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REGISTRATION STATEMENT NO. 333-95283
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM S-4 /A1
AMENDMENT NO. 1 TO
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
INCORPORATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION 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. [ ]
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. [ ]
(Cover continued on next page)
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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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(Cover continued from previous page)
CALCULATION OF REGISTRATION FEE
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===========================================================================================================
PROPOSED
MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE(2) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------
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Common Stock, par value $0.0001 per
share............................. 38,604,647(1) N/A $75,665,107 $19,976(3)
===========================================================================================================
</TABLE>
(1) Based upon the product of (i) 14,513,025, the sum of (a) 2,915,089, 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) 4,297,937, the number of shares of common stock of eB2B issuable
upon exercise of all of the outstanding warrants of eB2B, and
(e) 1,150,000, the number of shares of common stock of eB2B issuable upon
conversion of all of the outstanding options of eB2B; and (ii) 2.66, 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 $1.96
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.
(3) A fee in the amount of $22,323 was previously paid.
<PAGE>
[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.
If the merger is completed:
Company stockholders will continue to own their existing shares.
Each share of eB2B common stock will be exchanged for 2.66 shares of
Company common stock (the 'Exchange Ratio'), subject to adjustment as set
forth in the merger agreement.
Each share of eB2B preferred stock, warrant, option or other security
convertible into eB2B common stock will be exchanged for shares of Company
preferred stock, warrants, 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, warrants, 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,
warrants, options or other convertible securities being exchanged by (ii)
the Exchange Ratio. The exercise or conversion price of the Company
preferred stock, warrants, options or other convertible securities being
delivered will be determined by dividing (i) the exercise or conversion
price of the eB2B preferred stock, warrant, 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 certain amendments to the Company's
certificate of incorporation to change the Company's name, to increase the
authorized number of shares, to authorize the creation of new series of
preferred stock and eliminate certain anti-takeover provisions 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. You may vote your shares by completing and returning the enclosed
proxy card or you may vote via the Internet or by telephone. Instructions for
voting via the Internet or by telephone are in the enclosed proxy
statement/prospectus.
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 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 the Ramada Inn, 38 Two Bridges
Road, Fairfield, New Jersey 07004, on Tuesday, April 18, 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.
<PAGE>
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 21, 2000
AND FIRST MAILED TO COMPANY STOCKHOLDERS ON MARCH 22, 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.
<PAGE>
DYNAMICWEB ENTERPRISES, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON TUESDAY, APRIL 18, 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 the Ramada Inn, 38 Two Bridges Road,
Fairfield, New Jersey 07004, on Tuesday, April 18, 2000, at 10:00 a.m., local
time, to vote on:
1. Approval of the Agreement and Plan of Merger, dated December 1, 1999,
as amended by Amendment No. 1, dated as of February 29, 2000, by and between
the Company and eB2B Commerce, Inc. ('eB2B').
2. Approval of the proposal to amend and restate the Company's
certificate of incorporation to change the name of the Company, to increase
the number of authorized shares of capital stock, to authorize the creation
of new series of preferred stock, and to eliminate certain anti-takeover
provisions.
3. 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
Tuesday, March 21, 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, as amended, certain
amendments to the Company's certificate of incorporation 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 21, 2000
Your vote is important. Whether or not you plan to attend the Company's
special meeting, please submit your proxy promptly either via the Internet, by
telephone or by mail. 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.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THE COMPANY/eB2B MERGER........ 4
SUMMARY..................................................... 6
The Companies........................................... 6
The Merger.............................................. 6
What eB2B Stockholders Will Receive in the Merger....... 6
Reasons for the Merger.................................. 6
Recommendations to Company Stockholders................. 7
Share Ownership by Directors and Officers and Votes
Required for Approval of the Merger.................... 7
Opinion of Financial Advisor............................ 7
Interests of Certain Persons Involved in the Merger..... 7
Board of Directors and Management of the Company
Following the Merger................................... 8
Dissenters' Rights of Appraisal......................... 8
Regulatory Approval..................................... 8
Federal Income Tax Consequences......................... 8
Exchange of Stock Certificates.......................... 8
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION...... 9
RISK FACTORS................................................ 13
Risks Relating to the Merger............................ 13
Risks Relating to the Business of the Combined
Companies.............................................. 16
Risks Relating to an Investment in the Company's Common
Stock.................................................. 23
THE COMPANY'S SPECIAL MEETING............................... 26
Purpose, Time and Place................................. 26
Record Date; Voting Power............................... 26
Votes Required.......................................... 26
Voting of Proxies....................................... 27
Revocability of Proxies................................. 27
Solicitation of Proxies and Consents.................... 27
Share Ownership of Management and Certain
Stockholders........................................... 28
PROPOSAL NUMBER ONE: THE MERGER............................. 31
General................................................. 31
Background of the Merger................................ 31
Recommendation of the Company's Board of Directors and
the Company's Reasons for the Merger................... 32
eB2B's Reasons for the Merger........................... 33
Opinion of Financial Advisor............................ 34
Terms of the Merger Agreement, as Amended............... 38
Other Agreements........................................ 45
Material Federal Income Tax Consequences................ 46
Directors and Principal Officers of the Company after
the Merger............................................. 47
Interests of Certain Persons in the Merger.............. 49
Insurance and Indemnification........................... 49
Accounting Treatment.................................... 50
Dissenters' Rights of Appraisal......................... 50
DESCRIPTION OF COMPANY SECURITIES........................... 51
COMPARATIVE RIGHTS OF STOCKHOLDERS OF THE COMPANY AND
eB2B...................................................... 52
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS................................................ 56
INFORMATION ABOUT THE COMPANY............................... 60
Business of the Company................................. 60
Financial Statements.................................... 65
Management's Discussion and Analysis of Financial
Condition and Results of Operations of the Company..... 65
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2
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PAGE
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INFORMATION ABOUT eB2B...................................... 69
Business of eB2B........................................ 69
Financial Statements of eB2B............................ 77
Management's Discussion and Analysis of Financial
Condition and Results of Operations of eB2B............ 77
Financial Statements of Netlan..........................
Management's Discussion and Analysis of Financial
Condition and Results of Operations of Netlan.......... 79
PROPOSAL NUMBER TWO: AMENDMENTS TO THE COMPANY'S CERTIFICATE
OF INCORPORATION.......................................... 81
Change of Company's Name to eB2B Commerce, Inc.......... 81
Increase in Number of Authorized Shares of Capital
Stock.................................................. 81
Authorization of Series A Preferred Stock and Series B
Preferred Stock........................................ 82
Elimination of Classes and Certain Qualifications for
Directors.............................................. 84
Elimination of Certain Anti-Takeover Provisions......... 84
PROPOSAL NUMBER THREE: ADOPTION AND APPROVAL OF THE 2000
STOCK OPTION PLAN......................................... 85
TRADEMARK MATTERS........................................... 89
LEGAL MATTERS............................................... 89
EXPERTS..................................................... 89
WHERE YOU CAN FIND MORE INFORMATION ABOUT THE COMPANY....... 90
PREDICTIONS AND FORWARD-LOOKING INFORMATION................. 90
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES................................ 91
APPENDICES
APPENDIX A -- Agreement and Plan of Merger.................. A-1
APPENDIX B -- Amendment No. 1 to Agreement and Plan of
Merger.................................................... B-1
APPENDIX C -- Fairness Opinion of Auerbach, Pollak &
Richardson, Inc. dated March 16, 2000..................... C-1
APPENDIX D -- Amended and Restated Certificate of
Incorporation (proposed).................................. D-1
APPENDIX E -- Company Financial Statements for the year
ended September 30, 1999 and quarter ended December 31,
1999 (unaudited).......................................... E-1
APPENDIX F -- eB2B Financial Statements from November 6,
1998 (inception) to December 31, 1998 and for the year
ended December 31, 1999 and Netlan Financial Statements
for the years ended December 31, 1998 and 1999............ F-1
APPENDIX G -- Form of Proxy................................. G-1
APPENDIX H -- 2000 Stock Option Plan........................ H-1
</TABLE>
3
<PAGE>
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 the merger in greater detail, see pages 32 to 34.
Q: WILL THE MERGER HAVE ANY EFFECT ON THE CURRENTLY OUTSTANDING SHARES OF THE
COMPANY'S COMMON STOCK?
A: The merger with eB2B will not have any effect on the currently outstanding
shares of Company common stock. However, the number of outstanding shares of the
Company's common stock will increase from approximately 5.1 million shares to
approximately 46 million shares (on a fully-diluted basis) as a result of the
issuance of Company common stock to eB2B's stockholders in connection with the
merger. Of the fully-diluted shares to be outstanding after the merger,
approximately 38.6 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 90 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. Stockholders may also vote via the Internet or
by telephone by following the instructions printed on the proxy card.
Furthermore, a stockholder may also attend the special meeting in person instead
of submitting a proxy or a vote by the Internet or telephone. A stockholder
should be aware that if the stockholder fails to either return the proxy card,
to vote by the Internet or telephone 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 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 four 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, a
stockholder may vote by telephone or the Internet at a later date. Fourth, the
Company's stockholders may attend the
4
<PAGE>
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 shortly
after the special meeting.
Q: AFTER THE MERGER, IS THE COMPANY ASSURED OF A LISTING ON THE NASDAQ STOCK
MARKET?
A: In conjunction with the merger, the Company has submitted an application
pending completion of the merger for a listing of the combined company after the
merger 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 the six existing directors of eB2B. 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 47 through 49.
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 to approve certain amendments to the Company's certificate of
incorporation. The Company's stockholders will also be asked to vote 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 90.
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:
Victor L. Cisario
Chief Financial Officer
eB2B Commerce, Inc.
29 West 38th Street
New York, New York 10018
Telephone: (212) 868-0920
5
<PAGE>
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, as amended, is the document that governs the merger of
eB2B with the Company. The merger agreement is attached to this proxy
statement/prospectus as Appendix A and the amendment to the merger agreement is
attached to this proxy statement/prospectus as Appendix B. The Company
encourages you to read these documents as they are the legal documents that
govern the merger.
WHAT eB2B STOCKHOLDERS WILL RECEIVE IN THE MERGER
Each share of eB2B common stock will be exchanged for 2.66 shares of Company
common stock, subject to adjustment as set forth in the merger agreement.
Each share of eB2B preferred stock, warrant, option or other securities
which is 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) 2.66, subject to
adjustment as set forth in the merger agreement. 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) 2.66,
subject to adjustment as set forth in the merger agreement.
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
6
<PAGE>
gain effective financial sponsorship, to gain access to substantial capital and
potentially to attain a 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, as amended. The Company's board of directors also unanimously
recommends that the Company stockholders vote 'FOR' those amendments to and the
restatement of the Company's certificate of incorporation described herein and
'FOR' approval of the 2000 Stock Option Plan.
SHARE OWNERSHIP BY DIRECTORS AND OFFICERS AND
VOTES REQUIRED FOR APPROVAL OF THE MERGER
THE COMPANY
As of March 13, 2000, the Company's directors and officers, and their
affiliates, own approximately 18.1% 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, as of
March 13, 2000, approximately 14.4% 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% 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 C 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 34 to 38, 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 officers and directors of the Company 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 page 49 for more
information concerning these arrangements benefiting the Company's officers and
directors and those of eB2B.
7
<PAGE>
BOARD OF DIRECTORS AND MANAGEMENT OF THE
COMPANY FOLLOWING THE MERGER
THE BOARD OF DIRECTORS
Upon consummation of the merger, the Company's board of directors will
initially consist of six directors, all of whom are currently directors of eB2B.
MANAGEMENT
The present management team of eB2B will serve as the Company's management
team after the merger.
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 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 46,
'THE MERGER -- Material Federal Income Tax Consequences.'
EXCHANGE OF STOCK CERTIFICATES
COMPANY STOCKHOLDERS
Company stockholders should retain their stock certificates.
eB2B STOCKHOLDERS
After the merger is completed, eB2B stockholders will be sent written
instructions for exchanging their eB2B stock certificates for Company stock
certificates.
8
<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
which are incorporated by reference in this proxy statement/prospectus and with
'Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Company' included elsewhere 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 QUARTER ENDED
FISCAL YEAR ENDED SEPTEMBER 30, DECEMBER 31,
---------------------------------------------------- ---------------------------
1996*# 1997* 1998* 1999 1998 1999
------ ----- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues.......................... $ 460,067 $ 637,000 $ 1,187,000 $ 3,045,000 $ 540,000 $1,008,000
Cost of revenue....................... 152,399 253,000 719,000 1,790,000 383,000 496,000
Research and development costs........ 28,990 235,000 412,000 534,000 95,000 201,000
Marketing and sales expenses.......... -- 486,000 734,000 1,638,000 349,000 440,000
General and administrative expenses... 719,443 1,369,000 1,925,000 1,876,000 387,000 694,000
---------- ----------- ----------- ----------- ---------- ----------
Operating loss........................ (440,765) (1,706,000) (2,603,000) (2,793,000) (674,000) (823,000)
Gain on sale of asset................. -- -- -- 12,000 15,000
Purchased research and development.... -- (714,000) -- --
Interest income (expense)............. (14,465) (765,000) (351,000) 15,000 1,000 (3,000)
---------- ----------- ----------- ----------- ---------- ----------
Net loss.............................. (455,230) (3,163,000) (2,954,000) (2,766,000) (658,000) (826,000)
Cumulative dividends on preferred
stock................................ -- -- (77,000) (1,699,000) (164,000) (97,000)
---------- ----------- ----------- ----------- ---------- ----------
Net loss attributed to common
stockholders......................... $ (455,230) $(3,163,000) $(3,031,000) $(4,465,000) (822,000) (923,000)
---------- ----------- ----------- ----------- ---------- ----------
---------- ----------- ----------- ----------- ---------- ----------
Net loss per share (basic and
diluted)............................. $(.39) $(2.28) $(1.56) $(1.81) $(0.36) $(0.30)
Weighted average number of shares
outstanding (basic and diluted)...... 1,158,905 1,386,383 1,944,132 2,460,287 2,286,025 3,122,197
BALANCE SHEET DATA:
Working Capital....................... $ 200,157 $(1,043,923) $ 207,000 $ 245,000 $ (35,000) $ (81,000)
Total Assets.......................... 536,177 887,716 1,750,000 2,133,000 1,723,000 3,577,000
Long-Term Obligations................. 197,661 185,811 181,000 24,000 0 22,000
Stockholders' Equity.................. 261,684 (651,451) 1,189,000 1,269,000 978,000 894,000
</TABLE>
- ---------
* Reclassified revenue categories to conform to 1999 presentation of financial
statements.
# Reflects the consolidated financial statements of the Company and its
subsidiaries.
9
<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 of eB2B' and the financial statements and notes included elsewhere
in this proxy statement/prospectus.
The statement of operations data for period from November 6, 1998
(inception) to December 31, 1998 and the year ended December 31, 1999 have been
derived from eB2B's audited financial statements included elsewhere in this
proxy statement/prospectus, which have been audited by Ernst & Young, LLP. The
balance sheet data as of December 31, 1998 and 1999 has been derived from eB2B's
audited financial statements included elsewhere in this proxy statement/
prospectus, which have been audited by Ernst & Young, LLP. No cash dividends
have been declared or paid on the eB2B common stock.
<TABLE>
<CAPTION>
NOVEMBER 6, 1998
(INCEPTION) TO YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
----------------- -----------------
<S> <C> <C>
Statement of Operations Data:
Net Sales.............................................. $-- $ --
Cost of Goods Sold..................................... -- --
--------- ------------
Gross Profit........................................... -- --
Selling, general and administrative expenses........... 55,000 3,122,000
Software Development Expenses.......................... 53,000 571,000
--------- ------------
Total Costs and Expenses........................... 108,000 3,693,000
--------- ------------
Interest expense (including bridge loan financing costs of
$2,346,000).............................................. -- 2,360,000
--------- ------------
Net loss................................................... $(108,000) $ (6,053,000)
Deemed dividend on preferred stock......................... -- 29,442,000
--------- ------------
Net loss attributable to common stockholders............... $(108,000) $(35,495,000)
Net loss per share (basic and diluted)..................... $ (0.05) $ (13.95)
--------- ------------
--------- ------------
Number of shares outstanding (basic and diluted)........... 2,307,250 2,543,896
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1999
----------------- -----------------
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.............................. $ 10,000 $ 9,907,000
Investments available for sale......................... -- 15,986,000
Working Capital (Deficit).............................. (41,000) 27,098,000
Total Assets........................................... 384,000 29,064,000
Long-Term Debt......................................... 86,000 --
Stockholders' Equity................................... 247,000 28,009,000
</TABLE>
10
<PAGE>
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 merger
with eB2B. 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 twelve (12) months ended
December 31, 1999 have been combined with eB2B's results of operations for the
year ended December 31, 1999. For the purpose of the unaudited pro forma
condensed combined balance sheet data, the Company's balance sheet as of
December 31, 1999 has been combined with eB2B'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
DECEMBER 31, 1999
-----------------
<S> <C>
Pro Forma Condensed Combined Statement of Operations Data:
Net revenue............................................. $ 7,677,000
Loss before discontinued operations..................... (22,255,000)
Net loss attributable to common stockholders............ (51,697,000)
Net loss per share -- (basic and diluted)............... $ (5.15)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------
<S> <C>
Pro Forma Condensed Combined Balance Sheet Data:
Cash and cash equivalents............................... $ 11,811,000
Investments available for sale.......................... 15,986,000
Total assets............................................ 80,043,000
Long-term obligations................................... 86,000
Stockholders' equity.................................... 73,616,000
</TABLE>
COMPARATIVE PER SHARE DATA
The following table summarizes certain 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>
YEAR ENDED
THE COMPANY 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>
YEAR ENDED
eB2B DECEMBER 31, 1999
- ---- -----------------
<S> <C>
Historical Per Common Share Data:
Net loss from continuing operations -- (basic and
diluted).............................................. $(13.95)
Book value:............................................. $11.01
</TABLE>
eB2B SECURITIES
There is no established public trading market for any of eB2B's securities.
As of March 15, 2000, there were approximately 80 record holders of eB2B common
stock and approximately 2,915,089 shares of eB2B common stock outstanding. As of
March 15, 2000, there were approximately 13 record holders of 300 shares of
Series A Preferred Stock and approximately 522 record holders of approximately
3.3 million shares of Series B Preferred Stock outstanding, and convertible into
a total of approximately 6
11
<PAGE>
million shares of eB2B common stock. As of March 15, 2000, there were
outstanding options or warrants to purchase approximately 6.3 million shares of
eB2B common stock. As of March 15, 2000 there were no shares of eB2B common
stock that could be sold pursuant to Rule 144 under the Securities Act of 1933.
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. The closing sales price per share of the Company's common
stock on March 7, 2000, the last trading day preceding public announcement of
amendment no. 1 to the merger agreement, was $13.875. 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.
12
<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 March 10, 2000, the Company's common
stock traded as high as $19.75 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, options and other securities regardless of
the Company's actual operating performance.
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 the following:
13
<PAGE>
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
contends 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
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 a company experiencing stock price declines.
Similar litigation, if instituted against the Company, could result in
substantial costs and a diversion of the Company's management's attention and
resources. As a result, your investment in the Company's stock may become
illiquid and you may lose your entire investment.
14
<PAGE>
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 only
be able to use approximately $868,000 per year of its potential net operating
loss carryforwards.
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 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. If the merger is
not consummated as a result of the failure to obtain Company stockholder
approval, the loan to eB2B will immediately become due and will be payable
within thirty (30) days. In such event, the Company will need to immediately
seek substitute financing. 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 the 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 after termination is convertible into
Company Common Stock at $.25 per share by eB2B. If the merger is not
consummated as a result of the failure to obtain Company stockholder
approval, the loan to eB2B will immediately become due and will be payable
within thirty (30) days and the Company will need to immediately seek
substitute financing;
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 principal 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 to or more
attractive than 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.
15
<PAGE>
RISKS RELATING TO THE BUSINESS OF THE COMBINED COMPANIES
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 December
31, 1999, the Company had an accumulated deficit of $10,124,000. The
Company can not 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.
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 in the
business-to-business electronic commerce industry. Since both companies have a
limited operating history within the electronic commerce industry 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.
16
<PAGE>
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
Internet-based business-to-business commerce is a newly-emerging market.
Consequently, it is difficult to evaluate the Company's or eB2B's business 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.
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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 such breaches. Further, a well-publicized
compromise of security could deter potential customers from using the trading
communities or 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 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.
SYSTEM FAILURE OR DELAY COULD DETER FUTURE USE OF THE COMPANY'S SERVICES
The Company's business depends upon the satisfactory performance,
reliability and availability of the Company's systems and network
infrastructure. The performance and availability of such systems and
infrastructure may be damaged or interrupted due to natural disaster, break-ins,
hacker attacks, computer viruses or similar events. In addition, if traffic
levels increase, the Company may not be able to upgrade its systems and
infrastructure in a manner sufficient to avoid overloading or congestion, which
could lead to disruptions in service. Any system failure or interruption could
result in delays, loss of data or the inability to accept and confirm purchases.
Such decreased levels of customer service would reduce the volume of sales and
the attractiveness of the Company's products and services and would negatively
affect the Company's operating results.
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.
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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 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
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 new products and services that are commercially viable; or
introduce new 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.
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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 an insufficient number of other customers in the supply chain use
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:
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
The Company incorporates software licensed from third parties and any
defects or significant interruption in the availability of this software could
harm the Company's business. For example, the Company uses software from Oracle
Corporation, Sterling Commerce, Inc., TSI International Software
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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
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 the designated Chief Executive Officer of the Company following 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.
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Nevertheless, financial compensation may not replace the knowledge lost 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.
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, including errors
and omissions.
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.
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RISKS RELATING TO AN INVESTMENT IN THE COMPANY'S COMMON STOCK
THE AVAILABILITY OF CERTAIN SECURITIES FOR IMMEDIATE RESALE MAY NEGATIVELY
AFFECT THE PRICE OF THE COMPANY COMMON STOCK
Approximately 1.7 million shares of the Company's common stock issued in
conjunction with the merger to holders of eB2B securities who are not affiliates
of eB2B will be available for immediate resale upon consummation of the
merger. These shares are not subject to any lock-up agreement or any
restrictions imposed by the federal securities laws. In the event the holders of
such shares elect to sell such shares, the market price of the Company's common
stock may be adversely affected.
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 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 Company has submitted an application
pending completion of the merger for a listing of the combined company after the
merger 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. In such event, the
Company's stock would continue to trade in the over-the-counter market (which is
less liquid than The Nasdaq Stock Market).
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 22% of the Company's outstanding
common stock, on a fully diluted basis. If they vote 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. For example, in February 2000, Netlan
Enterprises, Inc. merged into a wholly-owned subsidiary of eB2B. Such
transactions, including the merger with Netlan Enterprises, Inc., 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;
the impairment of relationships with customers; and
if stock is used to pay for such transactions, the dilution of existing
stockholders.
If the Company fails to address these risks with respect to the transaction
with Netlan Enterprises, Inc. or any other potential business combination, it
may have a negative affect on the Company's business and stock price.
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'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 making 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's common stock has not traded on an
applicable national security exchange 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 following
the merger. 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 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 SHARES OF THE COMPANY'S COMMON STOCK
At times, the Company's common stock has not been actively traded 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.
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 outstanding, 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.
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Each of eB2B's directors, officers and principal stockholders and each of
the former stockholders of Netlan have entered into lock up agreements with
respect to their securities for a period of at least twelve (12) months from the
closing of eB2B's December 1999 private placement.
All of the directors, officers and principal stockholders of the Company
have also entered into lock up agreements prohibiting the sale of such
securities for various periods of time.
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 after the expiration of such lock up periods, the market price of
the Company common stock may be adversely affected.
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 its 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 Tuesday, April 18, 2000. The Company's special meeting will be held at the
Ramada Inn, 38 Two Bridges Road, Fairfield, New Jersey 07004, at 10:00 a.m.,
local time, and at any adjournments or postponements thereof.
At the Company's special meeting, 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,
as amended by amendment no. 1, dated as of February 29, 2000, by and
between the Company and eB2B, and the transactions contemplated thereby;
approve an amended and restated certificate of incorporation of the
Company, which will change the Company's name to eB2B Commerce, Inc.,
increase the number of authorized shares of the Company's capital stock to
250,000,000 shares, authorize the creation of new series of preferred stock
and eliminate certain anti-takeover provisions;
adopt 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 Tuesday, March 21, 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
special meeting. Votes at the Company's special meeting may be cast in person or
by proxy, or by the Internet or by telephone.
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 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 or you may vote via the Internet or by
telephone. Instructions for voting via the Internet or by telephone are in the
proxy attached hereto as Appendix G.
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 merger
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,
26
<PAGE>
beneficial owners of the Company's common stock whose stock is held by a broker
as a nominee should instruct their brokers as to how to vote their shares. See
'Voting of Proxies' below. The availability of telephone and Internet voting
will depend on the brokers' voting processes.
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.
Instructions for voting by telephone and the Internet, if made available to
you, are provided on the proxy. A control number, located above the
stockholder's name and address on the lower left of the proxy, is designed to
verify the stockholder's identity, allow the stockholder to vote such
stockholder's shares and confirm that the Company has properly recorded such
stockholder's voting instructions.
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 or
via the Internet, 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 above address, a duly
executed proxy with different instructions bearing a later date or time
than the proxy previously delivered to the Company;
voting by telephone or the Internet at a later date or time than the proxy
previously voted in such a manner; 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
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, e-mail 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 or the Internet. The telephone and
Internet 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. Instructions for voting by telephone
or the Internet are set forth on the proxy enclosed herewith. If your shares are
held in the
27
<PAGE>
name of a bank or broker, the availability of telephone and Internet voting will
depend on the policies of the bank or broker. Therefore, if your shares are held
in 'street name,' 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 or the
Internet, please date, sign and return the proxy card enclosed herewith by mail.
The Company will bear the cost of the solicitation of proxies from its own
stockholders. The Company has engaged the firm of Georgeson Shareholder
Communications, Inc. to assist in the distribution and solicitation of proxies.
The Company has agreed to pay Georgeson Shareholder Communications, Inc. a fee
of $7,500 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 February 29, 2000, information as to:
(a) the beneficial ownership of Company common stock by (i) each person serving
as a director of the Company 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 February 29, 2000.
Unless otherwise indicated in a footnote, each of the following persons held
sole voting and investment power, as of February 29, 2000, over the shares
listed as beneficially owned.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP PERCENT
BENEFICIAL OF OPTIONS EXERCISABLE OF
NAME AND ADDRESS OWNERSHIP OF WITHIN 60 DAYS OF COMMON
OF BENEFICIAL OWNER SHARES (8) FEBRUARY 29, 2000 (1) STOCK (3)
- ------------------- ---------- --------------------- ---------
<S> <C> <C> <C>
Steven L. Vanechanos, Jr.(6)........................ 416,950 140,748 10.49%
Steve Vanechanos, Sr.(4)(6)......................... 314,914 40,626 8.13%
Kenneth R. Konikowski(6)(7)......................... 159,598 25,000 4.14%
James D. Connors(6)................................. 253,255 253,255 6.20%
Robert J. Gailus(6)................................. 45,000 45,000 1.16%
Frank T. DiPalma(5)(6).............................. 18,802 12,017 0.49%
Robert Droste(6).................................... 13,488 11,334 0.35%
Denis Clark(6)...................................... 18,516 18,516 0.48%
All directors and executive officers as a group
(8 persons)....................................... 1,240,523 546,496 31.42%
</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 February 29, 2000,
including securities that will be beneficially owned, as a result of the
consummation of the merger. Beneficial ownership may be disclaimed as to
certain of the securities.
(2) Information furnished by the directors and executive officers of the
Company.
(footnotes continued on next page)
28
<PAGE>
(footnotes continued from previous page)
(3) Percentages based upon a total of (a) 3,709,407 shares outstanding as of
February 29, 2000, plus (b) each person's 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 as a result of the
merger.
(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 is c/o DynamicWeb Enterprises, Inc., 271 Rt. 46
West, Suite F209, Fairfield, New Jersey 07004.
(7) Does not include options that may be granted in connection with a settlement
of litigation.
(8) Includes beneficial ownership of options exercisable within 60 days of
February 29, 2000.
eB2B
The following table sets forth, as of February 29, 2000, 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 February 29, 2000.
As of February 29, 2000, eB2B had 2,915,089 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.
<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) 10.05%
Joseph Bentley(2)........................................... 554,294 (4) 4.04%
Kevin Hayes(2).............................................. 820,889 (5) 5.98%
Victor L. Cisario(2)........................................ 41,666 (6) 0.30%
Barry Goldstein(2).......................................... 41,666 (6) 0.30%
Christopher Byrnes(2)....................................... 17,500 (7) 0.13%
Michael S. Falk(8).......................................... 413,116(9) 3.01%
Timothy Flynn(8)............................................ 298,922(10) 2.18%
Commonwealth Associates, L.P(8)............................. 559,012(11) 4.36%
All directors and executive officers as a group (8 3,567,379 25.99%
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
16,000 shares of eB2B common stock gifted to family members.
(4) Includes 100,000 shares underlying immediately exercisable options and
18,180 shares of eB2B common stock gifted to family members.
(5) Includes 100,000 shares underlying immediately exercisable options.
(6) Includes 33,333 shares underlying immediately exercisable options and 8,333
options that will vest in 60 days.
(footnotes continued on next page)
29
<PAGE>
(footnotes continued from previous page)
(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 371,411 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 599,012 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.
(11) Includes 599,012 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,
including options and warrants exercisable within 60 days, giving effect to
shares underlying immediately exercisable options and warrants, the Series
A Preferred Stock, and the Series B Preferred Stock as follows: 13,726,951
shares.
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<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 Tuesday,
April 18, 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 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) to expand the scope of the Company's mission;
(2) to expand the depth of the Company's organization;
(3) to obtain effective financial sponsorship;
(4) to raise substantial capital; and
(5) to potentially 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. The Company worked with several financial advisors thereafter but was
unable to locate suitable transaction candidates at acceptable values. 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 or other transaction.
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 Commonwealth's 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.
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
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<PAGE>
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
tentatively agreed 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 to be agreed;
owners of eB2B preferred stock, warrants, options and other securities
convertible into eB2B common stock would 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. The definitive Agreement
and Plan of Merger was executed on December 1, 1999.
Subsequent to the execution of the merger agreement, the Company and eB2B
engaged in discussions concerning certain modifications to the merger agreement
proposed by the Company. The modifications agreed upon by the Company and eB2B
are reflected in Amendment No. 1 to Agreement and Plan of Merger, which was
executed on February 29, 2000.
RECOMMENDATION 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,
as amended, and recommends that the Company's stockholders vote FOR the approval
and adoption of the merger agreement, as amended, 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) to expand the scope of the Company's mission;
(2) to expand the depth of the Company's organization;
(3) to obtain effective financial sponsorship;
(4) to raise substantial capital; and
(5) to potentially attain a listing on The Nasdaq Stock Market.
- The written opinion of Auerbach, Pollak & Richardson, Inc. which states
that, as of the date of such opinion and based upon and subject to certain
matters stated in such opinion, the proposed issuance of shares contemplated by
the merger 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 review undertaken, is attached as
Appendix C to this 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
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<PAGE>
receives a competing proposal which the Company's board of directors determines
is more advantageous to the Company's stockholders than the merger with 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.
- The results of the Company's due diligence investigation of eB2B.
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
include 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 notwithstanding the fairness
opinion.
- 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 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 and Netlan Enterprises,
Inc., which was recently acquired by eB2B, 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
Company after the merger.
- Other applicable risks described in this proxy statement/prospectus
under 'Risk Factors' starting on page 13.
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.
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's stockholders vote FOR adoption and
approval of the merger agreement, as amended.
eB2B'S REASONS 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
33
<PAGE>
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 and 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;
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 13.
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 merger agreement as amended was fair to, and in the best
interests of, eB2B and its stockholders and that eB2B should proceed with the
merger.
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 was fair to
the stockholders of the Company from a financial point of view. Auerbach is a
nationally recognized investment banking firm that is regularly engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, private placements, and valuations for corporate and other
purposes. Auerbach was retained by the Company in December 1999. Neither
Auerbach nor any of its affiliates has previously provided any
34
<PAGE>
financial advisory services to the Company or had any other material
relationship with the Company or any of its affiliates. In connection with its
review of the fairness of the merger consideration, Auerbach did not provide any
recommendations concerning the amount of such consideration.
On March 16, 2000, Auerbach rendered to the Company's board a written
opinion that, as of such date and based upon the considerations set forth in the
opinion, the proposed issuance of shares contemplated by the merger 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 C 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 holders 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 and the amendment thereto; (iii) reviewed the Company's filings
with the Securities and Exchange Commission, including the most recent report on
Form 10-KSB and certain quarterly reports on Form 10-QSB, and audited financial
statements for the Company for the year ended September 30, 1998, and
September 30, 1999 and unaudited statements for the quarter ended December 31,
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 the audited financial results for the years ended December 31,
1998 and 1999 and the unaudited financial results for the year ended
December 31, 1997, for Netlan; (vii) reviewed the audited financial results for
the years ended December 31, 1998 and 1999, for eB2B; (viii) reviewed certain
internal financial analyses and business forecasts for eB2B and Netlan prepared
by management and agents for each firm; (ix) visited the corporate headquarters
and conducted meetings with members of management of the Company, eB2B and
Netlan, in which the companies' management discussed their businesses and
business prospects; and (x) 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, eB2B and Netlan 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, eB2B or
Netlan and was not furnished with any such valuation or appraisal. Due to the
significant reorganization of the businesses of the Company, eB2B and Netlan and
the uncertain nature of long-term, consolidated pro forma projections
anticipated to result from the merger, Auerbach did not perform a discounted
cash flow analysis to arrive at its opinion. Any inaccuracies or omissions in
the information on which Auerbach relied could materially affect its opinion.
In conjunction with rendering its written opinion, dated March 16, 2000, to
the board of directors of the Company, Auerbach presented an initial summary of
its analysis to the board on January 14, 2000 and an updated summary of its
analysis to the board on March 16, 2000. Set forth below is a brief summary of
the analyses performed by Auerbach in reaching its March 16, 2000 opinion.
Analysis of selected comparable publicly traded companies. Using publicly
available information and estimates of future financial results published by
IBES, 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,
eB2B and
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Netlan with the corresponding financial and operating information for twenty-two
publicly-traded companies involved in the general business areas of providing
(1) business-to-business vertical Internet portals; (2) business-to-business
software and services; (3) business-to-business packaged applications; and (4)
Internet services companies. All multiples were based on closing stock prices as
of March 10, 2000.
The business-to-business vertical Internet portal companies used in
Auerbach's analysis included: Retek, Inc.; Sourcing Link.net, Inc.; Commerce
One, Inc.; Entrade, Inc.; Cyber Merchants Exchange, Inc.; and VerticalNet, Inc.
Auerbach's analysis yielded public company market multiples in ranges of
approximately 41x to 1,114x total market value to revenues; and 22x to 158x
equity 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 5x and equity value to book value
of 19x, based on the November 10, 1999 pre-announcement closing per share price
of $4.75, and total market value to revenue of 19x and equity value to book
value of 76x based on the March 10, 2000 closing per share price of $18.13.
The business-to-business software and services companies used in Auerbach's
analysis included: Harbinger Corporation; Sterling Commerce, Inc.; Calico
Commerce, Inc.; PurchasePro.com, Inc.; and Ariba, Inc. Auerbach's analysis
yielded public company market multiples in ranges of approximately 1x to 948x
total market value to revenues; and 1x to 264x equity 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 5x and
equity value to book value of 19x, based on the November 10, 1999
pre-announcement closing per share price of $4.75, and total market value to
revenue of 19x and equity value to book value of 76x based on the March 10, 2000
closing per share price of $18.13.
The business-to-business packaged application companies used in Auerbach's
analysis included: Open Market, Inc.; Interworld Corporation; Broadvision, Inc.;
and Vignette Corporation. Auerbach's analysis yielded public company market
multiples in ranges of approximately 42x to 294x total market value to revenues;
and 43x to 170x equity 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 5x and
equity value to book value of 19x, based on the November 10, 1999 pre-
announcement closing per share price of $4.75, and total market value to revenue
of 19x and equity value to book value of 76x based on the March 10, 2000 closing
per share price of $18.13.
The Internet services companies used in Auerbach's analysis include: Braun
Consulting, Inc.; Breakaway Solutions, Inc.; Luminant Corporation; Proxicom,
Inc.; Scient Corporation; Tanning Technology Corporation; and Viant Corporation.
Auerbach's analysis yielded public company market multiples in ranges of
approximately 6x to 125x total market value to revenues; and 2x to 100x equity
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 5x and equity value to book value of 19x, based on the
pre-announcement closing per share price of $4.75, and total market value to
revenue of 19x and equity value to book value of 76x based on the March 10, 2000
closing per share price of $18.13.
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, Inc., (b) LabX Technologies, Inc., (c) NECX
Exchange, LLC, and (d) Isadra, Inc.; Chemdex, Corp. in its transactions with (a)
Promedix.com, Inc. and (b) SpecialtyMD.com Corporation;
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Netgateway, Inc. in its transaction with Galaxy Enterprises, 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.; America Online, Inc. in its transaction with Netscape, Inc.;
Braun Consulting, Inc. in its transaction with Emerging Technologies
Consultants, Inc.; Vignette Corporation in its transactions with (a) Diffusion,
Inc. and (b) DataSage, Inc.; Calico Commerce in its transaction with
Connectinc.com Corporation; Razorfish, Inc. in its transaction with
International Integration, Inc.; Broadvision, Inc. in its transaction with
Interleaf, Inc.; Verisign, Inc. in its transactions with (a) Signio, Inc. and
(b) Network Solutions, Inc.; and Open Market, Inc. in its transaction with
FutureTense, 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 67% above its imputed fair market value.
No company or transaction used in the above analyses is identical to the
Company, eB2B, Netlan 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 condition 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 and the Company. 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 $135,000. 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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Auerbach's opinion is available for inspection and copying at the Company's
principal executive offices during regular business hours by any Company
stockholder or any representative of a Company stockholder so designated in
writing.
TERMS OF THE MERGER AGREEMENT, AS AMENDED
The following is a brief summary of the material provisions of the merger
agreement, as amended by the amendment no. 1 to the merger agreement, copies of
which are attached as Appendix A and Appendix B, respectively, to this proxy
statement/prospectus and incorporated by reference. The following summary of the
amended merger agreement does not purport to be complete. Stockholders of the
Company and eB2B are urged to read the merger agreement, as amended, 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 amended 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 and the Secretary of State of the
State of New Jersey.
CERTIFICATE OF INCORPORATION; BYLAWS
The certificate of incorporation and bylaws of the Company 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, following stockholder
approval, the Company's certificate of incorporation will be amended and
restated in connection with the consummation of the merger as described under
'Proposal Number Two -- Amendments to the Company's Certificate of
Incorporation.'
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.
THE MERGER CONSIDERATION
Each share of eB2B common stock will be exchanged for 2.66 shares of Company
common stock (the 'Exchange Ratio'), subject to adjustment as described below.
Each share of eB2B preferred stock, warrant, option or other security
convertible into eB2B common stock will be exchanged for shares of Company
preferred stock, warrants, 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, warrants,
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, warrants, options or other
convertible securities being exchanged by (ii) the Exchange Ratio, subject to
adjustment as described below. The exercise or conversion price of the Company
preferred stock, warrants, options or other convertible securities being
delivered will be determined by dividing (i) the exercise or conversion price of
the eB2B preferred stock, warrants, options or other convertible securities
being exchanged by (ii) the Exchange Ratio, subject to adjustment as described
below.
The Exchange Ratio may be adjusted if, at the merger, the former eB2B
stockholders would own greater or less than 88.12% of the fully-diluted
outstanding shares of the Company (provided that, for
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the purpose of calculating the percentage of shares owned by former eB2B
stockholders, the following securities are excluded: (A) with respect to eB2B,
(i) shares of eB2B stock underlying stock options granted to eB2B employees
after October 31, 1999, (ii) shares of eB2B stock underlying warrants granted to
eB2B customers after October 31, 1999, and (iii) eB2B securities issued in
connection with the merger with Netlan Enterprises, Inc. and (B) with respect to
the Company, shares of Company capital stock issued to new employees of the
Company after February 29, 2000).
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 certificates representing 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 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, the appropriate amount of Company securities into which
such eB2B securities were converted or exchanged pursuant to the merger
agreement. In addition, the exchange agent will distribute any dividends or
distributions which the former stockholder of eB2B 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
any stockholder of eB2B 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 for twelve (12) months after the consummation of the merger
will be delivered to the Company, upon demand. Also, any former stockholders of
eB2B 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 any cash to which they
are entitled.
The Company or the exchange agent will be entitled to deduct and withhold
from the consideration otherwise payable pursuant to the merger agreement to any
former stockholder of eB2B 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 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 eB2B stockholder may be
entitled pursuant to the merger agreement and any other distributions to which
the eB2B stockholder thereof may be entitled pursuant to the merger agreement.
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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;
insurance;
litigation;
product warranty;
product liability;
employees;
employee benefits;
environmental, health and safety matters;
certain business relationships;
Year 2000 compliance;
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; and
guaranties of other persons.
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.
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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 amendment of the Company's certificate of incorporation in a manner
acceptable to eB2B and the Company (See Proposal Number Two -- Amendments
to the Company's Certificate of Incorporation'); 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.
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 to obtain the other party's
written consent in order to:
authorize any change to the Company's or eB2B's certificate of
incorporation or bylaws (except as contemplated by the merger agreement);
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.
In addition to the foregoing restrictions, the Company also agreed not to
initiate new employment of any person on terms providing for compensation in
excess of $50,000 without eB2B's consent or file any Form S-3 or otherwise
register any of its securities other than in connection with this proxy
statement/prospectus.
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.
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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, 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.
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, as amended, 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 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.
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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.
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 (which has been completed as of December
1999).
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 to the extent that the merger constitutes a change of
control.
There must be in effect, with respect to the surviving corporation,
officers and directors liability insurance in the amount of $2 million (or
a lesser amount that is acceptable to the Company).
The merger agreement, as amended, and the merger must have received Company
stockholder approval and the certificates of merger must be filed.
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
executive performance agreement and a consulting agreement, containing the
terms summarized below under 'Interests of Certain Persons in the Merger.'
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
The merger agreement also requires each director and officer of the Company
to enter into a lock-up agreement. Under the lock-up agreement, such person
agrees to not sell, assign or transfer any Company securities until twelve (12)
months from December 16, 1999, and not more than 25% of such person's securities
during each subsequent 90 day period thereafter. In addition, if the Company
completes a private or public offering during the initial twelve (12) month
period after closing of the merger, which raises at least $20 million, such
person will not sell, assign or transfer the Company securities for a period of
up to 12 months after such offering. However, each person entering into the lock
up agreements will be permitted to sell a specified amount of such person's
securities ('unlocked shares') on the later of (i) 90 days after the merger or
(ii) the date such person is no longer an affiliate of the Company (as defined
in the federal securities laws), provided that, during any one week, such person
shall not sell, assign or transfer more than the greater of (i) 5,000 of such
unlocked shares or (ii) five percent (5%) of the average daily trading volume of
the Company's common stock for the previous week.
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.
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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 satisfied (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, in which case, each party will be responsible
for its 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. In addition, if prior
to the closing, the Company 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. At eB2B's option, the Company shall be deemed to have withdrawn
from or terminated the merger agreement if eB2B terminates the merger agreement
due to the Company's breach thereof (which is not cured, as described above); if
eB2B terminates the merger agreement because the closing has not occurred by
June 30, 2000 due to the Company's failure to fulfill any of its obligations
under the merger agreement; or if the Company's board of directors passes a
resolution to propose to eB2B any material modifications to the terms of the
merger agreement or any other agreement entered into in connection with the
merger agreement (except if the failure to pass such resolution would violate or
breach any fiduciary duty owed to the Company). However, no such break up fee
will be due if the merger agreement and the merger are not approved by the
Company's stockholders.
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.
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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
100,000 shares of Company common stock owned by Mr. Vanechanos. To secure his
obligations under the indemnification agreement, 100,000 shares of the Company's
common stock owned by Mr. Vanechanos 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.
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, and Amendment No. 2 to Loan Agreement, dated February 29,
2000. Under the loan agreement, as amended, eB2B has loaned the Company $2
million.
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 customary termination provisions, as
well as representations, warranties and covenants from the Company to eB2B.
In addition, the loan agreement provides that the loan will be immediately
due and payable within thirty (30) days if the Company does not obtain
stockholder approval of the merger.
Steven L. Vanechanos, Jr., has personally guaranteed repayment of the loan.
Mr. Vanechanos' obligations, if any, in connection with this guarantee will be
payable solely from 200,000 shares of common stock of the Company owned by Mr.
Vanechanos, which he has agreed to deliver to an escrow agent to secure such
obligations.
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.
The warrants are exerciseable only: (i) if the merger agreement is
terminated by mutual agreement or upon written notice to a party following such
party's breach of or failure of a condition precedent to the agreement, (ii) if
the Company otherwise withdraws from or terminates the merger agreement, or
(iii) if prior to the consummation of the merger, the Company is deemed by eB2B
to have otherwise withdrawn from or terminated the merger agreement due to the
board of directors of the Company passing a resolution that would propose to
eB2B any material modifications to the terms of the merger agreement or to any
other agreement executed and delivered by the parties pursuant to or in
connection with the merger agreement (except if the failure to pass such
resolution would violate or breach any fiduciary duty owed to the Company).
45
<PAGE>
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 amended
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
warrants 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.
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 eB2B 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
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<PAGE>
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.
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 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 only be able
to use approximately $868,000 per year of its potential net operating loss
carryforwards. The potential 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, as amended, all of the current
members of the Company's board will resign immediately prior to the consummation
of the merger. Immediately following the merger, the six directors of eB2B will
become the sole members of the Company's board. In addition, all of the
Company's executive officers 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 February 29, 2000) and
positions of all directors and executive officers of the Company after the
merger.
<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
Kevin Hayes.................... 40 Vice President, Director
Victor L. Cisario.............. 38 Chief Financial Officer, Secretary, Treasurer
Barry Goldstein................ 35 Chief Information Officer
Christopher Byrnes............. 42 Director
Michael S. Falk................ 38 Director
Timothy P. Flynn............... 49 Director
</TABLE>
Peter J. Fiorillo has served as Chief Executive Officer and President 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 (Nasdaq SC: FSVP),
serving as Executive Vice President from November 1994 to October 1998, as Chief
Financial Officer
47
<PAGE>
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 bachelor of arts degree 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 bachelor of
arts degree from Pace University.
Kevin Hayes has served as Vice President of eB2B since January 2000, and as
Chief Technology Officer of eB2B from November 1998 to January 2000. Mr. Hayes
has served 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 bachelor of science 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 (Nasdaq SC: 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 and administration for R.J. Rudden and Associates,
an energy industry consulting firm. Mr. Cisario received a bachelor of business
administration degree from Hofstra University and is a certified public
accountant in New York State.
Barry Goldstein has been eB2B's Chief Information Officer since January
2000. During the two years prior to joining eB2B, Mr. Goldstein served as Senior
Manager in the electronic commerce practice of Kurt Salmon Associates, a
management consulting company. Prior to that, Mr. Goldstein spent eight years
with Panasonic Company, serving as Vice President of Information Technology
during his last three years at Panasonic. Mr. Goldstein holds a bachelor of
science degree from Columbia University and a master of business administration
degree from Harvard University.
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 (Nasdaq NM: 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 (Nasdaq NM: FTRL), and
MCG Communications, Inc., a telecommunications company (Nasdaq NM: MGCX). Mr.
Flynn has also served on the board of directors of PurchasePro.com, Inc., a
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business-to-business electronic commerce company (Nasdaq NM: 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. All of the above executive
officers will hold office from the consummation of the merger and shall serve at
the discretion of the board of directors.
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 Company securities and
executive officers and directors of eB2B own securities of eB2B, as more fully
described elsewhere herein.
Steven L. Vanechanos, Jr., the Company's Chief Executive Officer, has
entered into an executive performance agreement with the Company, under which
Mr. Vanechanos has agreed to provide assistance in the integration of the
operations of eB2B and the Company. Upon the performance of such obligations, at
the closing of the merger, Mr. Vanechanos will receive payment of $75,000 and
options to purchase 50,000 shares of the Company's common stock at an exercise
price equal to the closing bid price of the Company's common stock on the date
of the closing of the merger.
Mr. Vanechanos has also entered into a consulting agreement with the Company
which provides that, at the closing of the merger, Mr. Vanechanos shall resign
his employment with the Company and be engaged as a consultant to provide advice
with respect to the Company's business and the business-to-business electronic
commerce industry generally. Under the consulting agreement, Mr. Vanechanos will
receive a consulting fee of $12,500 per month and use of a company vehicle. The
consulting agreement will have a term of 18 months, subject to certain
termination provisions. The consulting agreement contains provisions regarding
confidentiality, non-solicitation of customers and employees, non-competition,
non-disparagement and liquidated damages provisions.
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. In addition, eB2B issued Commonwealth Associates, L.P. warrants to
purchase 470,000 shares of eB2B common stock at an exercise price of $5.50 per
share, as compensation for its services as a financial advisor to eB2B in
connection with the merger.
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
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<PAGE>
effect before the merger, provided that the Company may reduce the coverage
and amount of liability insurance if premiums for 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, as Amended -- 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 New Jersey law, the Company's stockholders are not entitled to any
appraisal rights with respect to the merger.
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.
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<PAGE>
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 preferred stock. As of the date of this proxy statement/prospectus,
there were 3,744,067 shares of common stock issued and outstanding and no shares
of preferred stock were outstanding. As of March 21, 2000, 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. 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. In
connection with the consummation of the merger, the Company is proposing to
increase the number of authorized shares of preferred stock and to authorize two
new series of preferred stock. See 'Proposal Number Two -- Amendments to the
Company's Certificate of Incorporation.'
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.
51
<PAGE>
<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
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
January 1 to March 10, 2000................................. 19 3/4 9 7/8
</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.
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. Some of the differences arise as a result of the
differences between New Jersey law, under which the Company is organized, and
Delaware law, under which eB2B is organized. Other differences arise from
differences between the organizational documents of the two companies. The
following discussion is not intended to be complete and is qualified by
reference to the applicable laws, the certificates of incorporation and bylaws
of eB2B and the Company. Copies of eB2B's certificate of incorporation and
bylaws have been filed herewith as exhibits and are available to eB2B
stockholders directly from eB2B upon request, without charge. Copies of the
Company's certificate of incorporation and bylaws have been filed herewith as
exhibits and are available for inspection at the Company's principal office, and
copies will be sent to stockholders on request, without charge.
SPECIAL MEETINGS 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. In addition, upon application of
the holders 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 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. eB2B's bylaws provide that special
meetings of eB2B's stockholders may be called either by the president or by a
majority of eB2B's 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
Although New Jersey law provides that 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, the Company's certificate of
incorporation expressly 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.
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Delaware law provides that, unless limited by the certificate of
incorporation, any action that 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 the required minimum number of votes consent in writing. eB2B's
bylaws provide that any action which may be taken at any meeting of eB2B
stockholders may be taken without a meeting, without prior notice and without a
vote, if holders of a majority of the outstanding shares entitled to vote
execute a written consent setting forth the action taken and prompt notice of
the action is given to any stockholder who has not consented in writing.
BOARD OF DIRECTORS
Number. The Company's certificate of incorporation provides that there shall
be not less than five (5) nor more than twenty-five (25) members of the board of
directors, with the precise number to be fixed from time to time by the board of
directors. Currently, the number of directors has been fixed at seven (7).
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 entire
board of directors. There are currently six (6) members of eB2B's board of
directors.
Classes. The Company's directors are divided into three (3) classes that
have staggered terms of three (3) years each. eB2B's directors are not divided
into separate classes. Upon the approval of the Company's stockholders, the
Company's certificate of incorporation will be amended to provide that the
Company's directors will not be divided into classes. See 'Proposal Number
Two -- Amendments to the Company's Certificate of Incorporation.'
Qualifications for election as director. The Company's certificate of
incorporation provides that, unless waived by the board of directors, in order
to qualify for election as a director, a person must have been a stockholder of
record of the Company for a period of at least three (3) years. eB2B's
organizational documents do not require a nominee for election as director to
own any stock of eB2B. Upon the approval of the Company's stockholders, the
Company's certificate of incorporation will be amended to provide that nominees
for election as director will not be required to own Company stock. See
'Proposal Number Two -- Amendments to the Company's Certificate of
Incorporation.'
Special Meetings. Under the Company's bylaws, special meetings of the board
of directors may be called by the president or any two (2) directors acting in
concert. Under eB2B's bylaws, special meetings of the board of directors may be
called by the president or any one (1) director.
ANTI-TAKEOVER PROVISIONS
The Company's certificate of incorporation contains anti-takeover provisions
described in this proxy statement/prospectus under 'Proposal Number
Two -- Amendments to the Company's Certificate of Incorporation.' These
provisions will be removed from the certificate of incorporation upon
stockholder approval.
Section 203 of the Delaware General Corporation Law provides for
restrictions on certain transactions between 'interested stockholders' (persons
who beneficially own or have the right to vote 15% or more of a company's
outstanding shares). However, Section 203 applies to corporations which have a
class of voting stock that is listed on a national securities exchange, are
authorized for quotation on Nasdaq or are held of record by more than 2,000
shareholders. Therefore, Section 203 does not apply to eB2B. eB2B's certificate
of incorporation and bylaws do not contain any additional provisions restricting
or otherwise relating to business combinations.
AMENDMENTS TO CERTIFICATE OF INCORPORATION
To amend certain terms of a corporation's certificate 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 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. The Company's certificate of incorporation provides that its
terms may be altered or repealed in accordance with New Jersey law, except that
the provisions relating to anti-takeover
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measures may be altered or repealed only by (a) the affirmative vote of
stockholders entitled to cast at least 80% of the votes which all stockholders
are then entitled to cast or (b) the affirmative vote of 80% of the members of
the board of directors and the affirmative vote of stockholders entitled to cast
at least a majority of the votes which all stockholders are then entitled to
cast. In connection with the merger, this provision will be amended, to allow
amendments to the certificate of incorporation to be effected in the manner
prescribed in New Jersey law. See 'Proposal Number Two -- Amendments to the
Company's Certificate of Incorporation.'
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.
eB2B's certificate of incorporation does not specify any such greater number.
AMENDMENTS TO BYLAWS
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. The
Company's certificate of incorporation and bylaws provide that the Company's
bylaws may be altered or repealed only by the directors, although the
stockholders may change any board action by the affirmative vote of stockholders
entitled to cast at least 66 2/3% of the votes which all stockholders are
entitled to cast.
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. eB2B's certificate of
incorporation and bylaws provide that the directors of eB2B 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. eB2B'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.
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. eB2B's certificate of
incorporation does not give the board of directors this power.
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
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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.
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.
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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. Such merger agreement was amended on February 29, 2000 to fix the
Exchange Ratio, among other things. 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 $35 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 stock and common
stock issuable upon conversion of convertible securities, exercise of options or
warrants, or otherwise. On February 22, 2000, eB2B acquired Netlan Enterprises,
Inc. and its subsidiaries (Netlan) by the merger of Netlan into a subsidiary of
eB2B. 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
$2.050 million. The Company common stock value is based on the fair market value
of Company common stock as of January 7, 2000, the date of the letter of intent
with respect to the merger with Netlan.
The following pro forma unaudited condensed financial statements give effect
to the merger of the Company with eB2B. The merger transaction has been
accounted for under the purchase method of accounting. The pro forma statement
of operations for the year ended December 31, 1999 gives effect to the merger as
if it had occurred on January 1, 1999. The pro forma statement of operations is
based on historical results of operations of the Company for the twelve (12)
months ended December 31, 1999, and the historical results of operations of eB2B
for the twelve (12) months ended December 31, 1999, which gives effect to the
acquisition of Netlan. The unaudited pro forma balance sheet as of December 31,
1999, gives effect to the merger as if these transactions had occurred on
December 31, 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 the Company, 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 of
the Company with eB2B, or of the financial position or results of operations of
the consolidated company that would have actually occurred had the merger of the
Company with eB2B been effected as of the dates described above.
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UNAUDITED PRO FORMA CONDENSED BALANCE SHEET(A)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PROFORMA DYNAMICWEB
eB2B ENTERPRISES, INC.
COMMERCE, AND PROFORMA PROFORMA
INC. SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
---- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Cash and cash equivalents............ $ 9,990,683 $ 1,820,000 $ 11,810,683
Investments available for sale....... 15,985,901 15,985,901
Accounts receivable-net.............. 387,769 712,000 1,099,769
Other current assets................. 2,263,591 48,000 $(2,000,000)(c) 311,591
Inventories.......................... 52,736 52,736
Property, plant and equipment, net... 1,511,190 450,000 1,961,190
Patents, trademarks, customer lists,
etc................................ 58,000 58,000
Software license..................... 57,000 57,000
Cost in excess of fair value of
assets acquired net................ 4,359,195 423,000 43,860,039(a)(g) 48,642,234
Other Assets......................... 54,431 9,000 63,431
----------- ------------ ----------- ------------
Total Assets..................... $34,605,496 $ 3,577,000 $41,860,039 $ 80,042,535
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
Accounts payable and accrued
expenses........................... $ 2,681,418 $ 478,000 $ 400,000 (a) $ 3,559,418
Line credit.......................... 582,704 582,704
Current portion of long term debt.... 1,673,381 2,032,000 (2,000,000)(c) 1,705,381
Deferred revenue..................... 182,812 151,000 333,812
Other liabilities.................... 158,525 158,525
----------- ------------ ----------- ------------
5,278,840 2,661,000 (1,600,000) 6,339,840
Long term debt....................... 64,448 22,000 86,448
----------- ------------ ----------- ------------
5,343,288 2,683,000 (1,600,000) 6,426,288
Preferred Stock -- Series A & B...... 3,300 3,300
Common stock......................... 26,760 26,760
Additional Paid in Capital........... 70,142,702 11,079,000 43,460,039(a)(g) 124,681,741
Unearned portion of compensatory
stock optons....................... (61,000) (61,000)
Accumulated Deficit.................. (40,910,554) (10,124,000) -- (51,034,554)
----------- ------------ ----------- ------------
Total stockholders' equity....... 29,262,208 894,000 43,460,039 73,616,247
----------- ------------ ----------- ------------
Total liabilities and
stockholders equity............ $34,605,496 $ 3,577,000 $41,860,039 $ 80,042,535
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
</TABLE>
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UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS(A)
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
PROFORMA
eB2B DYNAMICWEB
COMMERCE, ENTERPRISES, INC. PROFORMA PROFORMA
INC. AND SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
---- ---------------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues
Transaction subscription
processing.................. $ -- $ 1,122,000 $ 1,122,000
Consulting services........... 2,195,399 1,526,000 3,721,399
Network development........... 1,949,101 865,000 2,814,101
Other......................... 19,163 -- 19,163
------------ ------------- ----------- ------------
Cost of revenues.................. 4,163,663 3,513,000 -- 7,676,663
Transaction subscription
processing.................. -- 665,000 665,000
Consulting services........... 1,391,849 913,000 2,304,849
Network development........... 1,364,795 325,000 1,689,795
------------ ------------- ----------- ------------
2,756,644 1,903,000 -- 4,659,644
------------ ------------- ----------- ------------
Operating Income.......... 1,407,019 1,610,000 -- 3,017,019
Expenses
Marketing and sales........... 412,448 1,729,000 2,141,448
General and administrative.... 7,642,739 2,183,000 9,825,739
Amortization of goodwill...... 725,000 -- 8,772,008 (b) 9,497,008
Research and development...... 571,579 640,000 1,211,579
------------ ------------- ----------- ------------
9,351,766 4,552,000 8,772,008 22,675,774
------------ ------------- ----------- ------------
Loss from operations before other
expense, income and taxes....... 7,944,747 (2,942,000) (8,772,008) (19,708,755)
Other
Loss on sale of assets........ -- (3,000) (3,000)
Interest expense.............. (2,604,181) (12,000) (2,616,181)
Interest income............... -- 23,000 23,000
------------ ------------- ----------- ------------
(2,604,181) 8,000 -- (2,596,181)
------------ ------------- ----------- ------------
Loss before discontinued
operations...................... (10,548,928) (2,934,000) (8,772,008) (22,254,936)
Deemed dividends on preferred
stock........................... (29,441,723) -- -- (29,441,723)
Cumulative dividend on preferred
stock including imputed
dividends....................... -- (1,632,000) 1,632,000 (d) --
------------ ------------- ----------- ------------
Net loss attributable to common
stockholders.................... $(39,990,651) $ (4,566,000) $(7,140,008) $(51,696,659)
------------ ------------- ----------- ------------
------------ ------------- ----------- ------------
Net loss per common share --
basic and diluted............... $ (1.72) $ (5.15)
Weighted average number of shares
outstanding -- basic and
diluted......................... 2,658,634 7,378,820 (e)(f) 10,037,454
</TABLE>
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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 $43.9 million on December 1, 1999. The share
values are based on the fair market value of Company common stock as of
the date of the definitive agreement and plan of merger. For the purpose
of the pro forma financial information, the number of shares of the
Company stock assumed issued in the reverse merger with eB2B is
approximately 4.8 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 common shares issuable which may
have been subsequently exercised or converted to Company common stock in
accordance with the merger agreement. The preliminary valuation includes
an estimate of $400,000 for additional costs.
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 the 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 and eB2B, and accordingly eB2B's pro forma presentation reflects
the omission of Netlan's discontinued operations.
(2) Adjustments:
(B) The pro forma adjustment represents $8.7 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. The pro forma adjustment is
based on the assumption that the entire amount identified as goodwill
and other intangible assets will be amortized on a straight-line basis
over a five-year period. 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 presented 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.
(C) Elimination of the loan between the Company and eB2B.
(D) 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 accounting acquiror.
(E) 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 stockholder 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 7,253,820 and 125,000 shares of the Company's common
stock issued in the merger with eB2B and the acquisition of Netlan,
respectively, were outstanding for the entire period.
(F) 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.
(G) The pro forma adjustment represents the 3% finders' fee on the
transaction (payable in Company common stock) and the related
amortization of such fee. The price used to calculate the pro forma
adjustment is the fair market value of the Company common stock on the
date of the definitive letter agreement. The fee is contingent upon
the closing of the merger, and accordingly, will be adjusted to reflect
the market price on the date of the consummation of the merger.
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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.
Information on the Company's website should not be deemed part of this proxy
statement/prospectus.
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 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.
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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.
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 has focused its 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.
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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 include, without limitation, 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,
traditional manufacturers 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
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
National Association of Chain Drugstores Chain Drugstore Industry Association
</TABLE>
EDIXCHANGEOUTSOURCE'sm'
<TABLE>
<CAPTION>
COMPANY BUSINESS
------- --------
<S> <C>
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
</TABLE>
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EDIXCHANGESUPPORT'sm'
<TABLE>
<CAPTION>
COMPANY BUSINESS
------- --------
<S> <C>
Nabisco Holdings Corp. Consumer goods
Toys R Us, Inc. Toy retailer
</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. The
Toys R Us, Inc. relationship is 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 or services. 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 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
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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 $201,000 in the quarter ended December 31,
1999, $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
As of March 14, 2000, the Company had fifty-five (55) 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 twelve (12) are marketing and sales personnel,
approximately seventeen (17) are involved in providing consulting services to
customers, approximately twelve (12) are engaged in customer support and
operations, and approximately eight (8) 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.
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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 fiscal quarter
ended December 31, 1999.
3. All other reports filed pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934.
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, Attention: Steve
Vanechanos, Sr. 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 and the unaudited
balance sheet of the Company as of December 31, 1999, and the related statement
of operations, changes in stockholders' equity and cash flows are attached to
this proxy statement/prospectus as Appendix E.
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
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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
QUARTER ENDED DECEMBER 31, 1999
The Company's revenue is classified into three categories:
Transaction/Subscription Processing Revenues; Consulting Revenues; and Net
Development Revenues. The Company had net sales of $1,008,000 for the quarter
ended December 31, 1999, compared to $540,000 for the same period in 1998, an
increase of approximately $468,000 or 87%. The increase in sales was
attributable to increased sales 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 quarter ended
December 31, 1999 were $381,000, as compared to $141,000 in the same period in
1998, which is an increase of $240,000, or 170%. The increase is attributable to
an increase in the initial subscription fees from customers who use the
EDIxchange suite of services and an increase in monthly transaction fees.
Consulting service revenues represent fees from EC consulting and contract
computer programming. These revenues for the quarter ended December 31, 1999
were $374,000 as compared to $342,000 for the same period in 1998, an increase
of $32,000, or 9%. 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
maps, the reutilization of the Company's EDI map library and the custom
development of EDIxchangeOutsource, EXIxchangeBuy and EDIxchangeSell (extranets)
from which the transaction/subscription processing revenues are derived. Network
development revenues for the quarter ended December 31, 1999 were $253,000 as
compared to $57,000 for the same period in 1998, resulting in an increase of
$196,000, or 344%. This increase is attributable to the increased development
and reutilization of EDI maps 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 $496,000 for the quarter ended December 31, 1999,
for a gross profit of approximately $512,000 and gross margin of 51%. This
compares to cost of sales of $383,000 for the quarter ended December 31, 1998,
resulting in a gross profit of approximately $157,000 and gross margin of 29%.
The Company's profit margin has increased in this period due to the higher
revenue production derived from higher utilization of the fixed cost
infrastructure assets.
Cost of transaction/subscription processing was $184,000 for the quarter
ended December 31, 1999, for a gross profit of approximately $197,000 and gross
margin of 52%. This compares to $117,000 for the quarter ended December 31,
1998, resulting in gross profit of $24,000 and gross margins of 17%.
Cost of consulting service revenues provided by the Company was $220,000 for
the quarter ended December 31, 1999, for a gross profit of $154,000 and gross
margin of 41%. This compares to cost of consulting services of $200,000 and a
gross profit of $142,000 or 42% for the same period in 1998.
Cost of network development revenues was $92,000 for the quarter ended
December 31, 1999, for a gross profit of $161,000 and gross margin of 64%. This
compares to cost of network development revenues of $66,000 for the quarter
ended December 31, 1998, resulting in a gross loss of $9,000 and a negative
gross margin of 16%.
Marketing and sales expenses were $440,000 for the quarter ended
December 31, 1999 as compared to $349,000 in the same period in 1998. The
increase is attributable to salaries for new hires and the costs of attendance
at trade shows associated with the Company's efforts to market its EDI/Internet
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services. The increase is also a result of additional advertising expenses and
the creation of a new department, customer satisfaction, to provide support for
the Company's products.
General and administrative expenses were $694,000 for the quarter ended
December 31, 1999 as compared to $387,000 for the quarter ended December 31,
1998. $221,000 of the total general and administrative expenses was due to a
one-time compensation expense for warrants granted for services provided to the
Company.
Research and development expenses were $201,000 for the quarter ended
December 31, 1999 as compared to $95,000 for the quarter ended December 31,
1998. The increase is attributable to hiring of additional staff and to higher
compensation.
YEAR ENDED SEPTEMBER 30, 1999
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%).
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 ended 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 ended 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
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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.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, the Company had cash of approximately $1,820,000
and total current assets of approximately $2,580,000.
The Company had a net loss of approximately $826,000 for the three months
ended December 31, 1999 and negative operating cash flow of approximately
$630,000. The Company's cash flow for the three months was funded by the loan
from eB2B.
On December 31, 1999, the capital resources available to the Company were
adequate to finance its operations. Pursuant to a loan agreement with eB2B, the
Company received $250,000 in November 1999, and $1,750,000 in December 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.
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
BUSINESS OF 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, 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;
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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' 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
and the golf market. Each network trading channel has enrolled a number of
manufacturers and retailers, including:
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Retailers:
Austad's Golf
Golfer's Warehouse
Fiddler's Green Golf Center
Las Vegas Golf and Tennis
Golf Galaxy
Retail Buying Groups:
Nations Best Sports
Team Athletic Goods
Manufacturers:
Adams Golf
Bike Athletic
Schutt Sports
Kunnan Golf
Carbite Golf
Delong Sportswear
Cramer Products
Twin City Knitting Mills
eB2B intends to follow the implementation of the golf and sporting goods
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.
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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 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.
TECHNOLOGY PARTNERS
Currently, eB2B has working arrangements with two 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 and InterWorld Corporation (InterWorld).
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
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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.
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
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. The United States Patent and Trademark Office has issued an
initial objection to the registration application based upon the descriptiveness
of the trademark. eB2B has filed a response with the United States Patent and
Trademark Office challenging the objection. 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 then there can be no assurance that the mark can be
adequately protected against any third party infringement, which could adversely
affect eB2B's business.
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RECENT DEVELOPMENTS
MERGER WITH NETLAN ENTERPRISES, INC.
On February 22, 2000, eB2B entered into an agreement and plan of merger with
Netlan Enterprises, Inc. ('Netlan') under which Netlan merged into Netlan Merger
Corporation, a recently-formed, wholly-owned subsidiary of eB2B. In connection
with this merger, Netlan's shareholders received an aggregate of 122,180 shares
of eB2B common stock, which will be exchanged for 325,000 shares of Company
common stock upon the completion of the merger of eB2B into the Company. In
addition, in connection with the closing of the merger with Netlan, eB2B
satisfied outstanding debt obligations of Netlan of approximately $2.5 million.
Netlan is based in New York, New York and commenced operations in 1986.
Through its Netlan Interactive and Digital Studios divisions, Netlan provides
e-commerce solutions; technology infrastructure design and implementation;
network consulting; and systems integration services. Through its Netlan
Technology Center, Netlan also provides technology training and educational
services. Netlan's technology partners include: Cisco, Citrix, Compaq,
ConnectInc.com, Hewlett-Packard, Lotus, Microsoft, Novell and Storage
Dimensions.
Prior to its merger into a subsidiary of eB2B, Netlan provided web
development, network development, end-user training, and technical support
services to eB2B and provided hosting services for eB2B's first two Network
Trading Channels.
LOAN AND LINE OF CREDIT FROM BANK OF NEW YORK
In February 2000, eB2B obtained a $2.5 million term loan from The Bank of
New York. The term loan has a term of three (3) years, is interest-only until
December 1, 2000, and bears interest at a rate equal to LIBOR plus 1%. The
proceeds of the term loan were used to refinance the debt of Netlan satisfied by
eB2B in connection with the merger with Netlan. eB2B has also obtained a $6.5
million line of credit with The Bank of New York. The term loan and the line of
credit are secured by a Treasury Note in the amount of $9 million.
ENGAGEMENT OF CONSULTANT
In February 2000, eB2B engaged McKinsey & Company to assist with the
integration of eB2B, Netlan and the Company and to provide guidance toward
formulating a unified strategy for the combined company after the merger.
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.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
--------------------------- --------------------------------------
SECURITIES
NAME YEAR SALARY (1) BONUS OPTIONS AWARDED UNDERLYING OPTIONS
- ---- ---- ---------- ----- --------------- ------------------
<S> <C> <C> <C> <C> <C>
Peter J. Fiorillo............... 1999 $195,000 $110,000 750,000(2)(3) 750,000
Joseph Bentley.................. 1999 $115,000 $ 40,000 100,000(4) 100,000
Kevin Hayes..................... 1999 $125,000 $ 35,000 100,000(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.
(footnotes continued on next page)
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(footnotes continued from previous page)
(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 issued during the
year ended December 31, 1999 to executive officers of eB2B.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------------------------------
NUMBER OF SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS OPTIONS GRANTED TO ALL EXERCISE PRICE
GRANTED EMPLOYEES IN FISCAL YEAR PER SHARE EXPIRATION DATE
------- ------------------------ --------- ---------------
<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>
- ---------
(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
The Company has an employment agreement with the following executive
officers that received compensation in excess of $100,000 for 1999: Peter J.
Fiorillo, Joseph Bentley, and Kevin Hayes.
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.
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Fiorillo has waived his rights with respect to a change of control, to the
extent that the merger constitutes 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 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,
to the extent that the merger constitutes a change of control.
Mr. Hayes' 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, to the extent that the merger
constitutes 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. In addition, the Company
issued Commonwealth Associates, L.P. warrants to purchase 470,000 shares of
eB2B's common stock, at an exercise price of $5.50 per share in connection with
serving as a financial advisor to eB2B in connection with the merger. The
options vest upon completion of the merger.
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.
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FINANCIAL STATEMENTS OF eB2B
The audited balance sheet of eB2B as of December 31, 1998 and 1999, 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
for the year ended December 31, 1999, and the related statements of operations,
stockholders' equity (deficiency) and cash flows for the period from November 6
to December 31, 1998 and year ended 1999 are attached to this proxy
statement/prospectus as Appendix F.
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 December 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 December 31, 1999, we had an accumulated deficit of approximately $35.6
million, which included a $29.4 million deemed dividend on preferred stock
resulting from the December issuance of preferred shares at a price below the
deemed market value based on the equivalent Company share price.
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 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'.
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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.
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 FISCAL YEAR ENDED DECEMBER 31, 1999
NET SALES
We did not recognize any revenue for the fiscal year ended December 31,
1999.
OPERATING EXPENSES
Selling, General and Administrative. General and administrative expenses
increased to approximately $3.1 million for the year ended December 31, 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 $793,000, representing, to the extent the options vested during the period,
the difference between the fair market value of eB2B's common stock and the
option exercise price as determined by our Board of Directors on the date of
grant. $675,000 of 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. The remainder is attributable to various option grants to new employees
during the period.
Software Development. Software development expenses increased to $572,000 in
the year ended December 31, 1999 from $53,000 for the period 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 year ending December 31, 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. Through December 31, 1999, net
proceeds of such sales totaled $29.9 million.
Net cash used in operating activities was approximately $589,000 in the year
ended December 31, 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, depreciation
and amortization and non-cash operating expenses.
Net cash used in investing activities was approximately $17.4 million in the
year ended December 31, 1999, and no cash was used in the period from inception
through December 31, 1998. Net cash used
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in investing activities for the year ending December 31, 1999, primarily
consisted of the purchase of investments available for sale, purchases of
software, computer equipment and furniture and fixtures.
Net cash provided by financing activities was approximately $27.9 million in
the year ended December 31, 1999, and $15,000 in the period from inception
through 1998. Net cash provided by financing activities during the year ended
December 31, 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 million 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.
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 its existing available capital resources, including
the investments held for sale which consist of treasury bills with maturity
dates ranging from March 2000 to September 2000, 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.
FINANCIAL STATEMENTS OF NETLAN
The audited balance sheets of Netlan as of December 31, 1999 and 1998, and
the related statements of operations, stockholders' equity (deficit) and cash
flows for the years then ended are attached to this proxy statement/prospectus
as Appendix F.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF NETLAN
Except for historical information, the discussion in this prospectus
contains forward-looking statements that involve risks and uncertainties.
Netlan'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'. The following discussion should be read together with Netlan's
historical consolidated financial statements, including the notes appearing
elsewhere in this proxy statement/prospectus as Appendix F.
OVERVIEW
Netlan provides technology, educational and internet development solutions
for its clients. In February 2000, Netlan merged with eB2B.
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RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999
REVENUES
Netlan's net revenue increased to approximately $4.2 million in 1999 from
approximately $3.7 million in 1998. The net revenue consisted of internet
application revenue, which increased to approximately $1.9 million in 1999 from
approximately $1.1 million in 1998. The increase in revenues was the result of
larger and more complex engagements and an increase in the size of the sales
force. The educational services revenue decreased to approximately $2.3 million
in 1999 from approximately $2.6 million in 1998. The decrease in revenues was
attributable to delays in the release of planned software releases from
Microsoft Corporation and Lotus Development Corporation. This delay caused
clients to delay training preparation and classes. Other revenues decreased to
approximately $19,000 in 1999 from approximately $44,000 in 1998. In addition,
Netlan discontinued operations for its computer network, design, consulting, and
implementation services.
COST OF REVENUES
Total cost of revenues increased to approximately $2.8 million in 1999 from
approximately $1.7 million in 1998. Gross profits decreased to approximately
$1.5 million in 1999 from approximately $2 million in 1998. The internet
applications costs increased to approximately $1.4 million in 1999 from
approximately $400,000 in 1998. The education services costs increased to
approximately $1.4 million in 1999 from approximately $1.3 million in 1998.
OPERATING EXPENSES
Operating expenses increased to approximately $2.9 million in 1999 from
approximately $2.1 million in 1998. The increase in operating expenses was
attributable to an increase in payroll, amortization of intangible assets
resulting from an asset purchase in 1998. depreciation of property and
equipment, and increased staffing, consulting and professional fees related to
legal, marketing and finance.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, Netlan had cash of approximately $83,000 and total
current assets of approximately $528,000 and total current liabilities of
approximately $4.2 million.
The Company had a net loss of approximately $2.5 million for the year ended
December 31, 1999, an accumulated deficit of approximately $3.2 million, and a
negative operating cash flow of approximately $435,000 for 1999. On December 31,
1999, Netlan's capital resources were not adequate to finance Netlan's
activities for the quarter ending March 31, 2000. Pursuant to a loan agreement
with eB2B, Netlan received an amount equal to $200,000. Netlan completed a
merger with eB2B on February 22, 2000.
Net cash used in continued operating activities increased to approximately
$435,000 in 1999 from approximately $9,000 in 1998.
Net cash used in investing activities decreased to approximately $83,000 in
1999 from approximately $570,000 in 1998, primarily consisted of the purchase of
a business and computer equipment and property.
Net cash provided by financing activities decreased to approximately
$360,000 in 1999 from approximately $557,000 in 1998.
Except for historical information, the discussion in this prospectus
contains forward-looking statements that involve risks and uncertainties.
Netlan'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
AMENDMENTS TO THE COMPANY'S CERTIFICATE OF INCORPORATION
The Company's board of directors has unanimously approved and recommends
that the stockholders adopt a resolution approving an amended and restated
certificate of incorporation, which provides certain modifications to the
Company's current amended and restated certificate of incorporation. The text of
the amended and restated certificate of incorporation is attached to this proxy
statement/prospectus as Appendix D. Set forth below is a summary of the material
modifications which would be effected by the amended and restated certificate of
incorporation. The following summary is qualified by reference to the Company's
current amended and restated certificate of incorporation and the proposed
amended and restated certificate of incorporation.
If approved by the stockholders, the amended and restated certificate of
incorporation will be filed with the Secretary of State of the State of New
Jersey concurrently with the filing of the certificate of merger with respect to
the merger with eB2B, as provided in Title 14A, Chapter 10 of the New Jersey
statutes, and will be effective immediately prior to the consummation of the
merger.
CHANGE OF COMPANY'S NAME TO eB2B COMMERCE, INC.
In connection with the merger agreement with eB2B, the Company's board of
directors has approved a change to the name of the Company to 'eB2B Commerce,
Inc.,' effective upon the consummation of the merger with eB2B. The Company's
board of directors believes that the name 'eB2B Commerce, Inc.' will more
accurately reflect the business of the Company following the merger.
INCREASE IN NUMBER OF AUTHORIZED SHARES OF CAPITAL STOCK
The Company's board of directors has approved an increase in the number of
authorized shares of capital stock of the Company from 55 million to 250
million. Of such authorized capital shares, the number of shares of common stock
authorized would increase from 50 million to 200 million and the number of
shares of preferred stock authorized would increased from 5 million to 50
million. Upon consummation of the merger with eB2B, there will be approximately
46 million shares of common stock outstanding, on a fully-diluted basis, and
upon approval of the 2000 Stock Option Plan, the Company will have the authority
to issue up to 10 million additional shares of common stock underlying awards
granted pursuant to such plan.
The additional shares of common stock authorized would have rights and
privileges identical to those of the currently outstanding shares of common
stock except as amended by this proposal. The additional shares of preferred
stock authorized would have the rights and privileges determined by the board of
directors from time to time. In connection with the filing of the amended and
restated certificate of incorporation, and as required by the terms of the
merger agreement with eB2B, the board of directors have authorized the issuance
of two series of preferred stock, described below under 'Authorization of
Series A Preferred Stock and Series B Preferred Stock.'
The Company currently has an insufficient number of authorized but unissued
and unreserved shares of common stock to effect both the merger with eB2B and
the 2000 Stock Option Plan. As a result, the board of directors believes it is
desirable to authorize additional shares of capital stock so that there will be
sufficient shares available both to consummate the merger with eB2B and to
reserve shares for issuance under the 2000 Stock Option Plan, as well as for
issuance after the merger for purposes that the board of directors may hereafter
determine to be in the best interests of the Company and its stockholders. Such
purposes could include the offer of shares for cash, acquisitions, financings,
mergers, stock splits, stock dividends, employee benefit programs and other
general corporate purposes. No further action or authorization by the Company
stockholders would be necessary prior to the issuance of additional shares of
common stock, unless required by applicable law or regulation. Other than in
connection with the merger with eB2B and the 2000 Stock Option Plan, the Company
does not have any immediate plans, agreements, arrangements, commitments or
understandings with respect to the issuance of any of the additional shares that
would be authorized by this amendment.
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The proposed amendment will increase the total number of authorized shares
of capital stock by an amount substantially greater than that necessary to
effect the merger with eB2B and the 2000 Stock Option Plan. If additional shares
are issued for the purposes described above or otherwise, the Company's
stockholders could experience a greater reduction in their percentage interest
in the Company with respect to earnings per share, voting, liquidation value and
book and market value per share. The availability for issuance of additional
shares of capital stock could also enable the board of directors to render more
difficult or discourage an attempt to obtain control of the Company in the
future. For example, the issuance of shares in a public or private sale, merger
or similar transaction would increase the number of outstanding shares, thereby
possibly diluting the interest of a party attempting to obtain control of the
Company.
AUTHORIZATION OF SERIES A PREFERRED STOCK AND SERIES B PREFERRED STOCK
In connection with the merger agreement with eB2B, the Company's board of
directors has approved the authorization of two new series of preferred stock
having terms substantially equivalent to the currently authorized series of
preferred stock of eB2B. The amended and restated certificate of incorporation
will also eliminate the Company's Series A 6% Convertible Preferred Stock and
Series B 6% Convertible Preferred Stock which were previously authorized. There
are no outstanding shares of the Company's Series A 6% Convertible Preferred
Stock or Series B 6% Convertible Preferred Stock.
SERIES A PREFERRED STOCK
The Company's board of directors has approved the authorization of 2,000
shares of preferred stock, designated as 'Series A Preferred Stock.' The
Company's board of directors 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 the Company 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 the Company, 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
the Company. 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. The Series A
Preferred Stock will rank pari passu with the Series B Preferred Stock,
described below.
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
a number of shares of common stock of the Company equal to 500 multiplied by
the Exchange Ratio applicable to the merger with eB2B, at a conversion price
of $2.00 per share divided by the Exchange Ratio applicable to the merger
with eB2B (or the conversion price as last adjusted and then in effect, as
described below).
Anti-dilution Protection. If the Company 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
stock outstanding after such sale (including all shares issuable upon
conversion of the Series A Preferred Stock). Similarly, if the Company
issues other convertible securities (other than options granted to
employees, officers, directors, consultants and/or vendors of the Company)
with a conversion price less than the then existing conversion price
applicable to the Series A Preferred Stock, such conversion price will be
appropriately adjusted.
Mandatory Conversion. If the Company shall complete an underwritten
public offering involving the sale of common stock at a price per share of
not less than $7.50 divided by the Exchange Ratio applicable to the merger
with eB2B and providing proceeds of not less than
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$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
the Company, 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 Company's board of directors has approved the authorization of 4 million
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 the Company 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 the Company, 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
the Company. 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. The Series B
Preferred Stock will rank pari passu with the Series A Preferred Stock,
described above.
Ranking. The Company 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 the Company equal to $10.00 multiplied
by the number of shares being converted, divided by $5.50, divided by the
Exchange Ratio applicable to the merger with eB2B (subject to adjustment as
described below).
Mandatory Conversion. The Series B Preferred Stock will automatically
convert into common stock upon a public offering of the Company'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, the
Company'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 divided by the Exchange Ratio applicable to the merger with
eB2B (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 per share divided by the Exchange Ratio applicable to the merger
with eB2B.
Voting Rights. On all matters submitted to a vote by the stockholders of
the Company, 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 the
Company (and the Company will agree that number of directors constituting
the board of directors shall be seven (7)).
The board of directors has approved the authorization and issuance of the
Series A Preferred Stock and the Series B Preferred Stock pursuant to the terms
of the merger agreement with eB2B. The merger agreement provides that the
holders of preferred stock of eB2B shall receive, in the merger, shares of
preferred stock of the Company having terms substantially similar to the terms
of the eB2B preferred stock owned by such holders.
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As described above, the holders of Series A Preferred Stock and Series B
Preferred Stock have certain privileges in the event of liquidation of the
Company and other rights that may be in addition to the rights of the holders of
common stock.
ELIMINATION OF CLASSES AND CERTAIN QUALIFICATIONS FOR DIRECTORS
Article Eighth of the Company's certificate of incorporation currently
provides that the board of directors shall be divided into three classes of
directors, as nearly equal in number as possible. Each director is serving a
staggered term of three (3) years, with each class being elected at different
annual meetings of stockholders. In addition, unless waived by the board of
directors, it provides that in order to qualify for election as a director, a
person must have been a stockholder of the Company for at least three
(3) years.
The proposed amended and restated certificate of incorporation provides that
the directors will not be divided into classes and will not serve staggered
terms. Instead, all directors shall serve a one-year term and all of the
directors will be elected at every annual meeting of stockholders. In addition,
a director will not be required to be a stockholder of the Company for any
period of time prior to qualifying for election as a director.
The Company's board of directors believes that the elimination of a
classified board will allow stockholders to express their views annually and
eradicate obstacles to removing directors that are not, in the stockholders'
opinion, managing the Company in their best interests. This will promote
effective management oversight and management's attention to and representation
of stockholders' interests. The board of directors also believes that this
proposal will minimize management's ability to perpetuate itself in control of
the Company without the support of the stockholders. The board of directors
further believes that the elimination of the stock ownership requirement for
nominees for director will also help minimize management's ability to perpetuate
itself in control of the Company without the support of the stockholders.
The Company originally adopted the classified board to promote continuity
and stability in management and to make the Company less vulnerable to attempted
takeovers. A classified board extends the time required for a change of control
of the board and tends to discourage hostile takeovers because, assuming that
each class of directors is equal in size, a majority stockholder could not
obtain control of the board of directors until the second annual meeting of
stockholders after such person acquired a majority of the voting stock.
Similarly, the requirement of three years of stock ownership for nominees for
director, which may be waived at the discretion of the directors, grants to the
directors the power to prevent unwanted takeovers.
While the elimination of classes of directors, staggered terms and the
requirement of long-term stock ownership for directors may have the effect of
making the Company more susceptible to hostile takeovers, the board of directors
believes that such risk is mitigated to some extent by the anti-takeover
provisions of the New Jersey law, which are discussed under 'Proposal Number
One -- The Merger -- Comparative Rights of Stockholders of the Company and
eB2B.'
ELIMINATION OF CERTAIN ANTI-TAKEOVER PROVISIONS
The Company's current amended and restated certificate of incorporation
currently contains several other anti-takeover provisions that, if approved by
stockholders, will not be included in the Company's amended and restated
certificate of incorporation. These include the following:
Article Eleventh of the Company's current amended and restated
certificate of incorporation provides that, except upon the prior approval
of 66 2/3% of the members of the Company's board of directors, the
affirmative vote of stockholders entitled to cast at least 80% of the votes
which all stockholders of the Company are entitled to cast is required for
approval of any merger or consolidation; share exchange; sale, lease,
exchange or other transfer of all or substantially all of the Company's
assets; or similar transaction; or any liquidation or dissolution of the
Company.
Article Twelfth of the Company's current amended and restated
certificate of incorporation provides that, except upon the prior approval
of 66 2/3% of the members of the Company's board of
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directors, no person or group acting in concert shall acquire 'voting
control,' of the Company. In addition, Article Twelfth provides that if
'voting control' is acquired in violation of such article, the shares
acquired in excess of the number sufficient to confer voting control will
thereafter no longer be entitled to vote on any matter.
Article Seventeenth provides that certain provisions of the amended and
restated certificate of incorporation, including Articles Eighth, Eleventh
and Twelfth described above, may not be repealed, altered or amended except
upon (i) the affirmative vote of shareholders of the Company entitled to
cast at least 80% of the votes which all stockholders of the Company are
then entitled to cast or (ii) the affirmative vote of 80% of the members of
the board of directors of the Company and the affirmative vote of
shareholders of the Company entitled to cast at least a majority of the
votes which all stockholders of the Company are then entitled to cast.
The Company's board of directors believes that the elimination of the
foregoing supermajority voting requirements will eradicate obstacles to changing
the number of directors and limitations on removing directors that are not, in
the stockholders' opinion, managing the Company in their best interests. The
board believes this will benefit the Company in the manner described above under
'Elimination of Classes and Certain Qualifications for Directors.' This proposal
will also increase the likelihood that certain transactions which are favored by
a majority of shareholders will be consummated.
The Company originally adopted the supermajority voting requirements to make
the Company less vulnerable to attempted takeovers that may have been unwanted
by the directors.
While the elimination of supermajority voting requirements may have the
effect of making the Company more susceptible to hostile takeovers, the board of
directors believes that such risk is mitigated to some extent by the
anti-takeover provisions of the New Jersey law, which are discussed under
'Proposal Number One -- The Merger -- Comparative Rights of Stockholders of the
Company and eB2B.'
VOTE REQUIRED
The affirmative vote of shareholders of the Company entitled to cast at
least a majority of the votes which all stockholders are entitled to cast is
required to approve the amendments to the Company's certificate of
incorporation.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT YOU VOTE 'FOR'
PROPOSAL 2.
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 consultants and non-employee directors of the Company
may receive incentive compensation in the form of stock options and other
stock-based awards.
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 of 1986.
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.
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PURPOSE
The purpose of the 2000 Stock Option Plan is to aid in attracting and
retaining employees, officers, independent consultants 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, (b) stock options that do not meet such
requirements ('Non-statutory Stock Options') (collectively 'Options'),
(c) stock appreciation rights ('SARs'), (d) restricted stock, and (e) other
stock-based awards (collectively 'Awards').
ADMINISTRATION
The 2000 Stock Option Plan will be administered by the Company's 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). If
administration is delegated to a committee, that committee will have, in
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 shall not exceed 10,000,000
shares. The maximum number of shares of common stock subject to Options granted
to any individual participant in any calendar year shall be one million
(1,000,000) shares except that in the first calendar year of employment with the
Company, the maximum number of shares will be one million five hundred thousand
(1,500,000) 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 common 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. Non-statutory
Stock Options, SARs, Restricted Stock, and other stock-based awards may be
granted to employees, directors, officers, and independent 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.
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TERM AND TERMINATION
No Option is exercisable after the termination date set forth on the option
agreement provided at the time the Option was granted (the 'Stated Termination
Date'). The Stated Termination Date cannot be later than ten (10) years after
the date the Option is granted. All Awards are subject to certain forfeitures,
of all or part, of the Award in the event the participant's employment or
service with the Company is terminated prior to the exercise of the Award. The
amount of an Award forfeiture by the participant is based upon the type of Award
and the reason for termination, which includes, but is not limited to, death,
disability, retirement and termination for cause.
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 Non-statutory Stock
Option shall be determined at the discretion of the Administrator on the date of
the granting of the Non-statutory Stock Option.
CONSIDERATION
The Option price upon exercise of Options shall be payable, at the time of
exercise, in cash or, if permitted by the Administrator, by delivery to the
Company of other Company common stock or the Company withholding shares of
common stock.
TRANSFERABILITY
An Award is not transferable except by will or the laws of descent and
distribution.
VESTING
The period of time in which Options vest will be determined by the
Administrator at the time of grant of the Options and will be provided for in
the option agreement.
ADJUSTMENTS UPON CHANGE IN STOCK
In the event of any merger, reorganization, consolidation, recapitalization,
separation, liquidation, stock dividend, split-up, share combination, or other
change in the corporate structure of the Company affecting the stock, such
adjustment shall be made in the number and class of shares which may be
delivered under the Plan, and in the number and class of and/or price of shares
subject to outstanding Options. SARs, Restricted Stock Awards, and other
stock-based awards granted under the Plan, as may be determined to be
appropriate and equitable by the Committee, in its sole discretion, to prevent
dilution or enlargement of rights; and provided that the number of shares
subject to any Award shall always be a whole number. Any adjustment of an
Incentive Stock Option under this paragraph shall be made in such a manner so as
not to constitute a modification within the meaning of Section 425(h)(3) of the
Internal Revenue Code of 1986.
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
Internal Revenue Code of 1986, or to comply with the requirements of Rule 16b-3
of the Securities Exchange Act of 1934 or Nasdaq National Market listing
requirements (if applicable) or any other regulatory body having jurisdiction
with respect hereof. The Administrator may in its sole discretion submit any
amendment to the 2000 Stock Option Plan to the Company stockholders for
approval.
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TERMINATION OR SUSPENSION
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
April 25, 2010. No Awards may be granted under the 2000 Stock Option Plan while
the plan is suspended or after it is terminated.
GRANTS
There are no commitments to grant any options under the 2000 Stock Option
Plan except 50,000 shares to Steven L. Vanechanos, Jr.
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.
Non-statutory Stock Options and SARs. There are no tax consequences to the
optionee or the Company by reason of the grant of a Non-statutory Stock Option
or SAR. Upon exercise of a Non-statutory 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. 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 Securities
Exchange Act of 1934. Upon exercising an SAR, the participant generally must
recognize ordinary income equal to the cash or the fair market value of the
freely transferable and nonforfeitable shares received. The Company generally
will be entitled to a tax deduction equal to the amount recognized as ordinary
income by the participant in connection with a Non-statutory Stock Option or
SAR. The Company generally are not entitled to a tax deduction relating to
amounts that represent a capital gain to a participant.
Restricted Stock. The participant generally must recognize ordinary income
equal to the fair market value of the shares of common stock received when the
shares first become transferable or are not subject to a substantial risk of
forfeiture, whichever occurs earlier. The Company generally will be entitled to
a deduction in an amount equal to the ordinary income recognized by the
participant.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS YOU VOTE 'FOR' PROPOSAL 3.
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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
(2) DYNAMICWEB
(3) DYNAMICWEB
(4) ECBRIDGENET
(5) ECELITE
(6) EDIBRIDGENET
(7) EDIXCHANGE
(8) EXTENDING THE ENTERPRISE
(9) NETCAT
eB2B's principal trademark is 'eB2B,' for which eB2B is seeking a federal
registration.
Netlan's trademarks include the following:
(1) N LOGO DESIGN
(2) NETLAN
(3) NETLAN INTERACTIVE
(4) NEW N LOGO DESIGN
(5) INTERACTIVE COMMUNICATIONS INTERNATIONAL
(6) DIGITAL STREETSMARTS
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 as exhibits to 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 incorporated by reference. In the case of the financial
statements of DynamicWeb Enterprises, Inc., their report contains 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 Commerce, Inc. at December 31, 1998 and
1999, and for the period from November 6, 1998 (inception) through December 31,
1998 and the year ended December 31, 1999, appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon 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 sheets of Netlan Enterprises, Inc. and Subsidiaries
as of December 31, 1999 and 1998 and the consolidated statements of operations,
stockholders' equity, and cash flows for the years ended December 31, 1999 and
1998, included in this proxy statement/prospectus, 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.
89
<PAGE>
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. For additional information, please review the
Company's other filings with the Securities and Exchange Commission, including
but not limited to the Company's filings on Form 10-QSB and on Form 10-KSB,
as well as the filing on Form S-4 mentioned above. 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 Public Reference Section 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, 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 Website 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 and its Form 10-QSB for the fiscal quarter ended December 31,
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.
90
<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 amended and
restated 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.
91
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
eB2B Commerce, Inc.
Report of Independent Auditors.............................. F-2
Balance Sheets as of December 31, 1998 and 1999............. F-3
Statements of Operations for the period from November 6,
1998 (inception) through December 31, 1998, for the year
ended December 31, 1999 and for the period from
November 6, 1998 (inception) through December 31, 1999.... F-4
Statements of Stockholders' Equity for the period from
November 6, 1998 (inception) through December 31, 1998 and
for the year ended December 31, 1999...................... F-5
Statements of Cash Flows for the period from November 6,
1998 (inception) through December 31, 1998, for the year
ended December 31, 1999 and for the period from
November 6, 1998 (inception) through December 31, 1999.... F-6
Notes to Financial Statements............................... F-7
Netlan Enterprises, Inc. and Subsidiaries
Independent Auditors' Report................................ F-18
Consolidated Balance Sheets as of December 31, 1999 and
1998................................................... F-19
Consolidated Statements of Operations for the years
ended December 31, 1999, 1998 and 1997 (unaudited)..... F-20
Consolidated Statements of Stockholders' Equity
(Deficit) for the years ended December 31, 1999, 1998
and 1997 (unaudited)................................... F-21
Consolidated Statements of Cash Flows for the years
ended December 31, 1999, 1998 and 1997 (unaudited)..... F-22
Notes to Consolidated Financial Statements.............. F-24
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
eB2B COMMERCE, INC.
We have audited the accompanying balance sheets of eB2B Commerce, Inc. (the
'Company') (a development stage company) as of December 31, 1998 and 1999, and
the related statements of operations, stockholders' equity and cash flows for
the period from November 6, 1998 (inception) through December 31, 1998, the year
ended December 31, 1999, and the period from November 6, 1998 (inception)
through December 31, 1999. 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 audits.
We conducted our audits 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 audits provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of eB2B Commerce, Inc. as of
December 31 1998 and 1999, and the results of its operations and its cash flows
for the period from November 6, 1998 (inception) through December 31, 1998, the
year ended December 31, 1999, and the period from November 6, 1998 (inception)
through December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
New York, New York
February 22, 2000
F-2
<PAGE>
eB2B COMMERCE, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1999
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 10,000 $ 9,907,359
Investments available for sale.......................... -- 15,985,901
Prepaid expense......................................... -- 259,659
Loan to DWeb (Note 5)................................... -- 2,000,000
--------- ------------
Total current assets................................ 10,000 28,152,919
--------- ------------
Property and equipment, net (Notes 1 and 3)................. 374,318 905,172
Other assets, net of accumulated amortization of $3,188
(Note 1).................................................. -- 5,812
--------- ------------
Total assets................................................ $ 384,318 $ 29,063,903
--------- ------------
--------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued expenses........................................ $ 36,000 $ 1,054,820
Note payable (Note 4)................................... 15,000 --
--------- ------------
Total current liabilities........................... 51,000 1,054,820
--------- ------------
Long-term liabilities
Note payable (Note 4)................................... 86,000 --
Commitments (Note 8)
Stockholders' equity (Notes 5 and 9):
Preferred stock -- $.001 par value; 200,000 and 10
million shares authorized, in 1998 and 1999,
respectively.......................................... -- --
Series A Preferred Stock -- $.001 par value; 2,000
shares authorized; 300 shares issued and outstanding
in 1999............................................... -- --
Series B Preferred Stock -- $.001 par value; 4 million
shares authorized; 3.3 million shares issued and
outstanding in 1999................................... -- 3,300
Common stock -- $.001 par value; 90 million shares
authorized; 2,318,500 and 2,727,000 shares issued and
outstanding, in 1998 and 1999, respectively........... 2,319 2,727
Additional paid-in capital.............................. 352,695 63,605,987
Deficit accumulated during the development stage........ (107,696) (35,602,931)
--------- ------------
Total stockholders' equity.......................... 247,318 28,009,083
--------- ------------
Total liabilities and stockholders' equity.................. $ 384,318 $ 29,063,903
--------- ------------
--------- ------------
</TABLE>
See accompanying notes to the financial statements.
F-3
<PAGE>
eB2B COMMERCE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
NOVEMBER 6, 1998 NOVEMBER 6, 1998
(INCEPTION) THROUGH YEAR ENDED (INCEPTION) THROUGH
DECEMBER 31, 1998 DECEMBER 31, 1999 DECEMBER 31, 1999
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net sales (Note 1)......................... $-- $ -- $ --
Cost of good sold.......................... -- -- --
--------- ------------ ------------
Gross profit............................... -- -- --
Costs and expenses:
Selling, general, and administrative,
including stock based compensation
expense of $793,000 in 1999.......... 54,696 3,121,992 3,176,688
Software development costs (Note 1).... 53,000 571,579 624,579
--------- ------------ ------------
Total costs and expenses........... (107,696) (3,693,571) (3,801,267)
--------- ------------ ------------
Interest expense (including bridge loan
financing costs of $2,346,000)........... -- 2,359,941 2,359,941
--------- ------------ ------------
Net loss........................... (107,696) (6,053,512) (6,161,208)
--------- ------------ ------------
--------- ------------ ------------
Deemed dividends on preferred stock
(Note 5)................................. -- (29,441,723) (29,441,723)
--------- ------------ ------------
Net loss attributable to common
stockholders............................. $(107,696) $(35,495,235) $(35,602,931)
--------- ------------ ------------
--------- ------------ ------------
</TABLE>
See accompanying notes to the financial statements.
F-4
<PAGE>
eB2B COMMERCE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
PERIOD FROM NOVEMBER 6, 1998 (INCEPTION) THROUGH DECEMBER 31, 1998
AND YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
SERIES A SERIES B COMMON
PREFERRED STOCK PREFERRED STOCK STOCK
--------------- ------------------- -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance at November 6,
1998........................ -- $-- $ -- -- $ -- $--
Issuance of common stock in
exchange for software....... -- -- -- -- 2,228,500 2,229
Issuance of common stock in
connection with legal
services rendered........... -- -- -- -- 40,000 40
Issuance of common stock in
connection with consulting
services.................... -- -- -- -- 50,000 50
Net loss..................... -- -- -- -- -- --
--- ---- ---------- ------ ---------- ------
Balance at December 31,
1998........................ -- -- -- -- 2,318,500 2,319
Sale of common stock......... -- -- -- -- 97,500 97
Sale of Series A preferred
stock....................... 300 -- -- -- -- --
Sale of Series B preferred
stock....................... -- -- 3,299,999 3,300 -- --
Issuance of common stock in
exchange for services....... -- -- -- -- 148,000 148
Issuance of common stock in
exchange for a domain name.. 3,000 3
Issuance of common stock in
exchange for note payable... -- -- -- -- 160,000 160
Issuance of 55,000 warrants
in connection with legal
service rendered............ -- -- -- -- -- --
Issuance of 133,500 warrants
in connection with
consulting services......... -- -- -- -- -- --
Issuance of 717,409 warrants
in connection with bridge
financing................... -- -- -- -- -- --
Stock based compensation..... -- -- -- -- -- --
Net loss..................... -- -- -- -- -- --
Cumulative dividend on
Series B preferred stock.... -- -- -- -- -- --
--- ---- ---------- ------ ---------- ------
Balance at December 31,
1999........................ 300 $-- 3,299,999 $3,300 2,727,000 $2,727
--- ---- ---------- ------ ---------- ------
--- ---- ---------- ------ ---------- ------
<CAPTION>
DEFICIT
ACCUMULATED
ADDITIONAL DURING THE
PAID-IN DEVELOPMENT
CAPITAL STAGE TOTAL
------- ----- -----
<S> <C> <C> <C>
Balance at November 6,
1998........................ $ -- $ -- $ --
Issuance of common stock in
exchange for software....... 339,089 -- 341,318
Issuance of common stock in
connection with legal
services rendered........... 6,047 -- 6,087
Issuance of common stock in
connection with consulting
services.................... 7,559 -- 7,609
Net loss..................... -- (107,696) (107,696)
----------- ------------ -----------
Balance at December 31,
1998........................ 352,695 (107,696) 247,318
Sale of common stock......... 194,903 -- 195,000
Sale of Series A preferred
stock....................... 300,000 -- 300,000
Sale of Series B preferred
stock....................... 29,438,423 -- 29,441,723
Issuance of common stock in
exchange for services....... 228,406 -- 228,554
Issuance of common stock in
exchange for a domain name.. 1,497 -- 1,500
Issuance of common stock in
exchange for note payable... 79,840 -- 80,000
Issuance of 55,000 warrants
in connection with legal
service rendered............ 28,600 -- 28,600
Issuance of 133,500 warrants
in connection with
consulting services......... 389,700 -- 389,700
Issuance of 717,409 warrants
in connection with bridge
financing................... 2,346,000 -- 2,346,000
Stock based compensation..... 804,200 -- 804,200
Net loss..................... -- (6,053,512) (6,053,512)
Cumulative dividend on
Series B preferred stock.... 29,441,723 (29,441,723) --
----------- ------------ -----------
Balance at December 31,
1999........................ $63,605,987 $(35,602,931) $28,009,083
----------- ------------ -----------
----------- ------------ -----------
</TABLE>
See accompanying notes to the financial statements
F-5
<PAGE>
eB2B COMMERCE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
NOVEMBER 6, 1998 NOVEMBER 6, 1998
(INCEPTION) THROUGH YEAR ENDED (INCEPTION) THROUGH
DECEMBER 31, 1998 DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.......................................... $(107,696) $ (6,053,512) $ (6,131,208)
Adjustments to reconcile net loss to net cash used
by operations:
Depreciation and amortization................. 53,000 807,246 860,246
Non-cash legal, consulting and debt issuance
costs....................................... 13,696 2,992,854 3,006,550
Stock based compensation expense.............. -- 804,200 804,200
Changes in operating assets and liabilities:
Prepaid expense........................... -- (150,782) (150,782)
Other assets.............................. -- (7,500) (7,500)
Accrued expenses.......................... 36,000 1,018,820 1,054,820
--------- ------------ ------------
Net cash used by operating activities............. (5,000) (588,674) (593,674)
--------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments available for sale........ -- (15,985,901) (15,985,901)
Prepaid expense................................... -- (108,877) (108,877)
Purchase of property and equipment................ -- (1,334,912) (1,334,912)
--------- ------------ ------------
Net cash used by investing activities............. -- (17,429,690) (17,429,690)
--------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowing........................... 15,000 -- 15,000
Repayment of borrowings........................... -- (6,000) (6,000)
Loan to DWeb...................................... -- (2,000,000) (2,000,000)
Proceeds from issuance of common stock............ -- 195,000 195,000
Proceeds from issuance of Series A preferred
stock........................................... -- 285,000 285,000
Proceeds from issuance of Series B preferred
stock........................................... -- 29,441,723 29,441,723
--------- ------------ ------------
Net cash provided by financing activities......... 15,000 27,915,723 27,930,723
--------- ------------ ------------
Net increase in cash and cash equivalents......... 10,000 9,897,359 9,907,359
Cash and cash equivalents at the beginning of
period.......................................... -- 10,000 --
--------- ------------ ------------
Cash and cash equivalents at end of period........ $ 10,000 $ 9,907,359 $ 9,907,359
--------- ------------ ------------
--------- ------------ ------------
Non-cash transactions:
Common stock issued in exchange for note
payable..................................... $-- $ 80,000 $ 80,000
--------- ------------ ------------
--------- ------------ ------------
Preferred stock issued in exchange for note
payable..................................... $-- $ 15,000 $ 15,000
--------- ------------ ------------
--------- ------------ ------------
Common stock issued in exchange for Domain
name........................................ $-- $ 1,500 $ 1,500
--------- ------------ ------------
--------- ------------ ------------
Common stock issued in exchange for
software.................................... $ 341,318 $ -- $ 341,318
--------- ------------ ------------
--------- ------------ ------------
Long term -- note payable in exchange for
software.................................... $ 86,000 $ -- $ 86,000
--------- ------------ ------------
--------- ------------ ------------
</TABLE>
See accompanying notes to the financial statements
F-6
<PAGE>
eB2B COMMERCE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 is developing an integrated set of proprietary
Internet-based technology solutions intended to enable 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 and $966,000 for the period ended December 31, 1998, and the year ended
December 31, 1999, respectively. During 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 incurred during 1999 of
approximately $174,000. Total software development expense for the year ended
December 31, 1999, was approximately $572,000.
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 one to three years. Depreciation
expense was approximately $53,000 and $256,000 for the years ended December 31,
1998 and 1999, respectively.
REVENUE RECOGNITION
Revenue will be recognized on a pay per transaction basis when an e-commerce
transaction occurs between a retailer and manufacturer.
AMORTIZATION OF INTANGIBLES
Other assets represent a domain name, which is being amortized on a
straight-line basis over a period of two years.
The Company considers all highly liquid investments with a remaining
maturity of 90 days or less at the time of purchase to be cash equivalents.
INVESTMENTS
Investments consist of fixed income investments. All of the Company's
investments are considered to be 'available-for-sale' and, accordingly, are
carried on the balance sheet at fair market value, which approximates cost. All
of the Company's investments mature in less within one year.
F-7
<PAGE>
eB2B COMMERCE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 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 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.
2. DEVELOPMENT STAGE OPERATIONS
The Company is a development stage enterprise as defined in SFAS No. 7,
Accounting and Reporting by Development Stage Enterprises. 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. PROPERTY AND EQUIPMENT
Property and equipment consist of the following as of December 31:
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Computer equipment.......................................... $ -- $ 193,154
Office equipment............................................ -- 2,081
Software development........................................ 427,318 965,677
-------- ----------
427,318 1,160,912
Less: Accumulated depreciation.............................. 53,000 255,740
-------- ----------
$374,318 $ 905,172
-------- ----------
-------- ----------
</TABLE>
4. NOTES PAYABLE
Upon inception, the Company issued shares of common stock (see Note 5) 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 would accrue
F-8
<PAGE>
eB2B COMMERCE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
on the principal of the note at the rate of 8 3/4% per annum. The aggregate of
the principal and all accrued interest was to be paid by the Company on
February 11, 2009. The Company had 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 $.50
per share. On November 30, 1999, substantially all of the carrying amount of the
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 had the right to prepay all or part of the
outstanding principal balance at any time. In such event, the holder had 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, the note was converted by
the holder into 15 share of the Company's Series A C onvertible Preferred Stock.
5. STOCKHOLDERS' EQUITY
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 pertain 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 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
$2,346,000 and were expensed at the time the bridge financing was liquidated.
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 and seven year warrants to purchase
1,500,048 shares of common stock at an exercise price of $5.50 per share, for
approximately $33 million in gross proceeds, in a private placement conducted by
the Company. 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 appproximately
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
F-9
<PAGE>
eB2B COMMERCE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$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 distibutions before distributions to any holder of the
Company's common stock.
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 4).
The Company issued to the investment banking firm, for services relating to
the private placement, seven year warrants to purchase 1,952,600 shares of
common stock at an exercise price of $5.50. The warrants were valued, utilizing
the minimum value method, at approximately $5,897,000 and recorded in additional
paid-in-capital.
In connection with various legal services, consulting services and bridge
financing arrangements rendered during 1999, the Company issued 148,000 shares
of common stock and 905,909 warrants to purchase shares of common stock in
exchage for these services. The warrants are exercisable for a period of five
years at prices ranging from $0.50 to $5.50 per share. The warrants were valued,
utilizing the minimum value method, at approximately $28,600, $389,700 and
$2,346,000, respectively, and charged to expense in the current period.
At December 31, 1999, the Company has reserved for issuance (i) 150,000
shares of common stock for conversion of the Series A, (ii) 6 million shares of
common stock for conversion of the Series B, (iii) 4,388,557 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 Equity Agreements with executive officers.
MERGER
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 or purchase. The officers
and directors of the Company will retain their position with the surviving
company. The stockholders of the Company will own more than 85% 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.
As a result of the merger agreement with DWeb, the 3,300,000 shares of
Series B preferred stock, issued for approximately $29,442,000, will be
convertible into approximately 16 million shares of DWeb's common shares valued
at $7.35 per share, DWeb'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 will be allocated to the
convertible feature and amortized as a deemed preferred dividend, resulting in a
charge to retained earnings and a credit to additional paid-in capital.
F-10
<PAGE>
eB2B COMMERCE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On November 12, 1999, DWeb entered into a loan agreement with the Company
whereby DWeb borrowed $2 million from the Company, at an interest rate of 8% per
annum. The loan matures in May 2000, unless the merger is not consummated, in
which event the loan would mature in November 2000. If the loan is not repaid
upon maturity, the Company may choose to convert the aggregate value of the loan
into shares of DWeb common stock at a conversion price of $0.25 per share.
In November 1999, in connection with the DWeb merger the Company granted
five year warrants to purchase 500,000 and 470,000 shares of common stock at an
exercise price of $5.50 to a founding shareholder and the investment banking
firm, respectively. These warrants will vest upon completion of the DWeb merger.
In addition the Company also issued five year warrants to purchase an aggregate
of 30,000 shares of commons stock at an exercise price of $5.50 to two
shareholders in consideration of their introduction of the Company to the
investment banking firm. The warrants were valued, utilizing the minimum value
method, at approximately $1,280,000 and $1,203,000, and $77,000, respectively,
and will be included as part of the cost of acquisition at the date of merger.
6. 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.
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 def ined 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 $675,000, as determined utilizing the minimum value
method.
Stock option activity for the 1998 Incentive Stock Option Plan and the
Executive Performance Equity Agreement from November 6, 1998 (inception) to
December 31, 1999, is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
------ --------------
<S> <C> <C>
Outstanding at November 6, 1998
(Inception)............................................... -- -$-
Granted..................................................... -- --
Outstanding at December 31, 1998............................ -- --
Granted..................................................... 772,500 $2.08
Outstanding at December 31, 1999............................ 772,500 $2.08
Exercisable at December 31, 1999............................ 532,500 $1.08
</TABLE>
F-11
<PAGE>
eB2B COMMERCE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information regarding the options outstanding under the 1998 Incentive Stock
Option Plan and the Executive Performance Equity Agreement at December 31, 1999,
is as follows:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER OF WEIGHTED- AVERAGE
EXERCISE PRICE OPTIONS CURRENTLY WEIGHTED-AVERAGE AVERAGE NUMBER EXERCISABLE
RANGE OUTSTANDING EXERCISE PRICE REMAINING LIFE EXERCISE PRICE
----- ----------- -------------- -------------- -------- -----
<S> <C> <C> <C> <C> <C>
$5.50 210,000 $5.50 2.9 years 52,500 $5.50
$2.00 112,500 $2.00 4.5 years 30,000 $2.00
$0.50 450,000 $0.50 4.4 years 450,000 $0.50
------- -------
772,500 532,500
------- -------
------- -------
</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 with a range of four
to five years at date of grant. The Company's pro forma information for the nine
months ended December 31, 1999, is as follows:
<TABLE>
<S> <C>
Net loss:
As reported............................................. $ (6,023,512)
------------
------------
Pro forma under SFAS No. 123............................ $ (6,520,162)
------------
------------
</TABLE>
Options outstanding at December 31, 1999, had a weighted average remaining
contractual life of approximately 4.1 years. The weighted average fair market
value of options granted during the year ended December 31, 1999, whereby the
fair market value of the stock on the date of grant was equal to the exercise
price or was greater than the exercise price was $2.00 and $3.41, respectively.
7. INCOME TAXES
There was no provision for federal, or state and local income taxes as the
Company has sustained losses for the period from November 6, 1998 through
December 31, 1998, and for the year ended December 31, 1999. At December 31,
1999, the Company has approximately $3.8 million of net operating loss
carryforwards for Federal income tax purposes, which begin to expire in 2019.
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
assets will be realized. The ultimate realization of deferred tax assets 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 and 1999.
F-12
<PAGE>
eB2B COMMERCE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............... $145,000 $1,292,000
Capitalized start-up expenditures.............. 19,000 1,069,000
-------- ----------
Total deferred tax assets.......................... 164,000 2,361,000
Deferred tax liability
Research and development....................... 127,000 278,000
-------- ----------
37,000 2,083,000
Valuation allowance................................ 37,000 2,083,000
-------- ----------
Net deferred tax assets............................ $ -- $ --
-------- ----------
-------- ----------
</TABLE>
8. COMMITMENTS
The Company has entered into employent 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
incease 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 expire in
December 31, 2002, December 31, 2001, and December 31, 2001, respectively. For
the year ended December 31, 1999, bonuses payable to the three stockholders
totaled $185,000.
In December 1999, the Company issued to a consultant five year warrants to
purchase 25,000 shares of common stock at an exercise price of $5.50. The
options were valued, utilizing the minimum value method, at approximately
$208,500 and charged to compensation expense. The Company will issue to the
consultant additional five year warrants to purchase 50,000 shares of common
stock at an exercise price of $5.50 provided a certain trading partner agreement
is signed prior to March 31, 2000. In addition the Company will issue the
consultant additional five year warrants to purchase 50,000 shares of common
stock at an exercise price as determined by the board of directors for each
additional trading partner agreement signed. The December 1999 warrant was
valued, utilizing the minimum value method, at approximately $208,500 and
charged to expense in the current period. Subsequent warrants issued will be
valued in a similar manner and charged to expense in the period granted.
In December 1999, the Company issued to various trading partners warrants to
purchase up to approximately 86,000 shares of common stock of the Company at an
exercise price of $6.38 per share. The warrants will vest in three equal
installments in December 2000, 2001 and 2002.
9. SUBSEQUENT EVENTS
MERGER
On January 27, 2000, Netlan Enterprises, Inc. ('Netlan') entered into a loan
agreement with the Company whereby Netlan borrowed $200,000 from the Company, at
an interest rate of 8 3/4% per annum. The loan matures January 2001. If the loan
is not repaid upon maturity, the Company may choose to convert the aggregate
value of the loan into shares of Netlan common stock at a conversion price of
$0.10 per share.
On February 22, 2000, the Company signed an agreement to merge with Netlan
Enterprises, Inc. The purchase price was approximately 122,000 shares of the
Company's common stock, plus up to 200,000 shares of the Company's common stock
may be issued to employees of Netlan.
F-13
<PAGE>
eB2B COMMERCE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. UNAUDITED PROFORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following proforma unaudited condensed financial statements give effect
to the acquisition of Netlan by the Company. This transaction will be accounted
for under the purchase method of accounting. The unaudited proforma statement of
operations for the year ended December 31, 1999 gives effect to the acquisition
of Netlan, as if the acquisition occurred on January 1, 1999. The proforma
statement of operations is based on historical results of operations of the
Company for the twelve months ended December 31, 1999. The unaudited proforma
balance sheet as of December 31, 1999, gives effect to the acquisition of
Netlan, as if the transaction had occurred on December 31, 1999.
The unaudited proforma combined financial statements should be read in
conjunction with the historical financial statements and notes thereto. 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 acquisition of Netlan or of
the financial position or results of operations of the consolidated company that
would have acutally occurred had the acquisition of Netlan been effected as of
the dates described above.
F-14
<PAGE>
eB2B COMMERCE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET (A)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PROFORMA
NETLAN eB2B eB2B
ENTERPRISES, COMMERCE PROFORMA COMMERCE,
INC. INC. ADJUSTMENTS INC.
---- ---- ----------- ----
<S> <C> <C> <C> <C>
Cash and cash equivalents................. $ 83,324 $ 9,907,359 $ 9,990,683
Investments available for sale............ 15,985,901 15,985,901
Accounts receivable -- net................ 387,769 387,769
Other current assets...................... 3,932 2,259,659 2,263,591
Inventories............................... 52,736 52,736
Property, plant and equipment,net......... 648,713 905,172 $ (42,695)c 1,511,190
Cost in excess of fair value of assets
acquired, net........................... 734,195 3,625,000 a 4,359,195
Other assets.............................. 48,619 5,812 54,431
---------- ----------- ---------- -----------
Total Assets.......................... $1,959,288 $29,063,903 $3,582,305 $34,605,496
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
Accounts payable and accrued expenses..... $1,626,598 $ 1,054,820 $ 2,681,418
Line credit............................... 582,704 582,704
Current portion of long term debt......... 1,673,381 1,673,381
Deferred revenue.......................... 198,121 $ (15,309)c 182,812
Other liabilities......................... 158,525 158,525
---------- ----------- ---------- -----------
4,239,329 1,054,820 (15,309) 5,278,840
Long term debt............................ 64,448 64,448
---------- ----------- ---------- -----------
4,303,777 1,054,820 (15,309) 5,343,288
Preferred Stock -- Series A & B........... 3,300 3,300
Common stock.............................. 24,033 2,727 26,760
Additional Paid in Capital................ 866,915 63,605,987 (5,200)d 70,142,702
2,050,000 e
3,625,000 a
Accumulated Deficit....................... (3,235,437) (35,602,931) (2,072,186) (40,910,554)
---------- ----------- ---------- -----------
Total stockholders' equity (deficit)...... (2,344,489) 28,009,083 3,597,614 29,262,208
---------- ----------- ---------- -----------
Total liabilities and stockholders
equity (deficit).................... $1,959,288 $29,063,903 $3,582,305 $34,605,496
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
F-15
<PAGE>
eB2B COMMERCE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS (A)
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
PROFORMA
NETLAN eB2B eB2B
ENTERPRISES, COMMERCE PROFORMA COMMERCE,
INC. INC. ADJUSTMENTS INC.
---- ---- ----------- ----
<S> <C> <C> <C> <C>
Revenues
Consulting services................ $ 2,254,090 $ (58,691)c $ 2,195,399
Network development................ 1,949,101 1,949,101
Other.............................. 19,163 19,163
----------- ------------ ----------- ------------
4,222,354 -- (58,691) 4,163,663
Cost of revenues
Consulting services................ 1,391,849 1,391,849
Network development................ 1,364,795 1,364,795
----------- ------------ ----------- ------------
2,756,644 -- -- 2,756,644
----------- ------------ ----------- ------------
Operating income....................... 1,465,710 -- (58,691) 1,407,019
Expenses
Marketing and sales................ 412,448 412,448
General and administrative......... 2,507,252 $ 3,121,992 (5,200)d 7,642,739
(31,305)c
2,050,000 e
Amortization of goodwill........... 725,000 b 725,000
Research and development........... 571,579 571,579
----------- ------------ ----------- ------------
2,919,700 3,693,571 2,738,495 9,351,766
----------- ------------ ----------- ------------
Loss from operations before other
expense, income, income taxes and
discontinued operations.............. (1,453,990) (3,693,571) (2,797,186) (7,944,747)
Other
Interest expense................... (244,240) (2,359,941) (2,604,181)
Loss before discontinued operations.... (1,698,230) (6,053,512) (2,797,186) (10,548,928)
Loss from discontinued operations...... (772,163) 772,163 f --
----------- ------------ ----------- ------------
Net loss............................... (2,470,393) (6,053,512) (2,025,023) (10,548,928)
Deemed dividends on preferred stock.... (29,441,723) (29,441,723)
----------- ------------ ----------- ------------
Net loss attributable to common
stockholders......................... $(2,470,393) $(35,495,235) $(2,025,023) $(39,990,651)
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
</TABLE>
F-16
<PAGE>
eB2B COMMERCE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTES TO THE UNAUDITED PRO FORMA CONDENSED FINANCIAL DATA
Pro Forma Adjustments and Assumptions:
(1) Assumptions:
(A) The pro forma financial information reflects the acquisition of Netlan
by eB2B for consideration valued at approximately $1.3 million,
consisting of the equivalent of 325,000 shares of eB2B common stock,
plus up to 200,000 shares of eB2B common stock may be issued to certain
employees of Netlan. The aggregate value of these compensatory shares is
$2,050 million. The share values are based on the fair market value of
eB2B common stock as of the date of merger. The actual purchase price
allocation will be based on the 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 eB2B and Netlan
to the allocated purchase price above.
(B) The pro forma adjustment includes $0.7 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 acquisition of Netlan. The pro forma adjustment is based
on the assumption that the entire amount identified as goodwill and
other intangible assets will be amortized on a straight-line basis over
a five-year period. 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 that 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 he 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) Elimination of revenue transactions between eB2B and Netlan.
(D) Value of the warrants issued by eB2B to Netlan during 1999.
(E) Compensation expense for certain shares issued in connection with the
Netlan merger.
(F) Discontinued operations of Netlan.
F-17
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
NETLAN ENTERPRISES, INC. AND SUBSIDIARIES
We have audited the accompanying consolidated balance sheets of NETLAN
Enterprises, Inc. and Subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for the years 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
audits.
We conducted our audits 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 audits provide 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, 1999 and 1998, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
Roseland, New Jersey
February 22, 2000, except for the
last paragraph of Note 17, which is
as of February 24, 2000
F-18
<PAGE>
NETLAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
---- ----
<S> <C> <C>
ASSETS
Current assets
Cash........................................................ $ 83,324 $ 804,680
Accounts receivable, less allowance for doubtful accounts of
$93,000 in 1999 and $115,000 in 1998...................... 387,769 2,259,585
Inventories................................................. 52,736 132,156
Other current assets........................................ 3,932 158,965
----------- ----------
Total current assets................................ 527,761 3,355,386
----------- ----------
Property and equipment, net................................. 648,713 749,153
----------- ----------
Other assets
Intangible assets, net.................................. 734,195 1,003,706
Restricted cash......................................... 501,929
Other................................................... 48,619 54,500
----------- ----------
782,814 1,560,135
----------- ----------
$ 1,959,288 $5,664,674
----------- ----------
----------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Line of credit, bank...................................... $ 582,704 $ 60,131
Loan payable.............................................. 1,500,000 2,000,000
Accounts payable and accrued expenses..................... 1,626,598 2,023,617
Obligations under capital leases, current portion......... 173,381 77,292
Deferred revenues......................................... 198,121 968,404
Commissions payable....................................... 97,067 211,057
Other current liabilities................................. 61,458 167,242
----------- ----------
Total current liabilities........................... 4,239,329 5,507,743
----------- ----------
Long-term liabilities,
Obligations under capital leases, less current portion.... 64,448 96,292
----------- ----------
Commitments and contingencies
Stockholders' equity (deficit)
Class A common stock, .01 par value,
authorized 2,500,000 shares, issued and outstanding
2,403,300 shares in 1999 and 1,098,000 in 1998.......... 24,033 10,980
Class B common stock, .01 par value, authorized 200,000
shares, no shares issued or outstanding
Capital in excess of par value............................ 866,915 814,703
Accumulated deficit....................................... (3,235,437) (765,044)
----------- ----------
Total stockholders' equity (deficit)................ (2,344,489) 60,639
----------- ----------
$ 1,959,288 $5,664,674
----------- ----------
----------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-19
<PAGE>
NETLAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1997
1999 1998 (UNAUDITED)
---- ---- -----------
<S> <C> <C> <C>
Revenues
Internet applications................................ $ 1,949,101 $1,067,267 $ 51,000
Educational services................................. 2,254,090 2,602,088 2,333,681
Other................................................ 19,163 44,579 39,706
----------- ---------- ----------
4,222,354 3,713,934 2,424,387
----------- ---------- ----------
Cost of revenues
Internet applications................................ 1,364,795 422,472 30,000
Educational services................................. 1,391,849 1,304,693 1,029,659
----------- ---------- ----------
2,756,644 1,727,165 1,059,659
----------- ---------- ----------
Gross profit............................................. 1,465,710 1,986,769 1,364,728
Operating expenses....................................... 2,919,700 2,119,850 1,104,213
----------- ---------- ----------
Income (loss) from operations............................ (1,453,990) (133,081) 260,515
----------- ---------- ----------
Other expense
Interest expense..................................... 244,240 220,953 13,241
Other................................................ 66,125
----------- ---------- ----------
244,240 220,953 79,366
----------- ---------- ----------
Income (loss) from continuing operations................. (1,698,230) (354,034) 181,149
Loss from discontinued operations, net of income tax
(benefit) of approximately ($10,000) in 1998 and
$23,000 in 1997........................................ (772,163) (476,898) (37,140)
----------- ---------- ----------
Net income (loss)........................................ $(2,470,393) $ (830,932) $ 144,009
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-20
<PAGE>
NETLAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
CLASS A CLASS A CAPITAL RETAINED
COMMON STOCK COMMON IN EXCESS EARNINGS
------------------- STOCK OF PAR (ACCUMULATED SUBSCRIPTION
SHARES AMOUNT SUBSCRIBED VALUE DEFICIT) RECEIVABLE
------ ------ ---------- ----- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1997
(unaudited)................ 1,026,700 $10,267 $ 200 $397,616 $ 311,879 $(18,000)
Issuance of common stock
(unaudited)................ 11,300 113 (200) 17,687 18,000
Dividends (unaudited)........ (190,000)
Net income (unaudited)....... 144,009
--------- ------- ----- -------- ----------- --------
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, January 1, 1999.... 1,098,000 10,980 -- 814,703 (765,044) --
Issuance of common stock..... 1,305,300 13,053 52,212
Net loss..................... (2,470,393)
--------- ------- ----- -------- ----------- --------
Balances, December 31,
1999....................... 2,403,300 $24,033 $-- $866,915 $(3,235,437) $ --
--------- ------- ----- -------- ----------- --------
--------- ------- ----- -------- ----------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-21
<PAGE>
NETLAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1999 1998 1997
---- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss)..................................... $(2,470,393) $(830,932) $ 144,009
Deduct loss from discontinued operations.............. (772,163) (476,898) (37,140)
----------- --------- ---------
Income (loss) from continuing operations.............. (1,698,230) (354,034) 181,149
Adjustments to reconcile income (loss) from continuing
operations to net cash used in operating activities:
Provision for allowance for doubtful accounts..... 55,504 7,344
Depreciation and amortization..................... 330,131 174,392 112,164
Other non-cash items.............................. 65,265 180,000 47,600
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable.... 582,140 (361,663) (307,595)
(Increase) decrease in inventories............ 11,839 6,886 (32,709)
(Increase) decrease in other current assets... (618) 5,752 (3,150)
(Increase) decrease in other assets........... (26,019) 10,275 5,898
Increase in accounts payable and accrued
expenses.................................... 353,381 127,983 157,856
Increase (decrease) in deferred revenues...... (106,282) 105,031 (3,084)
Increase (decrease) in commissions payable.... (70,250) 91,437
Increase in other current liabilities......... 67,969 5,237 1,526
----------- --------- ---------
Net cash provided by (used in) operating activities of
continuing operations................................... (435,170) (8,704) 166,999
Net cash provided by (used in) operating activities of
discontinued operations................................. (563,043) 514,208 828,663
----------- --------- ---------
Net cash provided by (used in) operating activities....... (998,213) 505,504 995,662
----------- --------- ---------
Cash flows from investing activities
Purchases of property and equipment................... (83,484) (263,334) (235,078)
Acquisition of business, net of cash acquired......... (249,430)
Proceeds from sales of property and equipment......... 4,854
Purchases of software................................. (55,733)
----------- --------- ---------
Net cash used in investing activities..................... (83,484) (568,497) (230,224)
----------- --------- ---------
Cash flows from financing activities
Payments for deferred loan costs...................... (184,110)
Repayments of line of credit, bank.................... (250,000) (300,000)
Proceeds from line of credit, bank.................... 522,573 60,131
Proceeds from loan payable............................ 2,000,000
(Increase) decrease in restricted cash................ 1,929 (501,929)
Repayments of obligations under capital leases........ (164,161) (114,901) (151,032)
Repayments of assumed liabilities..................... (252,618)
Repayments of loans payable, stockholders............. (43,478)
Proceeds from issuance of common stock................ 18,000
Dividends paid to stockholders........................ (200,000) (190,000)
----------- --------- ---------
Net cash provided by (used in) financing activities....... 360,341 556,573 (666,510)
----------- --------- ---------
Net increase (decrease) in cash........................... (721,356) 493,580 98,928
Cash, beginning of year................................... 804,680 311,100 212,172
----------- --------- ---------
Cash, end of year......................................... $ 83,324 $ 804,680 $ 311,100
----------- --------- ---------
----------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-22
<PAGE>
NETLAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
---- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
Supplemental disclosures of cash flow information, cash paid
during the year for:
Interest................................................ $252,240 $119,324 $ 13,241
-------- -------- --------
-------- -------- --------
Income taxes............................................ $ -- $ 30,017 $ 18,525
-------- -------- --------
-------- -------- --------
Supplementary schedule of non-cash investing and financing
activities
Property and equipment recorded pursuant to obligations
under capital leases.................................. $228,406 $ 66,876 $239,586
-------- -------- --------
-------- -------- --------
Common stock issued in connection with acquisition
(Note 6).............................................. $ -- $400,000 $ --
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-23
<PAGE>
NETLAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 designs and delivers custom technical education for the
same client base and provides education through delivery of custom
computer-based training and internet-based on-line training. In addition, NETLAN
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 and
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. assumed 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. At December 31, 1999,
inventories solely consisted of course materials. At December 31, 1998,
inventories consisted of approximately $67,000 of spare parts and $65,000 of
course materials.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation and
amortization. Depreciation is calculated using 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.
INTANGIBLE ASSETS
Goodwill and deferred software costs are amortized using the straight-line
method over estimated useful lives of 5 and 3 years, respectively.
INCOME TAXES
The Company'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 are receive
the benefit of allowable corporate losses.
F-24
<PAGE>
NETLAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES
The preparation of consolidated 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 consolidated
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
method. The revenues and costs related to the unearned portion of a contract are
treated as deferred revenues and prepaid expenses, respectively, in the
accompanying consolidated balance sheets. In addition, educational service
revenue is recognized upon completion of the seminar and is based upon the class
attended. Deferred revenues include amounts billed for training seminars and
classes that have not been completed.
3. PROPERTY AND EQUIPMENT
At December 31, 1999 and 1998, property and equipment consists of the
following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Furniture and fixtures...................................... $ 300,257 $ 300,257
Office, classroom and lab equipment......................... 1,992,003 1,739,332
Leasehold improvements...................................... 102,542 102,542
---------- ----------
2,394,802 2,142,131
Accumulated depreciation and amortization................... 1,746,089 1,392,978
---------- ----------
$ 648,713 $ 749,153
---------- ----------
---------- ----------
</TABLE>
Depreciation and amortization expense from continuing operations for the
years ended December 31, 1999, 1998 and 1997 was approximately $142,000,
$135,000 and $112,000 (unaudited), respectively.
4. INTANGIBLE ASSETS
At December 31, 1999 and 1998 , intangible assets consist of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Goodwill.................................................... $941,717 $ 941,717
Deferred software costs..................................... 97,403
-------- ----------
941,717 1,039,120
Accumulated amortization.................................... 207,522 35,414
-------- ----------
$734,195 $1,003,706
-------- ----------
-------- ----------
</TABLE>
Amortization expense from continuing operations for the years ended December
31, 1999, 1998 and 1997 was approximately $188,000, $40,000 and nil (unaudited),
respectively.
F-25
<PAGE>
NETLAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. OBLIGATIONS UNDER CAPITAL LEASES
At December 31, 1999, obligations under capital leases consist of the
following:
<TABLE>
<S> <C>
Various leases with monthly payments aggregating $15,518
with inputed interest ranging from 9.2% to 17.4% per
annum..................................................... $261,303
Less amount representing interest........................... 23,474
--------
Present value of lease payments............................. 237,829
Less current portion........................................ 173,381
--------
$ 64,448
--------
--------
</TABLE>
Scheduled future minimum aggregate payments on obligations under capital
leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
2000........................................................ $173,381
2001........................................................ 64,448
--------
$237,829
--------
--------
</TABLE>
At December 31, 1999 and 1998, property and equipment includes assets
acquired under capital leases with a cost of approximately $658,000 and
$466,000, respectively, and accumulated depreciation of approximately $391,000
and $290,000, respectively.
6. ACQUISITION
On November 3, 1998, the Company assumed 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 of $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 assumed were recorded at their approximate fair
values, and are summarized as follows:
<TABLE>
<S> <C>
Cash........................................................ $ 9,850
Accounts receivable......................................... 97,125
Property and equipment...................................... 84,543
Intangible assets........................................... 941,717
Accounts payable............................................ (221,338)
Loans payable............................................... (107,000)
Other current liabilities................................... (145,617)
---------
$ 659,280
---------
---------
</TABLE>
The following unaudited pro forma information for 1998 and 1997 gives effect
to the acquisition of ICI as if it had occurred on January 1, 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Revenues.................................................... $4,631,000 $3,691,000
---------- ----------
---------- ----------
Income (loss) from continuing operations.................... $ (560,000) $ 105,000
---------- ----------
---------- ----------
</TABLE>
7. LINE OF CREDIT, BANK
During 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
F-26
<PAGE>
NETLAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Acceptable Accounts Receivable, as defined in the line of credit agreement. In
February 1999, the bank froze the borrowings of approximately $583,000 under the
line of credit (Note 17).
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. The Company
was 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 17).
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 the 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.
9. STOCKHOLDERS' EQUITY (DEFICIT)
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 to this transaction.
On December 1, 1999, the Company issued 1,305,300 additional shares of its
common stock to certain of its existing stockholders/employees and to one of its
employees as compensation for services. Accordingly, the statement of operations
for the year ended December 31, 1999 includes a charge to compensation of
approximately $65,000 for the fair value of the shares issued.
10. 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 cease 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. Had compensation cost
for the Plan been determined based on the fair value at the grant date,
consistent with SFAS No. 123, the Company's
F-27
<PAGE>
NETLAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1999 net loss (no stock options were granted in 1998 or 1997) would have been
adjusted to the pro forma amounts indicated below:
<TABLE>
<S> <C>
Loss from continuing operations, as reported................ $(1,698,000)
-----------
-----------
Loss from continuing operations, pro forma.................. $(1,717,000)
-----------
-----------
</TABLE>
The fair value of each option 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.
11. 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 years ended December
31, 1999 and 1998, the Company's cash balances may have exceeded the federally
insured deposit limits of $100,000.
12. RELATED PARTY TRANSACTIONS
At December 31, 1999 and 1998, the Company has loans payable to stockholders
of approximately $33,000 and $40,000, which are included in other current
liabilities. The loans bear interest at 3.20% and are due on demand.
For the year ended December 31, 1999, internet application revenues include
approximately $59,000 relating to internet web-based services provided to an
affiliate.
13. 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 will also make an annual contribution matching up to three percent of
the participant's total compensation. Any additional contributions to the plan
by the Company will be made at the discretion of the Board of Directors.
Contributions under this plan were approximately $55,000, $63,000, and $57,000
(unaudited) for the years ended December 31, 1999, 1998 and 1997, respectively.
14. DISCONTINUED OPERATIONS
On October 31, 1999, the Company discontinued its services relating to
computer network design, consulting, implementation, integration, procurement
and support. For the years ended December 31, 1999, 1998 and 1997, the loss from
discontinued operations was approximately $773,000, $477,000 and $37,000
(unaudited) and revenues from discontinued operations were approximately
$5,954,000, $12,846,000 and $14,065,000 (unaudited), respectively. The
accompanying consolidated financial statements have been restated to reflect the
revenues and expenses relating to these operations as loss from discontinued
operations.
Management negotiated with its vendors to pay its trade payables at a
discount. For the year ended December 31, 1999, loss from discontinued
operations includes a gain of approximately $415,000. In addition, the Company
sold its rights relating to service and maintenance contracts to a third party
for a nominal amount. For the year ended December 31, 1999, loss from
discontinued operations includes a gain of approximately $209,000 relating to
the write off of the unearned portion of these contracts.
15. SEGMENT INFORMATION
The Company has two reportable segments: Netlan II Inc. and Netlan
Acquisition Corp. ('ICI').
F-28
<PAGE>
NETLAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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'.
Operating segment information for the years ended December 31, 1999, 1998
and 1997 is summarized as follows (in thousands):
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1999
-------------------------------------------------------
NETLAN
ACQUISITION
CORP.
NETLAN II INC. ('ICI') CORPORATE CONSOLIDATED
-------------- ------- --------- ------------
<S> <C> <C> <C> <C>
Revenues................................ $2,284 $1,938 $ -- $4,222
------ ------ ---- ------
------ ------ ---- ------
Operating loss.......................... $ 296 $ 422 $736 $1,454
------ ------ ---- ------
------ ------ ---- ------
Interest expense........................ $ 16 $ -- $228 $ 244
------ ------ ---- ------
------ ------ ---- ------
Depreciation and amortization........... $ 106 $ 183 $ 41 $ 330
------ ------ ---- ------
------ ------ ---- ------
Total assets............................ $ 609 $ 944 $176 $1,729
------ ------ ---- ------
------ ------ ---- ------
Capital expenditures.................... $ 83 $ -- $ -- $ 83
------ ------ ---- ------
------ ------ ---- ------
</TABLE>
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1998
-------------------------------------------------------
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 $ 11 $ 209 $ 231
------ ------ ------ ------
------ ------ ------ ------
Depreciation and amortization........... $ 124 $ 39 $ 11 $ 174
------ ------ ------ ------
------ ------ ------ ------
Total assets............................ $ 815 $1,978 $1,345 $4,138
------ ------ ------ ------
------ ------ ------ ------
Capital expenditures.................... $ 45 $ 2 $ -- $ 4
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------
NETLAN
ACQUISITION
CORP.
NETLAN II INC. ('ICI') CORPORATE CONSOLIDATED
-------------- ------- --------- ------------
<S> <C> <C> <C> <C>
Revenues................................ $2,373 $ 51 $ -- $2,424
Operating income (loss)................. $ 318 $ (58) $ -- $ 260
Interest expense........................ $ 13 $ -- $ -- $ 13
Depreciation and amortization........... $ 112 $ -- $ -- $ 112
Total assets............................ $ 837 $ 79 $ -- $ 916
Capital expenditures.................... $ 87 $ -- $ -- $ 87
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
The total assets in the above table include the assets from continuing
operations only, total assets of Netlan Inc., the discontinued segment, were
$230, $1,527 and $3,504 at December 31, 1999, 1998 and 1997, respectively. In
addition, Netlan Inc. incurred capital expenditures of $216 and $148 (unaudited)
for the years ended December 31, 1998 and 1997, respectively.
F-29
<PAGE>
NETLAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. 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 based period
amounts. Aggregate future minimum rental payments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
2000............................................ $297,200
2001............................................ 194,200
--------
$491,400
--------
--------
</TABLE>
Rent expense for the years ended December 31, 1999, 1998 and 1997 was
approximately $193,000, $87,000, and $75,000 (unaudited), respectively.
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.
17. SUBSEQUENT EVENTS
On January 27, 2000, the Company amended its certificate of incorporation
increasing the number of authorized shares of common stock to 5,000,000, of
which 4,800,000 shares are designated as voting (class A) and 200,000 shares are
designated as non-voting (class B).
On February 18, 2000, one of the Company's stockholders exercised his
preemptive right, as a result of the issuance of common stock on December 1,
1999 (Note 9), to purchase 13,573 shares of common stock at a price of five
cents per share.
On February 22, 2000, the Company entered into a plan of merger with eB2B
Commerce, Inc. ('eB2B.com') whereby the Company's stockholders will exchange
100% of their common stock for 122,182 equivalent shares, as defined in the
agreement, of eB2B.com's common stock.
On February 22, 2000, eB2B.com repaid the loan payable of $1.5 million (Note
8).
As of February 22, 2000, the Company is in violation of certain covenants
set forth in the line of credit agreement. On February 24, 2000, eB2B.com repaid
the $583,000 line of credit (Note 7).
F-30
<PAGE>
PART II
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's amended and restated 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 amended and restated 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, if 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 Company 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.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
- ------- -----
<S> <C> <C>
2.1 -- Agreement and Plan of Merger by and between eB2B Commerce, Inc. and DynamicWeb
Enterprises, Inc., dated December 1, 1999.#
2.2 -- Amendment No. 1 to the Agreement and Plan of Merger by and between eB2B
Commerce, Inc. and DynamicWeb Enterprises, Inc., dated February 29, 2000.*
2.3 -- Letter Agreement by and between eB2B Commerce, Inc. and DynamicWeb
Enterprises, Inc., dated November 10, 1999.#
2.4 -- Amendment No. 1 to the Letter Agreement by and between eB2B Commerce, Inc. and
DynamicWeb Enterprises, Inc., dated November 19, 1999.#
2.5 -- Agreement and Plan of Merger by and between eB2B Commerce, Inc., Netlan Merger
Corporation and Netlan Enterprises, Inc., dated February 22, 2000.*
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).
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
- ------ -----
<S> <C> <C>
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).
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.'D'
3.1.13 -- 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 ,
2000. (Proposed)*
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).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
- ------ -----
<S> <C> <C>
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.**
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.**
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.#
4.4 -- Amended and Consolidated Convertible Promissory Note, dated
February 29, 2000.*
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.**
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 -- Employment Agreement between Victor Cisario and eB2B
Commerce, Inc., dated effective as of December 31, 1999.*
10.13 -- Employment Agreement between Barry Goldstein and eB2B
Commerce, Inc., dated effective as of December 31, 1999.*
10.14 -- Letter Agreement, dated September 27, 1999, between
DynamicWeb Enterprises, Inc. and Sands Brothers & Co., Ltd.
for financial, strategic and other consulting advice.#
10.15 -- Common Stock Purchase Warrant Agreement between DynamicWeb
Enterprises, Inc. and Donner Corp. International, dated as
of September 30, 1999.#
10.16 -- Employment Agreement between James Conners and DynamicWeb
Enterprises, Inc., dated August 26, 1997, as renewed
effective October 1, 1999.#
10.17 -- Executive Performance Agreement between Steven L. Vanechanos
and DynamicWeb Enterprises, Inc., dated as of February 29,
2000.*
10.18 -- Consulting Agreement between Steven L. Vanechanos and
DynamicWeb Enterprises, Inc., dated as of February 29,
2000.*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
- ------ -----
<S> <C> <C>
10.19 -- Loan Agreement by and between eB2B Commerce, Inc. and
DynamicWeb Enterprises, Inc., dated November 12, 1999.#
10.20 -- Amendment No. 1 to the Loan Agreement by and between eB2B
Commerce, Inc. DynamicWeb Enterprises, Inc., dated November
19, 1999.#
10.21 -- Amendment No. 2 to the Loan Agreement by and between eB2B
Commerce, Inc. DynamicWeb Enterprises, Inc., dated February
29, 2000.*
10.22 -- Common Stock Purchase Warrant Agreement between DynamicWeb
Enterprises, Inc. and Denis Clark, dated as of November 19,
1999.#
10.23 -- Common Stock Purchase Warrant Agreement between DynamicWeb
Enterprises, Inc. and Peter Baxter, dated as of November 19,
1999.#
10.24 -- Common Stock Purchase Warrant Agreement between DynamicWeb
Enterprises, Inc. and Virtual `Ex, dated as of November 19,
1999.#
10.25 -- Settlement Agreement between DynamicWeb Enterprises, Inc.
and Virtual `Ex, dated as of November 23, 1999.#
10.26 -- Agency Agreement between Commonwealth Associates, L.P. and
eB2B Commerce, Inc., dated October, 1999.**
10.27 -- Amended Agency Agreement between Commonwealth Associates,
L.P. and eB2B Commerce, Inc., dated October, 1999.**
10.28 -- Series B Preferred Stock Purchase Warrant Agreement between
Commonwealth Associates, L.P. and eB2B Commerce, Inc., dated
October, 1999.**
10.29 -- Agreement between eB2B Commerce, Inc. and DynamicWeb Enterprises, Inc.
dated March 15, 2000.*
10.30 -- Form of Indemnification Agreement.*
10.31 -- Form of Lock-Up Agreement*
20.1 -- Fairness Opinion of Auerbach, Pollack & Richardson, Inc.*
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.*
27.1 -- Financial Data Schedule (EDGAR filing only).*
99.1 -- eB2B Commerce, Inc. 2000 Stock Option Plan.*
99.2 -- Proxy Card of DynamicWeb Enterprises, Inc.*
99.3 -- Press Release, dated March 8, 2000, 'DynamicWeb and eB2B
Commerce Release Merger Related News.'*
99.4 -- Press Release, dated December 20, 1999, 'eB2B Commerce, Inc.
Completes $33 Million Private Financing.'*
99.5 -- Press Release, dated December 2, 1999, 'DynamicWeb and eB2B
Commerce, Inc. Execute Definitive Merger Agreement.'*
99.6 -- Press Release, dated November 11, 1999, 'DynamicWeb to Merge
with eB2B Commerce, Inc.'*
</TABLE>
- ---------
* Filed herewith
** Incorporated herein by reference to the Form S-4 Registration Statement filed
by DynamicWeb Enterprises, Inc. with the Securities and Exchange Commission
on January 24, 2000.
*** Incorporated herein by reference to the Current Report on Form 8-K/A filed
by DynamicWeb Enterprises, Inc. with the Securities and Exchange Commission
on February 23, 1999.
+ Incorporated herein by reference to the Current Report on Form 8-K filed by
DynamicWeb Enterprises, Inc. with the Securities and Exchange Commission on
April 26, 1999.
'D' Incorporated herein by reference to the Form S-2 Registration Statement
filed by DynamicWeb Enterprises, Inc. with the Securities and Exchange
Commission on May 20, 1999.
# Incorporated herein by reference to the Annual Report on Form 10-KSB filed by
DynamicWeb Enterprises, Inc. with the Securities and Exchange Commission on
December 30, 1999.
II-4
<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
indemnification is 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-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, DynamicWeb
Enterprises, Inc. has duly caused this Amendment No. 1 to registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Fairfield, State of New Jersey on March 16, 2000.
DYNAMICWEB ENTERPRISES, INC.
BY: /S/ STEVEN L. VANECHANOS, JR.
..................................
STEVEN L. VANECHANOS, JR.
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1934, this Amendment
No. 1 to registration statement has been signed by the following persons and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ STEVEN L. VANECHANOS, JR. Chief Executive Officer and Director
.........................................
(STEVEN L. VANECHANOS, JR.) March 16, 2000
/s/ STEVE VANECHANOS, SR. Vice President, Treasurer, Secretary
......................................... and Director
(STEVE VANECHANOS, SR.) March 16, 2000
/s/ NINA PESCATORE Controller
.........................................
(NINA PESCATORE) March 16, 2000
Director
.........................................
(DENIS CLARK) March , 2000
/s/ FRANK T. DIPALMA Director
.........................................
(FRANK T. DIPALMA) March 16, 2000
/s/ ROBERT DROSTE Director
.........................................
(ROBERT DROSTE) March 16, 2000
/s/ ROBERT GAILUS Director
.........................................
(ROBERT GAILUS) March 16, 2000
/s/ KENNETH R. KONIKOWSKI Director
.........................................
(KENNETH R. KONIKOWSKI) March 16, 2000
</TABLE>
II-6
STATEMENT OF DIFFERENCES
------------------------
The service mark symbol shall be expressed as.......................... 'sm'
The dagger symbol shall be expressed as................................ 'D'
<PAGE>
Appendix B
AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER (the "Amendment")
entered into on February 29, 2000 by and between eB2B COMMERCE, INC., a Delaware
corporation with its principal place of business at 29 West 38th Street, New
York, New York 10018 ("eCom"), and DYNAMICWEB ENTERPRISES, INC., a New Jersey
corporation with its principal place of business at 271 Route 46 West,
Building F, Suite 209, Fairfield, New Jersey 07004 (the "Company").
WHEREAS, the parties hereto are parties to that certain Agreement and
Plan of Merger dated December 1, 1999 ("Merger Agreement"); and
WHEREAS, the parties desire to amend certain terms of the Merger
Agreement as set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. Definitions. Except as modified hereby, capitalized terms used but not
defined in this Amendment shall have the meanings given to them in the Merger
Agreement.
1.1 Section 1.49 of the Merger Agreement (containing the definition of
"Existing Common Stock") is hereby deleted.
1.2 Section 1.50 of the Merger Agreement (containing the definition of
"Existing Company Preferred Holders") is hereby deleted.
1.3 Section 1.51 of the Merger Agreement (containing the definition of
"Existing Preferred Stock") is hereby deleted.
1.4 Section 1.59 of the Merger Agreement is hereby amended to read in
its entirety as follows:
"1.59 "Loan Agreement" means that certain Loan Agreement dated November
12, 1999, among the Parties, as amended as of November 19, 1999, and as
of the date hereof, as such agreement may be further amended, modified,
supplemented or restated from time to time."
1.5 Section 1.63 of the Merger Agreement (containing the definition of
"Newco") is hereby deleted. Any reference to "Newco" contained in the Merger
Agreement is hereby deemed to be a reference to the Company.
1.6 The following additional definitions are hereby added to Section 1
of the Merger Agreement, in the appropriate alphabetical order:
"Amendment" has the meaning set forth in Section 3.10.2 below.
"Break-up Fee" has the meaning set forth in Section 8.3 below.
"Fixed Percentage" has the meaning set forth in Section 2.4.7 below.
"Fixed Shares" has the meaning set forth in Section 2.4.7 below.
"Netlan Transaction" has the meaning set forth in Section 3.10.2 below.
B-1
<PAGE>
2. Basic Transaction.
2.1 Section 2.1 of the Merger Agreement is hereby amended to read in its
entirety as follows:
"2.1 The Merger. On and subject to the terms and conditions of this
Agreement and in accordance with the Delaware General Corporation Law
and the NJBCA, eCom will merge with and into the Company (the "Merger")
at the Effective Time. The Company shall be the corporation surviving
the Merger."
2.2 Section 2.4.4 of the Merger Agreement is hereby amended to read in
its entirety as follows:
"2.4.4.Directors and Officers. The directors and officers of eCom in
office at and as of the Effective Time will become the directors and
officers of the Surviving Corporation, retaining their respective
positions and terms of office, subject to action by the board of
directors of the Surviving Corporation after the Effective Time."
2.3 Section 2.4.5 of the Merger Agreement is hereby amended to read in
its entirety as follows:
"2.4.5 Common Stock Conversion. At the Effective Time, each outstanding
share of eCom Common Stock outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on
the part of the holder thereof, be converted into 2.66 shares of Company
Common Stock, subject to adjustment as set forth in Section 2.4.7 below
(the "Exchange Ratio")."
2.4 Section 2.4.6 of the Merger Agreement is hereby amended to read in
its entirety as follows:
"2.4.6 Preferred Stock Conversion. At the Effective Time, each
outstanding 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, by virtue of the Merger
and without any action on the part of the holder thereof, be converted
into shares of Company Preferred Stock, Company Options or other
securities convertible into Company Common Stock, as the case may be.
The number of shares of Company Common Stock issuable upon exercise or
conversion of each share of such Company Preferred Stock, and each such
Company Option or other such security convertible into Company Common
Stock shall be equal to the number of shares of eCom Common Stock into
which each share of such eCom Preferred Stock, each eCom Option or other
security convertible into eCom Common Stock is exercisable or
convertible, multiplied by the Exchange Ratio. The exercise or
conversion price of each share of such Company Preferred Stock, each
such Company Option and each such other security convertible into
Company Common Stock shall be equal to the exercise or conversion price
of each share of such eCom Preferred Stock, each such eCom Option, or
other such security convertible into eCom Common Stock, divided by the
Exchange Ratio. No fractional shares of Company Common Stock shall be
issued in connection with the conversion or exercise of any such share
of Company Preferred Stock, Company
B-2
<PAGE>
Option or other security convertible into Company Common Stock; rather
the aggregate number of shares to be issued pursuant to any conversion
or exercise of any such security shall be rounded to the nearest whole
number (with 0.5 rounded up to the nearest whole number). Except as set
forth in this Section 2.4.6, the terms of the Company Preferred Stock,
Company Options and other securities convertible into Company Common
Stock issued pursuant to this Section 2.4.6 shall be substantially the
same as the terms of the eCom Preferred Stock, eCom Options or other
securities convertible into eCom Common Stock, as the case may be, being
exchanged therefor. In addition, it is the intention of the Parties that
the Company Options issued pursuant to this Section 2.4.6 qualify, to
the maximum extent possible following the Effective Time, as incentive
stock options (as defined in Section 422 of the Code) to the extent that
the eCom Options exchanged for such Company Options so qualified
immediately prior to the Effective Time."
2.5. Adjustment to Merger Consideration. Section 2.4.7 of the Merger
Agreement is hereby amended to read in its entirety as follows:
"2.4.7 Adjustment to Merger Consideration. eCom hereby represents and
warrants to the Company that, as of February 28, 2000, there are
14,368,965 shares of eCom Common Stock outstanding (including all shares
of eCom Preferred Stock, eCom Options and other securities convertible
into eCom Common Stock, all on an as-converted, fully-diluted basis,
except for (i) shares underlying stock options granted to employees of
eCom subsequent to October 31, 1999, (ii) shares underlying warrants
issued to customers of eCom subsequent to October 31, 1999 and (iii) any
securities issued in connection with the Netlan Transaction, as defined
below) ("Fixed Shares"). The Company hereby represents and warrants to
eCom that, as of February 28, 2000, there are 5,150,793 shares of
Company Common Stock outstanding (including all shares of Company
Preferred Stock, Company Options and other securities convertible into
Company Common Stock, all on an as-converted, fully-diluted basis). The
Parties hereby agree that, determined on the basis of the numbers of
shares set forth in the preceding representations, eCom Stockholders
would own 88.12% (the "Fixed Percentage") (on an as-converted,
fully-diluted basis). If, as of the Effective Time, the number of shares
of eCom Common Stock outstanding (determined on an as-converted,
fully-diluted basis) exceeds the Fixed Shares and/or the number of
shares of the Company Common Stock outstanding (determined on an
as-converted, fully-diluted basis) exceeds 5,200,000 (not including
stock options granted to new employees of the Company after the date
hereof), then appropriate adjustments shall be made to the aggregate
amount of Company Securities issued pursuant to Section 2.4.5 and
Section 2.4.6 hereof so that, as of the Effective Time, eCom
Stockholders will own the Fixed Percentage of outstanding shares of
Company Common Stock (on an as-converted, fully-diluted basis). Such
adjustments, if any, shall be made on a pro rata basis among all eCom
Stockholders as of the Effective Time."
3. Representations and Warranties of eCom.
3.1 Section 3.8 of the Merger Agreement is hereby amended to read in its
entirety as follows:
"3.8 Subsidiaries. Each of eCom's Subsidiaries listed on Schedule 3.8 to
the eCom
B-3
<PAGE>
Disclosure Schedule is a corporation duly organized, validly existing,
and in good standing under the laws of the jurisdiction of its
incorporation or organization. eCom is the record and beneficial owner
of all of the outstanding shares of capital stock or other ownership
interests in each of its Subsidiaries, free and clear of any lien,
mortgage, pledge, charge, security interest or encumbrance of any kind,
and there are no irrevocable proxies with respect to such shares."
3.2 Section 3.10.2 of the Merger Agreement is hereby amended to read in
its entirety as follows:
"3.10.2 eCom has not entered into any agreement, contract, lease, or
license (or series of related agreements, contracts, leases, and
licenses) involving more than $25,000 and outside the Ordinary Course of
Business, other than the Letter Agreement, the Loan Agreement, the
Agency Agreement, and the Netlan Transaction (as defined in Amendment
No. 1 to Agreement and Plan of Merger (the "Amendment"));"
3.3 Section 3.10.6 of the Merger Agreement is hereby amended to read in
its entirety as follows:
"3.10.6 eCom has not made any capital investment in, any loan to, or any
acquisition of the securities and assets of, any other Person (or series
of related capital investments, loans, and acquisitions) either
involving more than $25,000 or outside the Ordinary Course of Business,
with the exception of the Netlan Transaction (as defined in the
Amendment);"
4. Representations and Warranties of the Company.
4.1 Section 4.10.17 of the Merger Agreement is hereby amended to read in
its entirety as follows:
"4.10.17 The Company has not granted any increase in the compensation of
or changed any of the employment terms for any of its directors,
officers, and employees outside the Ordinary Course of Business, except
as set forth in the Company Disclosure Schedule, as amended as of the
Effective Time;"
4.2 Section 4.30 of the Merger Agreement is hereby amended by adding at
the end the following sentence:
"The Company's Board of Directors shall receive a written affirmation of
its opinion from an investment bank reasonably acceptable to the
Parties, dated as of the record date of the Company Proxy Materials, to
the effect that the Merger is fair to the Company's shareholders, and
will deliver to eCom a copy of such affirmation."
5. Covenants.
5.1 Section 5.2.1 of the Merger Agreement is hereby amended to read in
its entirety as follows:
"5.2.1 notwithstanding Section 5.7.1 of this Agreement, the amendment of
the certificate of incorporation in a manner which is acceptable to the
Parties and which is not inconsistent with the terms and provisions of
this Agreement."
B-4
<PAGE>
5.2 Section 5.2.3 of the Merger Agreement (regarding consent of the
"Existing Company Preferred Holders") is hereby deleted in its entirety.
5.3 Section 5.5 of the Merger Agreement is hereby amended to remove "the
Delaware General Corporation Law" from the first sentence.
5.4 Section 5.14 of the Merger Agreement (regarding "Election of
Director") is hereby deleted.
6. Conditions to Close.
6.1 Section 6.1.6 of the Merger Agreement is hereby amended to add at
the end of the section the following: "; provided that eCom hereby acknowledges
that Sands Brothers & Co., Ltd. has initiated a lawsuit against the Company, as
disclosed in the Company Disclosure Schedule."
6.2 Section 6.1.12 of the Merger Agreement is hereby amended to read in
its entirety as follows:
"6.1.12 Steven L. Vanechanos, Jr. shall have executed and delivered to
the Parties an indemnification agreement substantially in the form
attached hereto as Exhibit A;"
6.3 Section 6.2.9 of the Merger Agreement is hereby deleted.
6.4 Section 6.2.12 of the Merger Agreement is amended to read in its
entirety as follows:
"6.2.12 the Company and Steven L. Vanechanos, Jr. shall have entered
into a consulting agreement substantially in the form attached hereto as
Exhibit B;"
7. Additional Agreements.
7.1 Section 7.2 of the Merger Agreement is hereby amended to read in its
entirety as follows:
"7.2 Lock Up Agreements. The Company shall cause each person listed on
Schedule 7.2 to enter into an agreement, substantially in the form
attached hereto as Exhibit C, regarding restrictions on the sale or
transfer of such Company Securities ("Lock Up Agreement")."
8. Termination.
8.1 Termination of Agreement. Section 8.1.4 of the Merger Agreement is
hereby deleted.
8.2 Break-up Fee. Section 8.3 of the Merger Agreement is hereby amended
to read in its entirety as follows:
"8.3 If the Company either withdraws from or terminates this Agreement
(other than in accordance with Sections 8.1.1 or 8.1.2 above) then,
within 30 days of such event, the Company will pay to eCom the sum of
five hundred thousand dollars ($500,000) as liquidated damages ("Break-up
Fee"); provided that, 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
subsequently accepts such offer, the Company will pay eCom the sum of
five hundred thousand dollars ($500,000) as liquidated damages within 30
days of the acceptance of the offer. In the event the liquidated damages
described in the previous sentence are not paid within 30 days of the
due date, the $500,000 due to eCom will be convertible, at the
discretion of eCom, into seven hundred fifty thousand (750,000) shares
of Company Common Stock, which shall be issuable immediately upon
written notice to the Company to that effect. Without limiting the
foregoing, at eCom's option, the Company shall be deemed to have
withdrawn from or terminated this Agreement in the event that either (i)
this Agreement is terminated by eCom pursuant to Section 8.1.3 or (ii)
the Board of Directors of the Company passes a resolution which would
propose to eCom any material modifications to the terms of this
Agreement (except if the failure to pass such resolution would violate
or breach any fiduciary duty owed to the Company) or any other agreement
executed and delivered by the parties pursuant to or in connection with
this Agreement prior to the Effective Time; provided that the Company
shall not be required to pay the Break-up Fee if the Agreement and the
Merger shall not receive the Requisite Company Stockholder Approval."
9. Representations and Warranties of eCom as of the Date of this Amendment.
9.1 eCom hereby represents and warrants to the Company that, except as
set forth in the eCom Disclosure Schedule, as amended hereby or contemplated by
the terms of this Amendment, including any amendments to the eCom Disclosure
Schedule, as of the date hereof (i) the representations and warranties contained
in Section 3 of the Merger Agreement are true and correct in all material
respects and (ii) eCom has performed and complied in all material respects with
all of its covenants under the Merger Agreement.
9.2 eCom hereby represents and warrants to the Company that it has
received the Requisite eCom Stockholder Approval and there are no eCom
Dissenting Shares.
10. Representations and Warranties of the Company as of the Date of this
Amendment.
10.1 The Company hereby represents and warrants to eCom that, except as
set forth in the Company Disclosure Schedule, as amended hereby or as of the
Effective Time, or contemplated by the terms of this Amendment, including any
amendments to the Company Disclosure Schedule, as of the date hereof (i) the
representations and warranties contained in Section 4 of the Merger Agreement
are true and correct in all material respects and (ii) the Company has performed
and complied in all material respects with all of its covenants under the Merger
Agreement.
10.2 The Company hereby represents and warrants that there are no shares
of Company Preferred Stock outstanding as of the date hereof.
11. Certain Covenants.
11.1 The Company shall not initiate new employment of any Person (or
engage any Person as an independent contractor) on terms providing for annual
compensation in excess of $50,000, or grant any stock options or other
securities to any employees of the Company,
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without eCom's prior consent. ECom `s review of any such employee proposed by
the Company shall be completed within five (5) days.
11.2 The Company shall use its best efforts to cause the appropriate
Persons to enter into the agreements described in Sections 6.1.11, 6.1.12 and
6.1.13 as promptly as practicable following the date hereof.
12. Certain Consents.
12.1 eCom shall engage McKinsey & Co. ("Consultant") to provide advice
and consultation with respect to the integration of the operations of eCom and
the Company. The Company's employees shall participate in meetings and
discussions conducted by the Consultant, provided that the duration, timing and
location of such meetings shall be reasonable, and that reasonable advance
notice shall be provided. Except as otherwise consented by eCom, to the extent
practicable and in compliance with applicable fiduciary duties and obligations,
the Company shall comply with all reasonable recommendations made by the
Consultant in connection with such engagement.
12.2 eCom hereby consents to the following:
(i) The Settlement Agreement between the Company, Kenneth
Konikowski and Joseph Wells, dated as of January 27, 2000;
(ii) The issuance to Trautman Wasserman & Company, Inc. of a
warrant to purchase 50,000 shares of the Company's Common Stock, dated as of
February 16, 1999, and a warrant to purchase 25,000 shares of the Company's
Common Stock, dated as of November 1, 1999;
(iii) The Executive Performance Agreement between the Company and
Steve Vanechanos, Jr., dated as of the date hereof;
(iv) The Company's amending the warrants, issued to (a) Virtual
`Ex, Inc. to purchase 27,000 shares of the Company's Common Stock, and Gerard
Fragetti to purchase 26,400 shares of the Company's Common Stock to include a
provision for cashless exercise; and (b) the shareholders listed on Schedule
12.2(iv), to include a provision for a cashless exercise, in exchange for a
waiver from each such warrant holder, expressly waiving any and all dilution
rights, set forth in Section 8(a) of the Warrant Agreements, dated December
1997, such warrant holder may now have or hereinafter acquire under such
warrants;
(v) Reasonable expenditures made by the Company in connection with
the Merger;
(vi) The Company's increase in the compensation for Steven L.
Vanechanos, Jr., Chief Executive Officer of the Company, from $125,000 to
$210,000, on an annualized basis; and
(vii) Approval by the Company's Compensation Committee of a
resolution waiving the lapse provisions of the 1997 Outside Directors Stock
Option Plan and the 1997 Employee Stock Option Plan for options granted to
employees that will resign pursuant to provisions of this Agreement.
12.3 The Company hereby agrees not to file any S-3s or similar filings
that effect a registration of the Company's shares other than registrations
provided for herein, between the
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date hereof and the Effective Time.
13. Ratification of Merger Agreement. Except as modified hereby, the terms and
conditions of the Merger Agreement are hereby ratified by the parties and shall
remain in full force and effect. From and after the date hereof, all references
to the Merger Agreement contained therein or otherwise shall be deemed to refer
to the Merger Agreement as amended hereby.
14. Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to any
choice or conflict of law rule of any jurisdiction which would cause the
application of the laws of any other jurisdiction.
15. Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original but all of which taken together will
constitute one and the same instrument.
IN WITNESS WHEREOF, the Parties hereto have executed this Amendment No.
1 to Agreement and Plan of Merger on the date first above written.
eB2B COMMERCE, INC. DYNAMICWEB ENTERPRISES, INC.
By: /s/ Victor Cisario By: /s/ Steven L. Vanechanos, Jr.
--------------------------- -------------------------------
Victor Cisario Steven L. Vanechanos, Jr.
Chief Financial Officer Chief Executive Officer
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AGREEMENT AND PLAN OF MERGER (the "Agreement") entered into on
February 22, 2000 by and among eB2B COMMERCE, INC., a Delaware corporation with
its principal place of business at 29 West 38th Street, New York, New York 10018
("eB2B"), NETLAN MERGER CORPORATION, a Delaware corporation and wholly-owned
subsidiary of eB2B ("Merger Sub"), NETLAN ENTERPRISES, INC., a Delaware
corporation with its principal place of business at 29 West 38th Street, New
York, New York 10018 (the "Company"). The Company and eB2B are referred to
collectively herein as the "Parties" or individually as a "Party."
WHEREAS, the Boards of Directors of eB2B and the Company deem it
advisable and in the best interests of their respective companies and their
respective stockholders to enter into a business combination by means of a
merger of the Company with and into Merger Sub under the terms of this Agreement
and have approved and adopted this Agreement;
WHEREAS, upon the terms and subject to the conditions of this Agreement
and in accordance with applicable law, the Company will merge with and into
Merger Sub and Merger Sub will survive (the "Surviving Corporation"); and
WHEREAS, for United States federal income tax purposes, it is intended
that the Merger will qualify as a reorganization within the meaning of Section
368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the "Code"), and
that this Agreement shall be, and is hereby, adopted as a plan of reorganization
for purposes of Section 368 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
1 Definitions.
1.1 "Affiliate" has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act.
1.2 "Agreement" has the meaning set forth in the preface above.
1.3 "Basis" means any past or present fact, status, condition,
activity, practice, plan, occurrence, event, incident, action, failure to act,
or transaction that forms the basis for any specified consequence.
1.4 "Cephas" has the meaning set forth in Section 7.1.10 below.
1.5 "Certificate of Merger" has the meaning set forth in Section 2.3
below.
1.6 "CKS" means Camhy, Karlinsky & Stein LLP, counsel to the Company.
1.7 "Closing" has the meaning set forth in Section 2.2 below.
1.8 "Closing Date" has the meaning set forth in Section 2.2 below.
1.9 "Code" has the meaning set forth in the preface above.
1.10 "Company" has the meaning set forth in the preface above.
1.11 "Company Common Stock" means the common stock of the Company.
1.12 "Company Disclosure Schedule" means the disclosure schedule
delivered by the
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Company to eB2B concurrently with the execution and delivery of this Agreement.
1.13 "Company Financial Statements" has the meaning set forth in
Section 4.7 below.
1.14 "Company Key Employees" has the meaning set forth in Section 3.2
below.
1.15 "Company Most Recent Balance Sheet" means the balance sheet
contained within the Company Most Recent Financial Statements.
1.16 "Company Most Recent Financial Statements" has the meaning set
forth in Section 4.7 below.
1.17 "Company Most Recent Fiscal Year End" has the meaning set forth in
Section 4.7 below.
1.18 "Company Most Recent Unaudited Period End" has the meaning set
forth in Section 4.7 below.
1.19 "Company Stockholder" means any Person who or which holds any
shares of Company Common Stock.
1.20 "Company Stockholder Approval" means the affirmative vote or
written consent of the holders of an amount of the Company Common Stock which
would be sufficient to cause the Merger to be effective in accordance with
applicable law and the certificate of incorporation and bylaws of the Company.
1.21 "Confidential Information" means all information regarding a Party
other than (i) information generally known by the public (other than as a result
of disclosure by the other Party) and (ii) information available to the other
Party on a nonconfidential basis from a Person not known by the other Party to
be bound by a confidentiality agreement or otherwise prohibited from disclosing
such information.
1.22 "DGCL" means the General Corporation Law of the State of Delaware,
as amended.
1.23 "Dissenting Share" means any share of Company Common Stock with
respect to which the holder thereof has objected to the transactions
contemplated hereby and has exercised such holder's appraisal rights under
applicable law.
1.24 "DWEB Common Stock" means the common stock of DynamicWeb.
1.25 "DWEB Option" means an option to purchase DWEB Common Stock.
1.26 "DWEB Warrant" means a warrant to purchase DWEB Common Stock.
1.27 "DynamicWeb" means DynamicWeb Enterprises, Inc., a New Jersey
corporation.
1.28 "DynamicWeb Exchange Ratio" means the Exchange Ratio, as defined
in the DynamicWeb Merger Agreement.
1.29 "DynamicWeb Merger Agreement" means that certain Agreement and
Plan of Merger dated December 1, 1999 between eB2B and DynamicWeb, as such
agreement may be amended, modified, supplemented or restated from time to time
1.30 "DynamicWeb Transaction" means the merger of eB2B with and into
DynamicWeb, as contemplated in DynamicWeb Merger Agreement.
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1.31 "eB2B" has the meaning set forth in the preface above.
1.32 "eB2B Common Stock" means the common stock, par value $0.001 per
share, of eB2B.
1.33 "eB2B Disclosure Schedule" means the disclosure schedule delivered
by eB2B to the Company concurrently with the execution and delivery of this
Agreement.
1.34 "eB2B Balance Sheet" means the balance sheet contained within the
eB2B Financial Statements.
1.35 "eB2B Financial Statements" has the meaning set forth in Section
5.5 below.
1.36 "eB2B Securities" shall mean the eB2B Common Stock, the Incentive
Options, the Incentive Warrants and any other securities of eB2B.
1.37 "Effective Time" has the meaning set forth in Section 2.3 below.
1.38 "Employment Agreement" shall mean each employment agreement
entered into as of the date hereof between any Company Key Employee and eB2B or
the Merger Sub, as such agreement may be amended, modified, supplemented or
restated from time to time.
1.39 "Environmental, Health, and Safety Requirements" shall mean all
federal, state, local and foreign statutes, regulations, ordinances and other
provisions having the force or effect of law, all judicial and administrative
orders and determinations, and all common law concerning public health and
safety, worker health and safety, and pollution or protection of the
environment, including without limitation all those relating to the presence,
use, production, generation, handling, transportation, treatment, storage,
disposal, distribution, labeling, testing, processing, discharge, release,
threatened release, control, or cleanup of any hazardous materials, substances
or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise or radiation, each as amended.
1.40 "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
1.41 "Escrow Agreement" has the meaning set forth in Section 3.1 below.
1.42 "Escrow Shares" has the meaning set forth in Section 3.1 below.
1.43 "Exchange Ratio" has the meaning set forth in Section 2.4.5 below.
1.44 "Existing Warrants" shall mean the warrants to purchase 10,000
shares of eB2B Common Stock which were granted to the Company prior to the date
hereof.
1.45 "Form S-4 Registration Statement" means the registration statement
on SEC Form S-4, relating to the DynamicWeb Transaction.
1.46 "GAAP" means United States generally accepted accounting
principles as in effect from time to time.
1.47 "Gansl" has the meaning set forth in Section 7.1.13 below.
1.48 "Incentive Cash" has the meaning set forth in Section 3.2 below.
1.49 "Incentive Options" has the meaning set forth in Section 3.2
below.
1.50 "Incentive Warrants" has the meaning set forth in Section 3.2
below.
1.51 "Intellectual Property" means (a) all inventions (whether
patentable or
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unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, Internet domain
names, trade dress, logos, trade names, and corporate names, together with all
translations, adaptations, derivations, and combinations thereof and including
all goodwill associated therewith, and all applications, registrations, and
renewals in connection therewith, (c) all copyrightable works, all copyrights,
and all applications, registrations, and renewals in connection therewith, (d)
all mask works and all applications, registrations, and renewals in connection
therewith, (e) all trade secrets and confidential business information
(including, without limitation, ideas, research and development, know-how,
formulas, compositions, manufacturing and production processes and techniques,
technical data, designs, drawings, specifications, customer and supplier lists,
pricing and cost information, and business and marketing plans and proposals),
(f) all computer software (including data and related documentation), (g) all
other proprietary rights, and (h) all copies and tangible embodiments thereof
(in whatever form or medium).
1.52 "IRS" means the Internal Revenue Service.
1.53 "Key Bank" has the meaning set forth in Section 7.1.11 below.
1.54 "Knowledge" means actual knowledge, including, with respect to the
Company, the actual knowledge of the Chief Executive Officer of the Company and,
with respect to eB2B, the Chief Executive Officer of eB2B.
1.55 "Letter of Intent" means the letter of intent dated January 7,
2000 between eB2B and the Company pursuant to which the parties are entering
into this Agreement.
1.56 "Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
1.57 "License" means any written license, sublicense, agreement or
permission.
1.58 "Material Adverse Effect" means, with respect to any Party, any
condition, circumstance or development having any adverse effect on the
business, financial conidition or results of operations of such Party that is
material to the Party or to the ability of the Party to consummate the
transactions contemplated by this Agreement.
1.59 "Merger" has the meaning set forth in Section 2.1 below.
1.60 "Merger Sub" has the meaning set forth in the preface above.
1.61 "Ordinary Course of Business" means the ordinary course of
business consistent with past custom and practice (including with respect to
quantity and frequency).
1.62 "Party" or "Parties" has the meaning set forth in the preface
above.
1.63 "Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, a limited
liability company, an unincorporated organization, a governmental entity (or any
department, agency, or political subdivision thereof) or other entity or
organization.
1.64 "Plociak" has the meaning set forth in Section 7.1.14 below.
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1.65 "Schwartz" has the meaning set forth in Section 7.1.12 below.
1.66 "SEC" means the Securities and Exchange Commission.
1.67 "Securities Act" means the Securities Act of 1933, as amended.
1.68 "Securities Exchange Act" means the Securities Exchange Act of
1934, as amended.
1.69 "Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialmen's,
and similar liens, (b) liens for taxes not yet due and payable or for taxes that
the taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
1.70 "Subsidiary" means any corporation with respect to which a
specified Person owns a majority of the common stock or has the power to vote or
direct the voting of sufficient securities to elect a majority of the directors.
1.71 "Surviving Corporation" has the meaning set forth in the preface
above.
1.72 "Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental, customs duties, capital stock,
franchise, profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated, or other
tax of any kind whatsoever, including any interest, penalty, or addition
thereto, whether disputed or not.
1.73 "Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to any Tax, including any
schedule or attachment thereto, and including any amendment thereof.
1.74 "Transaction Costs" means any and all reasonable costs and
expenses, including, without limitation, reasonable fees and disbursements of
consultants, financial advisors, counsel, accountants and investment bankers,
incurred in connection with the transactions contemplated hereby.
1.75 "Y2K Problem" shall mean generating incorrect date data or
incorrectly processing date-related data or functionality when processing,
providing or receiving (i) daterelated data from, into and between the twentieth
and twenty-first centuries or (ii) date-related data in connection with any
valid date in the twentieth and twenty-first centuries.
2 Basic Transaction.
2.1 The Merger. On and subject to the terms and conditions of this
Agreement and in accordance with the DGCL, the Company will merge with and into
the Merger Sub (the "Merger") at the Effective Time. The Merger Sub shall be the
corporation surviving the Merger.
2.2 The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of eB2B's legal
counsel, Moskowitz Altman & Hughes LLP, in New York, New York or such other
place as the Parties may mutually determine, commencing at 9:00 a.m. local time
on the day after the satisfaction or waiver of all of the conditions set forth
in Section 7.1 and 7.2 hereof (other than the delivery of items to be
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delivered at Closing) or such other date as the Parties may mutually determine
(the "Closing Date").
2.3 Effective Time of the Merger. As soon as practicable after the
Closing, the Company and eB2B will file with the Secretary of State of the State
of Delaware a certificate of merger as required to consummate the Merger in
accordance with the DGCL, and in form and substance reasonably satisfactory to
the Parties (the "Certificate of Merger"). The Merger shall become effective
upon the filing of the Certificate of Merger, or such later time as is
established by the Parties and set forth in the Certificate of Merger (the
"Effective Time").
2.4 Effect of Merger.
2.4.1 General. At the Effective Time, the separate existence
of the Company shall cease and the Company shall be merged with and into Merger
Sub. The Surviving Corporation may, at any time after the Effective Time, take
any action (including executing and delivering any document) in the name and on
behalf of the Company in order to carry out and effectuate the transactions
contemplated by this Agreement.
2.4.2 Certificate of Incorporation. The Certificate of
Incorporation of Merger Sub in effect at and as of the Effective Time will
remain the Certificate of Incorporation of the Surviving Corporation until such
time as it shall thereafter be duly altered, amended or repealed.
2.4.3 Bylaws. The Bylaws of Merger Sub in effect at and as of
the Effective Time will remain the Bylaws of the Surviving Corporation until
such time as they shall thereafter be duly altered, amended or repealed.
2.4.4 Directors and Officers. The directors and officers of
Merger Sub in office at and as of the Effective Time will remain the directors
and officers of the Surviving Corporation, retaining their respective positions
and terms of office.
2.4.5 Common Stock Conversion. At the Effective Time, each
outstanding share of Company Common Stock outstanding immediately prior to the
Effective Time shall be exchanged for a number of shares of eB2B Common Stock
equal to (i) one share of eB2B Common Stock multiplied by (ii) the Exchange
Ratio. For purposes of this Agreement, the "Exchange Ratio" means the ratio
determined by calculating a fraction the numerator of which shall be 122,180 and
the denominator of which shall be the number of shares of Company Common Stock
outstanding as of the Effective Time.
2.4.6 Effect of Stock Split or other Recapitalization. If,
between the date of this Agreement and the Effective Time, any outstanding
shares of eB2B Common Stock (or securities convertible into eB2B Common Stock)
shall have been changed into a different number of shares or a different class,
by reason of any stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares (excluding the
DynamicWeb Transaction), the number of shares of eB2B Common Stock (or
securities convertible into eB2B Common Stock) for which Company Common Stock
(and other securities convertible into Company Common Stock) shall be exchanged
shall be correspondingly adjusted to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of shares.
2.4.7 Rights of Company Stockholders after Effective Time. At
the Effective Time, all shares of Company Common Stock shall no longer be
outstanding and shall
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automatically be canceled and retired, and shall cease to exist, and each
certificate previously evidencing any such shares or other securities shall
thereafter represent the right to receive certificates evidencing such number of
whole shares of eB2B Common Stock into which such Company Common Stock were
exchanged in accordance with this Section 2.4. The holders of certificates
previously evidencing Company Common Stock shall cease to have any rights with
respect to such securities except as otherwise provided herein or by law. After
the close of business on the Closing Date, transfers of Company Common Stock
outstanding prior to the Effective Time shall not be made on the stock transfer
books of the Surviving Corporation.
2.4.8 No Fractional Shares. Any shares of eB2B Common Stock to
be delivered to any Person hereunder shall be rounded up to the nearest whole
share and no Person shall be entitled to receive scrip or payment in lieu of
fractional interests.
2.5 Dissenters' Rights. The Company shall give eB2B prompt notice of
any shares of capital stock of the Company which are Dissenting Shares. Any
Dissenting Shares shall not, after the Effective Time, be entitled to vote for
any purpose or receive any dividends or other distributions; except to the
extent that the holder thereof subsequently withdraws such holder's demand for
payment in the manner provided under applicable law, fails to comply fully with
the requirements of applicable provisions of applicable law, or otherwise fails
to establish the right of such shareholder to be paid the fair value of such
shareholder's shares under applicable law. The Company agrees that prior to the
Effective Time it will not, except with the prior written consent of eB2B,
voluntarily make any payment with respect to, or settle or offer to settle, any
such demand for payment of the fair value of any Dissenting Shares.
2.6 Exchange of Certificates. Immediately following the Closing,
certificates representing the shares of eB2B Common Stock issued in the Merger
will be delivered to the Company Stockholders in the amounts set forth on
Schedule 3.1, against surrender of the certificates representing all of the
Company Common Stock owned by such Company Stockholders. If any certificate
evidencing Company Common Stock shall have been lost, stolen or destroyed, eB2B
may request that prior to delivering certificates evidencing eB2B Common Stock
in exchange therefor, the holder of such Company Common Stock sign an affidavit
of that fact and, if required by eB2B, post a bond, in such reasonable amount as
eB2B may direct, as indemnity against claims that may be made against eB2B with
respect to such certificate.
3 Certain Agreements.
3.1 Escrow Agreement. 75,188 of the shares of eB2B Common Stock to be
issued hereunder to the Company Stockholders ("Escrow Shares"), shall be
delivered to an escrow agent reasonably acceptable to the Parties, to be held
pursuant to the escrow agreement dated as of the date hereof among eB2B, the
Company Stockholders and CKS, as escrow agent ("Escrow Agreement").
3.2 Incentive Bonuses to Key Employees. The persons listed in Section
3.2 of the Company Disclosure Schedule who enter into an Employment Agreement
having a term of employment of at least one (1) year following the Effective
Date ("Company Key Employees") shall be granted incentive bonuses in the amounts
set forth opposite such persons' names in Schedule 3.2 attached hereto. The
aggregate amount of such incentive bonuses shall not exceed (i) $110,000 in cash
("Incentive Cash"), (ii) options ("Incentive Options") to purchase 30,075 shares
of eB2B Common Stock and (iii) Existing Warrants ("Incentive Warrants") to
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purchase 4,000 shares of eB2B Common Stock.
3.2.1 Terms of Incentive Cash. Subject to Section 3.2.4, the
Incentive Cash shall be paid to the appropriate Company Key Employee one (1)
year after the Effective Date.
3.2.2 Terms of Incentive Options. Subject to Section 3.2.4,
the Incentive Options shall (i) be issued by eB2B to the applicable Company Key
Employees at the Closing, (ii) vest at the end of one (1) year after the
Effective Date, (iii) have an exercise price of $5.50 per share, (iv) expire on
the date which is five (5) years after the Effective Date and (v) have such
other terms as may be appropriate under the stock option plan of eB2B in effect
at the Closing.
3.2.3 Terms of Incentive Warrants. Subject to Section 3.2.4,
the Incentive Warrants shall have been transferred by the Company to the
applicable Company Key Employees, effective immediately prior to the Effective
Date and 50% of each Company Key Employee's Incentive Warrants shall vest six
(6) months after the Effective Date and the remaining 50% of each Company Key
Employee's Incentive Warrants shall vest on the first anniversary of the
Effective Date, in each case, only upon achievement of specific performance
targets set forth in Schedule 3.2.3 attached hereto.
3.2.4 Effect of Termination of Employment.
3.2.4.1 Loss of Incentive Bonuses. In the event that any
Company Key Employee's employment with eB2B or the Surviving Corporation is
voluntarily terminated by such Company Key Employee (other than for "Good
Reason" as defined in the applicable Employment Agreement) or is terminated by
eB2B or the Surviving Corporation for "Cause" (as defined in the applicable
Employment Agreement), in either case, prior to the first anniversary of the
Effective Time, then such Company Key Employee shall not receive Incentive Cash
otherwise to be delivered to such Company Key Employee, all Incentive Options
issued to the Company Key Employee shall be immediately cancelled and all
Incentive Warrants transferred to such Company Key Employee shall be immediately
cancelled.
3.2.4.2 Acceleration of Incentive Bonuses. In the event
that any Company Key Employee's employment with eB2B or the Surviving
Corporation is terminated by eB2B or the Surviving Corporation for convenience,
death or disability (as determined pursuant to the applicable Employment
Agreement), or is terminated by the Company Key Employee for "Good Reason" (as
defined in the applicable Employment Agreement), in any such case, prior to the
first anniversary of the Effective Time, any Incentive Cash payable to such
Company Key Employee shall be paid to such Company Key Employee within 10 days
of such termination, any unvested Incentive Options issued to the Company Key
Employee shall immediately vest and become exercisable, and any unvested
Incentive Warrants transferred to the Company Key Employee shall immediately
vest and become exercisable.
3.3 Effect of DynamicWeb Transaction. The closing of the Merger shall
not be conditioned upon the closing of the DynamicWeb Transaction. However, in
the event that the DynamicWeb Transaction is consummated:
3.3.1 DWEB Common Stock. At the closing of the DynamicWeb
Transaction, each share of eB2B Common Stock issued pursuant to Section 2.4.5
and outstanding at the closing of the DynamicWeb Transaction shall be exchanged
for shares of DWEB Common Stock on the basis of the DynamicWeb Exchange Ratio
and in accordance with the other terms
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of the DynamicWeb Merger Agreement, subject to the terms of the Escrow
Agreement.
3.3.2 DWEB Options. At the closing of the DynamicWeb
Transaction, the Incentive Options shall be exchanged for DWEB Options having
the same terms as the Incentive Options, except that (i) the number of shares of
DWEB Common Stock issuable upon exercise or conversion of such DWEB Option shall
be calculated by multiplying (A) the number of shares of eB2B Common Stock into
which such Incentive Option would have been exercisable by (B) the DynamicWeb
Exchange Ratio and (ii) the exercise price of each such DWEB Option shall equal
the lower of (A) $6.50 per share or (B) the closing price per share of the DWEB
Common Stock on the date of the Effective Time. It is the intention of the
Parties that such DWEB Options qualify, to the maximum extent possible, as
incentive stock options (as defined in Section 422 of the Code) to the extent
that the Incentive Options so qualified at the closing of the DynamicWeb
Transaction.
3.3.3 DWEB Warrants. At the closing of the DynamicWeb
Transaction, the Incentive Warrants shall be exchanged for DWEB Warrants having
the same terms as the Incentive Warrants, except that (i) the number of shares
of DWEB Common Stock issuable upon exercise or conversion of such DWEB Warrant
shall be calculated by multiplying (A) the number of shares of eB2B Common Stock
into which such Incentive Warrant would have been exercisable by (B) the
DynamicWeb Exchange Ratio and (ii) the exercise price of each such DWEB Warrant
shall equal the exercise price of such Incentive Warrant divided by the
DynamicWeb Exchange Ratio. It is the intention of the Parties that such DWEB
Warrants qualify, to the maximum extent possible, as incentive stock options (as
defined in Section 422 of the Code) to the extent that the Incentive Warrants so
qualified at the closing of the DynamicWeb Transaction.
3.3.4 Adjustment Based on Exchange Ratio. It is the parties'
expectation that the DynamicWeb Exchange Ratio shall be 2.66, and it is the
parties' intent that the aggregate number of shares of DWEB Common Stock which
may be issued pursuant to Section 3.3.1 shall be 325,000 and that the aggregate
number of shares of DWEB Common Stock issuable upon exercise of DWEB Options
which may be issued pursuant to Section 3.3.2 (assuming full vesting thereof)
shall be 80,000. If, at the closing of the DynamicWeb Transaction, the
DynamicWeb Exchange Ratio is other than 2.66, then the aggregate number of
shares of DWEB Common Stock which may be issued pursuant to Section 3.3.1 shall
be adjusted to be as equal as practicable to 325,000 and the aggregate number of
shares of DWEB Common Stock issuable upon exercise of DWEB Options which may be
issued pursuant to Section 3.3.2 (assuing full vesting thereof) shall be
adjusted to be as equal as practicable to 80,000 and, in each case, the delivery
of additional securities or the cancellation of securities, as the case may be,
shall be applied on a pro rata basis among the applicable Company Stockholders
and Company Key Employees in accordance with the relative proportion of the eB2B
Securities originally issued to such holders pursuant to this Agreement.
3.3.5 Other Rights. All other rights of the holders of any
eB2B Securities issued hereunder shall be the same as the rights of other
holders of such eB2B Securities as set forth in the DynamicWeb Merger Agreement,
and the terms relating to securities of DynamicWeb as set forth herein shall be
appropriately adjusted upon any stock split or similar event, pursuant to
Section 2.4.7 of the DynamicWeb Merger Agreement.
3.4 Additional Consideration. In the event that the DynamicWeb
Transaction is not completed within six (6) months after the Effective Time: The
total number of shares of eB2B
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Common Stock issued hereunder shall be increased to 125,000, and the additional
shares of eB2B Common Stock shall be distributed on a pro rata basis to the
Company Stockholders in accordance with the relative proportion of the shares of
eB2B Common Stock originally issued to such holders pursuant to this Agreement.
No fractional shares will be delivered. The number of additional shares to be
delivered to any Company Stockholder under this Section 3.4 will be rounded up
to the nearest whole share. The total number of shares of eB2B Common Stock
eligible to be issued pursuant to the Incentive Options shall be increased to
31,000 (such additional options to be distributed on a pro rata basis to the
Company Key Employees in accordance with the relative proportion of the
Incentive Options originally issued to such holders pursuant to this Agreement).
4 Representations and Warranties of the Company. The Company represents and
warrants to eB2B that the statements contained in this Section 4 are correct and
complete as of the date of this Agreement and will be correct and complete as of
the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 4), except as
set forth in the Company Disclosure Schedule or as contemplated by Section 7.1
hereof.
4.1 Organization of the Company. Except as set forth in Section 4.1 of
the Company Disclosure Schedule, the Company is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Delaware.
4.2 Capitalization. Section 4.2 of the Company Disclosure Schedule sets
forth a description of the authorized capital stock of the Company, and the
number of issued and outstanding shares of such capital stock. Section 4.2 of
the Company Disclosure Schedule also lists and provides a brief description of
all authorized and issued options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, or other contracts or commitments
that could require the Company to issue any of its capital stock. Other than as
contemplated by this Agreement, and except with respect to the securities
described in Section 4.2 of the Company Disclosure Schedule, there are no
outstanding or authorized shares of capital stock or options, warrants, purchase
rights, subscription rights, conversion rights, exchange rights, or other
contracts or commitments that could require the Company to issue any of its
capital stock. All of the issued and outstanding shares of capital stock of the
Company have been duly authorized and are validly issued, fully paid, and
nonassessable.
4.3 Authorization of Transaction. The Company has full power and
authority (including full corporate power and authority) to execute and deliver
this Agreement and to perform its obligations hereunder; provided, however, that
the Company cannot consummate the Merger unless and until it receives the
Company Stockholder Approval. This Agreement constitutes the valid and legally
binding obligation of the Company, enforceable in accordance with its terms and
conditions subject to the effect of (i) any applicable bankruptcy, insolvency or
similar laws affecting the enforcement of creditor's rights generally and (ii)
general principles of equity (whether considered in a proceeding in equity or at
law).
4.4 Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby will (i)
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 certificate of incorporation or bylaws of the Company or (ii) except as
set forth in Section 4.4 of the Company Disclosure Schedule, conflict with,
result in a breach of,
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constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice
under any agreement, contract, lease, license, instrument, or other arrangement
to which the Company is a party or by which it is bound or to which any of its
assets is subject (or result in the imposition of any Security Interest upon any
of its assets) except where the violation, conflict, breach, default,
acceleration, termination, modification, cancellation, or failure to give notice
would not have a Material Adverse Effect on the ability of the Parties to
consummate the transactions contemplated by this Agreement. Other than in
connection with the provisions of the DGCL, the Securities Act, the Securities
Exchange Act and the state securities laws, the Company is not required to 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 where the
failure to give notice, to file, or to obtain any authorization, consent, or
approval would not have a Material Adverse Effect on the ability of the Parties
to consummate the transactions contemplated by this Agreement.
4.5 Title to Assets; Security Interests. The Company has good and
marketable title to, or a valid leasehold interest in or valid license to use,
the properties and assets used by it, located on its premises, or shown on the
Company Most Recent Balance Sheet or acquired after the date thereof, free and
clear of all Security Interests, except for properties and assets disposed of in
the Ordinary Course of Business since the date of the Company Most Recent
Balance Sheet and as otherwise set forth in Section 4.5 of the Company
Disclosure Schedule.
4.6 Subsidiaries. Set forth in Section 4.6 of the Company Disclosure
Schedule is a list of all of the Subsidiaries of the Company, and all other
corporations or other entities in which the Company has an ownership interest.
All of the representations and warranties of the Company contained in this
Agreement shall apply to the Company and its subsidiaries, taken as a whole.
4.7 Financial Statements. Attached as Section 4.7 of the Company
Disclosure Schedule are the following financial statements (collectively the
"Company Financial Statements"): (i) audited consolidated and unaudited
consolidated balance sheets and statements of income, changes in stockholders'
equity, and cash flow as of and for the fiscal years ended December 31, 1998
(the "Company Most Recent Fiscal Year End") for the Company and (ii) unaudited
consolidated balance sheets and statements of income, changes in stockholders'
equity, and cash flow (the "Company Most Recent Financial Statements") as of and
for the eleven months ended November 30, 1999 (the "Company Most Recent
Unaudited Period End") for the Company. Except as set forth in Schedule 4.7 of
the Company Disclosure Schedule, the Company Financial Statements (including the
notes thereto) have been prepared in accordance with GAAP, applied on a
consistent basis throughout the periods covered thereby, present fairly the
financial condition of the Company as of such dates and the results of
operations of the Company for such periods, are correct and complete, and are
consistent with the books and records of the Company (which books and records
are correct and complete in all material respects) subject to normal and
recurring year-end adjustments which may be required with respect to the Company
Most Recent Financial Statements.
4.8 Events Subsequent to Most Recent Unaudited Period End. Since the
Company Most Recent Unaudited Period End, there has not been any material
adverse change in the business, financial condition, operations, results of
operations, or future prospects of the Company. Without limiting the generality
of the foregoing, since that date, except as set forth in Section 4.8 of the
Company Disclosure Schedule:
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4.8.1 the Company has not sold, leased, transferred, or
assigned any of its assets, tangible or intangible, other than for fair
consideration in the Ordinary Course of Business;
4.8.2 the Company has not entered into any agreement,
contract, lease, or license (or series of related agreements, contracts, leases,
and licenses) involving more than $25,000 or outside the Ordinary Course of
Business (other than the Letter of Intent));
4.8.3 no party (including the Company) has accelerated,
terminated, modified, or canceled any agreement, contract, lease, or license (or
series of related agreements, contracts, leases, and licenses) involving more
than $25,000 to which the Company is a party or by which the Company is bound;
4.8.4 the Company has not granted or agreed to grant any
Security Interest upon any of its assets, tangible or intangible;
4.8.5 the Company has not made any capital expenditure (or
series of related capital expenditures) involving more than $25,000 or outside
the Ordinary Course of Business;
4.8.6 the Company has not made any capital investment in, any
loan to, or any acquisition of the securities or assets of, any other Person (or
series of related capital investments, loans, and acquisitions) either involving
more than $25,000 or outside the Ordinary Course of Business;
4.8.7 the Company has not issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any indebtedness for
borrowed money or capitalized lease obligation either involving more than
$25,000 or outside the Ordinary Course of Business;
4.8.8 the Company has not delayed or postponed the payment of
accounts payable and other Liabilities outside the Ordinary Course of Business,
except for any delays or postponements that would not, in the aggregate, result
in any Material Adverse Effect with respect to the Company;
4.8.9 the Company has not canceled, compromised, waived, or
released any right or claim (or series of related rights and claims) either
involving more than $25,000 or outside the Ordinary Course of Business;
4.8.10 the Company has not granted any license or sublicense
of any rights under or with respect to any Intellectual Property outside the
Ordinary Course of Business;
4.8.11 except as required by the terms of this Agreement,
there has been no change made or authorized in the certificate of incorporation
or bylaws of the Company;
4.8.12 the Company has not issued, sold, or otherwise disposed
of any of its capital stock, or granted any options, warrants, or other rights
to purchase or obtain (including upon conversion, exchange, or exercise) any of
its capital stock;
4.8.13 the Company has not declared, set aside, or paid any
dividend or made any distribution with respect to its capital stock (whether in
cash or in kind) or redeemed, purchased, or otherwise acquired any of its
capital stock;
4.8.14 the Company has not experienced any damage,
destruction, or loss (whether or not covered by insurance) to its property;
4.8.15 the Company has not made any loan to, or entered into
any other
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transaction with, any of its directors, officers, and employees outside the
Ordinary Course of Business;
4.8.16 the Company has not entered into any employment
contract or collective bargaining agreement, written or oral, or modified the
terms of any existing such contract or agreement;
4.8.17 the Company has not granted any increase in the
compensation of or changed any of the employment terms for any of its directors,
officers, and employees outside the Ordinary Course of Business;
4.8.18 the Company has not adopted, amended, modified, or
terminated any bonus, profit-sharing, incentive, severance, or other plan,
contract, or commitment for the benefit of any of its directors, officers, and
employees (or taken any such action with respect to any other Employee Benefit
Plan);
4.8.19 the Company has not made or pledged to make any
charitable or other capital contribution outside the Ordinary Course of
Business;
4.8.20 there has been no loss of a major customer of the
Company or dispute with any major customer or supplier of the Company which has
had or is likely to have a Material Adverse Effect with respect to the Company;
4.8.21 there has not been any other material occurrence,
event, incident, action, failure to act, or transaction outside the Ordinary
Course of Business involving the Company; and
4.8.22 The Company has not committed to any of the foregoing.
4.9 Undisclosed Liabilities. The Company has no Liability (and there is
no Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of them giving
rise to any Liability), except for (i) Liabilities set forth on the face of the
Company Most Recent Balance Sheet, (ii) Liabilities which have arisen after the
Company Most Recent Unaudited Period End in the Ordinary Course of Business
(none of which results from, arises out of, relates to, is in the nature of, or
was caused by any breach of contract, breach of warranty, tort, infringement, or
violation of law) and (iii) Liabilities disclosed in Section 4.9 of the Company
Disclosure Schedule.
4.10 Legal Compliance. The Company has complied in all material
respects with all applicable laws (including rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings, and charges thereunder) of
federal, state, local, and foreign governments (and all agencies thereof), and
no action, suit, proceeding, hearing, investigation, charge, complaint, claim,
demand, or notice has been filed or commenced against it alleging any failure so
to comply.
4.11 Tax Matters.
4.11.1 Except as set forth in Section 4.11 of the Company
Disclosure Schedule, the Company has timely filed all Tax Returns that it has
been required to file. All such Tax Returns were correct and complete in all
material respects. All Taxes owed by the Company (whether or not shown on any
Tax Return) have been paid or adequate reserves have been established to cover
any such Taxes. The Company currently is not the beneficiary of any extension of
time within which to file any Tax Return. No Tax Return of the Company is
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currently the subject of any audit, examination or similar proceeding. No claim
has ever been made by an authority in a jurisdiction where the Company does not
file Tax Returns that it is or may be subject to taxation by that jurisdiction.
There are no Security Interests on the assets of the Company that arose in
connection with any failure (or alleged failure) to pay any Tax.
4.11.2 Except as set forth in Section 4.11 of the Company
Disclosure Schedule, the Company has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other third party.
4.11.3 There is no dispute or claim concerning any Tax
Liability of the Company either (A) claimed or raised by any authority in
writing or (B) as to which the Company has Knowledge. Section 4.11 of the
Company Disclosure Schedule lists all federal, state, local, and foreign income
Tax Returns filed for the past one (1) year with respect to the Company
indicating those Tax Returns that have been audited, and indicating those Tax
Returns that currently are the subject of audit. The Company has provided to
eB2B correct and complete copies as filed of all federal income Tax Returns of
the Company for the past three (3) years, examination reports, and statements of
deficiencies assessed against or agreed to by the Company during the past three
(3) years.
4.11.4 The Company has not waived any statute of limitations
in respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
4.11.5 The unpaid Taxes of the Company (A) did not, as of the
Company Most Recent Unaudited Period End, materially exceed the reserve for Tax
Liability (rather than any reserve for deferred Taxes established to reflect
temporary differences between book and Tax income) set forth on the face of the
Company Most Recent Balance Sheet (rather than in any notes thereto) and (B) do
not materially exceed that reserve as adjusted for the passage of time through
the Closing Date in accordance with the past custom and practice of the Company
in filing its Tax Returns as listed in Section 4.11 of the Company Disclosure
Schedule.
4.12 Real Property. The Company does not own any real property. Section
4.12 of the Company Disclosure Schedule lists and describes briefly all real
property leased to or used by the Company. The Company has made provided to eB2B
correct and complete copies of all leases and other occupancy agreements
relating to such real property (including all amendments thereto). With respect
to each such lease or agreement:
4.12.1 the lease or occupancy agreement is legal, valid,
binding, enforceable, and in full force and effect;
4.12.2 the lease or occupancy agreement will continue to be
legal, valid, binding, enforceable, and in full force and effect on the terms
set forth in such lease or occupancy agreement following the consummation of the
transactions contemplated hereby;
4.12.3 except as set forth in Section 4.12 of the Company
Disclosure Schedule, the Company and, to the Company's Knowledge, no other party
to the lease or occupancy agreement is in material breach or default, and no
event has occurred which, with notice or lapse of time, would constitute a
material breach or default or permit termination, modification, or acceleration
thereunder;
4.12.4 the Company and, to the Company's Knowledge, no other
party to the lease or occupancy agreement has repudiated any provision thereof;
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4.12.5 except as set forth in Section 4.12 of the Company
Disclosure Schedule, to the Company's Knowledge, there are no disputes, oral
agreements, or forbearance programs in effect as to the lease or occupancy
agreement;
4.12.6 the Company has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the leasehold;
4.12.7 to the Company's Knowledge, all facilities described in
Section 4.12 of the Company Disclosure Schedule have received all approvals of
governmental authorities (including licenses and permits) required in connection
with the operation thereof and have been operated and maintained in all material
respects in accordance with applicable laws, rules, and regulations; and
4.12.8 all facilities described in Section 4.12 of the Company
Disclosure Schedule are currently supplied with utilities.
4.13 Intellectual Property.
4.13.1 The Company owns or has the right to use pursuant to
License all Intellectual Property necessary in all material respects for the
operation of its business, as presently conducted. Each item of Intellectual
Property owned or controlled by the Company immediately prior to the Closing
hereunder will be owned or available for use by the Surviving Corporation on
substantially identical terms and conditions immediately subsequent to the
Closing hereunder. The Company has taken all actions which it deemed to be
reasonably necessary to maintain and protect each item of Intellectual Property
that it owns or controls.
4.13.2 Domain Names. Section 4.13.2 of the Company Disclosure
Schedule sets forth a list of all Internet domain names registered in the name
of the Company and used by the Company in its business. The Company has, and
after the Effective Time the Surviving Corporation will have, a valid
registration in and to such Internet domain names including, without limitation,
all rights necessary to continue to conduct the Company's business as it is
currently conducted under such names.
4.13.3 The Company has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual Property
rights of third parties and the Company has not received any charge, complaint,
claim, demand, or notice alleging any such interference, infringement,
misappropriation, or violation (including any claim that the Company must
license or refrain from using any Intellectual Property rights of any third
party) except as set forth in Section 4.13.3 of the Company Disclosure Schedule.
To the Knowledge of the Company, no third party is interfering with, infringing
upon, misappropriating, or otherwise coming into conflict with any Intellectual
Property rights of the Company.
4.13.4 Section 4.13.4 of the Company Disclosure Schedule
identifies each patent, trademark and copyright registration which has been
issued to the Company, and each pending application for patent, trademark or
copyright registration which the Company has made with respect to any of its
Intellectual Property, and identifies each material License which the Company
has granted to any third party with respect to any of its Intellectual Property.
The Company has provided to eB2B correct and complete copies of all such
patents, trademarks, registrations, applications, and Licenses (as amended to
date) and has provided to eB2B correct and complete copies of all other written
documentation evidencing ownership and prosecution (if applicable) of each such
item. Section 4.13.4 of the Company Disclosure Schedule also identifies each
trade name or material unregistered trademark used by the
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Company in connection with any of its businesses. Except as set forth in Section
4.13.4 of the Company Disclosure Schedule, with respect to each item of
Intellectual Property disclosed in Section 4.13.4 of the Company Disclosure
Schedule:
4.13.4.1 the Company possesses all right, title, and
interest in and to the item, free and clear of any Security Interest, license,
or other restriction;
4.13.4.2 the item is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge;
4.13.4.3 no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or, to Company's
Knowledge, is threatened which challenges the legality, validity,
enforceability, use, or ownership of the item; and
4.13.4.4 the Company has never agreed to indemnify
any Person for or against any interference, infringement, misappropriation, or
other conflict with respect to such item outside the Ordinary Course of
Business.
4.13.5 Section 4.13.5 of the Company Disclosure Schedule
identifies each material item of Intellectual Property that any third party owns
and that the Company uses pursuant to a License (other than any off-the-shelf
and other Intellectual Property generally available via shrink wrap or click
wrap agreements). The Company has made provided to eB2B correct and complete
copies of all such Licenses (as amended to date). With respect to each item of
Intellectual Property identified in Section 4.13.5 of the Company Disclosure
Schedule:
4.13.5.1 the License covering the item is legal,
valid, binding, enforceable, and in full force and effect;
4.13.5.2 except as set forth in Section 4.13.5 of the
Company Disclosure Schedule, such License will continue to be legal, valid,
binding, enforceable, and in full force and effect following the Closing;
4.13.5.3 neither the Company nor, to the Company's
Knowledge, any other party to the License is in material breach or default, and
to the Company's Knowledge, no event has occurred which with notice or lapse of
time would constitute a material breach or default or permit termination,
modification, or acceleration thereunder;
4.13.5.4 neither the Company nor, to the Company's
Knowledge, any other party to the License has repudiated any provision thereof;
4.13.5.5 to the Company's Knowledge, with respect to
each sublicense, the representations and warranties set forth in subsections
4.13.5.1 through 3.15.5.4 above are true and correct with respect to the
underlying license;
4.13.5.6 to the Company's Knowledge, the underlying
item of Intellectual Property is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;
4.13.5.7 no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or, to the
Knowledge of the Company, is threatened which challenges the legality, validity,
or enforceability of the underlying item of Intellectual Property; and
4.13.5.8 the Company has not granted any sublicense
or similar right
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with respect to the License outside the Ordinary Course of Business or that
would constitute a material breach of any such License.
4.13.6 To the Knowledge of the Company, the Company will not
interfere with, infringe upon, misappropriate, or otherwise come into conflict
with, any Intellectual Property rights of third parties as a result of the
continued operation of its businesses as presently conducted.
4.14 Tangible Assets. The Company owns or leases all buildings,
machinery, equipment, and other tangible assets necessary in all material
respects for the conduct of its business as presently conducted. Except as set
forth in Section 4.14 of the Company Disclosure Schedule, each such tangible
asset is free from material defects (patent and latent), has been maintained in
accordance with normal industry practice, is in good operating condition and
repair (subject to normal wear and tear), and is suitable for the purposes for
which it presently is used.
4.15 Contracts. Section 4.15 of the Company Disclosure Schedule lists
the following contracts and other agreements to which the Company is a party and
which are currently in force and effect:
4.15.1 any agreement (or group of related agreements) for the
lease of personal property to or from any Person providing for lease payments in
excess of $25,000 per annum;
4.15.2 any agreement (or group of related agreements) for the
purchase or sale of raw materials, commodities, supplies, products, or other
personal property, or for the furnishing or receipt of services, the performance
of which will extend over a period of more than one (1) year, result in a
material loss to the Company, or involve consideration in excess of $25,000;
4.15.3 any agreement concerning a partnership or joint
venture;
4.15.4 any agreement (or group of related agreements) under
which it has created, incurred, assumed, or guaranteed any indebtedness for
borrowed money, or any capitalized lease obligation, in excess of $25,000 or
under which it has granted a Security Interest on any of its assets, tangible or
intangible;
4.15.5 any agreement concerning confidentiality or
noncompetition (other than any such agreements which are entered into in the
Ordinary Course of Business and which will not have any Material Adverse Effect
with respect to the Company);
4.15.6 any agreement between the Company and any of the
Company's Stockholders or any Company Stockholder's Affiliate;
4.15.7 any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other material plan or
arrangement for the benefit of its current or former directors, officers, and
employees;
4.15.8 any collective bargaining agreement;
4.15.9 any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual compensation
in excess of $25,000 or providing severance benefits;
4.15.10 any agreement under which it has advanced or loaned
any amount
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which remains outstanding as of the date hereof, to any of its directors,
officers, and employees outside the Ordinary Course of Business;
4.15.11 any agreement under which the consequences of a
default or termination could have a Material Adverse Effect with respect to the
Company;
4.15.12 any agreement pursuant to which any party has any
registration rights; and
4.15.13 any other agreement (or group of related agreements)
the performance of which involves consideration in excess of $50,000. The
Company has provided to eB2B a correct and complete copy of each written
agreement listed in Section 4.15 of the Company Disclosure Schedule (as amended
to date) and a written summary setting forth the terms and conditions of each
oral agreement referred to in Section 4.15 of the Company Disclosure Schedule.
With respect to each such agreement, except as set forth on Section 4.15 of the
Company Disclosure Schedule: (A) the agreement is legal, valid, binding,
enforceable, and in full force and effect; (B) the agreement will continue to be
legal, valid, binding, enforceable, and in full force and effect on identical
terms following the consummation of the transactions contemplated hereby; (C)
the Company, and to the Company's Knowledge, no other party is in material
breach or default, and no event has occurred which with notice or lapse of time
would constitute a material breach or default, or permit termination,
modification, or acceleration, under the agreement; and (D) to the Company's
Knowledge, no party has repudiated any provision of the agreement.
4.16 Notes and Accounts Receivable. All notes and accounts receivable
of the Company are reflected properly on their books and records, are valid
receivables subject to no setoffs or counterclaims, are current and collectible,
and will be collected in accordance with their terms at their recorded amounts,
subject only to the reserve for bad debts set forth on the face of the Company
Most Recent Balance Sheet (rather than in any notes thereto) as adjusted for the
passage of time through the Closing Date in accordance with the past custom and
practice of the Company.
4.17 Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of the Company.
4.18 Insurance. Attached as Section 4.18 of the Company Disclosure
Schedule is each insurance policy (including policies providing property,
casualty, liability, and workers' compensation coverage and bond and surety
arrangements) to which the Company is a party, a named insured, or otherwise the
beneficiary of coverage. With respect to each such insurance policy: (A) the
policy is legal, valid, binding, enforceable, and in full force and effect; (B)
the policy will continue to be legal, valid, binding, enforceable, and in full
force and effect on substantially similar terms following the consummation of
the transactions contemplated hereby, after notice to the insurer; (C) neither
the Company nor to the Company's Knowledge, any other party to the policy is in
breach or default (including with respect to the payment of premiums or the
giving of notices), and no event has occurred which, with notice or the lapse of
time, would constitute such a breach or default, or permit termination,
modification, or acceleration, under the policy; and (D) to the Company's
Knowledge, no party to the policy has repudiated any provision thereof. The
Company has been covered at all times by insurance in scope and amount customary
and reasonable for the businesses in which it has engaged.
4.19 Litigation. Section 4.19 of the Company Disclosure Schedule sets
forth each
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instance in which the Company (i) is subject to any outstanding injunction,
judgment, order, decree, ruling, or charge or (ii) is a party or, to the
Company's Knowledge, is threatened to be made a party to any action, suit,
proceeding, hearing, or investigation of, in, or before any court or
quasi-judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator. There are no actions, suits, proceedings,
hearings or investigations involving the Company or any of its subsidiaries
which could (A) prevent consummation of any of the transactions contemplated by
this Agreement, (B) cause any of the transactions contemplated by this Agreement
to be rescinded following consummation, or (C) adversely affect the right of the
Surviving Corporation to own the assets or operate the businesses of the Company
or (D) result in any material adverse change in the business, financial
condition, operations, results of operations, or future prospects of the
Surviving Corporation. The Company has no reason to believe that any such
similar action, suit, proceeding, hearing, or investigation may be brought or
threatened against the Company.
4.20 Product Warranty. Each product manufactured, sold, leased, or
delivered by the Company has been in conformity in all material respects with
all applicable contractual commitments and all express and implied warranties
and, to the Company's Knowledge, the Company does not have any material
Liability (and, to the Company's Knowledge, there is no Basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand against any of them giving rise to any material Liability) for
replacement or repair thereof or other damages in connection therewith, subject
only to the reserve for product warranty claims set forth on the face of the
Company Most Recent Balance Sheet (rather than in any notes thereto) as adjusted
for the passage of time through the Closing Date in accordance with the past
custom and practice of the Company. No product manufactured, sold, leased, or
delivered by the Company is subject to any guaranty, warranty, or other
indemnity beyond the applicable standard terms and conditions of sale or lease.
4.21 Product Liability. To the Company's Knowledge, the Company does
not have any Liability (and there is no Basis for any present or future action,
suit, proceeding, hearing, investigation, charge, complaint, claim, or demand
against any of them giving rise to any Liability) arising out of any injury to
individuals or property as a result of the ownership, possession, or use of any
product manufactured, sold, leased, or delivered by the Company.
4.22 Employees. To the Company's Knowledge, none of the Company's
officers, key employees, or group of employees has any plans to terminate
employment with the Company. The Company is not a party to or bound by any
collective bargaining agreement, nor has it experienced any strikes, grievances,
claims of unfair labor practices, or other collective bargaining disputes. The
Company has not committed any unfair labor practices. The Company does not know
of any organizational effort presently being made or threatened by or on behalf
of any labor union with respect to employees of the Company.
4.23 Employee Benefits.
4.23.1 Definitions. For the purpose of this Section 4.23
below, the following terms shall have the meanings set forth below:
i. "Employee Benefit Plan" means any (i)
nonqualified deferred compensation or retirement
plan or arrangement, (ii) qualified defined
contribution retirement plan or arrangement which
is an Employee Pension Benefit Plan, (iii)
qualified defined benefit retirement plan or
arrangement which is an Employee Pension
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Benefit Plan (including any Multi-employer
Plan), or (iv) Employee Welfare Benefit Plan or
material fringe benefit or other retirement,
bonus, or incentive plan or program.
ii. "Employee Pension Benefit Plan" has the meaning
set forth in Section 3(2) of ERISA.
iii."Employee Welfare Benefit Plan" has the meaning
set forth in Section 3(1) of ERISA.
iv. "Employee" shall mean any current, former, or
retired employee, consultant, or member of the
Company;
v. "Employee Agreement" shall refer to each
management, employment, stock purchase,
severance, separation, consulting, relocation,
loan, repatriation, expatriation, Visas, work
permit or similar agreement, contract or
arrangement between the Company or any ERISA
Affiliate and any Employee;
vi. "ERISA Affiliate" means each entity which is
treated as a single employer with the Company for
purposes of Section 414 of the Code.
4.23.2 Section 4.23 of the Company Disclosure Schedule lists
each Employee Benefit Plan that the Company maintains or to which the Company
contributes or has any obligation to contribute.
4.23.2.1 All required reports and descriptions (including Form
5500 Annual Reports, summary annual reports, and summary plan descriptions) have
been timely filed and distributed appropriately with respect to each Employee
Benefit Plan of the Company. The requirements of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended (COBRA), have been met with respect to
each Employee Benefit Plan of the Company.
4.23.2.2 All premiums or other payments for all periods ending
on or before the Closing Date have been paid with respect to each Employee
Benefit Plan of the Company.
4.23.2.3 The Company has made available to eB2B for inspection
and duplication correct and complete copies of the plan documents and summary
plan descriptions, the most recent Form 5500 Annual Report, and all related
insurance contracts, and other agreements which implement each Employee Benefit
Plan of the Company.
4.23.3 The Company does not maintain or ever has maintained,
or contribute or ever has contributed, or ever has been required to contribute
to any Employee Welfare Benefit Plan providing medical, health, or life
insurance or other welfare-type benefits for current or future retired or
terminated employees, their spouses, or their dependents, other than in
accordance with Section 4980B of the Code.
4.24 Guaranties. Except as set forth in Section 4.24 of the Company
Disclosure Schedule, the Company is not a guarantor or otherwise liable for any
Liability or obligation (including indebtedness) of any other Person.
4.25 Environmental, Health, and Safety Matters.
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4.25.1 To the Company's Knowledge, the Company has complied
and is in compliance in all material respects with all Environmental, Health,
and Safety Requirements.
4.25.2 Without limiting the generality of the foregoing, to
the Company's Knowledge, the Company has obtained and complied with, and is in
compliance with, all material permits, licenses and other authorizations that
are required pursuant to Environmental, Health, and Safety Requirements for the
occupation of its facilities and the operation of its business; a list of all
such permits, licenses and other authorizations is set forth in Section 4.25.2
of the Company Disclosure Schedule.
4.25.3 The Company has not received any written or, to the
Company's Knowledge, oral notice, report or other information regarding any
actual or alleged violation of Environmental, Health, and Safety Requirements,
or any liabilities or potential liabilities (whether accrued, absolute,
contingent, unliquidated or otherwise), including any investigatory, remedial or
corrective obligations, relating to any of them or its facilities arising under
Environmental, Health, and Safety Requirements.
4.25.4 To the Company's Knowledge, none of the following
exists at any property or facility owned or operated by the Company: (1)
underground storage tanks, (2) asbestos-containing material in any form or
condition, (3) materials or equipment containing polychlorinated biphenyls, or
(4) landfills, surface impoundments, or disposal areas.
4.25.5 To the Company's Knowledge, the Company has not
treated, stored, disposed of, arranged for or permitted the disposal of,
transported, handled, or released any substance, including without limitation
any hazardous substance, or owned or operated any property or facility (and no
such property or facility is contaminated by any such substance) in a manner
that has given or would give rise to any material liability under any
Environmental, Health, and Safety Requirement.
4.25.6 To the Company's Knowledge, neither this Agreement nor
the consummation of the transaction that is the subject of this Agreement will
result in any obligations for site investigation or cleanup, or notification to
or consent of government agencies or third parties, pursuant to any of the
so-called "transaction-triggered" or "responsible property transfer"
Environmental, Health, and Safety Requirements.
4.25.7 To the Company's Knowledge, the Company has not, either
expressly or by operation of law, assumed or undertaken any material liability,
including without limitation any material obligation for corrective or remedial
action, of any other Person relating to Environmental, Health, and Safety
Requirements.
4.25.8 To the Company's Knowledge, no facts, events or
conditions relating to the past or present facilities, properties or operations
of the Company will prevent, hinder or limit continued compliance in any
material respect with Environmental, Health, and Safety Requirements, give rise
to any material investigatory, remedial or corrective obligations pursuant to
Environmental, Health, and Safety Requirements, or give rise to any other
material liabilities (whether accrued, absolute, contingent, unliquidated or
otherwise) pursuant to Environmental, Health, and Safety Requirements.
4.26 Year 2000. Except as set forth in Section 4.26 of the Company
Disclosure Schedule, none of the computer software, computer firmware, computer
hardware (whether general or special purpose) or other similar or related items
of automated, computerized or software systems that are owned or controlled by
the Company in the conduct of its business,
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and, to the Company's knowledge, none of the products and services sold,
licensed, rendered or otherwise provided by the Company in the conduct of its
business will experience a Y2K Problem. The Company has communicated with its
suppliers and customers to determine if any of such suppliers or customers
expect to experience any Y2K Problems which may affect the Company, and the
Company is not aware of any such Y2K Problems with respect to such suppliers or
customers.
Except as set forth in Section 4.26 of the Company Disclosure Schedule,
the Company has not made any warranties regarding the ability of any product or
service sold, licensed, rendered, or otherwise provided by the Company in the
conduct of its business to operate without malfunction, to operate without
ceasing to function, to generate correct data or to produce correct results when
processing, providing or receiving (i) date-related data from, into and between
the twentieth and twenty-first centuries and (ii) date-related data in
connection with any valid date in the twentieth and twenty-first centuries.
4.27 Certain Business Relationships With the Company. Except as set
forth in Section 4.27 of the Company Disclosure Schedule, none of the Company
Stockholders or any Affiliate of any Company Stockholder has been involved in
any business arrangement or relationship with the Company within the past twelve
(12) months (other than the purchase and ownership of any shares of capital
stock of the Company by a Company Stockholder) and none of the Company
Stockholders or any Affiliate of any Company Stockholder owns any asset,
tangible or intangible, which is used in the business of the Company.
4.28 Transaction Costs. Except (i) to the extent set forth in the
Schwartz Agreement (ii) the payments to CKS at the Closing, as set forth in
Section 7.2 hereof, and (iii) accountants' fees, the Company does not have any
Liability or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement for which
eB2B or the Surviving Corporation could become liable or obligated.
4.29 Takeover Statutes. No takeover statute applicable to the Company
would restrict or adversely affect the ability of the Parties to consummate the
Merger. The Company has not adopted any shareholder rights plan or similar
"poison pill" arrangement, provision or understanding.
4.30 Disclosure. The representations and warranties contained in this
Section 4 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Section 4 not misleading.
4.31 Accounts Payable. Section 4.30 of the Company Disclosure Schedule
sets forth an accurate statement of the aged accounts payable of the Company as
of the date not more than 15 days prior to the date hereof.
5 Representations and Warranties of eB2B. eB2B represents and warrants to
the Company that the statements contained in this Section 5 are correct and
complete as of the date of this Agreement and will be correct and complete as of
the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 5), except as
set forth in the eB2B Disclosure Schedule and except for any changes
contemplated in 7.2 hereof.
5.1 Organization. eB2B is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware. eB2B is
duly qualified and in good standing to transact business in the State of New
York.
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5.2 Capitalization. Section 5.2 of the eB2B Disclosure Schedule sets
forth a description of the authorized capital stock of eB2B, and the number of
issued and outstanding shares of such capital stock. Section 5.2 of the eB2B
Disclosure Schedule also lists and provides a brief description of all
authorized and issued options, warrants, purchase rights, subscription rights,
conversion rights, exchange rights, or other contracts or commitments that could
require eB2B to issue any of its capital stock. Except with respect to the
securities described in Section 5.2 of the eB2B Disclosure Schedule, there are
no outstanding or authorized shares of capital stock or options, warrants,
purchase rights, subscription rights, conversion rights, exchange rights, or
other contracts or commitments that could require eB2B to issue any of its
capital stock. All of the issued and outstanding shares of capital stock of eB2B
have been duly authorized and are validly issued, fully paid, and nonassessable,
and the shares of eB2B Common Stock to be issued in the Merger have been duly
authorized and, upon consummation of the Merger in accordance with the terms
hereof, will be validly issued, fully paid, and nonassessable.
5.3 Authorization of Transaction. eB2B has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder. This Agreement constitutes
the valid and legally binding obligation of eB2B, enforceable in accordance with
its terms and conditions, subject to the effect of (i) any applicable
bankruptcy, insolvency or similar laws affecting the enforcement of creditor's
rights generally and (ii) general principles of equity (whether considered in a
proceeding in equity or at law).
5.4 Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which eB2B is subject or any provision of the
certificate of incorporation or bylaws of eB2B or (ii) conflict with, result in
a breach of, constitute a default under, result in the acceleration of, create
in any party the right to accelerate, terminate, modify, or cancel, or require
any notice under any agreement, contract, lease, license, instrument or other
arrangement to which eB2B is a party or by which it is bound or to which any of
its assets is subject (or result in the imposition of any Security Interest on
any of its assets), except where the violation, conflict, breach, default,
acceleration, termination, modification, cancellation, or failure to give notice
would not have a material adverse effect on the ability of the Parties to
consummate the transactions contemplated by this Agreement. Other than in
connection with the provisions of the DGCL, the Securities Act, the Securities
Exchange Act or the state securities laws, eB2B is not required to 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 where the
failure to give notice, to file, or to obtain any authorization, consent, or
approval would not have a Material Adverse Effect on the ability of the Parties
to consummate the transactions contemplated by this Agreement.
5.5 Financial Statements. Attached as Section 5.5 of the eB2B
Disclosure Schedule are the audited consolidated and unaudited consolidated
balance sheets and statements of income, changes in stockholders' equity, and
cash flow as of and for the fiscal year ended September 30, 1999 for eB2B.
Except as set forth in Schedule 5.5 of the eB2B Disclosure Schedule, the eB2B
Financial Statements (including the notes thereto) have been prepared in
accordance with GAAP, applied on a consistent basis throughout the periods
covered thereby,
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present fairly the financial condition of eB2B as of such dates and the results
of operations of eB2B for such periods, are correct and complete, and are
consistent with the books and records of eB2B (which books and records are
correct and complete in all material respects) subject to normal and recurring
year-end adjustments which may be required with respect to the eB2B Most Recent
Financial Statements.
5.6 Events Subsequent to Most Recent Unaudited Period End. Since the
date of eB2B Financial Statements, there has not been any material adverse
change in the business, financial condition, operations, results of operations,
or future prospects of eB2B, except as may be disclosed in the Form S-4
Registration Statement.
5.7 Undisclosed Liabilities. eB2B has no Liability (and there is no
Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of them giving
rise to any Liability), except for (i) Liabilities set forth in the eB2B Balance
Sheet, (ii) Liabilities which have arisen after the date of the eB2B Balance
Sheet in the Ordinary Course of Business (none of which results from, arises out
of, relates to, is in the nature of, or was caused by any breach of contract,
breach of warranty, tort, infringement, or violation of law) and (iii)
Liabilities disclosed in Section 5.7 of the eB2B Disclosure Schedule or in the
Form S-4 Registration Statement.
5.8 Legal Compliance. eB2B has complied in all material respects with
all applicable laws (including rules, regulations, codes, plans, injunctions,
judgments, orders, decrees, rulings, and charges thereunder) of federal, state,
local, and foreign governments (and all agencies thereof), and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand, or notice
has been filed or commenced against it alleging any failure so to comply.
5.9 Litigation. The Form S-4 Registration Statement sets forth each
instance in which eB2B (i) is subject to any outstanding injunction, judgment,
order, decree, ruling, or charge or (ii) is a party or, to eB2B's Knowledge, is
threatened to be made a party to any action, suit, proceeding, hearing, or
investigation of, in, or before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or before any
arbitrator. Except as may be disclosed in the Form S-4 Registration Statement,
there are no actions, suits, proceedings, hearings or investigations involving
eB2B which could (A) prevent consummation of any of the transactions
contemplated by this Agreement, (B) cause any of the transactions contemplated
by this Agreement to be rescinded following consummation, or (C) adversely
affect the right of the Surviving Corporation to own the assets or operate the
businesses of the Company or (D) result in any material adverse change in the
business, financial condition, operations, results of operations, or future
prospects of eB2B. eB2B has no reason to believe that any such similar action,
suit, proceeding, hearing, or investigation may be brought or threatened against
eB2B.
6 Covenants. The Parties agree as follows with respect to the period from
and after the execution of this Agreement.
6.1 Confidentiality. All Confidential Information obtained by any Party
shall be held in strict confidence and neither Party will use any of the
Confidential Information except in connection with this Agreement, and, if this
Agreement is terminated for any reason whatsoever, both Parties agree to return
to the respective Party all tangible embodiments (and all copies) thereof which
are in its possession and shall maintain the confidentiality of such information
for not less than two (2) years from the date of such termination. Except as and
to the extent required by law (including the Securities Act and the Securities
Exchange Act), no
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Party hereto will disclose to a third party (other than to other Representatives
of the Company or eB2B who need to know such information for purposes of
evaluating the Merger) any information regarding the existence of this
Agreement, the terms of the Merger, or the existence or status of negotiations
with respect thereto or any other Confidential Information without the prior
consent of the other Party, except to the extent that the use of such
information is necessary in making any filing or obtaining any consent or
approval required for the consummation of the Merger or the furnishing or use of
such information is required by or necessary in connection with legal
proceedings. In the event a party is requested or required to disclose any of
the Confidential Information except as permitted above, such party will provide
the other with prompt written notice of any such request or requirement, so that
the other Party may seek a protective order or other appropriate remedy. If, in
the absence of a protective order or other remedy, a party is nonetheless
legally compelled to disclose Confidential Information, such party may, without
liability hereunder, disclose that portion of the Confidential Information which
is legally required to be disclosed, provided that such party exercises
reasonable efforts to preserve the confidentiality of the Confidential
Information, including, without limitation, by cooperating with the other party
to obtain an appropriate protective order or other reliable assurance that
confidential treatment will be accorded the Confidential Information. Upon the
written request of the disclosing party, the non-disclosing party will promptly
return to the disclosing party or destroy any Confidential Information in its
possession and certify in writing to the disclosing party that it has done so.
6.2 Indemnification. eB2B hereby agrees to indemnify each person who
has executed a personal guaranty for any obligation of the Company or any of its
Subsidiaries, which is set forth in Schedule 6.2 of the Company Disclosure
Schedule, in the event that any such guaranty is enforced by a third party. eB2B
hereby agrees to indemnify each director and officer of the Company and its
subsidiaries, against all losses, claims, damages, costs, and expenses
(including reasonable attorneys' fees), liabilities, judgments, and settlement
amounts that are paid or incurred in connection with any claim, action, suit,
proceeding or investigation (whether civil, criminal, administrative or
investigative) arising out of or pertaining to matters existing or occurring at
or prior to the Effective Time (whether asserted or claimed prior to, at or
after the Effective Time), for a period of six (6) years following the Effective
Time, to the same extent and on the same bases that eB2B indemnifies the
directors and officers of eB2B, subject to the applicable terms of the DGCL.
7 Conditions to Closing.
7.1 Conditions of eB2B. The obligation of eB2B to consummate the
transactions to be performed by it in connection with the Closing is subject to
satisfaction of the following conditions:
7.1.1 this Agreement and the Merger shall have received the
Company Stockholder Approval and the number of Dissenting Shares shall not
exceed 10% of the number of outstanding shares of Company Common Stock;
7.1.2 the Company shall have obtained the consent of each
Person from whom such consent is required for the consummation of the Merger and
with respect to which the failure to obtain such consent could result in a
Material Adverse Effect (and none of such consents shall provide for the
acceleration of any liabilities or any other detriment to the Company or eB2B,
except to the extent provided by the agreements referred to in subsections
7.1.10, 7.1.11, 7.1.12, 7.1.13 and 7.1.14 below);
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7.1.3 all material Internet domain names, trademarks and other
items of Intellectual Property of the Company shall have been properly assigned
to the Surviving Corporation;
7.1.4 the outstanding past-due indebtedness of Netlan, Inc. to
vendors shall not exceed an aggregate of $501,389;
7.1.5 at the Closing, the Company shall have delivered to eB2B
a certificate to the effect that each of the conditions specified above in
Sections 7.1.1 - 7.1.4 have been satisfied in all respects;
7.1.6 each of the Company Stockholders shall have entered into
the Escrow Agreement with eB2B;
7.1.7 each of the Company Key Employees shall have entered
into employment agreements with eB2B;
7.1.8 each of the Company Stockholders (other than Charles
Bernard) shall have entered into non-competition agreements with eB2B;
7.1.9 each of the Company Stockholders (other than any
employees of the Company who became Company Stockholders solely as a result of
the exercise of options to purchase Company Common Stock) shall have entered
into lock-up agreements with eB2B;
7.1.10 Cephas Capital, L.P. ("Cephas") shall have entered into
an agreement with eB2B and the Company (and its affiliates) concerning the
payment of the Company's indebtedness to Cephas on terms acceptable to eB2B and
the Company;
7.1.11 Key Bank National Association ("Key Bank") shall have
delivered to the Company or eB2B a letter setting forth the amount of
indebtedness of the Company (and its affiliates) to Key Bank, and providing
that, upon payment of such indebtedness, neither eB2B nor the Company (or its
affiliates) shall have any obligation or liability to Key Bank;
7.1.12 Schwartz Heslin Group, Inc. and Robert Schwartz
(collectively, "Schwartz") shall have entered into an agreement with the Company
concerning the Company's obligations to Schwartz on terms acceptable to eB2B and
the Company ("Schwartz Agreement");
7.1.13 Michael Gansl ("Gansl") shall have entered into an
agreement with the Company concerning the Company's obligations to Gansl on
terms acceptable to eB2B and the Company;
7.1.14 Matthew Plociak ("Plociak")shall have entered into an
agreement with the Company concerning the Company's obligations to Plociak on
terms acceptable to eB2B and the Company;
7.1.15 The Stockholder Agreement dated November 3, 1998 among
the Company, Robert Bengraff, Daniel Edwards and Stephanie Brown shall have been
terminated;
7.1.16 eB2B shall have received a receipt (or similar
statement) from CKS stating that, upon payment to CKS of the amounts set forth
in Section 7.2.1 hereof, neither eB2B nor the Company shall owe any additional
amounts to CKS for periods prior to the Closing;
7.1.17 eB2B shall have received from counsel to the Company an
opinion in
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form and substance reasonably satisfactory to eB2B;
7.1.18 eB2B shall have received the resignations, effective as
of the Closing, of each director and officer of the Company (and its
subsidiaries) other than those whom eB2B shall have specified in writing at the
Closing;
7.1.19 DynamicWeb shall have consented to the Merger; and
7.1.20 all actions to be taken by the Company in connection
with consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to
eB2B.
eB2B may waive any condition specified in this Section 7.1 if it
executes a writing so stating at the Closing.
7.2 Conditions of the Company. The obligation of the Company to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
7.2.1 at the Closing, eB2B shall pay to CKS the amount of
$43,672.11, plus the fees (not to exceed $75,000) and disbursements of CKS
incurred in connection with the Merger;
7.2.2 this Agreement and the Merger shall have received the
Company Stockholder Approval;
7.2.3 the Company shall have received from counsel to eB2B an
opinion in form and substance reasonably satisfactory to the Company; and
7.2.4 all actions to be taken by eB2B in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to the
Company.
The Company may waive any condition specified in this Section 7.2 if it
executes a writing so stating at the Closing.
8 Miscellaneous.
8.1 Survival of Representations and Warranties. Each representation and
warranty contained in this Agreement shall survive the Closing for a period of
one (1) year from the Effective Date and each of the covenants of eB2B hereunder
shall survive the Closing until one (1) year following the last date on which
such covenant is to be performed.
8.2 Press Releases and Public Announcements. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement without the prior written approval of the other Party, except as
may be required by law (including, without limitation, any filings required by
the Securities Act or the Securities Exchange Act).
8.3 No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
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8.4 Entire Agreement. This Agreement (including the documents referred
to herein and entered into pursuant hereto) constitutes the entire agreement
between the Parties relating to the subject matter hereof, and supersedes any
prior understandings, agreements, or representations by or between the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
8.5 Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Party.
8.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
8.7 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
8.8 Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two (2)
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, or by courier with proof of delivery, and addressed
to the intended recipient as set forth below:
<TABLE>
<S> <C>
If to the Company: Copy to:
Alfred Blitzer, Chief Executive Officer Charles Axelrod, Esq.
Netlan Enterprises, Inc. Camhy, Karlinsky & Stein LLP
29 West 38th Street 1740 Broadway, 16th Floor
New York, New York 10018 New York, New York 10019
Facsimile No.: (212) 703-2122 Facsimile No.: (212) 977-8389
If to eB2B: Copy to:
Peter Fiorillo Jack Hughes, Esq.
Chief Executive Officer Moskowitz Altman & Hughes LLP
eB2B Commerce, Inc. 11 East 44th Street
29 West 38th Street Suite 504
New York, New York 10018 New York, New York 10017
Facsimile No.: (212) 868-0910 Facsimile No.: (212) 697-2992
</TABLE>
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
8.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of New York without giving effect
to any choice
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or conflict of law provision or rule (whether of the State of New York or any
other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York.
8.10 Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Parties. No waiver by any Party of any default, misrepresentation, or breach of
warranty or covenant hereunder, whether intentional or not, shall be deemed to
extend to any prior or subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.
8.11 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
8.12 Expenses. Each Party will be responsible for its own Transaction
Costs incurred in connection with this Agreement and the transactions
contemplated hereby, except (i) as agreed by eB2B under Section 7.2 hereof;
(iii) as may be set forth in the Schwartz Agreement and (iii) that the
shareholders of the Company shall not be responsible for accountants' fees
incurred in connection with the Transaction, except to the extent that such fees
result from services performed on behalf of any such shareholder individually.
8.13 Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance.
8.14 Incorporation of Exhibits and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
8.15 Specific Performance. Each of the Parties acknowledges and agrees
that the other Party would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Party shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter (subject to the provisions set forth in Section 8.16
below), in addition to any other remedy to which it may be entitled, at law or
in equity.
8.16 Alternate Dispute Resolution
8.16.1 The Parties shall attempt in good faith to resolve any
dispute arising out of or relating to this Agreement promptly by negotiations
among each Party's representatives. Any Party may give the other Party written
notice of any dispute not resolved in the normal course of business. Within
fifteen (15) days after giving notice, the receiving Party shall submit to the
other a written response. The notice and the response shall include: (a) a
statement of
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<PAGE>
each party's position and a summary of arguments supporting that position; and
(b) the name and title of the representative of that party and of any other
person who will accompany the representative. Within thirty (30) days after
delivery of the disputing Party's notice, the representatives of both parties
shall meet at a mutually acceptable time and place, and thereafter as often as
they reasonably deem necessary, to attempt to resolve the dispute. All
reasonable requests for information made by one Party to the other Party will be
honored. All negotiations pursuant to this clause are confidential and shall be
treated as compromise and settlement negotiations for purposes of the Federal
Rules of Evidence and state rules of evidence.
8.16.2 If the dispute has not been resolved within ninety (90)
days of the disputing Party's notice or if the Parties fail to meet within
thirty (30) days, then either Party may immediately initiate arbitration of the
controversy or claim as provided in Section 8.16.3. If any notice by either
Party to arbitrate specifies binding arbitration, and the other Party declines
to submit to binding arbitration, the notifying Party shall be free to proceed
with civil litigation.
8.16.3 Arbitration, if initiated, shall be in accordance with
the then current Rules of the American Arbitration Association. Such arbitration
shall be conducted by three independent and impartial arbitrators reasonably
acceptable to each Party. The arbitration shall be governed by the United States
Arbitration Act, 9 U.S.C. ss.1-16 and, if binding, judgment upon the award
rendered by the arbitrator(s) may be entered by any court having jurisdiction
thereof. The place of arbitration shall be New York, New York. The arbitrators
are not empowered to award damages in excess of compensatory damages and each
Party hereby irrevocably waives any right to recover such noncompensatory
damages with respect to any dispute resolved by arbitration.
8.16.4 In the event of binding arbitration, any claim by
either Party shall be time-barred unless the asserting Party commences an
arbitration proceeding with respect to such claim within one (1) year after the
basis for such claim became known to the asserting party.
8.16.5 In the event of binding arbitration, the procedures
specified in this Section 9.16 shall be the sole and exclusive procedures for
the resolution of disputes between the Parties arising out of or relating to
this Agreement; provided, however, that a Party, without prejudice to the above
procedures, may file a complaint to seek a preliminary injunction or other
provisional judicial relief, if in its sole judgment reasonably exercised such
action is necessary to avoid irreparable damage or to preserve the status quo.
Despite action pursuant to this Section, the Parties will continue to
participate in good faith in the procedures specified in this Section 8.16.
8.16.6 All applicable statutes of limitation and defenses
based upon the passage of time shall be tolled while the procedures specified in
this Section 8.16 are pending. The Parties will take such action, if any,
required to effectuate such tolling.
THE REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement and
Plan of Merger on the date first above written.
eB2B COMMERCE, INC.
By: /s/ Victor Cisario
------------------------
Name: Victor Cisario
Title: Chief Financial Officer
NETLAN MERGER CORPORATION
By: /s/ Victor Cisario
-------------------------
Name: Victor Cisario
Title: Chief Financial Officer
NETLAN ENTERPRISES, INC.
By: /s/ Alfred L. Blitzer
---------------------------
Name: Alfred L. Blitzer
Title: Chief Executive Officer
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Appendix D
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
DYNAMICWEB ENTERPRISES, INC.
Pursuant to the provisions of N.J.S.A. 14A:9-5, the undersigned
corporation, for the purpose of amending and restating its Certificate of
Incorporation, hereby certifies as follows:
FIRST. The name of the Corporation is eB2B Commerce, Inc.
SECOND. The location and post office address of the Corporation's
registered office in this state is 208 West State Street, Trenton, New Jersey
08608-1002 and its registered agent at such address is Nationwide Information
Services, Inc.
THIRD. The purpose of the Corporation is and it shall have unlimited
power to engage in and to do any lawful act concerning any or all lawful
business for which corporations may be incorporated under provisions of the New
Jersey Business Corporation Act.
FOURTH. The term of the Corporation's existence is perpetual.
FIFTH. The aggregate number of shares of capital stock which the
Corporation shall have authority to issue is 250,000,000 shares, divided into
two classes consisting of 200,000,000 shares of Common Stock and 50,000,000
shares of preferred stock, having such par value as the board of directors shall
fix and determine, as provided in Article SIXTH below ("Preferred Stock").
SIXTH. The Preferred Stock may be issued from time to time as a class
without series or, if so determined by the board of directors of the
Corporation, either in whole or in part, in one or more series. There is hereby
expressly granted to and vested in the board of directors of the Corporation
authority to fix and determine (except as fixed and determined herein), by
resolution, the par value, voting powers, full or limited, or no voting powers,
and such designations, preferences and relative, participating, optional or
other special rights, if any, and the qualifications, limitations or
restrictions thereof, if any, of any wholly unissued series of Preferred Stock,
the number of shares constituting any such series and the terms and conditions
of the issue thereof. Prior to the issuance of any shares of Preferred Stock, a
statement setting forth a copy of each such resolution or resolutions and the
number of shares of Preferred Stock of each such class or series shall be
executed and filed in accordance with the New Jersey Business Corporation Act.
Unless otherwise provided in any such resolution or resolutions, the number of
shares of capital stock of any such class or series so set forth in such
resolution or resolutions may thereafter be increased or decreased (but not
below the number of shares then outstanding), by a statement likewise executed
and filed stating that the authorized increase or decrease therein had been
authorized and directed by a resolution or resolutions adopted by the board of
directors of the Corporation. In case the number of such shares shall be
decreased, the number of shares so specified in the statement shall resume the
status they had prior to the adoption of the first resolution or resolutions.
The Corporation has heretofore authorized the issuance of Series A 6%
Convertible Preferred Stock and Series B 6% Convertible Preferred Stock
("Existing Preferred Stock"). The Company hereby decreases the number of
authorized shares of
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the Existing Preferred Stock to zero and such all previously authorized shares
of Existing Preferred Stock hereby resume the status they had prior to their
authorization. The Corporation hereby authorizes 2,000 shares of Series A
Preferred Stock having the terms set forth in Exhibit A and 4,000,000 shares of
Series B Preferred Stock having the terms set forth in Exhibit B.
SEVENTH. The management, control and government of the Corporation
shall be vested in a board of directors consisting of not less than five (5) nor
more than twenty-five (25) members in number, as fixed by the board of directors
of the Corporation from time to time.
EIGHTH. No holder of any class of capital stock of the Corporation
shall have preemptive rights, and the Corporation shall have the right to issue
and to sell to any person or persons any shares of its capital stock or any
option, warrant or right to acquire capital stock, or any securities having
conversion or option rights without first offering such shares, rights or
securities to any holder of any class of capital stock of the Corporation.
NINTH. No action required to be taken or which may be taken at any
annual or special meeting of shareholders of the Corporation may be taken
without a meeting, and the power of the shareholders of the Corporation to
consent in writing to action without a meeting is specifically denied. The
presence, in person, by proxy or by other means approved by the board of
directors of the Corporation, of shareholders entitled to cast at least a
majority of the votes which all shareholders are entitled to cast shall
constitute a quorum of shareholders at any annual or special meeting of
shareholders of the Corporation.
TENTH. The authority to make, amend, alter, change or repeal the
By-Laws of the Corporation is hereby expressly and solely granted to and vested
in the board of directors of the Corporation, subject always to the power of the
shareholders to change such action by the affirmative vote of shareholders of
the Corporation entitled to cast at least 66-2/3 percent (66-2/3%) of the votes
which all shareholders are entitled to cast.
ELEVENTH. The Corporation shall indemnify every corporate agent as
defined in, and to the fullest extent permitted by, Section 14A:3-5 of the New
Jersey Business Corporation Act, and to the fullest extent otherwise permitted
by law.
TWELFTH. To the fullest extent from time to time permitted by law, no
director or officer of the Corporation shall be personally liable to the
Corporation or to any of its shareholders, except for liabilities arising from
any breach of duty based upon an act or omission which are (i) in breach of such
director's or officer's duty of loyalty to the Corporation, (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. Neither the amendment
or repeal of this Article TWELFTH nor the adoption of any provisions of this
Amended and Restated Certificate of Incorporation inconsistent with this Article
TWELFTH, shall eliminate or reduce the protection afforded by this Article
TWELFTH to a director or officer of the Corporation with respect to any matter
which occurred, or any cause of action, suit or claim which but for this Article
TWELFTH would have accrued or arisen, prior to such amendment, repeal or
adoption.
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THIRTEENTH. The Corporation reserves the right to amend, alter, change
or repeal any provision contained in its Certificate of Incorporation in the
manner now or hereafter prescribed by statute and all rights conferred upon
shareholders and directors herein are hereby granted subject to this
reservation.
IN TESTIMONY WHEREOF, the Corporation has caused this Amended and
Restated Certificate of Incorporation to be executed by a duly authorized
officer as of the ____ day of _______________, 2000.
DYNAMICWEB ENTERPRISES, INC.
By: ____________________________
Steven L. Vanechanos, Jr.
Chief Executive Officer
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Exhibit A
SERIES A PREFERRED STOCK
The Corporation and eB2B Commerce, Inc., executed an agreement and
plan of merger, as amended, on December 1, 1999 (the "Merger Agreement").
Pursuant to the Merger Agreement, the exchange ratio is 2.66, subject to
adjustments set forth in the Merger Agreement ("Exchange Ratio").
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
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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
shares of Common Stock equal to five hundred (500) multiplied by the Exchange
Ratio applicable in the Merger Agreement, at a conversion price equal to two
($2.00) dollars per share divided by the Exchange Ratio applicable in the Merger
Agreement 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
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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
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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
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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
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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.
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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
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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
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share of the Corporation's Common Stock into which such share of Series A
Preferred Stock is then convertible.
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Exhibit B
SERIES B PREFERRED STOCK
The Corporation and eB2B Commerce, Inc., executed an agreement and plan
of merger, as amended, on December 1, 1999 (the "Merger Agreement"). Pursuant
to the Merger Agreement, the exchange ratio is 2.66, subject to adjustments
set forth in the Merger Agreement ("Exchange Ratio").
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 divided by the
Exchange Ratio, 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
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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
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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 divided by the Exchange Ratio. 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
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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
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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
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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 shares of Common Stock which
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<PAGE>
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 the contrary notwithstanding, the Corporation shall be entitled, but shall
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<PAGE>
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.
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<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
D-21
<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
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<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
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<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.
D-24
<PAGE>
AMENDED AND CONSOLIDATED
CONVERTIBLE PROMISSORY NOTE
US$2,000,000 New York, New York
February 29, 2000
FOR VALUE RECEIVED, the undersigned, DynamicWeb Enterprises, Inc. (the
"Company"), hereby promises to pay to the order of eB2B Commerce, Inc. ("eCom")
at such place as eCom may designate in writing from time to time, the principal
sum of two million United States Dollars (US$2,000,000) together with interest
and costs as herein provided.
1 Relationship. This Note is given pursuant to the terms and conditions of the
Loan Agreement, as amended, dated November 12, 1999 between the Company and eCom
(the "Loan Agreement"). ECom made a series of loans between November 12, 1999
and December 29, 1999 to the Company. Pursuant to the Loan Agreement, the
Company issued a promissory note for each of the First Loan and Second Loan to
eCom representing an aggregate of $500,000; however a promissory note was not
issued by the Company representing the Third Loan made by eCom to the Company,
dated December 29, 1999. The promissory notes issued for the First Loan and
Second Loan shall be surrendered and cancelled and this Note shall be issued
representing the total Interim Loan. Capitalized terms not otherwise defined
herein shall have the meaning given to them in the Loan Agreement. The terms of
the Loan Agreement are by this reference incorporated in this Note.
2 Interest. The outstanding principal balance of the Loan shall bear interest at
the rate of eight percent (8%) per annum. All computations of interest shall be
based on a 360-day year for the actual number of days passed. In the event this
Note is not repaid on the Maturity Date, the rate of interest applicable to the
unpaid principal amount of this Note shall be adjusted to 13% per annum from the
date of default until repayment; provided, that in no event shall the interest
rate exceed the Maximum Rate as provided for in the Loan Agreement.
3 Term/Note Maturity Date. This Note will have a term maturing on the six month
anniversary of the date of the Letter Agreement ("Maturity Date"), except that,
in the event the Transaction does not close as a result of eCom choosing not to
proceed to close the Transaction, for any reason, the new Maturity Date will
become the first anniversary of the date of the Letter Agreement.
4 Conversion. In the event this Note is not repaid within 30 days of the
Maturity Date, this Note, together with interest, will be convertible, at the
discretion of eCom, into a number of shares of the Company's common stock
determined by multiplying such amount by a fraction, the numerator of which is
this Note amount plus accrued interest, and the denominator of which is $.25. In
the event of conversion, eCom shall exercise such right in accordance with the
provisions of the Loan Agreement.
5 Payments of Principal and Interest. The Company shall pay all principal and
accrued interest on the Maturity Date.
6 Prepayment. The Company may prepay all or any portion of the amount due under
this Note at any time without premium or penalty.
7 Events of Default; Acceleration. Upon occurrence of an Event of Default (as
defined in the Loan Agreement), and the Event of Default remains as such for a
period of ten (10) days after written notice thereof shall have been given to
the Company by eCom, eCom may elect, at
<PAGE>
its sole discretion, to pursue one of the following remedies: (i) pursue its
remedies under Section 6.2 or 6.3 of the Loan Agreement, (ii) exercise its right
to convert all or a portion of the outstanding principal and accrued and unpaid
interest on the Interim Loan, as provided in Section 1 of the Loan Agreement or
(iii) direct the escrow agent to deliver all or portion of the Escrow Shares to
eCom, in accordance with the terms of the Escrow Agreement.
8 Liability and Waiver. The Company hereby waives diligence, presentment,
demand, protest and notice of any kind whatsoever. The non-exercise by eCom of
its rights hereunder in any particular instance shall not constitute a waiver
thereof in that or any subsequent instance.
9 Costs of Collection. The Company promises to pay: (i) all costs and expenses
incurred by eCom, including without limitation reasonable attorneys' fees, in
the event that eCom consults an attorney regarding a default by the Company,
even though suit is not instituted; (ii) reasonable attorneys' fees, and all
other reasonable costs, expenses and fees incurred by eCom, including costs on
appeal, in the event that suit is instituted on this Note; (iii) all reasonable
costs and expenses provided for in the Loan Agreement and/or incurred by or on
behalf of eCom in connection with collecting or otherwise enforcing any right of
eCom under this Note and the Loan Agreement; and (iv) all reasonable costs and
expenses, including, without limitation, reasonable attorneys' fees, incurred by
eCom in connection with any bankruptcy, forfeiture, insolvency or reorganization
proceeding or receivership in which the Company is involved, including, without
limitation, those incurred in making any appearances in any such proceeding or
in seeking relief from any stay or injunction issued in or arising out of any
such proceeding.
10 Governing Law. This Note shall be governed by and construed in accordance
with the laws of the State of New York. Sections 5-1401 and 5-1402 of the
General Obligations Law of the State of New York shall apply to this Note and
the Company hereby waives any right to stay or dismiss on the basis of forum non
conveniens any action or proceeding brought before the courts of the State of
New York sitting in New York County or of the United States of America for the
Southern District of New York and hereby submits to the jurisdiction of such
courts.
DynamicWeb Enterprises, Inc.
By: /s/ Steven L. Vanechanos, Jr.
-------------------------------
Steven L. Vanechanos, Jr.
Chief Executive Officer
<PAGE>
Exhibit 5.1
BROWN RAYSMAN MILLSTEIN FELDER & STEINER LLP
55 Madison Avenue, 4th Floor Morristown, New Jersey 07960
Telephone: (973) 285-3222 Facsimile: (973) 538-0503
March 16, 2000
DynamicWeb Enterprises, Inc.
271 Route 46 West, Building F, Suite 209
Fairfield, NJ 07004
Attn: Steven Vanechanos, Jr.
Gentlemen:
We refer to the Registration Statement on Form S-4 (Registration No.
333-95283), as amended (the "Registration Statement"), under the Securities Act
of 1933, as amended (the "Securities Act"), filed by DynamicWeb Enterprises,
Inc., a New Jersey corporation (the "Company"), with the Securities and Exchange
Commission (the "Commission"). The Registration Statement relates to the
issuance of up to 38,604,647 shares (the "Shares") of common stock, par value
$0.0001 per share, or common stock equivalents of the Company.
In that connection, we have examined and relied upon originals or copies,
certified or otherwise identified to our satisfaction, of such documents,
corporate records, certificates and instruments relating to the Company as we
have deemed relevant and necessary to the formation of the opinions hereinafter
set forth. In such examination, we have assumed the genuineness and authenticity
of all documents examined by us and all signatures thereon, the legal capacity
of all persons executing such documents, the conformity to originals of all
copies of documents submitted to us and the truth and correctness of any
representations and warranties contained therein.
Based upon and subject to the foregoing, we are of the opinion that the
Shares are duly authorized, and, upon issuance, delivery and exchange, for the
consideration specified in the Registration Statement, will be legally issued,
fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Registration Statement. In giving this consent, we do not admit
that we are within the category of persons whose consent is required under
Section 7 of the Securities Act or the General Rules and Regulations of the
Commission.
Very truly yours,
BROWN RAYSMAN MILLSTEIN
FELDER & STEINER LLP
<PAGE>
EMPLOYMENT AGREEMENT (the "Agreement"), effective as of January 3, 2000
(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 Victor Cisario residing at 479 Rose Lane, Rockville Centre, New
York, ("Cisario"). The Company and Cisario 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; and
WHEREAS, the Company desires to obtain the services of Cisario as Chief
Financial Officer, Treasurer and Secretary, and Cisario is willing to render
such services to the Company upon the terms and conditions herein set forth.
NOW, THEREFORE, in consideration of the mutual covenants herein set
forth, the Parties do hereby agree as follows:
1 Employment. The Company hereby employs Cisario and Cisario accepts this
employment and agrees to render services to the Company on the terms and
conditions set forth in this Agreement. Cisario shall serve in the capacity of
Chief Financial Officer, Treasurer 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, Cisario will devote his best
efforts, including his full-time attention, during reasonable business hours, to
the affairs and business of the Company. Cisario 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
(1) 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 Cisario for his
services during the term of this Agreement at a base salary of one hundred fifty
thousand ($150,000) dollars 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 Cisario in accordance with the Company's standard payroll policy for
similarly situated employees of the Company.
3.2 Bonus. Cisario 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, Cisario 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, the Company will pay Cisario a bonus of no less than
fifty thousand ($50,000) dollars, payable by March 15th of the following year.
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3.3 Stock Options. Cisario shall be entitled to receive one hundred
thousand (100,000) options to acquire shares of the Common Stock of the Company
pursuant to the terms of the Company's existing Stock Option Plan ("Options"),
subject to the following terms:
3.3.1 The Options will vest as follows: (i) thirty-three and
one-third (33 1/3%) percent will vest immediately upon the Effective Date, and
(ii) sixty-six and two-thirds (66 2/3%) percent will vest ratably at the end of
each quarter that Cisario is employed by the Company over a two (2) year period,
commencing upon the Effective Date.
3.3.2 The exercise price for the Options shall be at five dollars
and fifty ($5.50) cents per share, as appropriately adjusted for stock splits,
stock dividends, and the like.
3.3.3 The vested Options shall be exercisable until the earlier of
ten (10) years after vesting or within ninety (90) days after termination of
Cisario`s employment with the Company, except as otherwise set forth elsewhere
in this Agreement.
3.3.4 Issuance of the Options shall be in accordance with all
applicable securities laws and the other terms and conditions of the Company's
Stock Option Plan and the Stock Option Agreement form.
3.4 Deferred Compensation.
3.4.1 Amount. Deferred Compensation shall be the amount which is
calculated as an amount equal to the greater of (i) one hundred fifty (150%)
percent of the annual compensation earned by Cisario in the prior year
(including both Base Salary and Bonus Compensation), or (ii) the base salary
and minimum bonus payment in effect at such time. In addition to the Deferred
Compensation, Cisario shall be entitled to all of the benefits and personal
perquisites otherwise provided in this Agreement during the one (1) year
period 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 Cisario subsequent to the
date of termination.
3.4.2 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
Cisario, the initial Deferred Compensation payments shall be made within fifteen
(15) days after the personal representative of Cisario's estate notifies the
Company that Letters Testamentary have been issued to the estate appointing an
authorized representative of the estate.
3.4.3 Withholding. All compensation paid to Cisario 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 reimburse Cisario for
any Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") payments,
as and when due. Upon Cisario losing coverage under COBRA, the Company shall
provide Cisario with health insurance coverage during the remaining term of this
Agreement, similar to such coverage provided to other employees. In addition,
the Company shall provide Cisario with 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.
Cisario shall be entitled to four (4) weeks paid vacation during each year of
this
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Agreement.
4.2 Car Allowance. The Company will pay to Cisario a car allowance of
seven hundred ($700) dollars per month.
4.3 Life Insurance. The Company shall have the right, at its own
expense and for its own benefit, to purchase insurance on Cisario's life for the
benefit of the Company, and Cisario shall cooperate by providing necessary
information, submitting to required medical examinations, and otherwise
complying with the insurance carrier's requirements.
4.4 Country Club. The Company shall reimburse Cisario for any initial
membership fees and dues and expenses, incurred by Cisario during the term of
this Agreement, for a family membership in a country club, chosen by Cisario and
approved by the Company.
5 Expenses. The Company shall reimburse Cisario or otherwise provide for or pay
for all reasonable expenses incurred by Cisario 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 Cisario in accordance with
the Company's travel policy, as established by the Board; and (ii) all
reasonable expenses in connection with Cisario's attendance at trade and
professional conferences, which are in furtherance of the business of the
Company. Cisario 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 Cisario. The Parties agree that Cisario 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, Cisario 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
Cisario the Deferred Compensation.
6.2 Termination by the Company for Convenience. The Parties agree that
the Board has the right to terminate Cisario's employment for convenience during
the term of this Agreement upon notice to Cisario. In such event, the Company
will pay Cisario the Deferred Compensation. The date of termination will be the
date specified in a notice from the Board, and Cisario will cease to have any
power of his office as of such date. A termination of this Agreement by the
Company in accordance with Section 2 shall be deemed a termination by the
Company for Convenience.
6.3 Termination by the Company for Cause. The Parties agree that the
Board has the right to terminate Cisario'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 Cisario's part willfully intended to or likely to
injure the Company's business or reputation;
6.3.2 Actions by Cisario intentionally furnishing materially false,
misleading, or omissive information to the Board;
6.3.3 Cisario is convicted of any felony or other serious offense;
6.3.4 Abusive use of drugs or alcohol by Cisario;
6.3.5 Any fraud, embezzlement or misappropriation by Cisario of the
"assets"
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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 Cisario to perform
duties and obligations as set forth in this Agreement, resulting in substantial
damage to the Company, as hereinafter defined in Section 6.7 hereof, but not
encompassing illness, physical or mental incapacity.
In the event that Cisario's employment is terminated by the Company for
Cause, the date of employment termination will be as specified in a Notice of
Termination (as defined in Section 6.7 hereof) sent to Cisario by the Company,
and Cisario will cease to have any authority to act on behalf of the Company as
of such date. The Company will pay Cisario the Base Salary and any Bonus
Compensation due him as of such date, and all benefits provided by the Company
to Cisario will cease as of such date except as otherwise required by law. In
such event, the Company will not be required to pay Cisario the Deferred
Compensation. In the event that Cisario's employment is terminated by the
Company for Cause, and a court or other tribunal determines that the termination
was for reasons other than for Cause, Cisario will be entitled to receive twice
the Deferred Compensation that would normally have been due him for a
termination by the Company pursuant to Section 6.2 hereof. Additionally, Cisario
shall be reimbursed for all legal and other expenses incurred by him related to
said termination.
6.4 Termination by the Company for Death or Disability. The Parties
agree that Cisario's employment will terminate upon Cisario's death or
Disability. The term "Disability" shall be defined as Cisario'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
Cisario's employment is terminated due to Cisario's death or Disability, the
Company will pay Cisario the Deferred Compensation.
6.5 Good Reason. Cisario may terminate his employment for Good Reason
("Good Reason") upon sixty (60) days' notice to the Company if (i) Cisario's
duties are materially diminished or altered so as to be inconsistent with
Cisario's position, authority or responsibilities as the Chief Financial Officer
of the Company; (ii) any change of Cisario's title as Chief Financial Officer;
(iii) any substantial adverse change in Cisario's position, authority or
responsibilities as the Chief Financial Officer; (iv) the material failure by
the Company to comply with the terms of this Agreement; (v) the Company requires
Cisario to be based or perform services at any location more than fifty (50)
miles from New York, NY (except normal travel requirements associated with
Cisario's position and title); (vi) Peter Fiorillo does not hold the position of
Chief Executive Officer of the Company; or (vii) Cisario's Base Salary is
materially diminished. In the event Cisario's employment relationship with the
Company is terminated for "Good Reason," the Company will pay Cisario the
Deferred Compensation. In the event that Cisario shall in good faith give a
Notice of Termination for Good Reason and it shall thereafter be determined that
Good Reason did not exist, the employment of Cisario shall, unless the Company
and Cisario shall otherwise mutually agree, be deemed to have terminated, at the
date of the giving of such purported Notice of Termination. In such event,
Cisario 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,
Cisario 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
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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 Cisario), 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 Cisario's
employment relationship with the Company is terminated for a Change of Control,
the Company will pay Cisario the Deferred Compensation.
6.7 Notice of Termination. Any termination by the Company for Cause, or
by Cisario 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 Cisario'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 Cisario's employment with the
Company is terminated pursuant to Sections 6.2, 6.4, 6.5 or 6.6 of this
Agreement, all options granted to Cisario 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, this Section shall control.
6.9 Survival of Agreement Upon Termination. In the event that Cisario'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. Cisario 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 Cisario's employment or engagement with the
Company, excepting information obtained by Cisario 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
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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
Cisario during Cisario'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 Cisario's Obligations as to Confidential Information and Materials. During
Cisario's employment by the Company, Cisario will have access to Confidential
Information and will occupy a position of trust and confidence with respect to
the Company's affairs and business. Cisario 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
Cisario's employment with the Company, Cisario 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 Cisario's duties with
the Company.
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9.2 Prevent Disclosure. Cisario will take all reasonable precautions to
prevent disclosure of the Confidential Information in accordance with the
Company's reasonable instructions to Cisario.
9.3 Return all Materials. Upon termination of Cisario's employment with
the Company, for any reason whatsoever, Cisario 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. Cisario 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 Cisario, whether alone or
with others, in the course of Cisario's employment by the Company, or (ii)
conceived or made by Cisario, whether alone or with others, in the course of
Cisario's employment, but which reach fruition within the period from the date
of termination of Cisario'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. Cisario 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. Cisario 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 Cisario.
11 Post-Employment Procedures. Cisario 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, Cisario 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. Cisario 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,
Cisario 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 Cisario. Cisario 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,
Cisario may have to preserve the confidentiality of another's proprietary
information or materials, or (ii) exercising any rights Cisario may claim to any
patent or copyright trade secrets, or other
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discoveries, inventions, ideas, know-how, techniques methods, processes or other
proprietary information or materials before performing that work, Cisario shall
inform the Company in writing of any apparent conflict between Cisario'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
Cisario agrees thereafter to make no such claim against the Company. The Company
shall hold such disclosures by Cisario in strict confidence.
14 Restrictive Covenants.
14.1 Cisario 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 Cisario 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, Cisario 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 Cisario's employment pursuant to either Section 6.1 or 6.3
hereof through the second (2nd) anniversary of such date, Cisario 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, Cisario is a passive investor in any publicly
held entity and Cisario owns three (3%) percent or less of the equity interests
therein.
14.3 Restrictive Covenants Necessary and Reasonable. Cisario 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. Cisario, recognizing that irreparable injury shall result
to the Company in the event of Cisario'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 Cisario, 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 Cisario, his executors, administrators or assigns, against any and
all judgments,
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penalties (including excise and similar taxes), fines, settlements and
reasonable expenses (including attorneys' fees) actually incurred by Cisario
(net of any related insurance proceeds or other amounts received by Cisario or
paid by or on behalf of the Company on Cisario'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 Cisario was, is or is threatened to be made
a named defendant or respondent (a "Proceeding"), because Cisario is or was an
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 Cisario by the Board in accordance with the applicable
provisions of the Delaware General Corporation Law (the "DGCL"),Cisario 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 Cisario 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 Cisario 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 Cisario has not
met the applicable standard of conduct for indemnification shall not be a
defense to the action or create a presumption that Cisario 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 Cisario under this
Agreement except as expressly provided herein, and the execution and delivery of
this Agreement by the Company and Cisario shall not in any way diminish,
restrict, limit or affect Cisario'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
Cisario shall continue to serve as an officer of the Company (or shall continue
at the request of the Company to serve as an Affiliate Executive) and,
thereafter, as long as Cisario shall be subject to any possible Proceeding by
reason of the fact that Cisario was or is an 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
Cisario 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 Cisario's acts as an officer of the
Company or as an Affiliate Executive. The Company may promptly notify Cisario 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 Cisario under this
Agreement, hold harmless and indemnify Cisario to the full extent of coverage
which would otherwise have been provided for the benefit of Cisario pursuant to
the Insurance Policies.
16.3 Cisario 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 Cisario in connection with such Proceeding or otherwise
expended or incurred by Cisario (such amounts so expended or
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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, Cisario 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 Cisario is requesting Advanced Amounts,
Cisario must also provide (i) written affirmation of such Cisario'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 Cisario 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 Cisario for an accounting of
profits made from the purchase or sale by Cisario 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 Cisario is an officer of the Company (or is
serving at the request of the Company as an Affiliate Executive) and shall
continue thereafter so long as Cisario shall be subject to any possible
Proceeding by reason of the fact that Cisario was a director or officer of the
Company or was serving as such an Affiliate Executive.
16.6 Promptly after receipt by Cisario of notice of the commencement of
any Proceeding, Cisario 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 Cisario. 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 Cisario, 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 Cisario without Cisario's prior written consent.
17 Dispute Resolution. The Company and Cisario 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
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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 Cisario
at the address as first set forth above. The Company or Cisario 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 Cisario 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.
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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: /s/ Peter J. Fiorillo By: /s/ Victor Cisario
------------------------------ -------------------------------
Peter J. Fiorillo Victor Cisario
Chief Executive Officer
Date: Date:
---------------------------- -----------------------------
<PAGE>
Employment Agreement (the "Agreement"), dated as of December 31, 1999 (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 Barry Goldstein residing at 41 Sunset Road, Demarest, NJ 07627,
("Goldstein"). The Company and Goldstein 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; and
WHEREAS, the Company desires to obtain the services of Goldstein as Chief
Information Officer, and Goldstein is willing to render such services to the
Company upon the terms and conditions herein set forth.
NOW, THEREFORE, in consideration of the mutual covenants herein set forth,
the Parties do hereby agree as follows:
1 Employment. The Company hereby employs Goldstein and Goldstein hereby
accepts employment upon the terms and conditions hereinafter set forth.
2 Term. The term of this Agreement (the "Term") shall be the period
commencing on January 3, 2000 and terminating as of the earlier of:
2.1 December 31, 2002;
2.2 the death or disability of Goldstein;
2.3 sixty (60) days after notice is given by the Company to Goldstein; or
2.4 sixty (60) days after notice is given by Goldstein to the Company.
The exercise of the Company's or Goldstein right to terminate this
Agreement pursuant to Sections 2.3 or 2.4 hereof, as the case may be,
shall not abrogate the rights and remedies of the terminating party.
3 Duties. Goldstein shall be engaged as Chief Information Officer of the
Company and, subject to the direction of the Board of Directors and the
Company's officers designated by the Board of Directors, shall perform and
discharge well and faithfully the duties which may be assigned to him from time
to time by the Company in connection with the conduct of its business. If
Goldstein is elected or appointed a director or officer of the Company or any
subsidiary thereof during the term of this Agreement, Goldstein will serve in
such capacity without further compensation.
4 Extent of Services. Goldstein shall devote his entire time, attention and
energies to the business of the Company and shall not during the Term of this
Agreement be engaged (whether or not during normal business hours) in any other
business or professional activity, whether or not such activity is pursued for
gain, profit or other pecuniary advantage; but this shall not be construed as
preventing Goldstein from (i) investing his personal assets in businesses which
do not compete with the Company in such form or manner as will not require any
services on the part of Goldstein in the operation or the affairs of the
companies in which such investments are made and in which his participation is
solely that of an investor; (ii) purchasing securities in any corporation whose
securities are regularly traded provided that such purchase shall not result in
his collectively owning beneficially at any time five (5%) percent or more of
the equity securities of any corporation engaged in a business competitive to
that of the Company; and (iii) participating in conferences, preparing or
publishing papers or books or teaching so long as the Board of Directors
approves of such activities prior to
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Goldstein's engaging in them. Prior to commencing any activity described in
clause (iii) above, Goldstein shall inform the Board of Directors of the Company
in writing of any such activity.
5 Compensation. For all services rendered under this Agreement the Company
will pay Goldstein the compensation described in this Section 5.
5.1 Base Salary. During the Term of this Agreement, the Company shall pay
Goldstein a base salary of one hundred fifty thousand ($150,000) dollars per
year (the "Base Salary"). The Company agrees that commencing in 2001 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 shall be payable to Goldstein in
accordance with the Company's standard payroll policy for similarly situated
employees of the Company.
5.2 Bonus.
5.2.1 Signing Bonus. Upon the execution of this Agreement, Goldstein
will be entitled to the sum of ten thousand ($10,000) dollars as a signing bonus
from the Company ("Signing Bonus"). The Company will pay the Signing Bonus to
Goldstein ratably over a three (3) month period, commencing upon the Effective
Date.
5.2.2 Annual Bonus. Goldstein may receive, from time to time, bonus
compensation from the Company, as directed by the Board of Directors 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,
Goldstein shall be eligible to participate in such program in a manner and
capacity commensurate with his position and duties. Notwithstanding the
foregoing, for the 2000 calendar year, the Company will pay Goldstein a bonus of
up to one hundred thousand ($100,000) dollars ("Maximum Bonus"), and no less
than fifty thousand ($50,000) dollars ("Minimum Bonus") based on the pro rata
achievement of the performance goals set by the Company, attached hereto as
Exhibit A. For each calendar year thereafter, the Company will pay Goldstein the
Minimum Bonus. The Minimum Bonus will be paid to Goldstein ratably at the end of
each calendar quarter in the current calendar year. Any bonus amount above the
Minimum Bonus will be payable by March 15th of the following calendar year.
5.3 Stock Options. Goldstein shall be entitled to a grant by the Company of
options to purchase one hundred thousand (100,000) shares of the Common Stock of
the Company pursuant to the terms of the Company's Incentive Stock Option Plan
and Incentive Stock option Agreement ("Options"). The options will be
exercisable at a price of $5.50 per share, and will vest as follows: (i)
thirty-three and one-third (33 1/3%) percent upon the date of this Agreement,
and (ii) sixty-six and two-thirds (66 2/3%) percent ratably at the end of each
quarter Goldstein is employed by the Company over a two (2) year period
commencing upon the Effective Date, all subject to the terms of the Incentive
Stock Option Agreement. The Incentive Stock Option Agreement evidencing the
grant of the Options will be provided separately.
6 Benefits.
6.1 Health Insurance; Vacation. The Company shall provide Goldstein with
health 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. Goldstein shall be
entitled to four (4) weeks paid vacation during each year of this Agreement.
6.2 Car Allowance. The Company will pay to Goldstein a car allowance of
four hundred ($400) dollars per month.
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6.3 Life Insurance. The Company shall have the right at its own expense and
for its own benefit to purchase insurance on Goldstein's life, and Goldstein
shall cooperate by providing necessary information, submitting to required
medical examinations, and otherwise complying with the insurance carrier's
requirements.
7 Expenses. Goldstein shall be entitled to reimbursement of all reasonable
expenses incurred by him in the performance of or in furtherance of his duties,
subject to the presenting of appropriate vouchers in accordance with the
Company's policy.
8 Confidential Information. Goldstein 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 Goldstein's employment or engagement with the
Company, excepting information obtained by Goldstein from general or public
sources, are proprietary to the Company and are highly confidential in nature
(the "Confidential Information"):
8.1 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.
8.2 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.
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8.3 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").
8.4 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.
9 General Skills and Knowledge. The general skills and experience gained by
Goldstein during Goldstein'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.
10 Goldstein's Obligations as to Confidential Information and Materials.
During Goldstein's employment by the Company, Goldstein will have access to
Confidential Information and will occupy a position of trust and confidence with
respect to the Company's affairs and business. Goldstein agrees to take the
following steps to preserve the confidential and proprietary nature of the
Confidential Information:
10.1 Non-Disclosure. During and for a period of three (3) years after
Goldstein's employment with the Company, Goldstein 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 Goldstein's duties with
the Company.
10.2 Prevent Disclosure. Goldstein will take all reasonable precautions to
prevent disclosure of the Confidential Information in accordance with the
Company's reasonable instructions to Goldstein.
10.3 Return all Materials. Upon termination of Goldstein's employment with
the Company, for any reason whatsoever, Goldstein 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.
11 Ideas and Inventions. Goldstein 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 Goldstein, whether alone
or with others, in the course of Goldstein's employment by the Company, or (ii)
conceived or made by Goldstein, whether alone or with others, in the course of
Goldstein's employment, but which reach fruition within the period from the date
of termination of Goldstein'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. Goldstein 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. Goldstein 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 Goldstein.
12 Post-Employment Procedures. Goldstein 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
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which, among other things, Goldstein 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.
13 Copyrights. Goldstein 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,
Goldstein 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 Goldstein. Goldstein 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.
14 Conflicting Obligations and Rights. Before (i) performing any obligations,
Goldstein may have to preserve the confidentiality of another's proprietary
information or materials, or (ii) exercising any rights Goldstein may claim to
any patent or copyright trade secrets, or other discoveries, inventions, ideas,
know-how, techniques methods, processes or other proprietary information or
materials before performing that work, Goldstein shall inform the Company in
writing of any apparent conflict between Goldstein'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 Goldstein agrees
thereafter to make no such claim against the Company. The Company shall hold
such disclosures by Goldstein in strict confidence.
15 Restrictive Covenants.
15.1 Goldstein 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 Goldstein becoming familiar with the
business affairs of the Company and any present or future parent, subsidiary
and/or affiliate.
15.2 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, Goldstein agrees that during the Term of this Agreement and for the
period from the date of termination of Goldstein's employment through the second
(2nd) anniversary of such date, Goldstein 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." In addition, Goldstein shall not, for
his account or any other account, solicit or cause an employee of the Company
to leave his or her employment relationship with the Company. Notwithstanding
the foregoing, it shall not be a breach of the provisions of this Section 15
if, after the term of this Agreement, Goldstein is a passive investor in any
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publicly held entity and Goldstein owns three (3%) percent or less of the equity
interests therein.
15.3 Restrictive Covenants Necessary and Reasonable. Goldstein agrees that
the provisions of this Section 15 are necessary and reasonable to protect the
Company in the conduct of its business. If any restriction contained in this
Section 15 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.
16 Injunctive Relief. Goldstein, recognizing that irreparable injury shall
result to the Company in the event of Goldstein'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 Goldstein, 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.
17 Miscellaneous.
17.1 Notices. Any notices required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by registered mail to the
Party to be notified, at the address of the Company at its principal office, as
first set forth above, or to Goldstein at the address as first set forth above.
17.2 Amendment. This Agreement may not be modified, changed, amended, or
altered except in writing signed by Goldstein or his duly authorized
representative, and by a duly authorized officer of the Company.
17.3 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.
17.4 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.
17.5 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.
17.6 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.
17.7 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.
17.8 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.
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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the day
and year set forth below.
eB2B Commerce, Inc.
By: /s/ Peter J. Fiorillo /s/ Barry Goldstein
----------------------------- --------------------------
Peter J. Fiorillo Barry Goldstein
Chief Executive Officer
Date: 12/15/99 Date: 12/15/99
--------------------------- --------------------------
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EXHIBIT A
Performance Based Goals
<TABLE>
<CAPTION>
Quarter Quarter Quarter Quarter
Ending Ending Ending Ending
3/31/00 6/30/00 9/30/00 12/31/00
------- ------- ------- --------
<S> <C> <C> <C> <C>
Retailers signed on 4,000 5,000 6,000 7,000
Manufacturers signed on 25 40 65 90
Transactions Processed 1,000/wk 10,000/wk 25,000/wk 40,000/wk
</TABLE>
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DYNAMICWEB ENTERPRISES, INC.
EXECUTIVE PERFORMANCE AGREEMENT
This EXECUTIVE PERFORMANCE AGREEMENT (the "Agreement") made effective as of
February 29, 2000 (the "Effective Date") by and between DynamicWeb Enterprises,
Inc., a New Jersey corporation (the "Company"), and Steven L. Vanechanos, Jr.
(the "Executive").
WHEREAS, the Executive is the Chief Executive Officer of the Company; and
WHEREAS, the Company desires to provide additional incentives to the
Executive for overseeing and managing the successful integration of the Company
and eB2B Commerce, Inc. ("eCom"), in connection with the Merger (as defined
below).
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth and for good and valuable consideration, the parties hereto agree as
follows:
1 Acknowledgements. The Parties acknowledge that the Company is planning to
merge with eCom during the second calendar quarter of 2000 (the "Merger"),
pursuant to an Agreement and Plan of Merger, dated December 1, 1999, as amended
("Merger Agreement"). ECom has retained a management consulting firm, McKinsey &
Company, to provide advice to eCom and the Company regarding the integration of
the two companies and their respective businesses in connection with the Merger
(the "Integration Project").
2 Award. Pursuant to the terms of this Agreement, and in consideration of
the Additional Obligations (as defined below), the Company shall award the
Executive: (a) the sum of seventy-five ($75,000) dollars and (b) options to
purchase fifty thousand (50,000) shares of the Company's Common Stock, par value
$.001 ("Options"), for performing certain Additional Obligations ("Award"). For
purposes of this Agreement, "Shares" shall mean the Common Stock of the Company
issuable upon exercise of the Options.
3 Additional Obligations of the Executive. The Executive, in addition to
the services, functions and duties he regularly performs in his capacity as
Chief Executive Officer of the Company, will oversee and manage the
implementation of the Integration Project, as recommended by McKinsey & Company,
by cooperating in good faith with McKinsey & Company and, to the best of his
ability, by complying with each and every final written recommendation of
McKinsey & Company; provided, however, that the Executive will not be required
to comply with a recommendation if compliance with such recommendation would
violate or breach any fiduciary duty or obligation he owes to the Company;
provided that Executive receives a written opinion from his counsel to such
effect and provides it to McKinsey & Company (the "Additional Obligations").
Upon the implementation of any final written recommendation, McKinsey & Company
shall certify that there has been compliance with such recommendation. If, in
the good faith judgment of McKinsey & Company, the Executive has failed at any
time to cooperate in good faith or to comply with a final written
recommendation, it or Victor Cisario, Chief Financial Officer of eCom, shall
provide the Executive with written notice and a seven (7) day period in which to
cure such violation.
4 Grant of Award. The Executive shall have the right to receive the Award
at the closing of the Merger, unless prior to such closing Executive has
received written notice that the Board of Directors of the surviving corporation
(the "Board") has determined, in good faith, that the Executive has failed to
fulfill the Additional Obligations despite having received written notice and an
opportunity to cure as set forth in Paragraph 3 above. Before determining that
the Executive has failed to fulfill the Additional Obligations, the Board shall
have consulted with Victor Cisario, Chief Financial Officer of eCom, and an
appropriate representative of McKinsey
1
<PAGE>
& Company, as well as solicited and reviewed any other relevant information
necessary to render a good faith determination.
5 Administration. On or prior to the first date following the Merger on
which the Company pays its payroll obligations, the Company will issue an option
agreement, as described below, and a check or wire transfer, in accordance with
directions from the Executive, pursuant to this Agreement.
6 Options.
6.1 Exercise Price. The exercise price of the Shares covered by the Options
shall be the closing bid price of the Shares on the date of the closing of the
Merger ("Purchase Price"). The Company does not make any representation or
warranty to the Executive regarding the Federal or State income tax consequences
or effects of the Options. The Options will be issued in accordance with the
Company's stock option plan for employees then in effect. To the extent that the
stock option plan does not provide for customary cash less exercise rights or
adjustments to the exercise price of options upon a reorganization, stock split
or similar event, the Company will grant such rights to the Executive in a
separate agreement negotiated in good faith by the parties. If the shares
issuable under such plan are not registered, the Company hereby acknowledges its
intention to file a registration statement on SEC Form S-8 with respect to the
Shares, in the manner at the times deemed by the Company to be in the best
interest of the Company and its employees and option holders, and the Shares
shall be included in such registration statement.
6.2 Vesting of Options. The Options awarded under this Agreement shall be
fully exercisable as of the date awarded. The Options shall expire on the date
which is ten (10) years from the date of grant.
6.3 Agreement. An option agreement will be issued to evidence the Options
granted hereunder. The option agreement will contain such provisions and terms
as agreed upon by the parties, including cashless exercise, and consistent with
the terms hereunder.
7 Taxes. The Executive 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 Executive 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 Options or the 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 the
Executive.
8 Restrictions on Transfer. The Executive agrees that the Options and the
underlying Shares acquired pursuant to this Agreement, shall be subject to the
Lock-up Agreement between the Executive and the Company, dated February 28, 2000
(the "Lock-up Agreement"), and that the Shares may only be transferred, sold or
otherwise disposed in accordance with the terms of the Lock-up Agreement.
9 Legends on Share Certificates. The certificates representing the Shares
or Options, as the case may be, will contain such legends as may be consistent
with the Lock-up Agreement and/or other relevant agreements entered into between
the Executive and the Company which relate to restrictions on the transfer of
the Shares or Options.
10 Nontransferability. Each Option granted under this Agreement is
nontransferable by the Executive other than by will or the laws of descent and
distribution, and is exercisable only in accordance with the provisions of this
Agreement and the option agreement.
2
<PAGE>
11 Arbitration.
11.1 The Parties shall attempt in good faith to resolve any dispute arising
out of or relating to this Agreement promptly by negotiations among each Party's
representatives. Either Party may give the other Party written notice of any
dispute not resolved in the normal course of business. Within fifteen (15) days
after such notice is given, the Parties will meet in order to resolve in good
faith the dispute.
11.2 If the dispute has not been resolved within ninety (90) days of the
disputing Party's notice or if the Parties fail to meet within fifteen (15)
days, then either Party may immediately initiate binding arbitration of the
controversy or claim as provided in this Section 17.
11.3 Arbitration, if initiated, shall be conducted in accordance with the
then current Rules of the American Arbitration Association by three (3)
independent and impartial arbitrators, of whom each Party shall appoint one (1)
and the two (2) selected arbitrators shall select the third arbitrator. The
arbitration shall be governed by the United States Arbitration Act, 9 U.S.C.
ss.1-16 and judgment upon the award rendered by the arbitrator(s) may be entered
by any court having jurisdiction thereof. The place of arbitration shall be New
York, New York.
11.4 The procedures specified in Section 11 shall be the sole and exclusive
procedures for the resolution of disputes between the Parties arising out of or
relating to this Agreement; provided, however, that a Party, without prejudice
to the above procedures, may file a complaint to seek a preliminary injunction
or other provisional judicial relief, if in its sole judgment reasonably
exercised such action is necessary to avoid irreparable damage or to preserve
the status quo.
11.5 All applicable statutes of limitation and defenses based upon the
passage of time shall be tolled while the procedures specified in Section 11 are
pending. The Parties will take such action, if any, required to effectuate such
tolling.
11.6 Each Party is required to continue to perform its obligations
(including the payment of fees or royalties which are not the subject of a
dispute) under this Agreement pending final resolution of any dispute arising
out of or relating to this Agreement.
12 Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of New York.
13 Entire Agreement. This Agreement together with the option agreement and
the Lock-up Agreement constitutes the agreement of the Parties hereto respecting
the subject matter hereof, and any conflict between this Agreement together with
the option agreement and the Lock-up Agreement will be resolved in favor of the
Lock-up Agreement.
14 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.
THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK
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IN WITNESS WHEREOF, the undersigned have duly executed this Agreement
effective as of the date set forth above.
DynamicWeb Enterprises, Inc.
By: /s/ Steven L. Vanechanos, Jr. By: /s/ Steven L. Vanechanos, Jr.
------------------------------ ------------------------------
Steven L. Vanechanos, Jr. Steven L. Vanechanos, Jr.
Chief Executive Officer
Date: February 29, 2000 Date: February 29, 2000
---------------------------- ----------------------------
4
<PAGE>
CONSULTING AGREEMENT (the "Agreement"), dated as of February 29, 2000,
between DYNAMICWEB ENTERPRISES, INC., a New Jersey corporation with principal
offices at 271 Route 46 West, Building F, Suite 209, Fairfield, New Jersey 07004
(the "Company"), and STEVEN L. VANECHANOS, JR. with an address at 92 Claken
Drive, West Orange, NJ 07052 ("Consultant").
WHEREAS, the Consultant has served as the Chief Executive Officer of the
Company and has extensive experience in the field of business-to-business
electronic commerce;
WHEREAS, the Company has entered into an Agreement and Plan of Merger dated
December 1, 1999 with eB2B Commerce, Inc., as amended (the "Merger Agreement");
WHEREAS, in connection with the merger ("Merger") contemplated by the
Merger Agreement, the Consultant will resign as an officer, director and
employee of the Company; and
WHEREAS, due to the Consultant's expertise in the field of business-to-
business electronic commerce, the Company desires to retain the Consultant as a
consultant to the Company after the Merger, on the terms set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants herein set forth,
the Company and Consultant do hereby agree as follows:
1 Engagement. Effective immediately upon the consummation of the Merger
(the "Effective Time"), the Employment Agreement, dated as of March 1, 1998,
among the Company and the Consultant shall terminate and the Company hereby
agrees to engage the Consultant to serve as a business consultant, and the
Consultant hereby agrees to render business consulting services, to the Company
on the terms and conditions set forth in this Agreement. The services to be
rendered by the Consultant under this Agreement shall consist of providing
advice and consultation with respect to the Company's business operations and
with respect to the business-to-business electronic commerce industry generally,
to the extent requested by the Company. Such services shall be provided by the
Consultant at his discretion and at such times and places and in such manner as
may be convenient to the Consultant.
2 Term. The term of engagement under this Agreement shall commence at the
Effective Time, and shall continue for a term of eighteen (18) months, unless
terminated earlier pursuant to Section 6 of this Agreement.
3 Compensation. In consideration of the performance of the Consultant's
services hereunder and the Consultant's observation of the other terms,
conditions and covenants set forth herein, the Consultant shall receive a
monthly fee of $12,500, payable within ten (10) days after the end of each such
month during the term of engagement hereunder. Such fee shall be paid by wire
transfer if the Company regularly pays other vendors by means of wire transfers.
4 Company Vehicle. Until December 31, 2001, the Company shall provide to
the Consultant the use of the Jeep Cherokee currently leased by the Company for
use by the Consultant and the Company shall maintain the current levels of
insurance coverage on such vehicle. The Consultant will be responsible for the
maintenance, repair, fuel and all other costs relating to such vehicle,
including any material increase in the cost of insurance during such period. The
Consultant hereby agrees to indemnify and hold harmless the Company from any
<PAGE>
damages or claims (including any third party claims) incurred by the Company
relating to such vehicle.
5 Expense Reimbursement. The Company shall reimburse Consultant or
otherwise provide for or pay for all reasonable and necessary expenses incurred
by Consultant at the request of the Company and in connection with the
performance of Consultant's duties and responsibilities hereunder, in accordance
with the Company's standard policies and procedures. Consultant agrees that he
will furnish to the Company adequate records and other documents for the
substantiation of each such expense.
6 Termination.
6.1 Termination by Consultant for Convenience. The Consultant has the right
to terminate his engagement hereunder for any reason at any time during the term
of this Agreement. In such event, all of the Company's obligations under this
Agreement will terminate immediately upon the date of such termination.
6.2 Termination by Consultant for Good Reason. The Consultant has the right
to terminate this Agreement for Good Reason at any time during the term of this
Agreement. In such event, all of Consultant's obligations under this Agreement
(other than those set forth in Section 7 and 10(A) hereof) will terminate
immediately upon the date of such termination, including without limitation,
those set forth in Sections 8 and 9. For the purposes of this Agreement, "Good
Reason" shall mean a material breach by the Company of this Agreement, the
Lock-Up Agreement dated February 29, 2000 between the Consultant and the
Company, the Indemnification Agreement dated February 29, 2000 between the
Consultant and the Company or the Executive Performance Bonus Agreement dated
February 29, 2000 between the Consultant and the Company; which is not cured, in
the case of a breach of any obligation to make any payment to the Consultant,
within 14 days after the Company's receipt of notice thereof, and, in the case
of a breach of any other obligation, within 30 days after the Company's receipt
of notice thereof.
6.3 Termination by the Company for Cause. The Company has the right to
terminate Consultant's engagement hereunder for "Cause." For the purposes of
this Agreement, "Cause" shall include: (i) conduct by Consultant willfully
intended to or likely to materially injure the Company's business or reputation;
(ii) fraud, embezzlement or misappropriation by Consultant of the assets of the
Company (and, as used in this Section 6.3, "assets" shall include, but not be
limited to Confidential Information (defined below)) and (iii) a material breach
by Consultant of any of the Consultant's covenants hereunder; provided, however,
that before such termination may occur, the Company shall have provided
Consultant with written notice and, if curable, a seven day opportunity to cure,
and shall have conducted a good faith investigation that includes a reasonable
opportunity for Consultant to present relevant information and evidence and,
following such investigation, the Board of Directors of the Company shall have
determined in good faith that Cause exists to terminate the Consultant's
engagement.
7 Confidentiality Agreement. As used herein, "Confidential Information"
shall mean all information concerning the Company (and each of its affiliates
and subsidiaries) (collectively, the "Company Group") and its past, present and
prospective customers, which is not generally known to the public.
7.1 Non-Disclosure. Consultant will not use, disclose or otherwise permit
any person or entity access to any Confidential Information other than as
required in the performance of
<PAGE>
Consultant's services hereunder or as otherwise required by law or order of
a court or other judicial or administrative body.
7.2 Prevent Disclosure. Consultant will take all reasonable precautions to
prevent disclosure of any Confidential Information in accordance with the
Company's reasonable instructions to Consultant.
7.3 Return all Materials. Upon termination of Consultant's engagement
hereunder, Consultant will deliver to the Company all tangible materials
embodying 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 Confidential Information.
8 Non-Solicitation of Customers and Employees. During the term of the
Consultant's engagement hereunder, the Consultant shall not, either directly or
indirectly, (i) knowingly solicit away or attempt to solicit away from any
member of the Company Group any customers of any member of the Company Group or
any persons or entities known by the Consultant to be prospective customers of
any member of the Company Group (a "prospective customer" shall mean any person
or entity with whom any member of the Company Group has engaged in discussions
or other communications relating to such person or entity becoming a customer of
any member of the Company Group within ninety (90) days prior to such
solicitation or attempted solicitation) or (ii) knowingly solicit away or
attempt to solicit away from any member of the Company Group any person who at
the time of such solicitation or attempted solicitation (or at any time within
90 days prior to such solicitation or attempted solicitation) was an employee or
independent contractor of any member of the Company Group.
9 Non-Competition Agreement. For good and valuable consideration, the
receipt of which is hereby acknowledged, Consultant agrees that for a period
from the Effective Time until the date which is nine (9) months after the
Effective Time, Consultant shall not, directly or indirectly, engage or
"participate in" (as defined below) any business or other enterprise which is
engaged in the Business of the Company Group (a "Competitor"). The term
"participate in" shall mean: to own, manage, operate, control, loan money to,
invest in or be connected as a director, officer, employee, partner, consultant,
agent, independent contractor, or otherwise, or acquiesce in the use of
Consultant's name; provided that owning one percent (1%) or less of the
outstanding shares of capital stock of any corporation with one or more classes
of its capital stock listed on a national securities exchange or publicly traded
in the over-the-counter market shall not be included within the definition of
"participate in." The term "Business" of the Company Group shall mean the
business of bringing together buyers and sellers through the creation of
Internet-based or electronic markets that facilitate the exchange of goods,
services and information, but shall not include providing infrastructure
services. The term "infrastructure services" means selling software and services
to businesses engaged in electronic commerce to enable and facilitate the
execution of electronic commerce, including consulting and systems integration
and providing software. In addition to participating in infrastructure services,
it shall not be a breach of this Section 9 if the Consultant accepts employment
with a Competitor, the business of which is diversified provided that (i) he may
not, directly or indirectly, render services or assistance to any aspect of the
Competitor's business that is in any way engaged in the Business of the Company
Group and (ii) the Company shall have received, prior to the commencement of
such employment, written assurances deemed satisfactory by the Company from the
Consultant and the Competitor that he will not, directly or indirectly, render
services or assistance to any aspect of the Competitor's business that is in any
way engaged in the Business of the Company Group. Notwithstanding any term in
this Section 9 to the contrary,
<PAGE>
the Consultant shall not, for a period of time from the Effective Date
until eighteen (18) months after the Effective Date, directly or indirectly,
engage or participate in the business of any of the following enterprises:
CommerceOne; Ariba; PurchasePro; Sterling Commerce; SPS Commerce; QRS Corp.;
Harbinger; GE Information Services; iCongo; or Resports.com. Upon the
Consultant's request, the Consultant and the Company shall discuss in good faith
whether a particular activity would violate this Section 9.
10 Non-Disparagement; Certain Statements. (A) During the term of the
engagement hereunder and at all times after the termination of such engagement,
the Consultant shall not, directly or indirectly, make any false or defamatory
statements about any member of the Company Group or any of its directors,
officers or employees. (B) In addition to the foregoing, during the term of the
effectiveness of the non-competition agreement as set forth in the first
sentence of Section 9 hereof, the Consultant shall not, directly or indirectly:
(i) take any action or make any statement intended, directly or indirectly, to
benefit a Competitor of any member of the Company Group, (ii) perform services
as a market analyst or engage in similar activity with respect to the securities
of companies engaged in the Business of the Company Group; or (iii) except in
response to any question posed to the Consultant by a student during an
educational seminar or lecture at a college or university (provided such
response relates solely to the Consultant's experiences as an officer of a
company engaged in business-to-business electronic commerce), make any
statements to the public in any medium or forum (including any Internet message
board or any conference) relating to the Company or to the Business generally,
without first (1) providing the Company with the text of any such proposed
statements and, if applicable, a description of the substance of any additional
verbal statements which the Consultant intends to make and (2) obtaining the
Company's consent to such statements. Nothing in this Section 10 shall be
construed to prohibit the Consultant from responding truthfully or giving
truthful testimony in response to a subpoena, discovery request, court order or
in connection with any other legal process or proceeding. (C) During the term of
the engagement hereunder and at all times after the termination of such
engagement, no member of the Company Group shall, directly or indirectly, make
any false or defamatory statements about the Consultant. Upon the Consultant's
request, the Consultant and the Company shall discuss in good faith whether a
particular activity would violate this Section 10.
11 Copyrights. Consultant agrees that any work which has been or will be
prepared for the Company by the Consultant 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, Consultant 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 Consultant. Consultant hereby agrees to and does hereby waive
all rights with respect to the work which has been or will be developed or
produced by the Consultant in connection with his employment by the Company
prior to the Effective Date or in connection with the engagement 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.
12 Conflicting Obligations and Rights. Consultant shall inform the Company
in writing of any apparent conflict between Consultant's services hereunder and
(i) any obligations
<PAGE>
Consultant may have to preserve the confidentiality of another's proprietary
information or materials, or (ii) any rights Consultant may claim to any
patent, copyright, trade secret, or other discovery, invention, idea,
know-how, technique, method, process or other proprietary information or
materials, prior to the performance of such duties and responsibilities. In the
absence of such written notice, the Company may conclude that no such conflict
exists and Consultant agrees thereafter to make no claim against the Company
relating to the foregoing. The Company shall hold such disclosures by Consultant
in strict confidence.
13 Remedies. Consultant, recognizing that irreparable injury may result to
the Company in the event of Consultant's breach of the terms and conditions of
this Agreement, agrees that, in the event of a material breach or threatened
material breach of the terms of Section 7, 8, 9, or 10 hereof, the Company shall
be entitled to injunctive relief restraining Consultant, and any and all persons
or entities acting for or with him, from such breach or threatened breach.
Consultant does not, however, waive any right to have a bond posted in
connection with any action seeking injunctive relief. In addition, in the event
Consultant breaches the terms of Section 7, 8, 9 or 10 hereof, the Consultant
shall, on demand, pay to the Company, as liquidated damages, the amount of
$150,000; provided no such payment will be required unless (A) the Consultant
has received notice of such material breach or threatened material breach; (B)
to the extent such breach is curable, the Consultant has failed to cure such
breach within five (5) days of such notice; and (C) there has been a Final
Determination that the Consultant has materially breached one of such Sections
7, 8, 9 or 10. As used herein, a "Final Determination" shall mean (i) a judgment
of any court, if no appeal is pending from such judgment and if the time to
appeal therefrom has elapsed, (ii) a determination by an arbitrator in any
arbitration proceedings, if there is not pending any motion to set aside such
determination and if the time within which to move to set aside such
determination has elapsed, (iii) a written acknowledgement signed by the
Consultant or (iv) such other evidence of a final determination as shall be
acceptable to the Consultant. 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.
15 Covenants Necessary and Reasonable. The parties expressly acknowledge
and agree that the covenants and agreements of the Consultant set forth herein
are reasonable in all respects, and necessary in order to protect and maintain
the value and goodwill of the Company's business, as well as the proprietary and
other legitimate business interests of the Company. In the event that any
provision contained in this Agreement shall be held to be excessively broad as
to duration, geographical scope, or otherwise, such provision shall be construed
as modified to the extent necessary to cause such provision to be enforceable.
16 Post-Engagement Procedures. Consultant agrees that, upon the termination
of his engagement with the Company hereunder, he will certify to the Company in
writing that he has fully complied with the terms of this Agreement.
17 Non-Assignability. Consultant's rights under this Agreement are personal
to him, and no such right or benefit shall be subject to voluntary or
involuntary alienation, assignment, or transfer. The obligations of the Company
hereunder shall be binding on its successor and assigns and the provisions of
this Agreement may be enforced by any successor or assignee of the Company.
18 Independent Contractor Status. The Consultant shall be responsible for
the payment and reporting of all Federal and state income taxes, unemployment
insurance, social security/self-employment taxes or other payments required to
be withheld or paid pursuant to
<PAGE>
any law or requirement of any governmental body. The Consultant shall not
be entitled to any rights, benefits or privileges established for employees of
the Company, such as health, disability and/or life insurance or any retirement
plan benefits, nor shall the Consultant be entitled to unemployment payments in
the event of termination of the engagement hereunder.
19 General Release. At the Effective Time, Consultant shall deliver to the
Company a General Release substantially in the form attached hereto as Exhibit
A.
20 Miscellaneous.
20.1 Notices. Any and all notices, demands, requests or other
communications 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, when deposited in the United States
registered or certified mail (postage prepaid, return receipt requested), or
when confirmed as received if delivered by overnight courier (charges prepaid),
addressed to the applicable party at the respective address first set forth
above, or such other address as such party shall have provided to the other
party, in the manner required by this paragraph.
20.2 Amendment. This Agreement may not be modified, changed, amended, or
altered except in writing signed by Consultant or his duly authorized
representative, and by an authorized officer of the Company.
20.3 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.
20.4 Attorney's Fees. Should any litigation 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.
20.5 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.
20.6 Entire Agreement; Termination of Prior Agreements. This Agreement
constitutes the entire 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. Without limiting the foregoing, effective as of the
Effective Time, (i) the Consultant hereby resigns all of his positions as
director, officer and employee of the Company; and (ii) all employment
agreements or other agreements between the Consultant and the Company which
relate to providing services to the Company and/or compensation of any kind to
the Consultant for such services or in connection with such agreements
(including any agreements concerning severance payments or post termination
obligations) are hereby terminated and shall be of no further force or effect.
20.7 Counterparts. This Agreement 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.
<PAGE>
20.8 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 Consulting Agreement the
day and year as set forth above.
DYNAMICWEB ENTERPRISES, INC.
By: /s/ Steven L. Vanechanos, Jr.
-------------------------------
Name: Steven L. Vanechanos, Jr.
Title: Chief Executive Officer
/s/ Steven L. Vanechanos, Jr.
-----------------------------------
Steven L. Vanechanos, Jr.
<PAGE>
eB2B Commerce, Inc.
29 West 38th Street
New York, New York 10018
February 29, 2000
DynamicWeb Enterprises, Inc.
271 Route 46 West
Building F, Suite 209
Fairfield, New Jersey 07004
Attention: Steven L. Vanechanos, Jr., Chief Executive Officer
Re: Amendment No. 2 to Loan Agreement
Ladies and Gentlemen:
The purpose of this letter is to set forth amendments to certain terms
of the Loan Agreement dated November 12, 1999 between eB2B Commerce, Inc.
("eCom") and DynamicWeb Enterprises, Inc. (the "Company"), as amended by
Amendment No. 1 to Loan Agreement dated November 19, 1999, and as amended hereby
(the "Loan Agreement"). Unless otherwise defined herein, capitalized terms used
in this Amendment shall have the meanings given to them in
the Loan Agreement.
1. Maturity Date. It is acknowledged that, pursuant to the Loan Agreement, eCom
has made the First Loan, the Second Loan and the Third Loan, and collectively,
such loans are referred to in the Loan Agreement and herein as the "Interim
Loan." Section 1 of the Loan Agreement is hereby amended to provide that the
"Maturity Date" applicable to the Interim Loan shall be May 12, 1999.
2. Promissory Note. Section 1 of the Loan Agreement is hereby amended to provide
that there shall be one consolidated promissory note evidencing the Interim
Loan, which shall be substantially in the form of the note attached hereto, and
the term "Promissory Note," as used in the Loan Agreement, shall hereafter mean
such consolidated promissory note. Such Promissory Note shall be delivered to
eCom concurrently with the execution of this Amendment, and any other notes
issued in connection with the Loan Agreement shall thereupon be surrendered and
canceled.
3. Remedies. Section 6.1 of the Loan Agreement is hereby amended by adding the
following at the end thereof, as additional Events of Default:
"6.1.7 Break Up Fee. The Company shall default in the event that the Company
is required to pay eCom the sums due pursuant to Section 8.3 of the Merger
Agreement."
"6.1.8 Failure to Obtain Stockholder Approval. The Company shall default in
the event that the Company is unable to obtain the Requisite Company
Stockholder Approval (as defined in the Merger Agreement)."
1
<PAGE>
4. Guaranty; Security. Steven L. Vanechanos, Jr. ("Guarantor") hereby
unconditionally guarantees ("Guaranty") the full and prompt payment and
performance when due, of all obligations and liabilities of the Company to eCom
under the Loan Agreement and Promissory Note ("Obligations"). Guarantor agrees
that this Guaranty may be enforced by eCom, after eCom has first made demand
upon or proceeded against the Company. To secure the Guarantor's obligations in
connection with the foregoing Guaranty, Guarantor hereby agrees to deposit
200,000 shares of common stock of the Company owned by the Guarantor ("Escrow
Shares"), along with a stock power executed by the Guarantor, with Morgan
Stanley Dean Witter & Co., or such other escrow agent reasonably satisfactory to
the parties hereto as soon as practicable hereafter, to be held in accordance
with an escrow agreement to be executed in connection with the execution of this
Amendment ("Escrow Agreement"). Notwithstanding the foregoing it is understood
that Guarantor's personal liability in connection with the foregoing Guaranty
shall be satisfied solely from the Escrow Shares or any proceeds thereof, and
not from any other property or asset of the Guarantor.
5. Remedies. Upon the occurrence of an Event of Default, and the Event of
Default remains as such for a period of ten (10) days after written notice
thereof has been given to the Company by eCom, it is understood that eCom may
elect, at its sole discretion, to pursue one of the following remedies: (i)
pursue its remedies under Section 6.2 or 6.3 of the Loan Agreement, (ii)
exercise its right to convert all or a portion of the outstanding principal and
accrued and unpaid interest on the Interim Loan, as provided in Section 1 of the
Loan Agreement or (iii) direct the escrow agent to deliver all or portion of the
Escrow Shares to eCom, in accordance with the terms of the Escrow Agreement. To
the extent that all or a portion of the Escrow Shares are delivered to eCom, the
value of such shares (as determined in accordance with the terms of the Escrow
Agreement) shall be deemed applied first, to reduce the Obligations of the
Company for any accrued but unpaid interest under the Interim Loan, and second,
to reduce the Obligations of the Company for the outstanding principal amount of
the lnterim Loan.
6. Ratification of Loan Agreement. Except as amended hereby, the terms and
conditions of the Loan Agreement remain in full force and effect in accordance
with their terms.
7. Miscellaneous. This Amendment shall be governed by and construed in
accordance with the laws of the State of New York. This Amendment may be
executed in any number of counterparts and each counterpart shall constitute an
original instrument, but all such separate counterparts shall constitute one and
the same instrument.
THE REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK
<PAGE>
Very truly yours,
eB2B COMMERCE, INC.
By : /s/ Victor Cisario
-----------------------------
Name: Victor Cisario
Title: Chief Financial Officer
ACKNOWLEDGED AND AGREED TO:
This 29th day of February, 2000
DYNAMICWEB ENTERPRISES, INC.
By : /s/ Steven L. Vanechanos, Jr.
------------------------------
Name: Steven L. Vanechanos, Jr.
Title: Chief Financial Officer
ACKNOWLEDGED AND AGREED, AS TO SECTION 4 ONLY:
This 29th day of February, 2000
/s/ Steven L. Vanechanos, Jr.
---------------------------------
Steven L. Vanechanos, Jr.
<PAGE>
Exhibit 10.29
AGREEMENT
Agreement dated March 15, 2000 by and among eB2B Commerce, Inc., a
Delaware corporation ("eCom"), and DynamicWeb Enterprises, Inc., a New Jersey
corporation (the "Company").
WHEREAS, the parties have entered into an Agreement and Plan of Merger
dated December 1, 1999, as amended as of February 29, 2000 (as such agreement
may be further amended, modified, supplemented or restated, the "Merger
Agreement");
WHEREAS, the parties have entered into a Loan Agreement dated November
12, 1999, as amended November 19, 1999 and as of February 29, 2000 (as such
agreement may be further amended, modified, supplemented or restated, the "Loan
Agreement");
WHEREAS, the parties have entered into a Warrant Agreement dated as of
November 12, 1999 (as such agreement may be amended, modified, supplemented or
restated, the "Warrant Agreement"), pursuant to which the Company has issued to
eCom warrants ("Warrants") to purchase an aggregate of 7,500,000 shares of
common stock of the Company; and
WHEREAS, the parties desire to memorialize and clarify certain
understandings and agreements between the parties which are not currently set
forth clearly in writing within the foregoing agreements and instruments.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound,
the parties hereby agree as follows:
1. Condition to Exercise of Warrants. The parties hereby agree, and
hereby acknowledge that it has been their intention and understanding at all
times since the execution of the Warrant Agreement, that the Warrants have been
and are exercisable at any time from the issuance thereof until the earlier of
the Maturity Date (as defined in the Loan Agreement) or the closing of the
merger contemplated by the Merger Agreement, but only in the event that: (i) the
Merger Agreement is terminated pursuant to Section 8.1.1, 8.1.2 or 8.1.3
thereof, (ii) if the Company otherwise withdraws from or terminates the Merger
Agreement or (iii) if the Company is deemed by eCom to have otherwise withdrawn
from or terminated the Merger Agreement due to the Board of Directors of the
Company passing a resolution that would propose to eCom any material
modifications to the terms of the Merger Agreement (except if the failure to
pass such resolution would violate or breach any fiduciary duty owed to the
Company) or any other agreement executed and delivered by the parties pursuant
to or in connection with the Merger Agreement prior to the Effective Time (as
defined in the Merger Agreement).
<PAGE>
2. Amendments. To the extent that the terms hereof are inconsistent
with any terms of the Merger Agreement, the Loan Agreement, the Warrant
Agreement, the Warrants or any other agreement or instrument between the
parties, the terms of this Agreement shall supersede such inconsistent terms. If
requested by eCom, the Company shall deliver to eCom new warrant certificates
evidencing the terms set forth herein, upon receipt by the Company of the
original warrant certificates for cancellation.
3. Miscellaneous. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York. This Agreement may be
executed in any number of counterparts and each counterpart shall constitute an
original instrument, but all such separate counterparts shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
eB2B COMMERCE, INC.
By: /s/ Victor Cisario
-----------------------------
Name: Victor Cisario
Title: Chief Financial Officer
DYNAMICWEB ENTERPRISES, INC.
By: /s/ Steven Vanechanos, Jr.
-----------------------------
Name: Steven Vanechanos, Jr.
Title: Chief Executive Officer
<PAGE>
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT (this "Agreement"), dated as of February 29,
2000 between STEVEN L. VANECHANOS, JR. (the "Indemnitor") and eB2B COMMERCE,
INC., a Delaware corporation ("eCom").
WHEREAS, the Indemnitor is a director, officer and principal shareholder of
DynamicWeb Enterprises, Inc., a New Jersey corporation (the "Company");
WHEREAS, eCom and the Company have entered into an Agreement and Plan of
Merger dated December 1, 1999, as amended by Amendment No. 1 to Agreement and
Plan of Merger dated February 29, 2000 (as such agreement may be further
amended, modified, supplemented or restated from time to time, the "Merger
Agreement") pursuant to which eCom shall merge with and into the Company (the
surviving corporation being hereinafter referred to as the "Surviving
Corporation"); and
WHEREAS, it is a condition to closing of the transactions contemplated in
the Merger Agreement that Indemnitor enter into this Agreement with eCom.
NOW, THEREFORE, in consideration of the mutual agreements herein contained,
the parties agree as follows:
1. Definitions. Capitalized terms used, but not defined herein, shall have
the meanings given to them in the Merger Agreement.
2. Indemnification:
2.1 Duty to Indemnify. The Indemnitor shall defend and hold harmless the
Surviving Corporation and its affiliates (each of the foregoing being
hereinafter referred to as an "Indemnified Party" and, collectively, as the
"Indemnified Parties") from and against all assessments, losses, damages,
liabilities, costs and expenses, including, without limitation, interest,
penalties and reasonable attorney's fees and disbursements (collectively,
"Damages"), incurred by any Indemnified Party resulting from any material breach
or material inaccuracy of any representation or warranty of the Company
contained in the Merger Agreement if, at the time such representation or
warranty was made, any member of the Knowledge Group (as hereinafter defined)
had actual knowledge of such misrepresentation. As used herein, the term
"Knowledge Group" shall consist of the Indemnitor and James D. Conners, the
Company's President and Chief Operating Officer.
2.2 Indemnification Procedures. An Indemnified Party shall give the
Indemnitor prompt written notice (hereinafter, the "Indemnification Notice") of
any Damages, including any demands, claims, actions or causes of action
(collectively, "Claims") asserted against the Indemnified Party for which the
Indemnified Party may be entitled to indemnification hereunder; provided that
such Indemnification Notice states that the Indemnified Party believes, in good
faith, that the Damages are a result of any material breach or material
inaccuracy of any representation or warranty of the Company contained in the
Merger Agreement and that the Knowledge Group had actual knowledge of such
misrepresentation, in accordance with Section 2.1 hereof. Failure to give such
Indemnification Notice in prompt fashion shall not relieve the Indemnitor of any
obligations which the Indemnitor may have to the Indemnified Party under this
Section 2, except if and to the extent that such failure has adversely
prejudiced the Indemnitor. Within twenty (20) days after the receipt of the
Indemnification Notice (or, if the amount of Damages is not set forth in the
Indemnification Notice, within twenty (20) days after
<PAGE>
the receipt of a notice setting forth the amount of Damages ("Damage Amount
Notice")), Indemnitor shall pay to the Indemnified Party an amount equal to the
Damages set forth in the Indemnification Notice or Damage Amount Notice, as
applicable, after the threshold set forth in Section 2.4(b) is exceeded (up to
the maximum set forth in Section 2.4(c)), unless the Indemnitor has delivered to
the Indemnified Party notice of his intention to contest his liability hereunder
or such Damages in good faith, in which case the Indemnitor's obligations shall
be suspended (and the Escrow Shares (defined below) shall remain in escrow)
until the parties have resolved the matter in accordance with Section 5 hereof
and, in such case, the Indemnitor's obligations, if any, shall be fulfilled
within twenty (20) days after the resolution of such matter.
2.3 Third Party Claims. In addition to the foregoing, the obligations and
liabilities of the Indemnitor with respect to Claims against an Indemnified
Party by persons not party to the Merger Agreement, for which an Indemnified
Party may be entitled to indemnification hereunder, shall be subject to the
following terms and conditions:
(a) The Indemnified Parties will have the right (upon further notice to
the Indemnitor) to undertake the defense, compromise or settlement of such Claim
for the account of the Indemnitor, if applicable, with counsel reasonably
satisfactory to the Indemnitor (and in such case the Indemnified Parties shall
use their best efforts to vigorously defend such Claim), subject to the right of
the Indemnitor to participate in the defense of such Claim in accordance with
Section 2.3(b) at any time. If the Indemnified Parties desire not to defend any
Claim and/or desire to settle or compromise any Claim or consent to entry of any
judgment with respect to such Claim, the Indemnified Parties shall provide
written notice (the "Proposed Settlement Notice") to the Indemnitor of such
desire, which Proposed Settlement Notice shall state the amount of Damages which
the Indemnified Parties are prepared to incur as a result of such settlement,
compromise or entry of judgment (the "Proposed Damage Limit"). Indemnitor shall
have the right to assume the defense of such Claim in accordance with Section
2.3(c).
(b) At any time after delivery of an Indemnification Notice in respect
of a Claim and prior to the settlement, compromise or final termination of a
Claim, the Indemnitor may elect, by written notice to the Indemnified Parties
received by the Indemnified Parties within ten (10) days of the Indemnitor's
receipt of the Indemnification Notice, to participate in the defense of such
Claim with counsel reasonably satisfactory to the Indemnified Parties (provided
that such claim involves only monetary damages and does not seek an injunction
or other equitable relief).
(c) At any time after delivery of a Proposed Settlement Notice with
respect to a Claim, the Indemnitor may elect, by written notice to the
Indemnified Parties received by the Indemnified Parties within ten (10) days of
the Indemnitor's receipt of the Proposed Settlement Notice, to assume the
defense of such Claim and to employ his own counsel in the defense of such
Claim, provided that upon final determination of Damages with respect to such
Claim, any Damages in excess of the Proposed Damage Limit shall be the sole
responsibility of the Indemnitor and shall not be considered Damages for the
purposes of the limitations set forth in Section 2.4 below.
(d) If the Indemnitor chooses to participate in or assume the defense
of any claim, the Indemnified Parties shall cooperate with all reasonable
requests of the Indemnitor and his counsel and shall make available books,
records or other documents within its control that are necessary or appropriate
for such defense.
2
<PAGE>
(e) If the Indemnitor elects to participate in or assume the defense of
any Claim, the Indemnitor shall not settle or compromise any Claim without the
prior written consent of the Indemnified Parties (which shall not be
unreasonably withheld or delayed) or consent to entry of any judgment which does
not include as an unconditional term thereof the release by the claimant or the
plaintiff of all Indemnified Parties from all liability arising from events
which allegedly give rise to such Claim.
2.4 Limitations on Indemnification.
(a) For the purposes of this Agreement, the representations and
warranties of the Company shall survive from the closing pursuant to the Merger
Agreement until the conclusion of the first annual audit of the Surviving
Corporation following the closing of the Merger (the "Termination Date").
However, if a claim for indemnification hereunder is asserted by an Indemnified
Party prior to the Termination Date, then such representation or warranty shall
continue to survive solely in respect of such claim until such claim for
indemnification has been satisfied or otherwise resolved. Thereafter, the
obligations of Indemnitor shall be of no force and effect. In any event, the
parties shall fully cooperate with each other and their respective counsel in
connection with any such litigation, defense, settlement or any other
resolution.
(b) The Indemnitor shall not be liable for any claim for
indemnification hereunder until such time as the Damages, in the aggregate,
exceed $250,000, in which event the Indemnified Parties shall be indemnified
only for Damages incurred by them in excess of $250,000.
(c) The Indemnitor shall not be liable for any claims for
indemnification hereunder, in the aggregate, in excess of the value of all of
the Escrow Shares (as hereinafter defined).
2.5 Escrow Shares. To secure the Indemnitor's obligations hereunder, at the
Closing, the Indemnitor shall deposit with an escrow agent reasonably
satisfactory to the parties hereto stock certificates evidencing 100,000 of the
Indemnitor's shares of Company Common Stock ("Escrow Shares"), together with a
stock power executed in blank by the Indemnitor. Such Escrow Shares shall be
held by the escrow agent in accordance with an escrow agreement in form and
substance reasonably satisfactory to the parties hereto. For purposes of this
Agreement, the value of the Escrow Shares shall be the average of the closing
bid prices for the shares of the Surviving Corporation's common stock as
reported upon 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 any claim by the Indemnified Party for any such
indemnification.
3 Notices. All notices and instructions provided for or permitted hereunder
shall be in writing and delivered personally, sent by facsimile, or sent by
registered or certified mail (postage prepaid) or by courier service (with proof
of delivery, charges prepaid) as follows:
If to the Indemnitor: Steven L. Vanechanos, Jr., 92 Claken Drive, West
Orange, New Jersey 07052, with a copy to Brown Raysman Millstein Felder &
Steiner, LLP, 120 West 45th Street, New York, New York 10036, Attention:
Sarah Hewitt, Esq.
If to eCom: eB2B Commerce, Inc., 29 West 38th Street, New York, New York
10018,
3
<PAGE>
unless and until in either case a different address shall be furnished in
writing to the other parties by the party to whom such notice or instruction is
to be given.
4. Governing Law. This Agreement shall be construed in accordance with the
laws of the State of New York.
5. Dispute Resolution. Any controversy, dispute or disagreement arising out
of or relating to this Agreement shall be settled in accordance with the terms
of Section 9.16 of the Merger Agreement, which are incorporated herein by
reference.
6. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their successors and assigns.
7. Modification and Waiver. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by the parties
hereto. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provisions hereof (whether or not
similar) nor shall such waiver constitute a continuing waiver.
8. Counterparts. This Agreement may be executed in any number of
counterparts (including by facsimile signature), each of which shall be deemed
an original, and all of such counterparts shall constitute a single instrument.
9. Exclusive Remedy. The contract rights conferred by this Agreement shall
be exclusive of any other right which the Indemnified Parties may have or may
hereinafter acquire under any statute, agreement or otherwise.
IN WITNESS WHEREOF, the parties have executed this Indemnification
Agreement as of the date first set forth above.
---------------------------------
Steven L. Vanechanos, Jr.
eB2B COMMERCE, INC.
By:
------------------------------
Name: Victor Cisario
Title: Chief Financial Officer
4
<PAGE>
LOCK-UP AGREEMENT (the "Agreement"), dated as of February ____, 2000, by
and between eB2B COMMERCE, INC., a Delaware corporation ("eCom") with principal
offices at 29 West 38th Street, New York, New York, DYNAMICWEB ENTERPRISES,
INC., a New Jersey corporation (the "Company") with principal offices at 271
Route 46 West, Building F, Suite 209, Fairfield, New Jersey, and the undersigned
holder (the "Shareholder") of shares of capital stock of the Company.
WHEREAS, Shareholder is the owner of securities of the Company;
WHEREAS, eCom and the Company have entered into an Agreement and Plan of
Merger, as amended ("Merger Agreement"), pursuant to which eCom will merge with
and into the Company (the "Merger"); and
WHEREAS, in order to induce eCom to consummate the Merger with the Company,
and pursuant to Section 7.2 of the Merger Agreement, the Shareholder agrees to
enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein set forth
and for other good and valuable consideration, the receipt of which is hereby
acknowledged, eCom, the Company and Shareholder hereby agree as follows:
1 Restriction.
1.1 Subject to Section 1.2 hereof, the Shareholder, intending to be legally
bound, hereby agrees that he will not, without the prior written consent of the
Company and eCom, directly or indirectly, offer to sell, sell, grant an option
for the sale of, assign, transfer, pledge (other than in connection with certain
escrows in connection with the Merger transactions), hypothecate or otherwise
encumber or dispose ("Dispose") of any securities issued by the Company,
including, but not limited to common stock, preferred stock or securities
convertible into or exchangeable or exercisable for or evidencing any right to
purchase or subscribe for any shares of common stock, currently held or
hereinafter acquired by the Shareholder ("Securities") (either pursuant to Rule
144 of the regulations under the Securities Act of 1933, as amended, or
otherwise), for a period of twelve (12) months commencing on December 16, 1999
(the date of the final closing of the private placement conducted by eCom) (the
"Lock-Up Period"); and will not Dispose of more than twenty-five (25%) percent
of the Shareholder's Securities on a cumulative basis during each subsequent
ninety (90) day period thereafter; provided, however, if the Company undertakes
a Qualified Offering (as defined below) within the Lock-Up Period, the
Shareholder agrees not to Dispose of the Securities for such period of time
after such Qualified Offering, not to exceed twelve (12) months, as the managing
underwriter or placement agent of such Qualified Offering may request in writing
(the "Lock-Up Extension Period").
1.1.1 Qualified Offering Defined. As used herein, a "Qualified Offering"
means a private or public offering of the securities of the Company conducted
subsequent to the closing of the Merger which results in gross proceeds to the
Company in excess of $20 million.
1.2 The Company and eCom acknowledge and agree that the Shareholder may
Dispose of _____________ of the Securities ("Unlocked Shares"), commencing on
the day after the later to occur (i) 90 days after the closing of the Merger, or
(ii) when the Shareholder is no longer considered an Affiliate (as defined
below) of the Company; provided, however, that on a weekly basis the Shareholder
may Dispose of no more than the greater of: (i) 5,000 of the Unlocked Shares, or
(ii) five (5%) percent of the Average Daily Trading Volume (as defined below) of
the Company's common stock for the previous week, until the aggregate amount of
1
<PAGE>
Unlocked Shares have been Disposed of.
1.2.1 Average Daily Trading Volume Defined. As used herein, "Average
Daily Trading Volume" means the sum of the daily reported trading volume of the
Company's common stock as reported (i) on all national securities exchanges
and/or reported through the automated quotation system of a registered
securities association (Nasdaq), or through the composite tape; or (ii) through
the consolidated transaction system contemplated by Rule 11A3-1 under the
Securities Exchange Act of 1934, as amended, divided by the number of trading
days in the week.
1.2.2 Affiliate Defined. As used herein, an "Affiliate" has the meaning
assigned by the Federal securities laws.
2 Restrictive Legend. Shareholder hereby consents to the placing of legends
and/or stop-transfer orders with the transfer agent of the Shareholder's
Securities with respect to any of the Shareholder's Securities registered in the
name of the Shareholder or beneficially owned, or hereinafter acquired, by the
Shareholder. Upon the request of the Company's transfer agent for the removal of
the legend and/or stop transfer order associated with the Shareholder's
Securities following the expiration of the restrictions imposed by this
Agreement (and any applicable Federal securities laws), the Company shall
provide the appropriate documentation and authorization in response to such a
request in a timely manner to allow the Shareholder to effectuate his intended
transaction(s).
3 Miscellaneous.
3.1 Notices. Any and all notices, demands, requests or other communications
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, when deposited in the United States registered or certified mail
(postage prepaid, return receipt requested), or when confirmed as received if
delivered by overnight courier (charges prepaid), addressed to the Company or
eCom at the address first set forth above or addressed to the Shareholder at the
address set forth below, or such other address as a party shall have provided by
notice to the other party, in the manner required by this paragraph.
3.2 Amendment. This Agreement may not be modified, changed, amended, or
altered except in writing signed by the parties.
3.3 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.
3.4 Attorney's Fees. Should any litigation 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.
3.5 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.
3.6 Entire Agreement. This Agreement constitutes the entire 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. The parties
agree that the, any conflict between any other documents regarding the
Shareholder's right to Dispose of the Securities and this
2
<PAGE>
Agreement will be resolved in favor of this Agreement.
3.7 Counterparts. This Agreement 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.
3.8 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 above.
eB2B COMMERCE, INC.
By:
------------------------------
DYNAMICWEB ENTERPRISES, INC.
By:
------------------------------
---------------------------------
Signature
Print Name:
---------------------
Print Address:
------------------
---------------------------------
3
<PAGE>
Appendix C
March 13, 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, as amended (the "Agreement") providing for the merger (the "Merger") of
eCom into DWEB. The Merger is expected to take place on or around April 21,
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 has been fixed at 2.66
DynamicWeb shares, subject to adjustments set forth in the Agreement, for
each eCom share.
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 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;
C-1
<PAGE>
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-QSB;
3. Reviewed DWEB's internal business and financial analyses prepared by
DWEB's management;
4. Reviewed certain internal financial analyses and business forecasts
for Netlan and eB2B prepared by management and agents of each firm;
5. Reviewed eCom's private placement memorandum dated November 1, 1999
including subsequent amendments and updates to the memorandum, and recent
financial results;
6. Reviewed the audited financial results for the years ending December 31,
1998 and 1999, respectively, for eCom;
7. Reviewed the audited financial results for the years ending December 31,
1998 and 1999 for Netlan, and the unaudited financial results for the year
ended December 31, 1997;
8. Visited the corporate headquarters of DWEB, eCom and Netlan and conducted
meetings with members of management of these three firms to discuss their
respective businesses and business prospects;
9. 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, eCom and Netlan;
ii) Evaluation of the financial terms of the proposed Merger;
iii) Comparison of the financial terms of the proposed Merger with
certain other mergers, acquisitions and business combination
transactions we deemed to be relevant; and
iv) Review of such other financial studies and analyses and performance
of such other investigations and consideration of such other matters
as we deemed necessary, including our assessment of general
economic, market and monetary conditions.
Due to the significant reorganization of the businesses of DWEB, eCom and Netlan
and the 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, eCom and Netlan. We have not made any appraisal of the assets of
DWEB, eCom or Netlan, nor have we evaluated any other business combinations or
acquisitions contemplated by either DWEB, eCom or Netlan, nor have we expressed
any opinion as to what the value of DWEB will be after the Merger is consummated
or the 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.
C-2
<PAGE>
On the basis of, and subject to the foregoing, we are of the opinion that the
proposed issuance of shares contemplated by the Merger is fair to DWEB's
shareholders, from a financial point of view.
Sincerely,
Auerbach, Pollak & Richardson, Inc.
Michael P. Considine
Executive Vice President
C-3
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to incorporation by reference 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" and "the Company Selected
Historical Condensed Financial Data" in the Prospectus.
\s\ Richard A. Eisner & Company, LLP
New York, New York
March 16, 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 February 22, 2000, with respect to the financial
statements of eB2B Commerce, Inc. as of December 31, 1998 and 1999 and for the
period from November 6, 1998 (inception) through December 31, 1998, the year
ended December 31, 1999 and the period from November 6, 1998 (inception) through
December 31, 1999 included in the Registration Statement (Form S-4) and related
Prospectus of DynamicWeb Enterprises, Inc. dated January 24, 2000.
/s/ Ernst & Young LLP
New York, New York
March 15, 2000
<PAGE>
INDEPENDENT AUDITORS' CONSENT
- --------------------------------------------------------------------------------
We consent to the inclusion in this registration statement on Form S-4 of our
report dated February 22, 2000, except for the last paragraph of Note 17 which
is as of February 24, 2000, on our audit of the consolidated financial
statements of NETLAN Enterprises Inc. and Subsidiaries as of December 31, 1999
and 1998 and for the years then ended. We also consent to the reference to our
firm under the caption "Experts".
/s/ Rothstein, Kass & Company, PC
New York, New York
March 9, 2000
<TABLE> <S> <C>
<ARTICLE> 5
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<S> <C> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,820,000
<SECURITIES> 0
<RECEIVABLES> 796,000
<ALLOWANCES> 84,000
<INVENTORY> 0
<CURRENT-ASSETS> 2,580,000
<PP&E> 450,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,577,000
<CURRENT-LIABILITIES> 2,663,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 61,000
<TOTAL-LIABILITY-AND-EQUITY> 3,577,000
<SALES> 1,008,000
<TOTAL-REVENUES> 1,008,000
<CGS> (496,000)
<TOTAL-COSTS> (496,000)
<OTHER-EXPENSES> 1,335,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,000
<INCOME-PRETAX> (826,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (826,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (826,000)
<EPS-BASIC> (.30)
<EPS-DILUTED> (.30)
<PAGE>
Appendix H
eB2B COMMERCE, INC.
2000 STOCK OPTION PLAN
ARTICLE 1 PURPOSE AND DURATION
1.1. PURPOSE OF THE PLAN. The purpose of the Plan is to promote the success
of the Company by providing incentives to Employees including officers, whether
or not directors, of the Company that will link their personal interests to the
long-term financial success of the Company and to growth in shareholder value,
and to attract, motivate and retain experienced and knowledgeable independent
directors. The Plan is designed to provide flexibility to the Company in their
ability to motivate, attract, and retain the services of Employees upon whose
judgment, interest, and special effort the successful conduct of their
operations is largely dependent. "Corporation" means eB2B Commerce, Inc., a New
Jersey corporation, and "Company" means the Corporation and its Subsidiaries,
collectively. These terms and other capitalized terms are defined in Article 2.
1.2. DURATION OF THE PLAN. The Plan will commence on ____________, upon
shareholder approval. The Plan shall remain in effect, subject to the right of
the Board of Directors to terminate the Plan at any time pursuant to Article 13
herein, until all Shares subject to it shall have been purchased or acquired
according to the provisions herein. However, in no event may an Award be granted
under the Plan on or after ______________, which is the tenth (10th) anniversary
of the effective date of this Plan.
ARTICLE 2. DEFINITIONS AND CONSTRUCTION
2.1. DEFINITIONS. Whenever used in the Plan, the following terms shall have
the meanings set forth below and, when the meaning is intended, the initial
letter of the word is capitalized:
(a) "Award" means, individually or collectively, a grant under this Plan of
Incentive Stock Options, Nonqualified Stock Options, Stock Appreciation
Rights, Restricted Stock, Performance Units, or Performance Shares.
(b) "Beneficial Owner" shall have the meaning ascribed to such term in Rule
13d-3 of the General Rules and Regulations under the Exchange Act.
(c) "Board" or "Board of Directors" means the Board of Directors of the
Company.
(d) "Cause" shall mean the occurrence of any one of the following:
(i) The willful and continued failure by a Participant to
substantially perform his/her duties (other than any such
failure resulting from the Participant's disability), after a
written demand for substantial performance is delivered to the
Participant that specifically identifies the manner in which the
Company, as the case may be, believes that the Participant has
not substantially performed his/her duties, and the Participant
has failed to remedy the situation within ten (10) business days
of receiving such notice; or
(ii) the Participant's conviction for committing a felony or other
crime involving breach of trust or fiduciary duty owed to the
Company; or
(iii) the willful engaging by the Participant in gross misconduct
materially and demonstrably injurious to the Company.
However, no act, or failure to act, on the Participant's part
shall be considered "willful" unless done, or omitted to be
done, by the Participant not in good faith and without
reasonable belief that his/her action or omission was in the
best interest of the Company.
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(e) "Change in Control" shall be deemed to have occurred if the conditions
set forth in any one of the following paragraphs shall have been
satisfied:
(i) any Person (other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the common
stockholders of the Company in substantially the same
proportions as their ownership of Stock of the Company), becomes
the Beneficial Owner, directly or indirectly, of securities of
the Company representing thirty percent (30%)or more of the
combined voting power of the Company's then outstanding
securities; or
(ii) during any period of two (2) consecutive years (not including
any period prior to the Effective Date), individuals who at the
beginning of such period constitute the Board and any new
director, whose election by the Board or nomination for election
by the Company's stockholders, was approved by a vote of at
least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose
election or nomination for election was previously so approved,
cease for any reason to constitute a majority thereof; or
(iii) the stockholders of the Company approve (A) a plan of complete
liquidation of the Company; or (B) an agreement for the sale or
disposition of all or substantially all [within the meaning of
Section 280G of the Code and the proposed regulations
thereunder] the Company's assets; or (C) a merger or
consolidation of the Company with any other corporation, other
than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity),
at least fifty percent (50%) of the combined voting power of the
voting securities of the Company (or such surviving entity)
outstanding immediately after such merger or consolidation.
However, in no event shall a Change in Control be deemed to have
occurred, with respect to a Participant, if the Participant is
part of a purchasing group which consummates the Change in
Control transaction. The Participant shall be deemed "part of a
purchasing group. . . " for purposes of the preceding sentence
if the Participant is an equity participant or has agreed to
become an equity participant in the purchasing company or group
(except for (i) passive ownership of less than five percent (5%)
of the voting securities of the purchasing company or (ii)
ownership of equity participation in the purchasing company or
group which is otherwise not deemed to be significant, as
determined prior to the Change in Control by a majority of the
nonemployee continuing members of the Board).
(f) "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
(g) "Committee" means the committee appointed by the Board to administer
the Plan pursuant to Article 3 herein.
(h) "Company" means, collectively, the Company.
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(i) "Corporation" means eB2B Commerce, Inc., a New Jersey corporation and
its successors hereto as provided in Article 15 herein
(j) "Covered Employee" means any Participant designated prior to the grant
of an award by the Committee who is or may be a "covered employee"
within the meaning of Section 162(m)(3) of the Code in the year in
which such award is taxable to such Participant.
(k) "Employee" means (i) any officer or employee of the Company (including
those employees on a temporary leave of absence by the Company); or
(ii) any person who has received and accepted an offer of employment
from the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
(m) "Exercise Price" shall mean the price fixed by the Committee at the
date of grant.
(n) "Fair Market Value" on any date means (i) if the stock is listed or
admitted to trade on a national securities exchange, the closing price
of the stock on the principal national securities exchange on which
the stock is so listed or admitted to trade, on such date, or, if
there is no trading of the stock on such date, then the closing price
of the stock as quoted on such Composite Tape on the preceding date on
which there was trading in such shares; (ii) if the stock is not
listed or admitted to trade on a national securities exchange, the
last price for the stock on such date, as furnished by the National
Association of Securities Dealers, Inc. ("NASD") through the NASDAQ
National Market Reporting System or a similar organization if the NASD
is no longer reporting such information; (iii) if the stock is not
listed or admitted to trade on a national securities exchange and is
not reported on the National Market Reporting System, the mean between
the bid and asked price for the stock on such date, as furnished by
the NASD or a similar organization; or (iv) if the stock is not listed
or admitted to trade on a national securities exchange, is not
reported on the National Market Reporting System and if bid and asked
prices for the stock are not furnished by the NASD or a similar
organization, the value as established by the Committee at such time
for purposes of this Plan.
(o) "Incentive Stock Option" or "ISO" means an option to purchase Stock,
granted under Article 6 herein, which is designated as an Incentive
Stock Option and is intended to meet the requirements of Section 422
of the Code.
(p) "Nonqualified Stock Option" or "NQSO" means an option to purchase
Stock, granted under Article 6 herein, which is not intended to be an
Incentive Stock Option.
(q) "Option" means an Incentive Stock Option or a Nonqualified Stock
Option.
(r) "Other Eligible Person" shall mean any Outside Director or any
individual consultant or advisor who renders or has rendered bona fide
services (other than services in connection with the offering or sale
of securities of the Company in a capital raising transaction) to the
Company, and who is selected to participate in this Plan by the
Committee. A non-employee agent providing bona fide services to the
Company (other than as an eligible advisor or consultant) may also be
selected as an Other Eligible Person if such agent's participation in
this Plan would not adversely affect (i) the
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Corporation's eligibility to use Form S-8 to register under
the Securities Act of 1933, as amended, the offering of shares
issuable under this Plan by the Company or (ii) the Corporation's
compliance with any other applicable laws.
(s) "Outside Director" means any director who qualifies as an "outside
director" as that term is defined in Code Section 162(m) and the
regulations issued thereunder.
(t) "Participant" means an Employee or Other Eligible Person who has been
granted an Award under the Plan.
(u) "Performance Share" means an Award, designated as a performance share,
granted to a Participant pursuant to Article 9 herein.
(v) "Performance Unit" means an Award, designated as a performance unit,
granted to a Participant pursuant to Article 9 herein.
(w) "Period of Restriction" means the period during which the transfer of
Shares of Restricted Stock is restricted, during which the Participant
is subject to a substantial risk of forfeiture, pursuant to Article 8
herein.
(x) "Person" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d)
thereof, including a "group" as defined in Section 13(d) thereof.
(y) "Plan" means this 2000 Stock Option Plan of eB2B Commerce, Inc., as
herein described and as hereafter from time to time amended.
(z) "Restricted Stock" means an Award of Stock granted to a Participant
pursuant to Article 8 herein.
(aa) "Rule 16b-3" shall mean Rule 16b-3 (or any successor rule) under the
Exchange Act.
(bb) "Subsidiary" shall mean any corporation of which more than fifty
percent (50%) (by number of votes) of the Voting Stock at the time
outstanding is owned, directly or indirectly, by the Company.
(cc) "Stock" or "Shares" means the common stock of the Company.
(dd) "Stock Appreciation Right" or "SAR" means an Award, designated as a
Stock Appreciation Right, granted to a Participant pursuant to Article
7 herein.
(ee) "Voting Stock" shall mean securities of any class or classes of stock
of a corporation, the holders of which are ordinarily, in the absence
of contingencies, entitled to elect a majority of the corporate
directors.
2.2. GENDER AND NUMBER. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine, the plural shall
include the singular, and the singular shall include the plural.
2.3. SEVERABILITY. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
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ARTICLE 3. ADMINISTRATION
3.1. THE COMMITTEE. The Plan shall be administered by a Committee of the
Board of Directors consisting of at least two (2) directors who shall be
appointed from time to time by, and shall serve at the discretion of, the Board
of Directors. To the extent required to comply with Rule 16b-3 under the
Exchange Act, each member of the Committee shall qualify as a "disinterested
person" as defined in Rule 16b-3 or any successor definition adopted by the
Securities and Exchange Commission. To the extent required to comply with Code
Section 162(m), each member of the Committee also shall be an Outside Director.
3.2. AUTHORITY OF THE COMMITTEE. Subject to the provisions of the Plan, the
Committee shall have full power to construe and interpret the Plan; to
establish, amend or waive rules and regulations for its administration; to
accelerate the exercisability of any Award or the end of a performance period or
the termination of any Period of Restriction or any award agreement, or any
other instrument relating to an Award under the Plan; and (subject to the
provisions of Article 13 herein) to amend the terms and conditions of any
outstanding Option, Stock Appreciation Right or other Award to the extent such
terms and conditions are within the discretion of the Committee as provided in
the Plan. Notwithstanding the foregoing, the Committee shall have no authority
to adjust upwards the amount payable to a Covered Employee with respect to a
particular Award, to take any of the foregoing actions or to take any other
action to the extent that such action or the Committee's ability to take such
action would cause any Award under the Plan to any Covered Employee to fail to
qualify as "performance-based compensation" within the meaning of Code Section
162(m)(4) and the regulations issued thereunder. Also notwithstanding the
foregoing, no action of the Committee (other than pursuant to Section 4.3 hereof
or Section 9.4 hereof) may, without the consent of the person or persons
entitled to exercise any outstanding Option or Stock Appreciation Right or to
receive payment of any other outstanding Award, adversely affect the rights of
such person or persons.
3.3. SELECTION OF PARTICIPANTS. The Committee shall have the authority to
grant Awards under the Plan, from time to time, to such Employees (including
officers and directors who are employees) and Other Eligible Persons as may be
selected by it. The Committee shall select Participants from among those who
they have identified as being Employees or Other Eligible Persons.
3.4. DECISIONS BINDING. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders or
resolutions of the Board of Directors shall be final, conclusive and binding on
all persons, including the Company, its stockholders, employees, and
Participants and their estates and beneficiaries, and such determinations and
decisions shall not be reviewable.
3.5. DELEGATION OF CERTAIN RESPONSIBILITIES. The Committee may, in its sole
discretion, delegate to an officer or officers of the Company the administration
of the Plan under this Article 3; provided, however, that no such delegation by
the Committee shall be made with respect to the administration of the Plan as it
affects directors of the Company or officers of the Company and provided further
that the Committee may not delegate its authority to correct errors, omissions
or inconsistencies in the Plan. All authority delegated by the Committee under
this Section 3.5 shall be exercised in accordance with the provisions of the
Plan and any guidelines for the exercise of such authority that may from time to
time be established by the Committee.
3.6. PROCEDURES OF THE COMMITTEE. All determinations of the Committee shall
be made by not less than a majority of its members present at the meeting (in
person or otherwise) at which a quorum is present. A majority of the entire
Committee shall constitute a quorum for the transaction of business. Any action
required or permitted to be taken at a meeting of the Committee may be taken
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without a meeting if a unanimous written consent, which sets forth the action,
is signed by each member of the Committee and filed with the minutes for
proceedings of the Committee. Service on the Committee shall constitute service
as a director of the Company so that members of the Committee shall be entitled
to indemnification, limitation of liability and reimbursement of expenses with
respect to their services as members of the Committee to the same extent that
they are entitled under the Company's Articles of Incorporation and New Jersey
law for their services as directors of the Company.
3.7. AWARD AGREEMENTS. Each Award under the Plan shall be evidenced by an
award agreement which shall be signed by an authorized officer of the Company
and by the Participant, and shall contain such terms and conditions as may be
approved by the Committee. Such terms and conditions need not be the same in all
cases.
3.8. RULE 16b-3 REQUIREMENTS. Notwithstanding any other provision of the
Plan, the Board or the Committee may impose such conditions on any Award
(including, without limitation, the right of the Board or the Committee to limit
the time of exercise to specified periods) as may be required to satisfy the
requirements of Rule 16b-3.
Notwithstanding any other provisions of the Plan, all Awards under this
Plan shall be subject to the following conditions, as and to the extent required
by Rule 16b-3:
(i) Except in the case of disability or death, no SAR, ISO, NQSO or
other option granted pursuant to Article 6 shall be exercisable
for at least six (6) months after its grant; and
(ii) Except in the case of disability or death, no Restricted Stock,
Performance Unit or Performance Share (or a Share issued in
payment thereof) shall be sold for at least six (6) months after
its acquisition.
ARTICLE 4. STOCK SUBJECT TO THE PLAN
4.1. NUMBER OF SHARES. Subject to adjustment as provided in Section 4.3
herein, the aggregate number of Shares that may be delivered under the Plan at
any time shall not exceed TEN MILLION (10,000,000) SHARES OF COMMON STOCK OF THE
COMPANY PLUS AN ANNUAL INCREASE TO BE ADDED ON THE FIRST DAY OF THE COMPANY'S
FISCAL YEAR BEGINNING IN 2001 EQUAL TO THE LESSER OF (I) TWO MILLION TWO HUNDRED
AND FIFTY THOUSAND (2,250,000) SHARES, (II) FIVE PERCENT (5%) OF THE OUTSTANDING
SHARES ON SUCH DATE, OR (III) A LESSER AMOUNT DETERMINED BY THE COMMITTEE. No
more than one-half (1/2) of such aggregate number of such Shares shall be issued
as Restricted Stock under Article 8 of the Plan and no more than seven million
(7,000,000) shares shall be issued upon exercise of Incentive Stock Options
under Article 6 of the Plan. Stock delivered under the Plan may consist, in
whole or in part, of authorized and unissued Shares or treasury Shares. The
exercise of a Stock Appreciation Right, whether paid in cash or Stock, shall be
deemed to be an issuance of Stock under the Plan. The payment of Performance
Shares or Performance Units shall not be deemed to constitute an issuance of
Stock under the Plan unless payment is made in Stock, in which case only the
number of Shares issued in payment of the Performance Share or Performance Unit
Award shall constitute an issuance of Stock under the Plan.
4.2. LAPSED AWARDS. If any Award (other than Restricted Stock) granted
under this Plan terminates, expires, or lapses for any reason, any Stock subject
to such Award again shall be available for the grant of an Award under the Plan,
subject to Section 7.2 herein.
4.3. ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any merger,
reorganization, consolidation, recapitalization, separation, liquidation, Stock
dividend, split-up, share combination, or other change in the corporate
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<PAGE>
structure of the Company affecting the Stock, such adjustment shall be made in
the number and class of shares which may be delivered under the Plan, and in the
number and class of and/or price of shares subject to outstanding Options, Stock
Appreciation Rights, Restricted Stock Awards, Performance Shares, and
Performance Units granted under the Plan, as may be determined to be appropriate
and equitable by the Committee, in its sole discretion, to prevent dilution or
enlargement of rights; and provided that the number of shares subject to any
Award shall always be a whole number. Any adjustment of an Incentive Stock
Option under this paragraph shall be made in such a manner so as not to
constitute a modification within the meaning of Section 425(h)(3) of the Code.
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
5.1. ELIGIBILITY. Persons eligible to participate in this Plan include (i)
all employees of the Company who, in the opinion of the Committee, are
Employees, and (ii) Other Eligible Persons.
5.2. ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the
Committee may from time to time select those Employees and Other Eligible
Persons to whom Awards shall be granted and determine the nature and amount of
each Award. No employee, director, or individual consultant shall have any right
to be granted an Award under this Plan even if previously granted an Award.
ARTICLE 6. STOCK OPTIONS
6.1. GRANT OF OPTIONS. Subject to the terms and provisions of the Plan,
Options may be granted to Employees and Other Eligible Persons at any time and
from time to time as shall be determined by the Committee. The maximum number of
Shares subject to Options granted to any individual Participant in any calendar
year shall be one million (1,000,000) SHARES, except that the maximum number of
Shares subject to Options granted to new Employees and Other Eligible Persons
in the Fiscal Year of the Corporation in which his or her services as an
Employee or Other Eligible Persons first commences shall be one million five
hundred thousand (1,500,000) Shares. The Committee shall have the sole
discretion, subject to the requirements of the Plan, to determine the actual
number of Shares subject to Options granted to any Participant. The Committee
may grant any type of Option to purchase Stock that is permitted by
law at the time of grant including, but not limited to, ISOs and NQSOs. However,
only Employees are eligible to receive ISOs and no employee may receive an Award
of Incentive Stock Options that are first exercisable during any calendar year
to the extent that the aggregate Fair Market Value of the Stock (determined at
the time the options are granted) exceeds one hudred thousand dollars
($100,000). Nothing in this Article 6 shall be deemed to prevent the grant of
NQSOs in excess of the maximum established by Section 422 of the Code. Unless
otherwise expressly provided at the time of grant, Options granted under the
Plan will be NQSOs.
6.2. OPTION AGREEMENT. Each Option grant shall be evidenced by an Option
agreement that shall specify the type of Option granted, the Option price, the
duration of the Option, the number of Shares to which the Option pertains, and
such other provisions as the Committee shall determine. The Option agreement
shall specify whether the Option is intended to be an Incentive Stock Option
within the meaning of Section 422 of the Code, or a Nonqualified Stock Option
whose grant is not intended to be subject to the provisions of Code Section 422.
6.3. OPTION PRICE. The purchase price per share of Stock covered by an
Option shall be determined by the Committee but, in the case of an ISO, shall
not be less than one hundred percent (100%) of the Fair Market Value of such
Stock on the date the option is granted.
An Incentive Stock Option granted to an Employee who, at the time of grant,
owns (within the meaning of Section 424(d) of the Code) Stock possessing more
than ten percent (10%) of the total combined voting power of all classes of
Stock of the Company shall have an exercise price which is at least one hundred
ten percent (110%) of the Fair Market Value of the Stock subject to the Option.
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6.4. DURATION OF OPTIONS. Each Option shall expire at such time as the
Committee shall determine at the time of grant provided, however, that no ISO
shall be exercisable later than the tenth (10th) anniversary date of its grant.
An Incentive Stock Option granted to an employee who, at the time of grant,
owns (within the meaning of Section 424(d) of the Code) Stock possessing more
than ten percent (10%) of the total combined voting power of all classes of
Stock of the Company shall not be exerciseable after the expiration of five (5)
years from the anniversay date of its grant.
6.5. EXERCISE OF OPTIONS. Subject to Section 3.8 herein, Options granted
under the Plan shall be exercisable at such times and be subject to such
restrictions and conditions as the Committee shall in each instance approve,
which need not be the same for all Participants.
6.6. PAYMENT. Options shall be exercised by the delivery of a written
notice to the Company setting forth the number of Shares with respect to which
the Option is to be exercised, accompanied by full payment for the Shares. The
Option price upon exercise of any Option shall be payable to the Company in full
either (i) in cash or its equivalent, or (ii) if so permitted by the Committee
(a) through the delivery (including by attestation of ownership) of shares of
Stock which have been outstanding for at least six (6) months (unless the
Committee approves a shorter period) and which have a fair market value at the
time of exercise equal to the total option price, (b) by foregoing compensation
under rules established by the Committee, (c) by having the Company withhold
Shares of Stock, subject to Section 14.2 hereof, or (d) by delivery of an
unconditional and irrevocable undertaking by a broker to deliver promptly to
the Company sufficient funds to pay the option price and any tax withholding
resulting from such exercise, or (e) by any combination of (i), (ii)(a),
(ii)(b), (ii)(c), or (ii)(d). The proceeds from such a payment shall be added
to the general funds of the Company and shall be used for general corporate
purposes. As soon as practicable, after receipt of written notification and
payment, the Company shall deliver to the Participant Stock certificates in
an appropriate amount based upon the number of Options exercised, issued in
the Participant's name.
6.7. RESTRICTIONS ON STOCK TRANSFERABILITY. The Committee shall impose such
restrictions on any Shares acquired pursuant to the exercise of an Option under
the Plan as it may deem advisable, including, without limitation, restrictions
under applicable Federal securities law, under the requirements of any stock
exchange upon which such Shares are then listed and under any blue sky or state
securities laws applicable to such Shares.
6.8. TERMINATION DUE TO DEATH, DISABILITY, OR RETIREMENT. In the event the
employment of an Employee, or an Outside Director's service on the Board, is
terminated by reason of death, any of such Participant's outstanding Options
that are vested shall be exercisable at any time prior to the expiration date of
the Options or within one (1) year after such date of termination of employment,
whichever period is shorter, by such person or persons as shall have acquired
the Participant's rights under the Option pursuant to Article 10 hereof or by
will or by the laws of descent and distribution. In the event of death of the
Participant, all unvested options will be deemed to have expired. In the event
the employment of an Employee, or an Outside Director's service on the Board, is
terminated by reason of disability (as defined under the then established rules
of the Company, as the case may be), any of such Participant's outstanding
Options shall become immediately exercisable, at any time prior to the
expiration date of the Options after such date of termination of employment. In
the event the employment of a Participant is terminated by reason of retirement,
any of such Participant's vested Options shall be immediately exercisable
(subject to Section 3.8 herein) at any time prior to the expiration date of the
Options. In the event of retirement of the Employee or Outside Director from the
Board, all unvested options will be deemed to have expired. In the case of
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Incentive Stock Options, the favorable tax treatment prescribed under Section
422 of the Internal Revenue Code of l986, as amended, may not be available if
the Options are not exercised within the Code Section 422 prescribed time period
after termination of employment for death, disability, or retirement.
6.9. VOLUNTARY TERMINATION. If the employment of an Employee, or an Outside
Director's service on the Board, shall terminate voluntarily, the Participant
shall have the right to exercise such Participant's vested Options within the
ninety (90) days after the date of his termination, but in no event beyond the
expiration of the term of the Options and only to the extent that the
Participant was entitled to exercise the Options at the date of his termination
of employment. All unvested options will be deemed to have expired. In its sole
discretion, the Committee may extend the ninety (90) days to up to one (1) year
but, however, in no event beyond the expiration date of the Option.
6.10 TERMINATION FOR CAUSE. If the employment of the Employee or an Outside
Director's service on the Board, shall terminate for Cause, all of the
Participant's outstanding Options shall be immediately forfeited back to the
Company.
6.11 TERMINATION FOR OTHER REASONS. If the employment of an Employee, or an
Outside Director's service on the Board, shall terminate for any reason other
than death, disability, retirement, voluntarily, or for Cause, the Participant
shall have the right to exercise such Participant's vested Options within the
ninety (90) days after the date of his termination, but in no event beyond the
expiration of the term of the Options and only to the extent that the
Participant was entitled to exercise the Options at the date of his termination.
All unvested options will be deemed to have expired.
6.12. NONTRANSFERABILITY OF OPTIONS. Unless the Committee provides
otherwise, no Option granted under the Plan may be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated, otherwise than by will or by
the laws of descent and distribution. Further, all Options granted to a
Participant under the Plan shall be exercisable during his lifetime only by
such Participant.
ARTICLE 7. STOCK APPRECIATION RIGHTS
7.1. GRANT OF STOCK APPRECIATION RIGHTS. Subject to the terms and
conditions of the Plan, Stock Appreciation Rights may be granted to
Participants, at the discretion of the Committee, in any of the following forms:
(a) In lieu of Options;
(b) In addition to Options;
(c) Independent of Options; or
(d) In any combination of (a), (b), or (c).
The maximum numbers of Shares subject to SARs granted to any individual
Participant in any calendar year shall be one million (1,000,000) Shares,
except that the maximum number of Shares subject to SARs granted to new
Employees and Other Eligible Persons in the Fiscal Year of the Corporation
in which his or her services as a new Employee or Other Eligible Person first
commences shall be one million five hundred thousand (1,500,000) Shares.
Subject to the immediately preceding sentence, the Committee shall have the
sole discretion, subject to the requirements of the Plan, to determine the
actual number of Shares subject to SARs granted to any Participant.
7.2. EXERCISE OF SARS IN LIEU OF OPTIONS. SARs granted in lieu of Options
may be exercised for all or part of the Shares subject to the related Option
upon the surrender of the related Options representing the right to purchase an
equivalent number of Shares. The SAR may be exercised only with respect to the
Shares of Stock for which its related Option is then exercisable. Option Stock
with respect to which the SAR shall have been exercised may not be subject again
to an Award under the Plan.
Notwithstanding any other provision of the Plan to the contrary, with
respect to an SAR granted in lieu of an Incentive Stock Option, (i) the SAR will
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expire no later than the expiration of the underlying Incentive Stock Option;
(ii) the SAR amount may be for no more than one hundred percent (100%) of the
difference between the exercise price of the underlying Incentive Stock Option
and the Fair Market Value of the Stock subject to the underlying Incentive Stock
Option at the time the SAR is exercised; and (iii) the SAR may be exercised only
when the Fair Market Value of the Stock subject to the Incentive Stock Option
exceeds the exercise price of the Incentive Stock Option.
7.3. EXERCISE OF SARS IN ADDITION TO OPTIONS. SARs granted in addition to
Options shall be deemed to be exercised upon the exercise of the related
Options. The deemed exercise of SARs granted in addition to Options shall not
necessitate a reduction in the number of related Options.
7.4. EXERCISE OF SARS INDEPENDENT OF OPTIONS. Subject to Section 3.8 herein
and Section 7.5 herein, SARs granted independently of Options may be exercised
upon whatever terms and conditions the Committee, in its sole discretion,
imposes upon the SARs, including, but not limited to, a corresponding
proportional reduction in previously granted Options.
7.5. PAYMENT OF SAR AMOUNT. Upon exercise of the SAR, the holder shall be
entitled to receive payment of an amount determined by multiplying:
(a) The difference between the Fair Market Value of a Share on the date of
exercise over the Exercise Price; by
(b) The number of Shares with respect to which the SAR is exercised.
7.6. FORM AND TIMING OF PAYMENT. Payment to a Participant, upon SAR
exercise, will be made in cash or stock, at the discretion of the Committee,
within ten (10) calendar days of the exercise.
7.7. TERM OF SAR. The term of an SAR granted under the Plan shall not
exceed ten (10) years.
7.8. TERMINATION. In the event the employment of an Employee, or an Outside
Director's service on the Board, is terminated by reason of death, disability,
retirement, voluntarily, for cause, or any other reason, the exercisability of
any outstanding SAR granted in lieu of or in addition to an Option shall
terminate in the same manner as its related Option as specified under Sections
6.8, 6.9, 6.10, and 6.11 herein. The exercisability of any outstanding SARs
granted independent of Options also shall terminate in the manner provided under
Sections 6.8, 6.9, 6.10, and 6.11 hereof.
7.9. NONTRANSFERABILITY OF SARS. No SAR granted under the Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated,
otherwise than by will or by the laws of descent and distribution. Further, all
SARs granted to a Participant under the Plan shall be exercisable during his
lifetime only by such Participant.
ARTICLE 8. RESTRICTED STOCK
8.1. GRANT OF RESTRICTED STOCK. Subject to the terms and provisions of the
Plan, the Committee, at any time and from time to time, may grant Shares of
Restricted Stock under the Plan to such Participants and in such amounts as it
shall determine. In the case of Covered Employees, the Committee may condition
the vesting or lapse of the Period of Restriction established pursuant to
Section 8.3 upon the attainment of one or more of the performance goals utilized
for purposes of Performance Units and Performance Shares pursuant to Article 9
hereof. It is contemplated that Restricted Stock grants will be made only in
extraordinary situations of performance, promotion, retention, or recruitment.
8.2. RESTRICTED STOCK AGREEMENT. Each Restricted Stock grant shall be
evidenced by a Restricted Stock Agreement that shall specify the Period of
Restriction, or periods, the number of Shares of Restricted Stock granted, and
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such other provisions as the Committee shall determine.
8.3. TRANSFERABILITY. Except as provided in this Article 8 or in Section
3.8 herein, the Shares of Restricted Stock granted hereunder may not be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated until the
termination of the applicable Period of Restriction or for such period of time
as shall be established by the Committee and as shall be specified in the
Restricted Stock Agreement, or upon earlier satisfaction of other conditions
(including any performance goals) as specified by the Committee in its sole
discretion and set forth in the Restricted Stock Agreement. All rights with
respect to the Restricted Stock granted to a Participant under the Plan shall be
exercisable during his lifetime only by such Participant.
8.4. OTHER RESTRICTIONS. The Committee shall impose such other restrictions
on any Shares of Restricted Stock granted pursuant to the Plan as it may deem
advisable including, without limitation, restrictions under applicable Federal
or state securities laws, and the Committee may legend certificates representing
Restricted Stock to give appropriate notice of such restrictions.
8.5. CERTIFICATE LEGEND. In addition to any legends placed on certificates
pursuant to Section 8.4 herein, each certificate representing Shares of
Restricted Stock granted pursuant to the Plan shall bear the following legend:
"The sale or other transfer of the shares of stock represented by this
certificate, whether voluntary, involuntary, or by operation of law,
is subject to certain restrictions on transfer set forth in the 2000
Stock Plan of eB2B Commerce, Inc., in the rules and administrative
procedures adopted pursuant to such Plan, and in a Restricted Stock
Agreement dated __________. A copy of the Plan, such rules and
procedures, and such Restricted Stock Agreement may be obtained from
the Chief Financial Officer of eB2B Commerce, Inc."
8.6. REMOVAL OF RESTRICTIONS. Except as otherwise provided in this Article,
Shares of Restricted Stock covered by each Restricted Stock grant made under the
Plan shall become freely transferable by the Participant after the last day of
the Period of Restriction. Once the Shares are released from the restrictions,
the Participant shall be entitled to have the legend required by Section 8.4 or
Section 8.5 removed from his Stock certificate.
8.7. VOTING RIGHTS. During the Period of Restriction, Participants holding
Shares of Restricted Stock granted hereunder may exercise full voting rights
with respect to those Shares.
8.8. DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of Restriction,
Participants holding Shares of Restricted Stock granted hereunder shall be
entitled to receive all dividends and other distributions paid with respect to
those Shares while they are so held. If any such dividends or distributions are
paid in Shares, the Shares shall be subject to the same restrictions on
transferability as the Shares of Restricted Stock with respect to which they
were paid.
8.9. TERMINATION DUE TO RETIREMENT. In the event that the employment of an
Employee, or an Outside Director's service on the Board, is terminated due to
retirement, any remaining Period of Restriction applicable to the Restricted
Stock pursuant to Section 8.3 hereof shall automatically terminate and, except
as otherwise provided in Section 8.4, Section 8.5, or Section 3.8 hereof, the
Shares of Restricted Stock shall thereby be free of restrictions and be freely
transferable. In the event that an Employee terminates his employment with the
Company because of early retirement (as defined under the then established rules
of the Company, as the case may be), the Committee in its sole discretion
(subject to Section 3.8 herein) may waive the restrictions remaining on any or
all Shares of Restricted Stock pursuant to Section 8.3 herein and add such new
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restrictions to those Shares of Restricted Stock as it deems appropriate.
8.10. TERMINATION DUE TO DEATH OR DISABILITY. In the event that the
employment of an Employee, or an Outside Director's service on the Board, is
terminated because of death or disability (as defined under the then established
rules of the Company, as the case may be) during the Period of Restriction, any
remaining Period of Restriction applicable to the Restricted Stock pursuant to
Section 8.3 herein shall automatically terminate and, except as otherwise
provided in Section 8.4. herein, the shares of Restricted Stock shall thereby be
free of restrictions and be fully transferable.
8.11. TERMINATION FOR OTHER REASONS. In the event that the employment of an
Employee, or an Outside Director's service on the Board, is terminated for any
reason other than for death, disability, or retirement, as set forth in Sections
8.9 and 8.10 herein, during the Period of Restriction, then any shares of
Restricted Stock still subject to restrictions as of the date of such
termination shall automatically be forfeited and returned to the Company;
provided, however, that in the event of an involuntary termination of the
employment of an Employee, or an Outside Director's service on the Board, by the
Company other than for Cause, the Committee, in its sole discretion (subject to
Section 3.8 herein), may waive the automatic forfeiture of any or all such
Shares and may add such new restrictions to such Shares of Restricted Stock as
it deems appropriate.
ARTICLE 9. PERFORMANCE UNITS AND PERFORMANCE SHARES
9.1. GRANT OF PERFORMANCE UNITS OR PERFORMANCE SHARES. Subject to the terms
and provisions of the Plan, Performance Units or Performance Shares may be
granted to Participants at any time and from time to time as shall be determined
by the Committee. The Committee shall have complete discretion in determining
the number of Performance Units or Performance Shares granted to each
Participant.
9.2. VALUE OF PERFORMANCE UNITS AND PERFORMANCE SHARES. The Committee shall
set performance goals over certain periods to be determined in advance by the
Committee ("Performance Periods"). Prior to each grant of Performance Units or
Performance Shares, the Committee shall establish an initial value for each
Performance Unit and an initial number of Shares for each Performance Share
granted to each Participant for that Performance Period. Prior to each grant of
Performance Units or Performance Shares, the Committee also shall set the
performance goals that will be used to determine the extent to which the
Participant receives a payment of the value of the Performance Units or number
of Shares for the Performance Shares awarded for such Performance Period. These
goals will be based on the attainment, by the Company, of certain objective
performance measures, which includes, but is not limited to one or more of the
following: total shareholder return, return on equity, return on capital,
earnings per share, market share, stock price, sales, costs, net income, cash
flow, and retained earnings. Such performance goals also may be based upon the
attainment of specified levels of performance of the Company under one or more
of the measures described above relative to the performance of other
corporations. With respect to each such performance measure utilized during a
Performance Period, the Committee shall assign percentages to various levels of
performance which shall be applied to determine the extent to which the
Participant shall receive a payout of the values of Performance Units and number
of Performance Shares awarded. With respect to Covered Employees, all
performance goals shall be objective performance goals satisfying the
requirements for "performance-based compensation" within the meaning of Section
162(m)(4) of the Code, and shall be set by the Committee within the time period
prescribed by Section 162(m) of the Code and related regulations.
9.3. PAYMENT OF PERFORMANCE UNITS AND PERFORMANCE SHARES. After a
Performance Period has ended, the holder of a Performance Unit or Performance
Share shall be entitled to receive the value thereof as determined by the
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Committee. The Committee shall make this determination by first determining the
extent to which the performance goals set pursuant to Section 9.2 have been met.
It will then determine the applicable percentage (which may exceed one hundred
percent (100%)) to be applied to, and will apply such percentage to, the value
of Performance Units or number of Performance Shares to determine the payout to
be received by the Participant. In addition, with respect to Performance Units
and Performance Shares granted to any Covered Employee, no payout shall be made
hereunder except upon written certification by the Committee that the applicable
performance goal or goals have been satisfied to a particular extent. The
maximum amount payable in cash to any Covered Employee with respect to any
Performance Period pursuant to any Performance Unit or Performance Share award
shall be five hundred thosand dollars ($500,000), and the maximum number of
Shares that may be issued to any Covered Employee with respect to any
Performance Period pursuant to any Performance Unit or Performance Share award
is two hundred and fifty thousand (250,000) (subject to adjustment as provided
in Section 4.3).
9.4. COMMITTEE DISCRETION TO ADJUST AWARDS. Subject to Section 3.2
regarding Awards to Covered Employees, the Committee shall have the authority to
modify, amend or adjust the terms and conditions of any Performance Unit award
or Performance Share award, at any time or from time to time, including but not
limited to the performance goals.
9.5. FORM AND TIMING OF PAYMENT. The payment described in Section 9.3
herein shall be made in cash, Stock, or a combination thereof as determined by
the Committee. Payment may be made in a lump sum or installments as prescribed
by the Committee. If any payment is to be made on a deferred basis, the
Committee may provide for the payment of dividend equivalents or interest during
the deferral period. Any stock issued in payment of a Performance Unit or
Performance Share shall be subject to the restrictions on transfer in Section
3.8 herein.
9.6. TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR RETIREMENT. In
the case of death, disability, or retirement (each of disability and retirement
as defined under the established rules of the Company, as the case may be), the
holder of a Performance Unit or Performance Share shall receive a prorated
payment based on the Participant's number of full months of service during the
Performance Period, further adjusted based on the achievement of the performance
goals during the entire Performance Period, as computed by the Committee.
Payment shall be made at the time payments are made to Participants who did not
terminate service during the Performance Period.
9.7. TERMINATION FOR OTHER REASONS. In the event that the employment of an
Employee, or an Outside Director is terminated for any reason other than death,
disability, or retirement, all Performance Units and Performance Shares shall be
forfeited; provided, however, that in the event of an involuntary termination of
the employment of an Employee or an Outside Director's service on the Board, is
by the Company other than for Cause, the Committee in its sole discretion may
waive the automatic forfeiture provisions and pay out on a prorata basis.
9.8. NONTRANSFERABILITY. No Performance Units or Performance Shares granted
under the Plan may be sold, transferred, pledged, assigned, or otherwise
alienated or hypothecated, otherwise than by will or by the laws of descent and
distribution until the termination of the applicable Performance Period. All
rights with respect to Performance Units and Performance Shares granted to a
Participant under the Plan shall be exercisable during his lifetime only by such
Participant.
ARTICLE 10. BENEFICIARY DESIGNATION
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively and
who may include a trustee under a will or living trust) to whom any benefit
under the
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Plan is to be paid in case of his death before he receives any or all
of such benefit. Each designation will revoke all prior designations by the same
Participant, shall be in a form prescribed by the Committee, and will be
effective only when filed by the Participant in writing with the Committee
during his lifetime. In the absence of any such designation or if all designated
beneficiaries predecease the Participant, benefits remaining unpaid at the
Participant's death shall be paid to the Participant's estate.
ARTICLE 11. RIGHTS OF EMPLOYEES AND OUTSIDE DIRECTORS
11.1. EMPLOYMENT. Nothing in the Plan shall interfere with or limit in any
way the right of the Company to terminate any Employee's employment at any time,
nor confer upon any Employee any right to continue in the employ of the Company.
11.2. PARTICIPATION. No Employee or Outside Director shall have a right to
be selected as a Participant, or, having been so selected, to be selected again
as a Participant.
11.3. NO IMPLIED RIGHTS; RIGHTS ON TERMINATION OF SERVICE. Neither the
establishment of the Plan nor any amendment thereof shall be construed as giving
any Participant, beneficiary, or any other person any legal or equitable right
unless such right shall be specifically provided for in the Plan or conferred by
specific action of the Committee in accordance with the terms and provisions of
the Plan. Except as expressly provided in this Plan, neither the Company shall
be required or be liable to make any payment under the Plan, and to the extent
that any Participant's service, namely an individual consultant, is terminated
under circumstances not provided for under the Plan, the termination provisions
for such Awards will be stipulated in the Participant's award agreement under
Section 3.7 herein.
11.4. NO RIGHT TO COMPANY ASSETS. Neither the Participant nor any other
person shall acquire, by reason of the Plan, any right in or title to any
assets, funds or property of the Company whatsoever including, without limiting
the generality of the foregoing, any specific funds, assets, or other property
which the Company, in its sole discretion, may set aside in anticipation of a
liability hereunder. Any benefits which become payable hereunder shall be paid
from the general assets of the Company. The Participant shall have only a
contractual right to the amounts, if any, payable hereunder unsecured by any
asset of the Company. Nothing contained in the Plan constitutes a guarantee by
the Company that the assets of the Company shall be sufficient to pay any
benefit to any person.
ARTICLE 12. CHANGE IN CONTROL
12.1. STOCK BASED AWARDS. Notwithstanding any other provisions of the Plan,
in the event of a Change in Control, all Stock based awards granted under this
Plan shall immediately vest one hundred percent (100%) in each Participant
(subject to Section 3.8 herein), including Incentive Stock Options, Nonqualified
Stock Options, Stock Appreciation Rights, and Restricted Stock.
12.2. PERFORMANCE BASED AWARDS. Notwithstanding any other provisions of the
Plan, in the event of a Change in Control, all performance based awards granted
under this Plan shall be immediately paid out in cash, including Performance
Units and Performance Shares. The amount of the payout shall be based on the
higher of: (i) the extent, as determined by the Committee, to which performance
goals, established for the Performance Period then in progress have been met up
through and including the effective date of the Change in Control or (ii) one
hundred percent (100%) of the value on the date of grant of the Performance
Units or number of Performance Shares.
ARTICLE 13. AMENDMENT, MODIFICATION, AND TERMINATION
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13.1. AMENDMENT, MODIFICATION, AND TERMINATION. At any time and from time
to time, the Board may terminate, amend, or modify the Plan. However, without
the approval of the stockholders of the Company if required by the Code, by the
insider trading rules of Section 16 of the Exchange Act, by any national
securities exchange or system on which the Stock is then listed or reported, or
by any regulatory body having jurisdiction with respect hereto, no such
termination, amendment, or modification may:
(a) Increase the total amount of Stock which may be issued under this
plan, except as provided in Section 4.3 herein; or
(b) Change the class of Employees eligible to participate in the Plan; or
(c) Materially increase the cost of the Plan or materially increase the
benefits to Participants; or
(d) Extend the maximum period after the date of grant during which Options
or Stock Appreciation Rights may be exercised.
13.2. AWARDS PREVIOUSLY GRANTED. No termination, amendment or modification
of the Plan other than pursuant to Section 4.3 hereof shall in any manner
adversely affect any Award theretofore granted under the Plan, without the
written consent of the Participant.
ARTICLE 14. WITHHOLDING
14.1. TAX WITHHOLDING. The Company shall have the power and the right to
deduct or withhold, or require a Participant to remit to the Company, an
applicable amount sufficient to satisfy Federal, state and local taxes
(including the Participant's FICA obligation) required by law to be withheld
with respect to any grant, exercise, or payment made under or as a result of
this Plan.
14.2. STOCK DELIVERY OR WITHHOLDING. With respect to withholding required
upon the exercise of Nonqualified Stock Options, or upon the lapse of
restrictions on Restricted Stock, Participants may elect, subject to the
approval of the Committee, to satisfy the withholding requirement, in whole or
in part, by tendering to the Company shares of previously acquired Stock or by
having the Company withhold Shares of Stock (cashless exercise), in each such
case in an amount having a Fair Market Value equal to the amount required to be
withheld to satisfy the minimum tax withholding obligations described in
Section 14.1. The value of the Shares to be tendered or withheld is to be based
on the Fair Market Value of the Stock on the date that the amount of tax to be
withheld is to be determined. All Stock withholding elections shall be
irrevocable and made in writing, signed by the Participant on forms approved
by the Committee in advance of the day that the transaction becomes taxable.
Stock withholding elections made by Participants who are subject to the
short-swing profit restrictions of Section 16 of the Exchange Act must comply
with the additional restrictions of Section 16 and Rule 16b-3 in making their
elections.
ARTICLE 15. SUCCESSORS
All obligations of the Company under the Plan, with respect to Awards
granted hereunder, shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation or otherwise, of all or substantially all of the business
and/or assets of the Company.
ARTICLE 16. REQUIREMENTS OF LAW
16.1. REQUIREMENTS OF LAW. The granting of Awards and the issuance of
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Shares of Stock under this Plan shall be subject to all applicable laws, rules,
and regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
16.2. GOVERNING LAW. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of New
Jersey.
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Appendix G
DYNAMICWEB ENTERPRISES, INC.
PROXY FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 18, 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 the Ramada Inn, located at 38 Two Bridges Road, Fairfield, New Jersey,
on Tuesday, April 18, 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 BY INTERNET/TELPHONE
24 HOURS A DAY, 7 DAYS A WEEK
<TABLE>
<CAPTION>
INTERNET TELEPHONE MAIL
- -------- --------- ----
<S> <C> <C>
Go to the website address: - Call the toll-free number - Mark, sign and date your proxy
[_______] [________] from any touch- card.
tone telephone.
- - Have your proxy card - Detach your proxy card.
ready - Have your proxy card ready.
- Return your proxy card in the
- - Enter your control - Enter your control number postage-paid envelope provided
number printed in the printed in the box below. or return it to: [___________]
box below.
- Follow the simple recorded
- - Follow the simple instructions to record your
instructions that appear vote.
on your computer screen
to record your vote
- - DO NOT mail your - DO NOT mail your vote if
vote if you are voting you are voting by telephone.
by internet.
</TABLE>
- --------------------------------------------------------------------------------
YOUR CONTROL NUMBER IS: [_________]
- --------------------------------------------------------------------------------
G-1
<PAGE>
A [X] Please mark your votes as in this example.
FOR AGAINST ABSTAIN
1. Approval of the Agreement and Plan of
Merger, dated December 1, 1999, as
amended by Amendment No. 1, dated
February 29, 2000, by and between the
Company and eB2B Commerce, Inc. --------- -------- ----------
("eB2B").
2. Approval of the proposal to amend and
restate the Company's certificate of
incorporation to change the name of the
Company, to increase the number of
authorized shares of capital stock, to
authorize the creation of a new series
of preferred stock and to eliminate --------- -------- ----------
certain anti-takeover provisions.
3. Adoption of the 2000 Stock Option Plan. --------- -------- ----------
4. 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.
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 and 3 and the Proxies will use their discretion with
respect to any matters referred to in item 4.
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):____________________ ______________________ DATED: ________, 2000
(Signature if jointly)
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.
G-2
<PAGE>
DYNAMICWEB AND eB2B COMMERCE
RELEASE MERGER RELATED NEWS
- - - - -
SPECIAL MEETING OF SHAREHOLDERS SCHEDULED FOR APRIL 18, 2000
FAIRFIELD, N.J., March 8, 2000 -- DynamicWeb(TM) Enterprises, Inc. (OTC Bulletin
Board: DWEB), a leading provider of Internet business-to-business services that
facilitate e-business between buyers and sellers of direct goods, and eB2B
Commerce, Inc. (eB2B.com), a premier provider of business-to-business e-commerce
solutions, today announced the following:
DynamicWeb's Board of Directors has set April 18, 2000 as the date for the
Special Meeting of Shareholders, and March 21, 2000 as the record date for
shareholders entitled to notice of and to vote at the Special Meeting. At
the Special Meeting, the shareholders will be asked to approve the merger
with eB2B.com and related items.
The companies have recently agreed to modify the terms of the merger
agreement to provide for a fixed exchange ratio of 2.66:1. Accordingly, the
Company will issue 2.66 fully-diluted shares of DynamicWeb common stock for
each fully-diluted share of eB2B.com common stock.
eB2B.com has successfully completed the acquisition of Netlan Enterprises,
Inc. (Netlan). Over the past 14 years, Netlan has provided computing and
business solutions to companies undertaking technology-driven business
transformation. Netlan provides both Internet applications development
services, as well as computer-based technology training.
(more)
In connection with the acquisition, the shareholders of Netlan received an
aggregate of 122,180 shares of eB2B.com's common stock in exchange for all
of the outstanding shares of Netlan stock. "The synergies between eB2B.com
and Netlan are clear," said eB2B.com's Chief Executive Officer, Peter J.
Fiorillo. "The combination of eB2B.com's business-to-business capabilities
with Netlan's application development capabilities give us the technological
skills necessary to remain at the cutting edge of B2B solutions within our
markets."
eB2B.com has retained McKinsey & Company to assist with the integration of
eB2B.com and DynamicWeb, and to provide guidance toward formulating a
unified strategy for the combined company.
Steve Vanechanos, Jr., the Company's current CEO, has decided not to remain
with the combined company as the Chief Technology Officer, as originally
anticipated. He will however be retained by the Company as a consultant. In
addition, Mr. Vanechanos will not remain as a member of the Board of
Directors of the combined company after the merger. "We regret his decision
not to stay on as CTO, however, we look forward to his continued
800 Second Avenue Tel 212 682 6300 E-mail [email protected]
New York, NY 10017 Fax 212 697 0910 www.ksca.com
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DYNAMICWEB/2
involvement with the Company as a consultant. His advice and years of
experience should serve the Company well," said Peter Fiorillo, Chief
Executive Officer of eB2B.com.
eB2B.com has appointed Barry Goldstein as Chief Information Officer and
Victor Cisario as Chief Financial Officer and Treasurer.
- Mr. Goldstein joins eB2B.com from Kurt Salmon Associates, where he spent
the past two years as a senior manager leading their e-commerce consulting
practice with an emphasis on retail clients. Prior to his joining Kurt
Salmon Associates, Mr. Goldstein spent eight years with Panasonic Company
and served his last three years as Vice President of Information
Technology. Mr. Goldstein also worked for Ernst & Young as a Manager in
their information technology consulting practice. Mr. Fiorillo commented,
"Barry's extensive background in e-commerce operations, specifically his
experience in the retail sector, is an excellent fit with our
organization." Mr. Goldstein holds a Bachelor of Science degree from
Columbia University and an M.B.A. from Harvard University.
- Mr. Cisario joins eB2B.com from FIND/SVP, Inc., where he spent 4 years
holding various positions, most recently as Vice President and Chief
Financial Officer. From 1992 to 1995, Mr. Cisario served as director of
finance and administration for R.J. Rudden and Associates, an energy
industry consulting firm. "I have known Victor for quite a number of years
and I am very excited about the skill-sets that he brings to eB2B. His
strong track record and deep experience in financial management,
information technologies, and sales will serve eB2B.com well," said Mr.
Fiorillo. Mr. Cisario received a B.B.A. degree from Hofstra University and
is a Certified Public Accountant in New York State.
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ABOUT eB2B.COM
eB2B.com is a premier developer and operator of business-to-business
Internet portals offering manufacturers and retailers the capability to
cost-effectively transact business, including ordering, merchandising, inventory
management, shipping, billing and customer service. Leveraging best-of-breed
technologies and open Internet standards, the company mission is to help
businesses optimize procurement and purchasing on the Internet at reasonable
cost and with little risk. For more information on eB2B.com, visit
http://www.eb2b.com.
ABOUT DYNAMICWEB ENTERPRISES
DynamicWeb Enterprises, Inc. is a leading provider of business-to-business
e-commerce services that link buyers and sellers of direct goods. The company's
Internet and outsourcing services are focused on trading partner connectivity
and buyer/seller productivity solutions that facilitate e-business transactions,
increase customer satisfaction and improve productivity within a business
trading community. For more information, visit www.dynamicweb.com.
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eB2B COMMERCE, INC. COMPLETES
$33 MILLION PRIVATE FINANCING
NEW YORK, and FAIRFIELD, N.J., December 20, 1999-- eB2B Commerce, Inc. and
DynamicWeb Enterprises, Inc. (OTCBB: DWEB) today announced that eB2B Commerce,
Inc. had completed a $33 million private financing.
The private financing was increased by eB2B from $15 million to $33
million. Previously, DynamicWeb had announced that it had entered into a formal
agreement to merge with eB2B, subject to shareholder approval and certain other
conditions. eB2B is a privately held company that is an Internet
business-to-business e-commerce enabler. DynamicWeb is also engaged in
business-to-business e-commerce.
As a result of the private offering, and upon closing of the merger,
DynamicWeb will issue the equivalent of approximately 40 million shares of its
common stock, in exchange for all of the outstanding securities of eB2B. Also,
upon completion of the merger DynamicWeb will change its name to eB2B Commerce,
Inc. Peter J. Fiorillo, Chief Executive Officer and President of eB2B, will
become Chief Executive Officer of the merged company while Steve Vanechanos,
current Chief Executive Officer of DynamicWeb, will become the Chief Technology
Officer.
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800 Second Avenue Tel 212 682 6300 E-mail [email protected]
New York, NY 10017 Fax 212 697 0910 www.ksca.com
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DYNAMICWEB/2
ABOUT eB2B
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 and billing, and customer service.
For more information on eB2B, visit their website at http://www.eb2b.com/,
http://www.eB2B.com, or contact Michael Jacobsen, Director of Corporate
Communications, at 212-868-0920 or [email protected].
ABOUT DYNAMICWEB ENTERPRISES, INC.
DynamicWeb Enterprises, Inc., is a leading provider of Internet
business-to-business e-commerce services that electronically link buyers and
sellers of direct goods. The company's Internet and outsource e-commerce
services are focused on trading partner connectivity and buyer/seller
productivity solutions. These services facilitate e-business transactions,
increase customer satisfaction, and improve productivity within a business
trading community. DynamicWeb corporate headquarters is based in Fairfield, New
Jersey. For more corporate and product information, visit the company's Web site
at http://www.dynamicweb.com/ www.dynamicweb.com.
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DYNAMICWEB AND eB2B COMMERCE, INC. EXECUTE
DEFINITIVE MERGER AGREEMENT
FAIRFIELD, NJ, December 2, 1999 -- DynamicWeb Enterprises, Inc. (OTC BB: DWEB),
an Internet business-to-business e-commerce enabler, today announced that it had
entered into a Definitive Merger Agreement with eB2B Commerce, Inc. (eB2B.com),
a privately held company also engaged in business-to-business e-commerce. The
Merger Agreement is consistent with the terms outlined in the Binding Letter
Agreement the two companies entered into on November 10 and follows completion
of due diligence by both parties. The merger is subject to certain closing
conditions including shareholder approval of both companies.
800 Second Avenue Tel 212 682 6300 E-mail [email protected]
New York, NY 10017 Fax 212 697 0910 www.ksca.com
<PAGE>
DYNAMICWEB TO MERGE WITH eB2B COMMERCE, INC.
- - - - -
$15 MILLION TO BE INFUSED IN DYNAMICWEB UPON COMPLETION OF TRANSACTION
FAIRFIELD, NJ, November 11, 1999 -- DynamicWeb Enterprises, Inc. (OTC BB: DWEB),
an Internet business-to-business e-commerce enabler, today announced that it had
entered into a binding Letter Agreement to merge with eB2B Commerce, Inc.
(eB2B.com), a privately held company also engaged in business-to-business
e-commerce. The merger is subject to customary conditions including shareholder
approval of both companies and due diligence.
In the transaction, DynamicWeb will issue the equivalent of approximately
25 million of its common shares in exchange for all of the outstanding
securities of eB2B.com. As part of the transaction, eB2B.com will infuse $15
million into the merged company upon closing of the transaction. This will
result in approximately 30 million shares outstanding in the merged company.
DynamicWeb will change its name to "eB2B Commerce, Inc." Peter J. Fiorillo, CEO
and President of eB2B.com, will become CEO and President of the merged company
while Steve Vanechanos, current CEO and President of DynamicWeb, will become the
Chief Technology Officer.
Commenting on the merger, Mr. Fiorillo stated, "eB2B.com has chosen to
merge with DynamicWeb because it saw an opportunity to leverage its internet
based business-to-business transaction processing trading networks with
DynamicWeb's existing customer base. The
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merger, together with the $15 million private placement we are currently
pursuing through Commonwealth Associates acting as Placement Agent, will enable
us to better exploit our first-to-market advantage. With DynamicWeb's
experience, resources and technology, we believe we are in a better position to
serve our existing and targeted customers."
Mr. Vanechanos stated, "The products and services developed and provided by
DynamicWeb offer a complimentary link between the thousands of retailers and
manufacturers currently pursued by eB2B.com. DynamicWeb presently utilizes
internet based EDI technology to process transactions between buyers and
sellers. I think the combined companies, with the capital to be provided by the
$15 million private placement, will be better prepared to take
800 Second Avenue Tel 212 682 6300 E-mail [email protected]
New York, NY 10017 Fax 212 697 0910 www.ksca.com
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DYNAMICWEB/2
advantage of the huge market opportunity available to process transactions
between retailers and manufacturers over the internet."
Brian Lantier, Senior Analyst at Commonwealth Associates, stated, "Small
retailers and vendors that comprise the last mile in the retail supply chain
have not yet capitalized on the many e-commerce efficiencies achieved by their
larger counterparts. Large retailers and vendors have utilized electronic data
interchange (EDI) to improve order flow and transaction processing, but the
complicated and expensive implementation of EDI systems prevented adoption of
the technology by small retailers and vendors. The merger of DynamicWeb and
eB2B.com creates a company that will enable 100% e-commerce for the entire
retail supply chain by lowering implementation costs to the price of a PC and
Internet access."
ABOUT eB2B.COM
eB2B.com 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. Through its eB2B
system, retailers and manufacturers can conduct real-time interactive business
transactions such as product ordering, inventory management, shipping and
billing, and customer service.
For more information on eB2B.com, visit their website at eB2B.com, or
contact Michael Jacobsen, Director of Corporate Communications, at 212-8680920
or [email protected].
ABOUT DYNAMICWEB ENTERPRISES, INC.:
DynamicWeb is a leading business-to-business electronic commerce enabler.
It provides Internet services and software for enabling business-to-business
electronic commerce. DynamicWeb's EDIxchangeBuy provides an Internet-based
electronic commerce solution for Fortune 1000 companies that expands EDI
participation and compliance with their suppliers, including such companies as
Southern New England Telephone, GTE Supply, Linens & Things, and Rite Aid
Corporation. DynamicWeb also provides EDIxchangeOutsource, a complete turnkey
EDI outsourcing service. For more information, visit the Company's website at
http://www.dynamicweb.com.
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DYNAMICWEB/3
Commonwealth Associates has provided the primary venture financing for
companies such as iMall, an e-commerce enabler that was acquired earlier this
year by Excite At Home for over $500 million, and Futurelink (OTC BB: FLNK), a
leading application service provider with a market capitalization over $1
billion, as well as other technology and internet companies.
