanding immediately prior to the
Effective Time, shall be converted into the right to receive, respectively,
shares of Dweb Preferred Stock, Company Options or other securities
convertible into Dweb Common Stock, as the case may be. The number of
shares of Dweb Common Stock issuable upon exercise or conversion of each
share of such Dweb Preferred Stock, and each Dweb Option or other security
convertible into Dweb Common Stock shall be calculated by multiplying (i)
the number of shares of eCom Common Stock into which each share of such
eCom Preferred Stock, each eCom Option or other
<PAGE>
security convertible into eCom Common Stock is exercisable or convertible
by (ii) the Exchange Ratio. The exercise or conversion price of each share
of such Dweb Preferred Stock, each Dweb Option or other security
convertible into Dweb Common Stock shall be calculated by dividing (i) the
exercise or conversion price of each share of such eCom Preferred Stock,
each eCom Option or other security convertible into eCom Common Stock by
(ii) the Exchange Ratio.
You have asked us whether or not, in our opinion, the proposed Merger through
the exchange of shares as described above, is fair, from a financial point of
view, to your shareholders.
In arriving at the opinion set forth below, we have among other things:
1. Reviewed the Agreement;
2. Reviewed Dweb's recent SEC filings including its most recently available
Annual Report on Form 10-KSB and certain Quarterly Reports on Forms 10-Q;
3. Reviewed Dweb's internal business and financial analyses prepared by Dweb's
management;
4. Reviewed eCom's private placement memorandum dated November 1, 1999
including subsequent amendments and updates to the memorandum; recent
financial results; and certain internal financial analyses and business
forecasts prepared by eCom's management;
5. Visited the corporate headquarters of both Dweb and eCom and conducted
meetings with members of management of Dweb and of eCom to discuss their
businesses and business prospects;
6. Performed a variety of financial and comparative analyses, including, but
not limited to:
i) Evaluation of certain financial information and ratios of
publicly-traded companies similar to Dweb;
ii) Evaluation of certain financial information and ratios of
publicly-traded companies similar to eCom;
iii) Evaluation of the financial terms of the proposed Merger;
iv) Comparison of the financial terms of the proposed Merger with
certain other mergers, acquisitions and business combination
transactions we deemed to be relevant; and
v) Reviewed such other financial studies and analyses and performed
such other investigations and took into account such other
matters as we deemed necessary, including our assessment of
general economic, market and monetary conditions.
Due to the significant reorganization of the business of Dweb and eCom and
uncertain nature of long-term consolidated, pro forma projections anticipated to
result from the Merger, we did not perform a discounted cash flow analysis to
arrive at our opinion.
In preparing our opinion, we have relied upon and assumed without independent
verification, the accuracy and completeness of all publicly available financial
information and all financial information furnished or otherwise communicated to
us by Dweb and by eCom. We have not made any appraisal of the assets of Dweb or
eCom, nor have we evaluated any other business combinations or acquisitions
contemplated by either Dweb or eCom, nor have we expressed any opinion as to
what the value of Dweb will be after the Merger is consummated or the
<PAGE>
price at any time at which the common stock of Dweb will trade after the Merger.
Our opinion does not address the underlying business decision to enter into the
Merger.
It is understood that this letter may not be disclosed or otherwise referred to
without our prior consent, except as may otherwise be required by law or by a
court of competent jurisdiction; provided, however, that we hereby consent to
the inclusion of this opinion in any registration statement or proxy statement
used in connection with the Merger so long as the opinion is included in its
entirety in such registration statement or proxy statement.
On the basis of, and subject to the foregoing, we are of the opinion that the
proposed exchange of shares contemplated by the Merger is fair to Dweb's
shareholders, from a financial point of view.
Sincerely,
Auerbach, Pollak & Richardson, Inc.
DRAFT
Michael P. Considine
Executive Vice President
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to inclusion in this Registration Statement/Prospectus on Form S-4 of
our report dated November 19, 1999 (November 23, 1999, with respect to Note
M[3]; December 17, 1999 with respect to Note M[4]) on our audits of the
financial statements of DynamicWeb Enterprises, Inc., a New Jersey corporation,
as of September 30, 1999 and for each of the years in the two-year period ended
September 30, 1999. We also consent to the reference of our firm under the
captions "Experts" in the Prospectus.
/s/ Richard A. Eisner & Company, LLP
New York, New York
January 20, 2000
<PAGE>
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated December 22, 1999, except for the last paragraph of Note
7, as to which the date is January 10, 2000, with respect to the financial
statements of eB2B Commerce, Inc. as of December 31, 1998 and for the period
from November 6, 1998 (inception) through December 31, 1998 included in the
Proxy Statement of DynamicWeb Enterprises, Inc. that is made a part of the
Registration Statement (Form S-4) and Prospectus of DynamicWeb Enterprises, Inc.
for the registration of 38,965,450 shares of its common stock.
New York, New York
January 24, 2000
<PAGE>
INDEPENDENT AUDITORS' CONSENT
- --------------------------------------------------------------------------------
We consent to the inclusion in this registration statement on Form S-4 of
our report dated March 16, 1999, except for the second, third, fourth,
fifth, sixth, seventh, and eighth through tenth paragraphs of Note 17
which are as of March 31, 1999, July 19, 1999, July 22, 1999, October 31, 1999,
December 1, 1999 and January 7, 2000, respectively, on our audit of the
consolidated financial statements of NETLAN Enterprises Inc. and Subsidiaries as
of and for the year ended December 31, 1998. We also consent to the reference to
our firm under the caption "Experts".
/s/ Rothstein, Kass & Company, P.C.
New York, New York
January 24, 2000
<PAGE>
A |X| Please mark your votes as in this example.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
1. Approval of the Agreement and Plan of Merger,
dated December 1, 1999, by and between the
Company and eB2B Commerce, Inc. ("eB2B").
---------- ------------- -------------
2. Approval of a proposal to merge the Company
into a newly-formed, wholly-owned Delaware
subsidiary, with the subsidiary as the
surviving entity of such merger, in order to
change the state of incorporation of the
Company from New Jersey to Delaware, which
merger is contingent upon and would take place
immediately prior to the proposed merger with
eB2B, and an increase in the authorized capital
stock from [____] shares to [____] shares of
capital stock.
---------- ------------- -------------
3. Adoption of the 2000 Stock Option Plan.
---------- ------------- -------------
4. Adoption of the 2000 Long-Term Incentive Plan.
---------- ------------- -------------
5. In their discretion, the above named proxies are authorized to vote in
accordance with their own judgment upon such other business as may
properly come before the meeting.
</TABLE>
This Proxy, when properly executed, will be voted in the manner directed herein
by the undersigned stockholder. If no direction is indicated, this Proxy will be
voted "FOR" items 1, 2, 3 and 4 and the Proxies will use their discretion with
respect to any matters referred to in item 5.
The undersigned hereby acknowledges receipt of a copy of the accompanying Notice
of Special Meeting of Stockholders and Proxy Statement/Prospectus and hereby
revokes any Proxy or Proxies heretofore given.
SIGNATURE(S):_________________________ ___________________________________
(Signature if jointly)
DATED: _________, 2000
NOTE: Please complete, date and sign exactly as your name appears hereon.
When signing as attorney, administrator, executor, guardian, trustee or
corporate official, please add your title. If shares are held jointly,
each holder should sign.
<PAGE>
DYNAMICWEB ENTERPRISES, INC.
PROXY FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL _____, 2000
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Steven L. Vanechanos, Jr. or Steve
Vanechanos, Sr., and each of them, proxies of the undersigned, with full power
of substitution, to vote all shares of Common Stock of DynamicWeb Enterprises,
Inc., a New Jersey corporation (the "Company"), which the undersigned is
entitled to vote at the Special Meeting of Stockholders of the Company to be
held at [_________], located at [_______________________], on [_____], April
[_____], 2000 at 10:00 a.m. (local time), or any adjournment thereof, with all
the powers the undersigned would have if personally present, on the following
matters:
IMPORTANT: SIGNATURE AND DATE REQUIRED ON REVERSE SIDE
YOUR VOTE IS IMPORTANT
VOTE IN-PERSON OR BY MAIL
MAILING INSTRUCTIONS
- - Mark, sign and date your proxy card.
- - Detach your proxy card.
- - Return your proxy card in the postage-paid envelope provided or return it to:
[___________]
