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)
NEW JERSEY 7372 22-2267658
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
DYNAMICWEB ENTERPRISES, INC.
271 ROUTE 46 WEST
BUILDING F, SUITE 209
FAIRFIELD, NEW JERSEY 07004
(973) 276-3100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
STEVEN L. VANECHANOS, JR.
CHIEF EXECUTIVE OFFICER
DYNAMICWEB ENTERPRISES, INC.
271 ROUTE 46 WEST
BUILDING F, SUITE 209
FAIRFIELD, NEW JERSEY 07004
(973) 276-3100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
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
-------------------
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.
________________________________________________________________________________
(Cover continued from previous page)
CALCULATION OF REGISTRATION FEE
===========================================================================================================
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
- -----------------------------------------------------------------------------------------------------------
Common Stock, par value $0.0001 per
share............................. 38,604,647(1) N/A $75,665,107 $19,976(3)
===========================================================================================================
(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.
[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.
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.
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.
TABLE OF CONTENTS
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
2
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
3
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
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
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
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
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
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.
FISCAL QUARTER ENDED
FISCAL YEAR ENDED SEPTEMBER 30, DECEMBER 31,
---------------------------------------------------- ---------------------------
1996*# 1997* 1998* 1999 1998 1999
------ ----- ----- ---- ---- ----
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
- ---------
* Reclassified revenue categories to conform to 1999 presentation of financial
statements.
# Reflects the consolidated financial statements of the Company and its
subsidiaries.
9
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.
NOVEMBER 6, 1998
(INCEPTION) TO YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
----------------- -----------------
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
DECEMBER 31, 1998 DECEMBER 31, 1999
----------------- -----------------
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
10
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.
YEAR ENDED
DECEMBER 31, 1999
-----------------
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)
DECEMBER 31, 1999
-----------------
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
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.
YEAR ENDED
THE COMPANY SEPTEMBER 30, 1999
- ----------- ------------------
Historical Per Common Share Data:
Net loss from continuing operations -- (basic and
diluted).............................................. $(1.81)
Book value.............................................. $0.52
YEAR ENDED
eB2B DECEMBER 31, 1999
- ---- -----------------
Historical Per Common Share Data:
Net loss from continuing operations -- (basic and
diluted).............................................. $(13.95)
Book value:............................................. $11.01
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
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
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
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
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
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
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.
17
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
20
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.
21
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.
22
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.
23
'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.
25
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
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
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.
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)
- ------------------- ---------- --------------------- ---------
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%
- ---------
(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
(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.
BENEFICIAL PERCENT OF
NAME AND ADDRESS OWNERSHIP OF COMMON
OF BENEFICIAL OWNER CAPITAL STOCK(1) STOCK (12)
- ------------------- ---------------- ----------
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)..................................................
- ---------
(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
(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.
30
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
31
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
32
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
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
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
35
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;
36
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.
37
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
38
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.
39
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.
40
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.
41
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.
42
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.
43
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.
44
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
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
46
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.
NAME AGE POSITION
- ---- --- --------
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
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
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
48
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
49
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.
50
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
BID(1)
------------------------
QUARTER ENDED HIGH LOW
- ------------- ---- ---
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
- ---------
(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.
52
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
53
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
54
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.
55
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.
56
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET(A)
DECEMBER 31, 1999
PROFORMA DYNAMICWEB
eB2B ENTERPRISES, INC.
COMMERCE, AND PROFORMA PROFORMA
INC. SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
---- ------------ ----------- ------------
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
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
57
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS(A)
YEAR ENDED DECEMBER 31, 1999
PROFORMA
eB2B DYNAMICWEB
COMMERCE, ENTERPRISES, INC. PROFORMA PROFORMA
INC. AND SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
---- ---------------- ----------- ------------
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
58
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.
59
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.
60
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.
61
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'
COMPANY BUSINESS
------- --------
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
EDIXCHANGEOUTSOURCE'sm'
COMPANY BUSINESS
------- --------
SDI Technologies Inc. Manufacturer of SoundDesign electronics
Church & Dwight Co. Inc. Manufacturer of Arm & Hammer products
The Royal Doulton Company Maker of fine china
The Swatch Company Distributor of Swatch, Longines watches
62
EDIXCHANGESUPPORT'sm'
COMPANY BUSINESS
------- --------
Nabisco Holdings Corp. Consumer goods
Toys R Us, Inc. Toy retailer
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
63
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.
64
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
65
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
66
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
67
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.
68
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*
MANUFACTURERS RETAILERS
------------- ---------
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
------- ---------
------- ---------
- ---------
* 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;
69
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.
71
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
72
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.
ANNUAL COMPENSATION LONG TERM COMPENSATION
--------------------------- --------------------------------------
SECURITIES
NAME YEAR SALARY (1) BONUS OPTIONS AWARDED UNDERLYING OPTIONS
- ---- ---- ---------- ----- --------------- ------------------
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
- ---------
(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)
74
(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.
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
------- ------------------------ --------- ---------------
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
- ---------
(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.
75
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.
76
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'.
77
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
78
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.
79
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.
80
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
84
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.
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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
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
INDEX TO FINANCIAL STATEMENTS
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
F-1
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
eB2B COMMERCE, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
DECEMBER 31,
------------------------
1998 1999
---- ----
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
--------- ------------
--------- ------------
See accompanying notes to the financial statements.
F-3
eB2B COMMERCE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
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
----------------- ----------------- -----------------
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)
--------- ------------ ------------
--------- ------------ ------------
See accompanying notes to the financial statements.
F-4
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
SERIES A SERIES B COMMON
PREFERRED STOCK PREFERRED STOCK STOCK
--------------- ------------------- -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
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
--- ---- ---------- ------ ---------- ------
--- ---- ---------- ------ ---------- ------
DEFICIT
ACCUMULATED
ADDITIONAL DURING THE
PAID-IN DEVELOPMENT
CAPITAL STAGE TOTAL
------- ----- -----
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
----------- ------------ -----------
----------- ------------ -----------
See accompanying notes to the financial statements
F-5
eB2B COMMERCE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
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
----------------- ----------------- -----------------
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
--------- ------------ ------------
--------- ------------ ------------
See accompanying notes to the financial statements
F-6
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
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:
1998 1999
---- ----
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
-------- ----------
-------- ----------
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
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
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
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 $675,000, as determined utilizing the minimum value
method.
Stock option activity for the 1998 Incentive Stock Option Plan and the
Executive Performance Equity Agreement from November 6, 1998 (inception) to
December 31, 1999, is as follows:
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
------ --------------
Outstanding at November 6, 1998
(Inception)............................................... -- -$-
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
F-11
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:
WEIGHTED-
NUMBER OF WEIGHTED- AVERAGE
EXERCISE PRICE OPTIONS CURRENTLY WEIGHTED-AVERAGE AVERAGE NUMBER EXERCISABLE
RANGE OUTSTANDING EXERCISE PRICE REMAINING LIFE EXERCISE PRICE
----- ----------- -------------- -------------- -------- -----
$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
------- -------
------- -------
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:
Net loss:
As reported............................................. $ (6,023,512)
------------
------------
Pro forma under SFAS No. 123............................ $ (6,520,162)
------------
------------
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
eB2B COMMERCE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, DECEMBER 31,
1998 1999
---- ----
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............................ $ -- $ --
-------- ----------
-------- ----------
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
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
eB2B COMMERCE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET (A)
DECEMBER 31, 1999
PROFORMA
NETLAN eB2B eB2B
ENTERPRISES, COMMERCE PROFORMA COMMERCE,
INC. INC. ADJUSTMENTS INC.
---- ---- ----------- ----
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
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
F-15
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
PROFORMA
NETLAN eB2B eB2B
ENTERPRISES, COMMERCE PROFORMA COMMERCE,
INC. INC. ADJUSTMENTS INC.
---- ---- ----------- ----
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)
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
F-16
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
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
NETLAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
------------------------
1999 1998
---- ----
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
----------- ----------
----------- ----------
See accompanying notes to consolidated financial statements.
F-19
NETLAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
--------------------------------------
1997
1999 1998 (UNAUDITED)
---- ---- -----------
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
----------- ---------- ----------
----------- ---------- ----------
See accompanying notes to consolidated financial statements.
F-20
NETLAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
CLASS A CLASS A CAPITAL RETAINED
COMMON STOCK COMMON IN EXCESS EARNINGS
------------------- STOCK OF PAR (ACCUMULATED SUBSCRIPTION
SHARES AMOUNT SUBSCRIBED VALUE DEFICIT) RECEIVABLE
------ ------ ---------- ----- -------- ----------
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) $ --
--------- ------- ----- -------- ----------- --------
--------- ------- ----- -------- ----------- --------
See accompanying notes to consolidated financial statements.
F-21
NETLAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
-------------------------------------
1999 1998 1997
---- ---- ----
(UNAUDITED)
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
----------- --------- ---------
----------- --------- ---------
See accompanying notes to consolidated financial statements.
F-22
NETLAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
---- ---- ----
(UNAUDITED)
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 $ --
-------- -------- --------
-------- -------- --------
See accompanying notes to consolidated financial statements.
F-23
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
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:
1999 1998
---- ----
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
---------- ----------
---------- ----------
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:
1999 1998
---- ----
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
-------- ----------
-------- ----------
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
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:
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
--------
--------
Scheduled future minimum aggregate payments on obligations under capital
leases are as follows:
YEAR ENDING DECEMBER 31,
- ------------------------
2000........................................................ $173,381
2001........................................................ 64,448
--------
$237,829
--------
--------
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:
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
---------
---------
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:
1998 1997
---- ----
Revenues.................................................... $4,631,000 $3,691,000
---------- ----------
---------- ----------
Income (loss) from continuing operations.................... $ (560,000) $ 105,000
---------- ----------
---------- ----------
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
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
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:
Loss from continuing operations, as reported................ $(1,698,000)
-----------
-----------
Loss from continuing operations, pro forma.................. $(1,717,000)
-----------
-----------
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
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):
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1999
-------------------------------------------------------
NETLAN
ACQUISITION
CORP.
NETLAN II INC. ('ICI') CORPORATE CONSOLIDATED
-------------- ------- --------- ------------
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
------ ------ ---- ------
------ ------ ---- ------
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1998
-------------------------------------------------------
NETLAN
ACQUISITION
CORP.
NETLAN II INC. ('ICI') CORPORATE CONSOLIDATED
-------------- ------- --------- ------------
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
------ ------ ------ ------
------ ------ ------ ------
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------
NETLAN
ACQUISITION
CORP.
NETLAN II INC. ('ICI') CORPORATE CONSOLIDATED
-------------- ------- --------- ------------
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
------ ------ ------ ------
------ ------ ------ ------
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
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:
YEAR ENDING
DECEMBER 31,
------------
2000............................................ $297,200
2001............................................ 194,200
--------
$491,400
--------
--------
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
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
EXHIBIT
NUMBER TITLE
- ------- -----
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).
II-1
EXHIBIT
NUMBER TITLE
- ------ -----
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).
II-2
EXHIBIT
NUMBER TITLE
- ------ -----
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.*
II-3
EXHIBIT
NUMBER TITLE
- ------ -----
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.'*
- ---------
* 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
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
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.
SIGNATURE TITLE DATE
--------- ----- ----
/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
II-6
STATEMENT OF DIFFERENCES
------------------------
The service mark symbol shall be expressed as.......................... 'sm'
The dagger symbol shall be expressed as................................ 'D'